UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITES
EXCHANGE ACT OF 1934
(No Fee Required)
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
For the Transition Period from __________ to __________
Commission File Number 0-10436
L. B. FOSTER COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1324733
(State of Incorporation) (I.R.S. Employer Identification No.)
415 Holiday Drive, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 928-3417
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
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 or this Form 10-K or any amendment to this
Form 10-K. [x]
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
The aggregate market value on March 16, 2000 of the voting stock held by
nonaffiliates of the Company was $42,103,229. Indicate the number of shares
outstanding of each of the registrant's classes of common stock as of the latest
practicable date.
Class Outstanding at March 16, 2000
Common Stock, Par Value $.01 9,599,106 Shares
Documents Incorporated by Reference:
Portions of the Proxy Statement prepared for the 2000 annual meeting of
stockholders are incorporated by reference in Items 10, 11, 12 and 13 of Part
III.
<PAGE>
PART I
ITEM 1. BUSINESS
Summary Description of Businesses
L. B. Foster Company is engaged in the manufacture, fabrication and distribution
of products that serve the nation's surface transportation infrastructure. As
used herein, "Foster" or the "Company" means L. B. Foster Company and its
divisions and subsidiaries, unless the context otherwise requires.
For rail markets, Foster provides a full line of new and used rail, trackwork,
and accessories to railroads, mines and industry. The Company also designs and
produces concrete ties, bonded rail joints, power rail, track fasteners,
coverboards, signaling and communication devices, and special accessories for
mass transit and other rail systems.
For the construction industry, the Company sells and rents steel sheet piling
and H-bearing pile for foundation and earth retention requirements. In addition,
Foster supplies bridge decking, expansion joints, overhead sign structures,
mechanically stabilized earth wall systems and other products for highway
construction and repair.
For tubular markets, the Company supplies pipe coatings for pipelines and
utilities. The Company produces pipe-related products for special markets,
including water wells and irrigation.
The Company classifies its activities into three business segments: rail
products, construction products, and tubular products. Financial information
concerning the segments is set forth in Note 20 to the financial statements
included in the Company's Annual Report to Stockholders for 1999. The following
table shows for the last three fiscal years the net sales generated by each of
the current business segments as a percentage of total net sales.
Percentage of Net Sales
1999 1998 1997
- ------------------------------------------------------------------------------
Rail Products ........................... 61% 55% 51%
Construction Products ................... 29% 24% 25%
Tubular Products ........................ 10% 21% 24%
- ------------------------------------------------------------------------------
100% 100% 100%
==============================================================================
<PAGE>
RAIL PRODUCTS
L. B. Foster Company's rail products include heavy and light rail, relay rail,
concrete ties, insulated rail joints, rail accessories, transit products and
signaling and communication devices. The Company is a major rail products
supplier to industrial plants, contractors, railroads, mines and mass transit
systems.
The Company sells heavy rail mainly to transit authorities, industrial
companies, and rail contractors for railroad sidings, plant trackage, and other
carrier and material handling applications. Additionally, the Company makes some
sales of heavy rail to railroad companies and to foreign buyers. The Company
sells light rail for mining and material handling applications.
Rail accessories include trackwork, ties, track spikes, bolts, angle bars and
other products required to install or maintain rail lines. These products are
sold to railroads, rail contractors and industrial customers and are
manufactured within the company or purchased from other manufacturers.
The Company's Allegheny Rail Products (ARP) division engineers and markets
insulated rail joints and related accessories for the railroad and mass transit
industries, worldwide. Insulated joints are made in-house and subcontracted.
The Company's Transit Products division supplies power rail, direct fixation
fastener, coverboards and special accessories primarily for mass transit
systems. Most of these products are manufactured by subcontractors and are
usually sold by sealed bid to transit authorities or to rail contractors,
worldwide.
The Company's Mining division sells new and used rail, rail accessories,
trackwork from the Pomeroy, OH plant and iron clad ties from the Watson-Haas
Lumber division in St. Mary's, WV. The Pomeroy, OH plant also produces trackwork
for industrial and export markets.
The Company's Rail Technologies subsidiary supplies rail signaling and
communication devices to North American railroads.
The Company's CXT subsidiary manufactures engineered concrete products for the
railroad and transit industries. CXT's product line includes prestressed
concrete railroad ties, grade railroad crossing panels, and precast concrete
buildings.
CONSTRUCTION PRODUCTS
L. B. Foster Company's construction products consist of sheet and bearing piling
and fabricated highway products.
Sheet piling products are interlocking structural steel sections that are
generally used to provide lateral support at construction sites. Bearing piling
products are steel H-beam sections which, in their principal use, are driven
into the ground for support of structures such as bridge piers and high-rise
buildings. Sheet piling is sold or leased and bearing piling is sold principally
to contractors and construction companies.
Other construction products consist of fabricated highway products. Fabricated
highway products consist principally of bridge decking, aluminum bridge rail,
overhead sign structures and other bridge products, which are fabricated by the
Company, as well as mechanically stabilized earth wall systems. The major
purchasers of these products are contractors for state, municipal and other
governmental projects.
<PAGE>
Sales of the Company's construction products are partly dependent upon the level
of activity in the construction industry. Accordingly, sales of these products
have traditionally been somewhat higher during the second and third quarters
than during the first and fourth quarters of each year.
TUBULAR PRODUCTS
The Company adds value to purchased tubular products by preparing them to meet
customer specifications using various fabricating processes, including the
finishing of oil country tubular goods and the welding, coating, wrapping and
lining of other pipe products.
The Company provides fusion bond and other coatings for corrosion protection on
oil, gas and other pipelines.
The Company also supplies special pipe products such as water well casing,
column pipe, couplings, and related products for agricultural, municipal and
industrial water wells.
MARKETING AND COMPETITION
L. B. Foster Company generally markets its rail, construction and tubular
products directly in all major industrial areas of the United States through a
national sales force of 52 salespeople. The Company maintains 18 sales offices
and 18 plants or warehouses nationwide. During 1999, less than 5% of the
Company's total sales were for export.
The major markets for the Company's products are highly competitive. Product
availability, quality, service and price are principal factors of competition
within each of these markets. No other company provides the same product mix to
the various markets the Company serves. There are one or more companies that
compete with the Company in each product line. Therefore, the Company faces
significant competition from different groups of companies.
RAW MATERIALS AND SUPPLIES
Most of the Company's inventory is purchased in the form of finished or
semifinished product. With the exception of relay rail which is purchased from
railroads or rail take-up contractors, the Company purchases most of its
inventory from domestic and foreign steel producers. There are few domestic
suppliers of new rail products and the Company could be adversely affected if a
domestic supplier ceased making such material available to the Company.
Additionally, the Company has not had a domestic sheet piling supplier since
March 1997. The Company has become Chaparral Steel's exclusive North American
distributor of steel sheet piling and "H" bearing pile. Shipments of "H" bearing
pile began very late in the third quarter of 1999 from Chaparral's new
Petersburg, VA facility, while current mill projections are to begin initial
test rollings of sheet piling during the second quarter of 2000. The Company
does not expect production of sheet piling in meaningful quantities until the
third quarter of 2000. See Note 18 to the consolidated financial statements for
additional information on this matter.
The Company's purchases from foreign suppliers are subject to the usual risks
associated with changes in international conditions and to United States laws
which could impose import restrictions on selected classes of products and
antidumping duties if products are sold in the United States below certain
prices.
<PAGE>
BACKLOG
The dollar amount of firm, unfilled customer orders at December 31, 1999 and
1998 by segment follows:
(in thousands) December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
Rail Products ............................ $111,078 $ 62,481
Construction Products .................... 41,842 42,542
Tubular Products ......................... 2,012 3,541
- --------------------------------------------------------------------------------
$154,932 $108,564
================================================================================
Approximately $73,000,000 of the December 31, 1999 backlog is attributable to
CXT, recently acquired as part of the rail segment. Aproximately 65% of the
December 31, 1999 backlog is expected to be shipped in 2000.
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development are negligible.
ENVIRONMENTAL DISCLOSURES
While it is not possible to quantify with certainty the potential impact of
actions regarding environmental matters, particularly for future remediation and
other compliance efforts, in the opinion of management compliance with
environmental protection laws will not have a material adverse effect on the
financial condition, competitive position, or capital expenditures of the
Company. However, the Company's efforts to comply with stringent environmental
regulations may have an adverse effect on the Company's future earnings.
EMPLOYEES AND EMPLOYEE RELATIONS
The Company has 719 employees, of whom 407 are hourly production workers and 312
are salaried employees. Approximately 233 of the hourly paid employees are
represented by unions. The Company has not suffered any major work stoppages
during the past five years and considers its relations with its employees to be
satisfactory.
Substantially all of the Company's hourly paid employees are covered by one of
the Company's noncontributory, defined benefit plans and a defined contribution
plan. Substantially all of the Company's salaried employees are covered by a
defined contribution plan.
<PAGE>
ITEM 2. PROPERTIES
The location and general description of the principal properties which are owned
or leased by L. B. Foster Company, together with the segment of the Company's
business using the properties, are set forth in the following table:
Business Lease
Location Function Acres Segment Expires
- --------------------------------------------------------------------------------
Birmingham,
Alabama Pipe coating. 32 Tubular 2002
Doraville,
Georgia Fabrication of 28 Tubular, Owned
components for Rail and
highways. Construction
Yard storage.
Niles, Ohio Rail fabrication. 35 Rail Owned
Yard storage.
Pomeroy, Ohio Trackwork manufac- 5 Rail Owned
turing.
Houston, Texas Casing, upset tub- 127 Tubular, Owned
ing, threading, Rail and
heat treating and Construction
painting. Yard
storage.
Bedford, Bridge component 10 Construction Owned
Pennsylvania fabricating plant.
Pittsburgh, Corporate Head- - Corporate 2007
Pennsylvania quarters.
Georgetown, Bridge component 11 Construction Owned
Massachusetts fabricating plant
Spokane, CXT concrete tie, 26 Rail 2003
Washington crossings and pre-
cast plants. Yard
storage.
Grand Island, CXT concrete tie 9 Rail 2003
Nebraska plant
Including the properties listed above, the Company has 18 sales offices and 18
warehouse, plant and yard facilities located throughout the country. The
Company's facilities are in good condition and the Company believes that its
production facilities are adequate for its present and foreseeable requirements.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
Stock Market Information
- ------------------------
The Company had 825 common shareholders of record on January 31, 2000. Common
stock prices are quoted daily through the National Association of Security
Dealers, Inc. in its over-the-counter NASDAQ quotation service (Symbol FSTR).
The quarterly high and low bid price quotations for common shares (which
represent prices between broker-dealers and do not include markup, markdown or
commission and may not necessarily represent actual transactions) follow:
1999 1998
Quarter High Low High Low
- --------------------------------------------------------------------------------
First $ 6 1/2 $ 4 9/16 $ 5 5/8 $ 4 3/8
- --------------------------------------------------------------------------------
Second 5 31/32 4 5/8 5 9/16 5
- --------------------------------------------------------------------------------
Third 5 15/16 4 13/16 5 7/8 4 3/8
- --------------------------------------------------------------------------------
Fourth 5 3/8 4 5/8 6 5/8 3 3/4
================================================================================
Dividends
- ---------
No cash dividends were paid on the Company's Common stock during 1999 and 1998.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(All amounts are in thousands except per share data)
Year Ended December 31,
Income Statement Data 1999 1998(1)(2) 1997(1) 1996 1995
- --------------------------------------------------------------------------------
Net sales $ 241,923 $ 219,449 $ 220,343 $ 243,071 $ 264,985
- --------------------------------------------------------------------------------
Operating profit 9,327 8,478 7,912 8,195 6,769
- --------------------------------------------------------------------------------
Income from cont-
inuing operations 4,618 5,065 3,765 3,858 5,043
Loss from discont-
inued operations,
net of tax (2,115) (688) (478)
- --------------------------------------------------------------------------------
Net income before
cumulative effect of
change in account-
ing principle 2,503 4,377 3,287 3,858 5,043
- --------------------------------------------------------------------------------
Net income 2,503 4,377 3,287 3,858 4,824
- --------------------------------------------------------------------------------
Basic earnings per common share:
Continuing operations 0.48 0.51 0.37 0.39 0.51
Discontinued opera-
tions (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
Basic earnings per common
share before
cumulative effect of
change in
accounting principle 0.26 0.44 0.32 0.39 0.51
- --------------------------------------------------------------------------------
Basic earnings per
common share 0.26 0.44 0.32 0.39 0.49
- --------------------------------------------------------------------------------
Diluted earnings per common share:
Continuing operations 0.46 0.50 0.37 0.38 0.50
Discontinued opera-
tions (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
Diluted earnings per
common share
before cumulative
effect of change
in accounting principle 0.25 0.43 0.32 0.38 0.50
- --------------------------------------------------------------------------------
Diluted earnings per
common share 0.25 0.43 0.32 0.38 0.48
================================================================================
December 31,
Balance Sheet Data 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Total assets $ 164,731 $ 119,434 $ 126,969 $ 123,004 $ 124,423
- --------------------------------------------------------------------------------
Working capital 67,737 54,604 60,096 62,675 57,859
- --------------------------------------------------------------------------------
Long-term debt 44,136 13,829 17,530 21,816 25,034
- --------------------------------------------------------------------------------
Stockholders' equity 74,650 73,494 70,527 67,181 63,173
================================================================================
(1) 1998 and 1997 were restated to reflect the classification of the Monitor
Group as a discontinued operation.
(2) In 1998, the Company recognized a pretax gain on the sale of the Fosterweld
division of the tubular segment of approximately $1,700,000, a write-down of
approximately $900,000 on a property subject to a sale negotiation, and a
provision for losses of approximately $900,000 relating to certain sign
structure contracts in the construction segment.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
(Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
1999 1998 1999 1998 1997
- --------------------------------------------------------------------------------
Net Sales:
Rail Products $42,176 $38,322 $148,296 $121,271 $112,712
Construction Products 20,469 13,697 68,666 51,870 55,923
Tubular Products 3,700 8,850 24,676 46,044 51,762
Other 27 21 285 264 (54)
- --------------------------------------------------------------------------------
Total Net Sales $66,372 $60,890 $241,923 $219,449 $220,343
================================================================================
Gross Profit:
Rail Products $ 7,092 $ 5,913 $ 21,440 $ 18,675 $ 15,025
Construction Products 3,734 2,384 12,671 9,440 9,608
Tubular Products 532 1,009 3,952 5,675 5,661
Other (339) 14 (978) (578) (652)
- --------------------------------------------------------------------------------
Total Gross Profit 11,019 9,320 37,085 33,212 29,642
- --------------------------------------------------------------------------------
Expenses:
Selling and Admin-
istrative Expenses 7,980 7,114 27,758 24,734 21,730
Interest Expense 1,072 254 3,230 1,631 2,495
Other Income (293) (198) (1,184) (1,731) (475)
- --------------------------------------------------------------------------------
Total Expenses 8,759 7,170 29,804 24,634 23,750
- --------------------------------------------------------------------------------
Income from Continuing
Operations,
Before Income Taxes 2,260 2,150 7,281 8,578 5,892
Income Tax Expense 859 932 2,663 3,513 2,127
- --------------------------------------------------------------------------------
Income from Continuing
Operations $ 1,401 $ 1,218 $ 4,618 $ 5,065 $ 3,765
Loss from Discontinued
Operations,
Net of Tax $(1,448) $ (201) $ (2,115) $ (688) $ (478)
- --------------------------------------------------------------------------------
Net Income $ (47) $ 1,017 $ 2,503 $ 4,377 $ 3,287
================================================================================
Gross Profit %:
Rail Products 16.8% 15.4% 14.5% 15.4% 13.3%
Construction Products 18.2% 17.4% 18.5% 18.2% 17.2%
Tubular Products 14.4% 11.4% 16.0% 12.3% 10.9%
Total Gross Profit % 16.6% 15.3% 15.3% 15.1% 13.5%
================================================================================
FOURTH QUARTER OF 1999 VS. FOURTH QUARTER OF 1998
The income from continuing operations for the current quarter was $1.4 million
or $0.15 per share. This compares to a 1998 fourth quarter income from
continuing operations of $1.2 million or $0.13 per share. Net sales in 1999 were
$66.4 million or 9% higher than the comparable quarter last year.
The fourth quarter of 1999 also includes a nonrecurring, non-cash charge of $1.2
million resulting from the Company's decision to classify the Monitor Group, the
Company's portable mass spectrometer segment, as a discontinued operation,
pending its sale. Fourth quarter net operating losses from the unit were $0.2
million in 1999 and 1998.
Rail products' net sales of $42.2 million increased 10% from the 1998 fourth
quarter, primarily due to sales by the recently acquired CXT Incorporated (CXT).
Construction products' net sales in the 1999 fourth quarter increased 49% from
the year earlier quarter. This increase was the result of sales generated by the
Foster Geotechnical and the Fabricated Products divisions' operations. Tubular
products' net sales declined 58% from last year's fourth quarter as a result of
closing the Company's Newport, KY pipe coating facility in September, 1998,
along with lower production volume at the Company's Birmingham, AL pipe coating
facility in the fourth quarter of 1999. Changes in net sales are primarily the
result of changes in volume rather than changes in pricing.
<PAGE>
The gross margin percentage for the total Company increased to 17% in the 1999
fourth quarter compared to 15% from the same period last year. The gross margin
percentage for the rail products segment increased to 17% from 15% primarily due
to CXT results. Construction products' gross margin percentage increased from
17% to 18% due to increased margins in fabricated products and geotechnical
units which more than offset reduced margins in piling. The gross margin
percentage for tubular products increased to 14% from 11%, in the fourth quarter
of 1999 as a result of more efficient operations at the Langfield, TX pipe
threading facility.
Selling and administrative expenses increased 12% from the same period last year
principally due to the inclusion of expenses associated with CXT operations.
Interest expense increased over the year earlier quarter due to an increase in
outstanding borrowings associated with the acquisition of CXT. The income tax
provision for the fourth quarter of 1999 was recorded at 38% compared to 43% in
the same period last year due primarily to the effect of adjustments to prior
year tax liabilities. See Note 13 to the consolidated financial statements for
more information regarding income taxes.
THE YEAR 1999 COMPARED TO THE YEAR 1998
Income from continuing operations for 1999 was $4.6 million or $0.48 per share
on net sales of $241.9 million. This compares to an income from continuing
operations of $5.1 million or $0.51 per share for 1998 on net sales of $219.4
million.
Net operating losses from the Monitor Group, classified as a discontinued
operation on December 31, 1999, were $0.9 million in 1999 versus $0.7 million in
1998.
Rail products' 1999 net sales were $148.3 million compared to $121.3 million in
1998. This 22% increase was primarily due to sales by CXT. Additionally, new
rail and transit products' increased sales volumes offset lower volumes in
Allegheny Rail Products and relay rail products' operations. Construction
products' net sales rose 32% to $68.7 million in 1999, as the Company benefitted
from an entire year of Foster Geotechnical sales, as well as increased volume of
"H" bearing pile, flat web sheet piling, and fabricated products shipments. Net
sales of tubular products declined 46% in 1999 as a result of the sale of the
Company's Fosterweld division and the closing of the Newport, KY pipe coating
facility.
The gross margin percentage for the Company was 15% in 1999 and 1998. Rail
products' gross margin percentage declined 1% from 1998, primarily due to lower
margins on certain relay rail, Allegheny Rail Products, and transit projects.
The gross profit percentage for construction products remained at approximately
18% in 1999, as improved fabricated products and geotechnical margins offset
reduced piling margins . Tubular products' gross margin percentage increased to
16% in 1999 from 12% in 1998 primarily due to more efficient operations at the
Langfield, TX pipe threading facility, and the closure of the Newport, KY coated
pipe facility.
Selling and administrative expenses for 1999 were 12% higher than in 1998. The
increase was primarily due to added expenses associated with the operation of
CXT, as well as an entire year of expenses related to the Company's geotechnical
and rail technologies operations. Interest expense rose 98% due to an increase
in outstanding borrowings, associated with the CXT acquisition. Other income in
1999 included dividend income and accrued interest on the DM&E stock owned by
the Company. The provision for income taxes in 1999 is recorded at 37% versus
41% in 1998. The decrease in the effective tax rate from 1998 is due primarily
to the effect of adjustments to prior year tax liabilities. See Note 13 to the
consolidated financial statements for more information regarding income taxes.
THE YEAR 1998 COMPARED TO THE YEAR 1997
Income from continuing operations for 1998 was $5.1 million or $0.51 per share
on net sales of $219.4 million. This compares to an income from continuing
operations of $3.8 million or $0.37 per share for 1997 on net sales of $220.3
million.
Net operating losses from the Monitor Group, classified as a discontinued
operation on December 31, 1999, were $0.7 million in 1998 versus $0.5 million in
1997.
Rail products' 1998 net sales were $121.3 million compared to $112.7 million in
1997. This 8% increase resulted primarily from higher sales volume of project
sales primarily to transit systems. Construction products' net sales declined 7%
to $51.9 million compared to $55.9 million in 1997, as the loss of sheet piling
sales more than offset increased volume brought about by an entire years' sales
of the Precise fabricating division. Net sales of tubular products declined 11%
in 1998 as a result of the sale of the Company's Fosterweld division.
The gross margin percentage for the Company in 1998 increased to 15% from 13% in
1997. Rail products' gross margin percentage increased to 15% from 13% primarily
due to higher gross margin on certain relay rail and transit projects. The gross
profit percentage for construction products increased to 18% from 17% in 1997 as
a result of high demand for a limited supply of sheet piling products and the
addition of the Foster Geotechnical division which offset losses associated with
certain catenary fabrication contracts. Tubular products' gross margin
percentage increased to 12% in 1998 from 11% in 1997 primarily due to higher
margins on coated pipe products and the effect of the suspension of operations
of the Newport, KY facility.
Selling and administrative expenses for 1998 were 14% higher than in 1997. The
increase was primarily due to added expenses associated with the operation of
the Company's Precise and Geotechnical divisions and increased incentive related
compensation associated with increased corporate profits. Interest expense
decreased 35% due to a reduction in outstanding borrowings, principally
resulting from the receipt of Fosterweld sale proceeds. Other income in 1998
included the $1.7 million gain on the sale of the Fosterweld division, the $0.9
million write down of the recorded land value at the Langfield, TX facility, and
gains on sales of other assets totaling $0.6 million. The provision for income
taxes in 1998 is recorded at 41% versus 36% in 1997. The increase in the
effective tax rate from 1997 is due primarily to the effect of adjustments to
prior year tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates internal cash flow from the sale of inventory and the
collection of accounts receivable. During 1999, the average turnover rate for
accounts receivable was lower than in 1998 due to slower collections of certain
transit and fabricated products' projects. The average turnover rate for
inventory was higher in 1999 than in 1998 primarily in coated pipe products.
Working capital at December 31, 1999 was $67.7 million compared to $54.6 million
in 1998.
The Company completed an initial 500,000 share buy-back of its common stock in
January 1999. The cost of this program which commenced in 1997, was $2.8
million. During the first quarter of 1999, the Company announced another program
to purchase up to an additional 1,000,000 shares. As of December 31, 1999,
225,298 shares had been purchased under this program at a cost of $1.3 million.
Excluding the CXT acquisition, the Company had capital expenditures, including
capital leases, of $6.5 million, in 1999. Capital expenditures in 2000,
excluding acquisitions, are expected to be approximately $4.0 million and are
anticipated to be funded by cash flow from operations.
Total revolving credit agreement borrowings at December 31, 1999, were $45.0
million, an increase of $32.7 million from the end of the prior year. At
December 31, 1999, the Company had $11.7 million in unused borrowing commitment.
Outstanding letters of credit at December 31, 1999, were $2.7 million.
Management believes its internal and external sources of funds are adequate to
meet anticipated needs.
Effective June 1999, the Company's $45.0 million revolving credit agreement was
amended and increased to $70.0 million. On December 30, 1999, the Company
reduced the revolving credit agreement to $65.8 million. The interest rate is,
at the Company's option, based on the prime rate, the domestic certificate of
deposit rate (CD rate) or the Euro-bank rate (LIBOR). The interest rates are
established quarterly based upon cash flow and the level of outstanding
borrowings to debt as defined in the agreement. Interest rates range from prime
to prime plus 0.25%, the CD rate plus 0.575% to 1.8%, LIBOR rate plus .575% to
1.8%. Borrowings under the agreement, which expires July 1, 2003, are secured by
eligible accounts receivable, inventory, and the pledge of the Company held
Dakota Minnesota & Eastern Railroad Preferred stock.
The agreement includes financial convenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio, and a maximum level for the
consolidated total indebtedness to EBITDA ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets.
DAKOTA, MINNESOTA AND EASTERN RAILROAD
The Company maintains a significant investment in the Dakota, Minnesota &
Eastern Railroad Corporation (DM&E), a privately-held, regional railroad which
operates over 1,100 miles of track in five states.
At December 31, 1998, the Company's investment in the stock was recorded at its
historical cost of $1.7 million, comprised of $0.2 million of common stock and
$1.5 million of the DM&E's Series B Preferred Stock and warrants. On January 13,
1999, the Company increased its investment in the DM&E by acquiring $6.0 million
of DM&E Series C Preferred Stock and warrants. On a fully diluted basis, the
Company owns approximately 16% of the DM&E's common stock. Although the market
value of the DM&E is not readily determinable, management believes that this
investment, regardless of the DM&E's Powder River Basin project, is worth
significantly more than its historical cost.
The DM&E announced in June 1997 that it plans to build an extension from the
DM&E's existing line into the low sulfur coal market of the Powder River Basin
in Wyoming and to rebuild approximately 600 miles of its existing track (the
Project). The DM&E also has announced that the estimated cost of this project is
$1.4 billion.
The Project is subject to approval by the Surface Transportation Board (STB). In
December 1998, the STB made a finding that the DM&E had satisfied the
transportation aspects of applicable regulations. The STB still must address the
extent and nature of the project's environmental impact and whether such impact
can be adequately mitigated. New construction on this project may not begin
until the STB reaches a final decision.
The DM&E has stated that it could repay project debt and cover its operating
costs if it captures a 5% market share in the Powder River Basin. If the Project
proves to be viable, management believes that the value of the Company's
investment in the DM&E could increase dramatically.
OTHER MATTERS
In September 1998, the Company suspended production at its Newport, KY pipe
coating facility due to unfavorable market conditions. Management intends to
dispose of the assets and has reclassified the machinery and equipment as assets
held for resale.
On June 30, 1999, the Company acquired CXT, based in Spokane, WA. CXT is a
manufacturer of engineered prestressed and precast concrete products primarily
used in the railroad and transit industries. The addition of CXT is viewed by
management as an opportunity to vertically integrate the Company's transit
products segment and to increase the Company's product offerings to Class I
railroads.
In August 1999, the Company executed an agreement to sell, subject to certain
contingencies, an undeveloped 62 acre portion of a 127 acre Houston, TX property
for approximately $2.0 million. The sale, if consummated, is expected to be
completed by the end of the first quarter of 2000 and will not have a material
impact on the Company's earnings.
The Company continues to explore the divestiture of its real estate located in
Doraville, GA, as well as its Mining division, which is comprised of facilities
and inventory located at Pomeroy, OH and St. Marys, WV.
Management continues to evaluate the overall performance of its operations. A
decision to terminate an existing operation could have a material adverse effect
on near-term earnings but would not be expected to have a material adverse
effect on the financial condition of the Company.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In January, 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission-critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The costs
associated with the installation of the year 2000 compliant release are
considered by management to be in the ordinary course of business and are not
material to its financial results.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year to ensure that any latent year 2000 matters that may arise are
addressed promptly.
OUTLOOK
Revenues from piling products declined following the closure of Bethlehem's
structural mill in April 1997 and continue to be at reduced levels as the
Company's remaining sheet piling inventory is liquidated. The Company has become
Chaparral Steel's exclusive North American distributor of steel sheet piling and
"H" bearing pile. Shipments of "H" bearing pile began very late in the third
quarter of 1999 from Chaparral's new Petersburg, VA facility, while current mill
projections are to begin initial test rollings of Z-shaped sheet piling during
the second quarter of 2000. The Company does not expect production of Z-shaped
sheet piling in meaningful quantities until the third quarter of 2000.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. At December 31, 1999, the Company had $9.7 million
committed to this supplier including inventory progress payments, a note
receivable, equipment, and other receivables, principally interest charges on
inventory progress payments. If, for any reason, this supplier is unable to
perform, the Company could experience a negative short-term effect on earnings.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on one customer for a significant portion of their business. In addition, a
substantial portion of the Company's operations is heavily dependent on
governmental funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a favorable or
unfavorable impact on the operating results of the Company. Additionally,
governmental actions concerning taxation, tariffs, the environment or other
matters could impact the operating results of the Company. The Company's
operating results may also be affected by adverse weather conditions.
Although backlog is not necessarily indicative of future operating results,
total Company backlog at December 31, 1999, was approximately $154.9 million.
The following table provides the backlog by business segment.
December 31,
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Backlog:
Rail Products
excluding CXT $ 41,685 $ 62,481 $ 51,584
CXT 69,393
Construction Products 41,842 42,542 23,284
Tubular Products
excluding Fosterweld 2,012 3,541 1,660
Fosterweld 2,295
- --------------------------------------------------------------------------------
Total Backlog $154,932 $ 108,564 $ 78,823
================================================================================
MARKET RISK AND RISK MANAGEMENT POLICIES
The Company is not subject to significant exposure to change in foreign currency
exchange rates. The Company does hedge the cash flows of the operations of its
Canadian subsidiary. The Company manages its exposures to changes in foreign
currency exchange rates on firm sales commitments by entering into foreign
currency forward contracts. The Company's risk management objective is to reduce
its exposure to the effects of changes in exchange rates on sales revenue over
the duration of the transaction.
At year end, the Company had foreign currency forward contracts to purchase
$200,000 Canadian for approximately $137,000 US.
The Company has entered into an interest rate swap agreement as the fixed rate
payor to reduce the impact of changes in interest rates on a portion of its
revolving borrowings. At December 31, 1999, the swap agreement had a notional
value of $8,000,000 at 5.48%, and expires in January 2001. The swap agreement's
floating rate is based on LIBOR. Any amount paid or received under the agreement
is recognized as an adjustment to interest expense. Neither the fair market
value of the agreement nor the interest expense adjustments associated with the
agreement has been material.
FORWARD-LOOKING STATEMENTS
Statements relating to the potential value or viability of the DM&E or the
Project, or management's belief as to such matters, are forward-looking
statements and are subject to numerous contingencies and risk factors. The
Company has based its assessments on information provided by the DM&E and has
not independently verified such information. In addition to matters mentioned
above, factors which can adversely affect the value of the DM&E, its ability to
complete the Project or the viability of the Project include the following:
labor disputes, any inability to obtain necessary environmental and governmental
approvals for the Project in a timely fashion, the expense of environmental
mitigation measures required by the Surface Transportation Board, an inability
to obtain financing for the Project, competitors' responses to the Project,
market demand for coal or electricity and changes in environmental and other
laws and regulations.
The Company wishes to caution readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements made from time to time in news releases, reports,
proxy statements, registration statements and other written communications
(including the preceding sections of this Management's Discussion and Analysis),
as well as oral statements made from time to time by representatives of the
Company. Additional delays in Chaparral's production of steel sheet piling
would, for example, have an adverse effect on the Company's performance. Except
for historical information, matters discussed in such oral and written
communications are forward-looking statements that involve risks and
uncertainties, including but not limited to general business conditions, the
availability of material from major suppliers, the impact of competition, the
seasonality of the Company's business, taxes, inflation and governmental
regulations. Sentences containing words such as "anticipates", "expects", or
"will" generally should be considered forward-looking statements.
/s/Roger F. Nejes
Roger F. Nejes
Senior Vice President
Finance and Administration
Chief Financial Officer
/s/Linda K. Patterson
Linda K. Patterson
Controller
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS (in thousands) 1999 1998
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,558 $ 874
Accounts receivable - net 53,112 47,283
Inventories 45,601 36,159
Current deferred tax assets 1,925
Other current assets 981 614
Property held for resale 2,856
- --------------------------------------------------------------------------------
Total Current Assets 106,033 84,930
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - NET 30,126 20,433
- --------------------------------------------------------------------------------
PROPERTY HELD FOR RESALE 4,203 615
- --------------------------------------------------------------------------------
OTHER ASSETS:
Goodwill and other intangibles - net 7,474 3,791
Investments 8,610 1,693
Net assets of discontinued operations 2,174
Deferred tax assets 1,720
Other assets 6,565 5,798
- --------------------------------------------------------------------------------
Total Other Assets 24,369 13,456
- --------------------------------------------------------------------------------
TOTAL ASSETS $164,731 $119,434
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,141 $ 1,098
Short-term borrowings 5,000 2,275
Accounts payable - trade 24,446 19,667
Accrued payroll and employee benefits 3,619 4,498
Current deferred tax liabilities 1,857 334
Other accrued liabilities 2,233 2,454
- --------------------------------------------------------------------------------
Total Current Liabilities 38,296 30,326
- --------------------------------------------------------------------------------
LONG-TERM DEBT 44,136 13,829
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 6,293 678
- --------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 1,356 1,107
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, issued 10,228,739 shares in 1999 and 1998 102 102
Paid-in capital 35,377 35,431
Retained earnings 42,505 40,002
Treasury stock - at cost, Common stock, 590,133 shares
in 1999 and 378,233 shares in 1998 (3,364) (2,046)
Accumlated other comprehensive income 30 5
- --------------------------------------------------------------------------------
Total Stockholders' Equity 74,650 73,494
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $164,731 $119,434
================================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR
THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
NET SALES $241,923 $219,449 $220,343
- --------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of goods sold 204,838 186,237 190,701
Selling and administrative expenses 27,758 24,734 21,730
Interest expense 3,230 1,631 2,495
Other income (1,184) (1,731) (475)
- --------------------------------------------------------------------------------
234,642 210,871 214,451
- --------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS,
BEFORE INCOME TAXES 7,281 8,578 5,892
INCOME TAX EXPENSE 2,663 3,513 2,127
- --------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 4,618 5,065 3,765
- --------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAX (2,115) (688) (478)
- --------------------------------------------------------------------------------
NET INCOME $2,503 $ 4,377 $ 3,287
================================================================================
BASIC EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS $0.48 $0.51 $ 0.37
DISCONTINUED OPERATIONS (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $0.26 $0.44 $ 0.32
================================================================================
DILUTED EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS $0.46 $0.50 $ 0.37
DISCONTINUED OPERATIONS (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $0.25 $0.43 $ 0.32
================================================================================
1998 and 1997 results have been restated to reflect the classification of the
Monitor Group segment as a discontinued operation.
See Notes to Consolidated Financial Statements.
<PAGE>
L. B. FOSTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE YEARS ENDED DECEMBER 31, 1999
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $4,618 $5,065 $3,765
Adjustments to reconcile net
income to net cash provided
by operating activities:
Deferred income taxes (133) 581 1,251
Depreciation and amortization 4,493 2,825 2,537
Loss (gain) on sale of property,
plant and equipment 76 (1,360) (112)
Change in operating assets and
liabilities:
Accounts receivable 2,243 1,766 3,471
Inventory (5,839) 3,253 787
Property held for resale (30) 261 (54)
Other current assets (208) (46) (159)
Other noncurrent assets (839) (2,673) (340)
Accounts payable - trade 544 8,394 (8,742)
Accrued payroll and employee
benefits (1,576) 1,490 (537)
Other current liabilities 862 1,731 (671)
Other liabilities 249 (1,099) 328
- --------------------------------------------------------------------------------
Net Cash Provided by
Continuing Operations 4,460 20,188 1,524
Net Cash Used by Dis-
continued Operations (1,159) (968) (620)
- --------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 3,301 19,220 904
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property,
plant and equipment 4,410 1,269 1,578
Proceeds from the sale of Fosterweld
division 7,258
Capital expenditures on property,
plant and equipment (5,001) (2,775) (2,063)
Purchase of DM&E stock (6,000) (1,500)
Acquisition of business (17,514) (3,774) (6,739)
- --------------------------------------------------------------------------------
Net Cash (Used) Provided by
Investing Activities (24,105) 1,978 (8,724)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) of revolving
credit agreement borrowings 32,725 (20,836) 9,111
Proceeds from industrial revenue bond 2,045
Exercise of stock options and
stock awards 330 412 571
Treasury share transactions (1,702) (1,808) (531)
Repayments of long-term debt (9,881) (1,293) (1,376)
- --------------------------------------------------------------------------------
Net Cash Provided (Used) by
Financing Activities 21,472 (21,480) 7,775
- --------------------------------------------------------------------------------
Effect of exchange rate changes
on cash 16
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Cash
and Cash Equivalents 684 (282) (45)
Cash and Cash Equivalents at
Beginning of Year 874 1,156 1,201
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $1,558 $ 874 $ 1,156
================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest Paid $2,376 $1,839 $2,493
================================================================================
Income Taxes Paid $2,869 $2,136 $627
================================================================================
During 1999, 1998 and 1997, the Company financed certain capital expenditures
totaling $1,502,000, $336,000 and $33,500, respectively, through the issuance of
capital leases.
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED
DECEMBER 31, 1999
Accum-
ulated
Other
Compre-
(in thousands, Common Paid-in Retained Treasury hensive
except share data) Stock Capital Earnings Stock Income Total
================================================================================
Balance,
January 1, 1997 $102 $35,276 $32,338 $(535) $67,181
================================================================================
Net Income 3,287 3,287
Other comprehensive
income net of tax:
Minimum pension lia-
bility adjustment $19 19
- --------------------------------------------------------------------------------
Comprehensive income 3,306
Exercise of options to
purchase 190,000
shares of Common stock 158 413 571
Treasury stock purchases
of 105,500 shares (531) (531)
================================================================================
Balance,
December 31, 1997 102 35,434 35,625 (653) 19 70,527
================================================================================
Net Income 4,377 4,377
Other comprehensive
income net of tax:
Foreign currency trans-
lation losses (14) (14)
- --------------------------------------------------------------------------------
Comprehensive income 4,363
Exercise of options to
purchase 93,200
shares of Common stock (3) 415 412
Treasury stock purchases
of 330,989 shares (1,808) (1,808)
================================================================================
Balance,
December 31, 1998 102 35,431 40,002 (2,046) 5 73,494
================================================================================
Net Income 2,503 2,503
Other comprehensive
income net of tax:
Foreign currency trans-
lation adjustment 25 25
- --------------------------------------------------------------------------------
Comprehensive income 2,528
Exercise of options to
purchase 39,000
shares of Common stock (54) 384 330
Treasury stock purchases
of 288,809 shares (1,702) (1,702)
================================================================================
Balance,
December 31, 1999 $102 $35,377 $42,505 $(3,364) $30 $74,650
================================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated.
The term "Company" refers to L. B. Foster Company and its subsidiaries, as the
context requires.
CASH EQUIVALENTS - The Company considers securities with maturities of three
months or less, when purchased, to be cash equivalents.
INVENTORIES - Inventories are generally valued at the lower of the last-in,
first-out (LIFO) cost or market. Approximately 14% in 1999 and 5% in 1998 of the
Company's inventory is valued at average cost or market, whichever is lower.
PROPERTY,PLANT AND EQUIPMENT - Maintenance, repairs and minor renewals are
charged to operations as incurred. Major renewals and betterments which
substantially extend the useful life of the property are capitalized. Upon sale
or other disposition of assets, the cost and related accumulated depreciation
and amortization are removed from the accounts and the resulting gain or loss,
if any, is reflected in income. Depreciation and amortization are provided on a
straight-line basis over the estimated useful lives of 30 to 40 years for
buildings and 3 to 10 years for machinery and equipment. Leasehold improvements
are amortized over 2 to 7 years which represent the lives of the respective
leases or the lives of the improvements, whichever is shorter.
GOODWILL - Goodwill represents the excess of the purchase price over the
estimated fair value of the net assets acquired. Goodwill is being amortized on
a straight-line basis over periods of 10 to 20 years. Useful life is established
at the time of acquisition based upon the estimated period of future benefit.
When factors indicate that goodwill should be evaluated for impairment, the
excess of the unamortized goodwill over the fair value determined using a
multiple of cash flows from operations will be charged to operations. Goodwill
amortization expense was $660,000, $513,000 and $178,000 in 1999, 1998 and 1997,
respectively.
INTEREST RATE AGREEMENTS - To offset exposures to changes in interest rates on
variable rate debt, the Company enters into interest rate swap agreements. The
effects of movements in interest rates on these instruments are recognized as
they occur.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE - Environmental remediation costs are
accrued when the liability is probable and costs are estimable. Environmental
compliance costs, which principally include the disposal of waste generated by
routine operations, are expensed as incurred. Capitalized environmental costs
are depreciated, when appropriate, over their useful life.
EARNINGS PER SHARE - Basic earnings per share is calculated by dividing net
income by the weighted average of common shares outstanding during the year.
Diluted earnings per share is calculated by using the weighted average of common
shares outstanding adjusted to include the potentially dilutive effect of
outstanding stock options.
REVENUE RECOGNITION - Customers are invoiced and income is recognized when
material is shipped from stock or when the Company is billed for material
shipped directly from the vendor. Gross sales are reduced by sales taxes,
discounts and freight to determine net sales.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION - The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company follows the requirements of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for stock-based compensation, and, accordingly, recognizes no
compensation expense for stock option grants.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative financial instruments and
hedging activities. In June 1999, FASB Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities: Deferral of Effective Date of the
FASB Statement No. 133," was issued. This statement delays the effective date to
all fiscal quarters of all fiscal years beginning after June 15, 2000. This
statement will be adopted by the Company in 2001 and is not expected to have a
material effect on the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION - To avoid foreign exchange exposure whenever
possible, hedging techniques are used to protect transaction costs and profits.
NOTE 2.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 and 1998 are summarized as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Trade $53,665 $47,921
Allowance for doubtful accounts (1,555) (1,438)
Other 1,002 800
- --------------------------------------------------------------------------------
$53,112 $47,283
================================================================================
The Company's customers are principally in the rail, construction and tubular
segments of the economy. As of December 31, 1999 and 1998, trade receivables,
net of allowance for doubtful accounts, from customers in these markets were as
follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Rail $33,278 $30,676
Construction 17,116 12,478
Tubular 1,716 3,329
- --------------------------------------------------------------------------------
$52,110 $46,483
================================================================================
Credit is extended on an evaluation of the customer's financial condition and
generally collateral is not required.
NOTE 3. INVENTORIES
Inventories at December 31, 1999 and 1998 are summarized as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Finished goods $28,755 $26,877
Work-in-process 13,000 7,520
Raw materials 6,298 4,546
- --------------------------------------------------------------------------------
Total inventories at current costs 48,053 38,943
================================================================================
Less:
Current cost over LIFO
stated values (1,852) (2,184)
Inventory valuation reserve (600) (600)
- --------------------------------------------------------------------------------
$45,601 $36,159
================================================================================
At December 31, 1999 and 1998, the LIFO carrying value of inventories for book
purposes exceeded the LIFO carrying value for tax purposes by approximately
$4,106,000 and $4,427,000, respectively. During 1999 and 1998, inventory
quantities were reduced resulting in a liquidation of certain LIFO inventory
layers. The majority of these quantities were carried at costs which were higher
than current purchases. The net effect of these reductions in 1999 and 1998 was
to increase cost of goods sold by $531,000 and $146,000, respectively.
NOTE 4.
PROPERTY HELD FOR RESALE
Property held for resale at December 31, 1999 and 1998 consists of the
following:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Location:
Norcross, GA $ 3,055
Houston, TX 1,511
Newport, KY 1,345
Pomeroy, OH 665
St. Marys, WV 483
Marrero, LA $ 615
- --------------------------------------------------------------------------------
Property held for resale 7,059 615
- --------------------------------------------------------------------------------
Less current portion 2,856
- --------------------------------------------------------------------------------
$ 4,203 $ 615
================================================================================
The Norcross, GA location consists of buildings and approximately 28 acres of
land, which are being underutilized in the Company's business.
In the second quarter of 1998, the Company recorded an impairment write-down to
the recorded value of the entire parcel of land at the Houston, TX location of
approximately $900,000, which was classified within Other Income on the
Consolidated Statements of Income. The impairment was determined based upon
management's estimate of fair value arising from ongoing negotiations to sell
the facility. The negotiations were not consummated; however, management
considers the estimate to continue to be an appropriate measure of fair value. A
portion of the remaining Houston property is utilized in the Company's rail,
construction and tubular operating segments.
In August 1999, the Company executed an agreement to sell, subject to certain
contingencies, an undeveloped 62-acre portion of a 127-acre Houston, TX property
for approximately $2,000,000. The sale, if consummated, is expected to be
completed by the end of the first quarter of 2000 and will not have a material
impact on the Company's earnings.
The Newport, KY location consisting of machinery and equipment was included in
the Company's coated pipe division of the tubular products segment. Due to
unfavorable market conditions, management suspended operations in September 1998
and intends to dispose of the assets. An impairment loss of $183,000 was
recorded in 1999 in anticipation of the disposal cost.
The St. Marys, WV and Pomeroy, OH locations, consisting of machinery and
equipment, buildings, land and land improvements which comprise the Company's
Mining division of the rail products segment, were determined not to meet the
Company's long-range strategic goals. The Company continues to explore the
divestiture of these assets.
The Marrero, LA location was formerly leased to a third party, but is currently
planned to be used for yard storage in the future. This land has been
reclassified to property, plant and equipment.
NOTE 5.
DISCONTINUED OPERATIONS
In the fourth quarter of 1999, the Company made the decision to classify the
Monitor Group, a developer of portable mass spectrometers, as a discontinued
operation, pending its sale. Accordingly, the operating results of the Monitor
Group, including a complete write-off of assets have been segregated from
continuing operations and reported as separate line items on the financial
statements.
The Company has restated its financial statements to reflect the operating
results of the Monitor Group as a discontinued operation, for the prior periods
presented.
Operating results, excluding corporate interest charges, from discontinued
operations are as follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $ 73 $ 26
Cost of goods sold 1,276 985 $ 565
Selling and admin-
istrative expenses 144 206 183
- --------------------------------------------------------------------------------
Operating loss (1,347) (1,165) (748)
Provision for disposal
of assets (1,984)
- --------------------------------------------------------------------------------
Loss before income taxes (3,331) (1,165) (748)
Income tax credits (1,216) (477) (270)
- --------------------------------------------------------------------------------
Loss from discontinued
operations ($2,115) ($ 688) ($ 478)
================================================================================
The asset write-off consists of the following components, in thousands:
Intangibles .................$1,764
Inventory ................... 209
Equipment ................... 11
------
$1,984
======
NOTE 6.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consists of the
following:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Land $ 3,138 $ 6,038
Improvements to land and leaseholds 4,632 4,458
Buildings 3,382 3,879
Machinery and equipment, including
equipment under capitalized
leases (see Note 14, Rental
and Lease Information) 38,877 28,558
Construction in progress 1,718 626
- --------------------------------------------------------------------------------
51,747 43,559
- --------------------------------------------------------------------------------
Less accumulated depreciation
and amortization, including
accumulated amortization of
capitalized leases (see Note
14, Rental and Lease
Information) 21,621 23,126
- --------------------------------------------------------------------------------
$30,126 $20,433
================================================================================
NOTE 7.
OTHER ASSETS AND INVESTMENTS
At December 31, 1999 and 1998, other assets include notes receivable and accrued
interest totaling $2,679,000 and $2,445,000, respectively, from investors in the
Dakota, Minnesota & Eastern Railroad Corporation (DM&E). The Company also holds
investments in the stock of the DM&E, which is recorded at its historical cost
of $7,693,000 and $1,693,000 at December 31, 1999 and 1998, respectively. This
investment is comprised of $193,000 of DM&E Common Stock, $1,500,000 of DM&E's
Series B Preferred Stock and Common Stock warrants, and $6,000,000 in DM&E
Series C Preferred Stock and warrants. The Company has accrued dividend income
on the Series B and C Preferred Stock of $872,000 and $78,750 in 1999 and 1998,
respectively. Although the market value of the investments in DM&E stock are not
readily determinable, management believes the fair value of this investment
exceeds its carrying amount.
Additionally, at December 31, 1999 and 1998, the Company has classified as
noncurrent a $2,000,000 note receivable from a major trackwork supplier (see
Note 18, Risks and Uncertainties).
NOTE 8.
BORROWINGS
Effective June 1999, the Company's $45,000,000 revolving credit agreement was
amended and increased to $70,000,000. On December 30, 1999, the Company reduced
the revolving credit agreement to $65,800,000. The interest rate is, at the
Company's option, based on the prime rate, the domestic certificate of deposit
rate (CD rate) or the Euro-bank rate (LIBOR). The interest rates are established
quarterly based upon cash flow and the level of outstanding borrowings to debt
as defined in the agreement. Interest rates range from prime, to prime plus
0.25%, the CD rate plus 0.575% to 1.8%, and the LIBOR rate plus 0.575% to 1.8%.
Borrowings under the agreement, which expires July 1, 2003, are secured by
eligible accounts receivable, inventory, and the pledge of the Company-held
Dakota, Minnesota & Eastern Railroad Corporation Preferred Stock.
The agreement includes financial covenants requiring a minimum net worth, a
minimum level for the fixed charge coverage ratio and a maximum level for the
consolidated total indebtedness to EBITDA ratio. The agreement also restricts
investments, indebtedness, and the sale of certain assets.
As of December 31, 1999, the Company was in compliance with all the agreement's
covenants. At December 31, 1999, 1998 and 1997, the weighted average interest
rate on short term borrowings was 6.78%, 6.95% and 7.06%, respectively. At
December 31, 1999, the Company had borrowed $45,000,000 under the agreement of
which $40,000,000 was classified as long-term (see Note 9). Under the agreement,
the Company had approximately $11,667,000 in unused borrowing commitment at
December 31, 1999.
NOTE 9.
LONG-TERM DEBT AND RELATED MATTERS
Long-term debt at December 31, 1999 and 1998 consists of the following:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Revolving Credit Agreement with
weighted average interest rate of
6.78% at December 31, 1999 and
6.95% at December 31, 1998,
expiring July 1, 2003 $40,000 $10,000
- --------------------------------------------------------------------------------
Lease obligations payable in
installments through 2004
with a weighted average
interest rate of 8.07% at
December 31, 1999 and
7.99% at December 31, 1998 3,232 2,882
- --------------------------------------------------------------------------------
Massachusetts Industrial Revenue
Bond with an average interest
rate of 3.53% at December 31,
1999 and 3.73% at December 31,
1998, payable March 1, 2013 2,045 2,045
- --------------------------------------------------------------------------------
45,277 14,927
Less current maturities 1,141 1,098
- --------------------------------------------------------------------------------
$44,136 $13,829
================================================================================
The $40,000,000 revolving credit borrowings included in long-term debt were
obtained under the revolving loan agreement discussed in Note 8 and are subject
to the same terms and conditions. This portion of the borrowings is classified
as long-term because the Company does not anticipate reducing the borrowings
below $40,000,000 during 2000.
The Massachusetts Industrial Revenue Bond is secured by a $2,085,000 standby
letter of credit.
The Company has entered into an interest rate swap agreement as the fixed rate
payor to reduce the impact of changes in interest rates on a portion of its
revolving borrowings. At December 31, 1999, the swap agreement had a notional
value of $8,000,000 at 5.48%, expiring in January 2001. The swap agreement's
floating rate is based on LIBOR. Any amounts paid or received under the
agreement are recognized as adjustments to interest expense. Neither the fair
market value of the agreement nor the interest expense adjustments associated
with the agreement has been material.
The maturities of long-term debt for each of the succeeding five years
subsequent to December 31, 1999 are as follows: 2000 - $1,141,000; 2001 -
$837,000; 2002 - $693,000; 2003 - $40,417,000; 2004 and after - $2,189,000.
<PAGE>
NOTE 10.
STOCKHOLDERS' EQUITY
At December 31, 1999 and 1998, and as a result of the Company's reincorporation
in Pennsylvania in May, 1998, the Company had authorized shares of 20,000,000 in
Common stock and 5,000,000 in Preferred stock. No Preferred stock has been
issued. The Common stock has a par value of $.01 per share. No par value has
been assigned to the Preferred stock.
The Company's Board of Directors authorized the purchase of up to 1,500,000
shares of its Common stock at prevailing market prices. The timing and extent of
the purchases will depend on market conditions. 1,500,000 shares represent
approximately 15% of the Company's outstanding Common stock. As of December 31,
1999, the Company had repurchased 725,298 shares at a total cost of
approximately $4,040,600.
No cash dividends on Common stock were paid in 1999, 1998, or 1997.
NOTE 11.
STOCK OPTIONS
The Company has two stock option plans currently in effect under which future
grants may be issued: The 1985 Long-Term Incentive Plan (1985 Plan) and the 1998
Long-Term Incentive Plan (1998 Plan).
The 1985 Plan, as amended and restated in March 1994, provides for the award of
options to key employees and directors to purchase up to 1,500,000 shares of
Common stock at no less than 100% of fair market value on the date of the grant.
The 1998 Plan, as amended and restated in February 1999, provides for the award
of options to key employees and directors to purchase up to 450,000 shares of
Common stock at no less than 100% of fair market value on the date of the grant.
Both Plans provide for the granting of "nonqualified options" and "incentive
stock options" with a duration of not more than ten years from the date of
grant. The Plans also provide that, unless otherwise set forth in the option
agreement, options are exercisable in installments of up to 25% annually
beginning one year from date of grant. Stock to be offered under the Plans may
be authorized from unissued Common stock or previously issued shares which have
been reacquired by the Company and held as Treasury shares. At December 31,
1999, 1998 and 1997, Common stock options outstanding under the Plans had option
prices ranging from $2.63 to $6.00, with a weighted average price of $4.24,
$3.96 and $3.71 per share, respectively.
The weighted average remaining contractual life of the stock options outstanding
for the three years ended December 31, 1999 are: 1999 - 6.3 years; 1998 - 5.9
years; and 1997 - 5.2 years.
The Option Committee of the Board of Directors which administers the Plans may,
at its discretion, grant stock appreciation rights at any time prior to six
months before an option's expiration date. Upon exercise of such rights, the
participant surrenders the exercisable portion of the option in exchange for
payment (in cash and/or Common stock valued at its fair market value) of an
amount not greater than the spread, if any, by which the average of the high and
low sales prices quoted in the Over-the-Counter Exchange on the trading day
immediately preceding the date of exercise of the stock appreciation right
exceeds the option price. No stock appreciation rights were issued or
outstanding during 1999, 1998 or 1997.
Options exercised during 1999, 1998 and 1997 totaled 39,000, 93,200 and 190,000
shares, respectively. The weighted average exercise price per share of the
options in 1999, 1998 and 1997 was $3.35, $3.31 and $3.00, respectively.
Certain information for the three years ended December 31, 1999 relative to
employee stock options is summarized as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Number of shares under Incentive Plan:
Outstanding at begin-
ning of year 967,500 858,500 944,000
Granted 135,000 215,000 141,500
Canceled (113,000) (12,800) (37,000)
Exercised (39,000) (93,200) (190,000)
- --------------------------------------------------------------------------------
Outstanding at end of year 950,500 967,500 858,500
================================================================================
Exercisable at end of year 656,875 723,875 659,250
================================================================================
Number of shares available for
future grant:
Beginning of year 5,550 182,750 287,250
================================================================================
End of year 408,550 5,550 182,750
================================================================================
The weighted average fair value of options granted at December 31, 1999, 1998,
and 1997 was $2.68, $2.40 and $2.94, respectively.
The Company has adopted the disclose-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized. Had compensation expense for the
Company's stock option plans been determined using the method required by SFAS
No. 123, the effect to the Company's net income and earnings per share would
have been reduced to the pro forma amounts that follow:
(in thousands, except
per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income from
continuing operations $4,478 $4,887 $3,726
Loss from discontinued
operations, net of tax (2,115) (688) (478)
- --------------------------------------------------------------------------------
Net income $2,363 $4,199 $3,248
================================================================================
Basic earnings per common share:
Continuing operations $ 0.46 $ 0.49 $ 0.37
Discontinued operations (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
Basic earnings per common share $ 0.24 $ 0.42 $ 0.32
================================================================================
Diluted earnings per common share:
Continuing operations $ 0.45 $ 0.49 $ 0.37
Discontinued operations (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.24 $ 0.42 $ 0.32
================================================================================
The fair value of stock options used to compute pro forma net income and
earnings per share disclosures is the estimated present value at grant date
using the Black-Sholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 6.14% , 4.77% and 6.29%; dividend yield of 0.0% for all three
years; volatility factors of the expected market price of the Company's Common
stock of .30, .31 and .38; and a weighted average expected life of the option of
ten years.
NOTE 12.
EARNINGS PER COMMON SHARE
The following table sets forth the
computation of basic and diluted earnings per common share:
(in thousands, except Years ended December 31,
per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Numerator:
Numerator for basic
and diluted earnings
per common share -
net income available
to common stockholders:
Income from continuing
operations $ 4,618 $ 5,065 $ 3,765
Loss from discontinued
operations (2,115) (688) (478)
- --------------------------------------------------------------------------------
Net income $ 2,503 $ 4,377 $ 3,287
================================================================================
Denominator:
Weighted average shares 9,664 9,988 10,122
- --------------------------------------------------------------------------------
Denominator for basic earn-
ings per common share 9,664 9,988 10,122
Effect of dilutive securities:
Contingent issuable shares
pursuant to the Company's
1998 & 1997 Bonus Plan 51 15
Employee stock options 231 205 165
- --------------------------------------------------------------------------------
Dilutive potential common
shares 282 220 165
Denominator for diluted
earnings per common
share - adjusted weighted
average shares and
assumed conversions 9,946 10,208 10,287
================================================================================
Basic earnings per common share:
Continuing operations $ 0.48 $ 0.51 $ 0.37
Discontinued operations (0.22) (0.07) (0.05)
- --------------------------------------------------------------------------------
Basic earnings per
common share $ 0.26 $ 0.44 $ 0.32
================================================================================
Diluted earnings per common share:
Continuing operations $ 0.46 $ 0.50 $ 0.37
Discontinued operations (0.21) (0.07) (0.05)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.25 $ 0.43 $ 0.32
================================================================================
Weighted average antidilutive
stock options 42 54 36
================================================================================
<PAGE>
NOTE 13.
INCOME TAXES
At December 31, 1999 and 1998 the tax benefit of net operating loss
carryforwards available for foreign and state income tax purposes was
approximately $1,063,000 and $631,000, respectively. The Company also has
alternative minimum federal tax credit carryforwards at December 31, 1999 and
1998, of approximately $430,000 and $131,000, respectively. For financial
reporting purposes, a valuation allowance of $460,000 at December 31, 1999 and
$125,000 at December 31, 1998 has been recognized to offset the deferred tax
assets related to the foreign and state income tax carryforwards. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of December 31, 1999 and 1998, are as
follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 5,537 $ 1,318
Inventories 1,154 1,272
- --------------------------------------------------------------------------------
Total deferred tax liabilities 6,691 2,590
================================================================================
Deferred tax assets:
Accounts receivables 531 533
Net operating loss
carryforwards 1,063 631
Tax credit carryforwards 430 131
Other - net 622 408
- --------------------------------------------------------------------------------
Total deferred tax assets 2,646 1,703
Valuation allowance for
deferred tax assets 460 125
- --------------------------------------------------------------------------------
Deferred tax assets 2,186 1,578
- --------------------------------------------------------------------------------
Net deferred tax liability $ (4,505) $ (1,012)
================================================================================
The valuation allowance for deferred tax assets was increased by $335,000 during
1999 and reduced by $25,000 during 1998.
Significant components of the provision for income taxes are as follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $2,746 $2,594 $ 736
State 50 338 140
- --------------------------------------------------------------------------------
Total current 2,796 2,932 876
- --------------------------------------------------------------------------------
Deferred:
Federal 8 507 1,082
Foreign 32 (106)
State (173) 180 169
- --------------------------------------------------------------------------------
Total deferred (133) 581 1,251
================================================================================
Total income tax expense $2,663 $3,513 $ 2,127
================================================================================
The reconciliation of income tax computed at statutory rates to income tax
expense (benefit) is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State income tax (2.1) 4.6 4.0
Foreign income tax 8.4 1.3
Nondeductible expenses 3.9 1.8 1.7
Prior period tax (7.0) (0.3) (3.6)
Other (0.6) (0.4)
- --------------------------------------------------------------------------------
36.6% 41.0% 36.1%
================================================================================
<PAGE>
NOTE 14.
RENTAL AND LEASE INFORMATION
The Company has capital and operating leases for certain plant facilities,
office facilities, and equipment. Rental expense for the years ended December
31, 1999, 1998, and 1997 amounted to $2,449,000, $1,885,000 and $1,801,000,
respectively. Generally, the land and building leases include escalation
clauses.
On December 30, 1999, the Company entered into a $4,200,000 sale-leaseback
transaction whereby the Company sold and leased back the assets of the Grand
Island, NE facility. The resulting lease is being accounted for as an
operating lease. There was no gain or loss recorded on the sale. The lease base
term is five years with balloon payment options at amounts approximating fair
value at the end of the base term. The interest rate for this transaction is
7.42% with escalation provisions if LIBOR exceeds 7.249%.
The following is a schedule, by year, of the future minimum payments under
capital operating leases, together with the present value of the net minimum
payments as of December 31, 1999:
Capital Operating
(in thousands) Leases Leases
- --------------------------------------------------------------------------------
Year ending December 31,
2000 $ 1,355 $ 2,723
2001 976 2,507
2002 765 2,412
2003 511 1,898
2004 and thereafter 146 2,653
- --------------------------------------------------------------------------------
Total minimum lease payments 3,753 $12,193
Less amount representing interest 521
- --------------------------------------------------------------------------------
Total present value of minimum
payment 3,232
Less current portion of such
obligations 1,141
- --------------------------------------------------------------------------------
Long-term obligations with
interest rates ranging from
3.66% to 8.86% $2,091
================================================================================
Assets recorded under capital leases are as follows:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Machinery and equipment
at cost $4,117 $6,867
Construction in progress 180
- --------------------------------------------------------------------------------
4,297 6,867
Less accumulated amortization 1,757 3,291
- --------------------------------------------------------------------------------
Net property, plant and
equipment 2,540 3,576
- --------------------------------------------------------------------------------
Machinery and equipment held
for resale, at cost 2,046
Less accumulated amortization/
valuation 843
- --------------------------------------------------------------------------------
Net property held for resale 1,203
Net prepaid expenses 121 45
- --------------------------------------------------------------------------------
Net capital lease assets $3,864 $3,621
================================================================================
NOTE 15.
ACQUISITIONS
On June 30, 1999, the Company acquired all of the outstanding stock of CXT
Incorporated, a Spokane, WA based manufacturer of engineered prestressed and
precast concrete products primarily used in the railroad and transit industries.
The purchase price of $17,514,000 has been preliminarily allocated based on the
estimated fair values of the assets acquired and liabilities assumed. This
allocation has resulted in acquired goodwill of approximately $4,221,000, which
is being amortized on a straight-line basis over twenty years. The Company
expects to finalize all purchase accounting adjustments within one year of the
acquisition, none of which is expected to be significant.
In 1998, the Company purchased assets related to the business of supplying rail
signaling and communication devices for $1,668,000. In addition, the Company
acquired the assets and patents of the Geotechnical division of VSL Corporation
for $2,100,000, plus the assumption of certain liabilities, of which $100,000
was assigned to a patent. The Geotechnical division is a leading supplier of
mechanically stabilized earth systems.
The acquisitions have been reported using the purchase method of accounting and
have been included in operations since the date of acquisition. For each
acquisition, the purchase price was allocated to the assets and liabilities
based on their estimated fair values as of the acquisition date.
<PAGE>
Cost in excess of net assets acquired is being amortized on a straight-line
basis over ten years, with the exception of CXT Incorporated. Pro forma results
of the acquisitions, excluding CXT, assuming they had been made at the beginning
of each year, would not be materially different from reported results.
Had the CXT acquisition been made at the beginning of 1998, the Company's pro
forma unaudited results would have been:
Twelve Months Ended
(in thousands, except December 31,
per share amounts) 1999 1998
- --------------------------------------------------------------------------------
Net sales $261,588 $251,553
Income from continuing
operations 4,762 4,213
Basic earnings per share
from continuing operations $0.49 $0.42
================================================================================
The unaudited pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have actually resulted had the acquisition been in effect on January 1, 1998, or
of future results of operations.
NOTE 16.
RETIREMENT PLANS
Substantially all of the Company's hourly paid employees are covered by one of
the Company's noncontributory, defined benefit plans and a defined contribution
plan. Substantially all of the Company's salaried employees are covered by a
defined contribution plan established by the Company.
The hourly plan assets consist of various mutual fund investments. The following
tables present a reconciliation of the changes in the benefit obligation, the
fair market value of the assets and the funded status of the plan, with the
accrued pension cost in other current liabilities in the Company's balance
sheets:
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
CHANGES IN BENEFIT OBLIGATION:
Benefit obligation at beginning
of year $ 2,295 $ 2,163
Service cost 77 85
Interest cost 155 147
Actuarial losses 8 8
Benefits paid (83) (108)
- --------------------------------------------------------------------------------
Benefit obligation at end
of year $ 2,452 $ 2,295
================================================================================
CHANGE TO PLAN ASSETS:
Fair value of assets at
beginning of year $ 2,287 $ 2,138
Actual return on plan assets 468 212
Employer contribution 46 45
Benefits paid (83) (108)
- --------------------------------------------------------------------------------
Fair value of assets at
end of year $ 2,718 $ 2,287
================================================================================
Funded status $ 266 $ (8)
Unrecognized actuarial gain (478) (200)
Unrecognized net transition
asset (83) (92)
Unrecognized prior service
cost 73 81
Minimum pension liability (18) (61)
- --------------------------------------------------------------------------------
Net amount recognized $ (240) $ (280)
================================================================================
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost $ (213) $ (204)
Accrued benefit liability (27) (76)
Intangible asset 18 61
Minimum pension liability (18) (61)
Accumulated other
comprehensive income
- --------------------------------------------------------------------------------
Net amount recognized $ (240) $ (280)
================================================================================
The Company's funding policy for defined benefit plans is to contribute the
minimum required by the Employee Retirement Income Security Act of 1974. Net
periodic pension costs for the three years ended December 31, 1999 are as
follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
COMPONENTS OF NET
PERIODIC BENEFIT COST:
Service cost $ 77 $ 85 $ 82
Interest cost 155 147 138
Actual return on
plan assets (468) (212) (293)
Amortization of prior
service cost (2) 7 8
Recognized actuarial gain 287 31 135
- --------------------------------------------------------------------------------
Net periodic
benefit cost $ 49 $ 58 $ 70
================================================================================
<PAGE>
An assumed discount rate of 7% and an expected rate of return on plan assets of
8% were used to measure the projected benefit obligation and develop net
periodic pension costs for the three years ended December 31, 1999.
Amounts applicable to the Company's pension plan with accumulated benefit
obligations in excess of plan assets are as follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Projected benefit obligation $ 657 $ 575 $ 531
Accumulated benefit obligation 657 575 531
Fair value of plan assets 629 499 411
================================================================================
The Company's defined contribution plan, available to substantially all salaried
employees, contains a matched savings provision that permits both pretax and
after-tax employee contributions. Participants can contribute from 2% to 15% of
their annual compensation and receive a 50% matching employer contribution on up
to 6% of their annual compensation.
Further, the plan requires an additional matching employer contribution, based
on the ratio of the Company's pretax income to equity, up to 50% of 6% of the
employees' annual compensation. Additionally, the Company contributes 1% of all
salaried employees annual compensation to the plan without regard for employee
contribution. The defined contribution plan expense was $863,000 in 1999,
$874,000 in 1998, and $756,000 in 1997.
NOTE 17.
COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to laws and regulations relating to the protection of the
environment, and the Company's efforts to comply with increasingly stringent
environmental regulations may have an adverse effect on the Company's future
earnings. In the opinion of management, compliance with the present
environmental protection laws will not have a material adverse effect on the
financial condition, competitive position, or capital expenditures of the
Company.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
At December 31, 1999, the Company had outstanding letters of credit of
approximately $2,653,000.
NOTE 18.
RISKS AND UNCERTAINTIES
The Company's future operating results may be affected by a number of factors.
The Company is dependent upon a number of major suppliers. If a supplier had
operational problems or ceased making material available to the Company,
operations could be adversely affected.
Revenues from piling products declined following the closure of Bethlehem's
structural mill in April 1997, and continue to be at reduced levels, as the
majority of the Company's sheet piling inventory has been liquidated since the
closure. The Company has become Chaparral Steel's exclusive North American
distributor of steel sheet piling and "H" bearing pile. Shipments of "H" bearing
pile began very late in the third quarter of 1999 from Chaparral's new
Petersburg, Virginia facility while current mill projections are to begin
initial test rollings of Z-shaped sheet piling during the second quarter of
2000. The Company does not expect production of Z-shaped sheet piling in
meaningful quantities until the third quarter of 2000.
The rail segment of the business depends on one source for fulfilling certain
trackwork contracts. At December 31, 1999, the Company had committed to this
supplier $9,700,000 including inventory progress payments, a note receivable,
equipment, and other receivables, principally interest charges on inventory
progress payments. If, for any reason, this supplier is unable to perform, the
Company could experience a negative short-term effect on earnings.
The Company's CXT subsidiary and Allegheny Rail Products division are dependent
on one customer for a significant portion of their business. In addition, a
substantial portion of the Company's operations are heavily dependent on
governmental funding of infrastructure projects. Significant changes in the
level of government funding of these projects could have a favorable or
unfavorable impact on the operating results of the Company. Additionally,
governmental actions concerning taxation, tariffs, the environment or other
matters could impact the operating results of the Company. The Company's
operating results may also be affected by adverse weather conditions.
<PAGE>
NOTE 19.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable, accounts
payable, short-term and long-term debt, and interest rate swap agreements.
The carrying amounts of the Company's financial instruments at December 31, 1999
approximate fair value.
NOTE 20.
BUSINESS SEGMENTS
L. B. Foster Company is organized and evaluated by product group, which is the
basis for identifying reportable segments. The Company is engaged in the
manufacture, fabrication and distribution of rail, construction and tubular
products and was previously engaged in the manufacture and distribution of
portable mass spectrometers.
The Company's rail segment provides a full line of new and used rail, trackwork
and accessories to railroads, mines and industry. The Company also designs and
produces concrete ties, bonded rail joints, power rail, track fasteners,
coverboards and special accessories for mass transit and other rail systems.
The Company's construction segment sells and rents steel sheet piling and
H-bearing pile for foundation and earth retention requirements. In addition, the
Company's Fabricated Products division sells bridge decking, heavy steel
fabrications, expansion joints, sign structures and other products for highway
construction and repair. The Company's Geotechnical division designs and
supplies mechanically-stabilized earth wall systems.
The Company's tubular segment supplies pipe coatings for pipelines and
utilities. Additionally, the Company also produces pipe-related products for
special markets, including water wells and irrigation.
The Company's portable mass spectrometer segment, the Monitor Group, was
classified as a discontinued operation on December 31, 1999. Prior period
results have been adjusted to reflect this classification (see Note 5,
Discontinued Operations).
The Company markets its products directly in all major industrial areas of the
United States primarily through a national sales force.
The following table illustrates revenues, profits, assets, depreciation/
amortization and capital expenditures of the Company by segment. Segment profit
is the earnings before income taxes. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies except that the Company accounts for inventory on a
first-in, first-out (FIFO) basis at the segment level compared to a last-in,
first-out (LIFO) basis at the consolidated level.
(in thousands) 1999
- --------------------------------------------------------------------------------
Depreci- Expend-
ation/ itures for
Net Segment Segment Amortiz- Long-Lived
Sales Profit Assets ation Assets
- --------------------------------------------------------------------------------
Rail Products $148,296 $ 4,080 $ 91,089 $ 775 $ 20,125
Construction
Products 68,666 2,296 31,786 975 3,465
Tubular
Products 24,676 1,889 8,270 772 323
- --------------------------------------------------------------------------------
Total $241,638 $ 8,265 $131,145 $ 2,522 $ 23,913
================================================================================
(in thousands) 1998
- --------------------------------------------------------------------------------
Depreci- Expend-
ation/ itures for
Net Segment Segment Amortiz- Long-Lived
Sales Profit Assets ation Assets
- --------------------------------------------------------------------------------
Rail Products $121,271 $ 6,320 $ 60,500 $ 470 $ 1,042
Construction
Products 51,870 551 26,063 667 2,022
Tubular
Products 46,044 1,698 13,437 1,043 771
- --------------------------------------------------------------------------------
Total $219,185 $ 8,569 $100,000 $ 2,180 $ 3,835
================================================================================
<PAGE>
(in thousands) 1997
- --------------------------------------------------------------------------------
Depreci- Expend-
ation/ itures for
Net Segment Segment Amortiz- Long-Lived
Sales Profit Assets ation Assets
- --------------------------------------------------------------------------------
Rail Products $112,712 $ 3,033 $ 54,894 $ 436 $ 1,214
Construction
Products 55,923 1,810 27,848 357 4,292
Tubular
Products 51,762 902 24,651 1,171 1,063
- --------------------------------------------------------------------------------
Total $220,397 $ 5,745 $107,393 $ 1,964 $ 6,569
================================================================================
Sales to any individual customer do not exceed 10% of consolidated revenues.
Sales between segments are immaterial.
Reconciliations of reportable segment net sales, profit, assets, depreciation
and amortization, and expenditures for long-lived assets to the Company's
consolidated totals are illustrated as follows (in thousands):
Net Sales 1999 1998 1997
- --------------------------------------------------------------------------------
Total for reportable segments $ 241,638 $ 219,185 $ 220,397
Other net sales 285 264 (54)
- --------------------------------------------------------------------------------
$ 241,923 $ 219,449 $ 220,343
================================================================================
Net Profit
- --------------------------------------------------------------------------------
Total for reportable segments $ 8,265 $ 8,569 $ 5,745
Adjustment of inventory to LIFO 332 426 (536)
Unallocated other income 1,184 1,731 475
Other unallocated amounts (2,500) (2,148) 208
- --------------------------------------------------------------------------------
Income from continuing operations,
before income taxes $ 7,281 $ 8,578 $ 5,892
================================================================================
Assets
- --------------------------------------------------------------------------------
Total for reportable segments $ 131,145 $ 100,000 $ 107,393
Unallocated corporate assets 27,527 13,919 12,409
LIFO and market value inventory
reserves (2,452) (2,784) (3,210)
Unallocated property, plant
and equipment 8,511 8,299 10,377
- --------------------------------------------------------------------------------
Total assets $ 164,731 $ 119,434 $ 126,969
================================================================================
Depreciation/Amortization
- --------------------------------------------------------------------------------
Total reportable for segments $ 2,522 $ 2,180 $ 1,964
Other 1,971 645 573
- --------------------------------------------------------------------------------
$ 4,493 $ 2,825 $ 2,537
================================================================================
Expenditures for Long-Lived
Assets
- --------------------------------------------------------------------------------
Total for reportable segments $ 23,913 $ 3,835 $ 6,569
Expenditures included in acqui-
sition of business (17,961) (1,069) (6,589)
Expenditures financed under
capital leases (1,386)
Expenditures included in
Property Held for Sale (30) (60) (272)
Other unallocated expenditures 465 69 2,355
- --------------------------------------------------------------------------------
$ 5,001 $ 2,775 $ 2,063
================================================================================
Approximately 98% of the Company's total net sales were to customers in North
America, and a majority of the remaining sales were to countries in Central and
South America.
All of the Company's long-lived assets are located in North America and almost
100% of those assets are located in the United States.
<PAGE>
NOTE 21.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1999 and 1998
is presented below:
(in thousands, except
per share amounts) 1999
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter(1) Quarter(1) Quarter(1)(2) Quarter(2) Total
- --------------------------------------------------------------------------------
Net sales $53,783 $58,743 $63,025 $66,372 $241,923
- --------------------------------------------------------------------------------
Gross profit $ 7,159 $ 8,945 $ 9,962 $11,019 $ 37,085
- --------------------------------------------------------------------------------
Income from cont-
inuing operations $ 694 $ 1,497 $ 1,026 $ 1,401 $ 4,618
- --------------------------------------------------------------------------------
Loss from discont-
inued operations ($ 234) ($ 259) ($ 174) ($ 1,448) ($ 2,115)
- --------------------------------------------------------------------------------
Net income/(loss) $ 460 $ 1,238 $ 852 ($ 47) $ 2,503
================================================================================
Basic earnings per common share:
From continuing
operations $ 0.07 $ 0.15 $ 0.11 $ 0.15 $ 0.48
From discontinued
operations ($ 0.02) ($ 0.03) ($ 0.02) ($ 0.15) ($ 0.22)
- --------------------------------------------------------------------------------
Basic earnings per
common share $ 0.05 $ 0.12 $ 0.09 $ 0.00 $ 0.26
================================================================================
Diluted earnings per common share:
From continuing
operations $ 0.07 $ 0.15 $ 0.11 $ 0.14 $ 0.46
From discontinued
operations ($ 0.02) ($ 0.03) ($ 0.02) ($ 0.14) ($ 0.21)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.05 $ 0.12 $ 0.09 $ 0.00 $ 0.25
================================================================================
(1) The first, second and third quarters were restated to reflect the
classification of the Monitor Group segment as a discontinued operation. (2) The
second half results reflect the June 30, 1999 acquisition of CXT, Incorporated
which accounted for the majority of the reported sales increase.
(in thousands, except
per share amounts) 1998
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter(1) Quarter(1)(2) Quarter(1)(3) Quarter(1) Total(1)
- --------------------------------------------------------------------------------
Net sales $49,341 $58,850 $50,368 $60,890 $219,449
- --------------------------------------------------------------------------------
Gross profit $ 7,309 $ 9,135 $ 7,448 $ 9,320 $ 33,212
Income from cont-
inuing operations $ 867 $ 2,106 $ 874 $ 1,218 $ 5,065
- --------------------------------------------------------------------------------
Loss from discont-
inued operations ($ 161) ($ 165) ($ 161) ($ 201) ($ 688)
- --------------------------------------------------------------------------------
Net income $ 706 $ 1,941 $ 713 $ 1,017 $ 4,377
================================================================================
Basic earnings per common share:
From continuing
operations $ 0.09 $ 0.21 $ 0.08 $ 0.13 $ 0.51
From discontinued
operations ($ 0.02) ($ 0.02) ($ 0.01) ($ 0.02) ($ 0.07)
- --------------------------------------------------------------------------------
Basic earnings per
common share $ 0.07 $ 0.19 $ 0.07 $ 0.11 $ 0.44
================================================================================
Diluted earnings per common share:
From continuing
operations $ 0.09 $ 0.21 $ 0.08 $ 0.12 $ 0.50
From discontinued
operations ($ 0.02) ($ 0.02) ($ 0.01) ($ 0.02) ($ 0.07)
- --------------------------------------------------------------------------------
Diluted earnings per
common share $ 0.07 $ 0.19 $ 0.07 $ 0.10 $ 0.43
================================================================================
(1) All quarters of 1998 were restated to reflect the classification of the
Monitor Group segment as a discontinued operation. (2) The second quarter
includes a pretax gain on the sale of the Fosterweld division of approximately
$1,700,000 and a $900,000 write-down for a property subject to a sale
negotiation. (3) The third quarter included a provision for losses relating to
certain catenary sign structure contracts of approximately $900,000.
<PAGE>
REPORT OF INDEPENDENT AUDITORS AND RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of L. B. Foster Company:
We have audited the accompanying consolidated balance sheets of L. B. Foster
Company and subsidiaries at December 31, 1999 and 1998, and the related
consolidated statements of income, cash flows and stockholders' equity for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of L. B. Foster
Company and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
January 25, 2000
To the Stockholders of L. B. Foster Company:
The management of L. B. Foster Company is responsible for the integrity of all
information in the accompanying consolidated financial statements and other
sections of the annual report. Management believes the financial statements have
been prepared in conformity with generally accepted accounting principles that
reflect, in all material respects, the substance of events and transactions, and
that the other information in the annual report is consistent with those
statements. In preparing the financial statements, management makes informed
judgments and estimates of the expected effects of events and transactions being
accounted for currently.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance that assets are safeguarded and that transactions
are executed in accordance with management's authorization and are properly
recorded to permit the preparation of financial statements in accordance with
generally accepted accounting principles. Underlying the concept of reasonable
assurance is the evaluation of the costs and benefits derived from control. This
evaluation requires estimates and judgments by the Company. The Company believes
that its internal accounting controls provide an appropriate balance between
costs and benefits.
The Board of Directors pursues its oversight role with respect to the financial
statements through the Finance and Audit Committee which is composed of outside
directors. The Finance and Audit Committee meets periodically with management,
the internal auditing department and our independent auditors to discuss the
adequacy of the internal accounting control, the quality of financial reporting
and the nature, extent and results of the audit effort. Both the internal
auditing department and the independent auditors have free access to the Finance
and Audit Committee.
/s/Lee B. Foster
Lee B. Foster II
Chairman of the Board
and Chief Executive Officer
/s/Roger F. Nejes
Roger F. Nejes
Senior Vice President
Finance and Administration
and Chief Financial Officer
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors is set forth under "Election of Directors"
in the Company's Proxy Statement for the 2000 annual meeting of stockholders
("2000 Proxy Statement"). Such information is incorporated herein by reference.
Information concerning the executive officers who are not directors of the
Company is set forth below. With respect to the period prior to August 18, 1977,
references to the Company are to the Company's predecessor, Foster Industries,
Inc.
NAME AGE POSITION
Alec C. Bloem 49 Senior Vice President - Concrete Products
Anthony G. Cipicchio 53 Vice President - Fabricated Products
William S. Cook, Jr. 58 Vice President - Strategic Planning &
Acquisitions
Paul V. Dean 68 Senior Vice President - Piling Products
Samuel K. Fisher 47 Vice President - Rail Procurement
Dean A. Frenz 56 Senior Vice President - Rail Distribution
Products
Steven L. Hart 53 Vice President - Operations
Stan L. Hasselbusch 52 President and Chief Operating Officer
David L. Minor 56 Vice President - Treasurer
Roger F. Nejes 57 Senior Vice President - Finance and
Administration and Chief Financial Officer
Henry M. Ortwein, Jr. 57 Senior Vice President - Rail Manufactured
Products
Linda K. Patterson 50 Controller
Gary E. Ryker 50 Executive Vice President - Rail Products
Robert W. Sigle 70 Vice President - Tubular Products
Linda M. Terpenning 54 Vice President - Human Resources
David L. Voltz 47 Vice President, General Counsel and
Secretary
<PAGE>
Mr. Bloem was elected Senior Vice President - Concrete Products in March 2000,
having previously served as Vice President Geotechnical and Precast Division
from October 1999, and President - Geotechnical Division from August 1998. Prior
to joining the Company in August 1998, Mr. Bloem served as Vice President- VSL
Corporation.
Mr. Cipicchio was elected Vice President - Fabricated Products in August 1998.
Mr. Cipicchio joined the Company in May 1997 and initially held the position of
Vice President - Operations. Prior to joining the Company, Mr. Cipicchio was
Vice President of Operations for Omsco Industries, a supplier of drill string
components to the oil and gas industry.
Mr. Cook was elected Vice President - Strategic Planning & Acquisitions in
October 1993. Prior to joining the Company in March 1993, Mr. Cook was President
of Cook Corporate Development, a business and financial advisory firm.
Mr. Dean was elected Senior Vice President - Piling Products in May 1998, having
previously been a Vice President since September 1987. Mr. Dean joined the
Company in 1964.
Mr. Fisher was elected Vice President - Rail Procurement in October 1997, having
previously served as Vice President - Relay Rail since October 1996. Prior to
October 1996, he served in various other capacities with the Company since his
employment in 1977.
Mr. Frenz was elected Senior Vice President - Rail Distribution Products in
August 1998. Previously Mr. Frenz served as Senior Vice President - Rail
Products from December 1996 to August 1998, Senior Vice President - Rail and
Tubular Products from September, 1995, through November, 1996, and Senior Vice
President - Product Management from October 1993 to September 1995. Mr. Frenz
joined the Company in 1966.
Mr. Hart was elected Vice President - Operations in October, 1998 having
previously served as Vice President from December 1997 to October 1998 and in a
variety of capacities prior to December 1997. Mr. Hart joined the Company in
1977.
Mr. Hasselbusch was elected President and Chief Operating Officer in March, 2000
having previously served as Executive Vice President and Chief Operating Officer
from January 1999, Vice President - Construction and Tubular Products from
December, 1996 to December 1998, Senior Vice President - Construction Products
from September 1995 to December 1996, and as Senior Vice President - Sales from
October 1993 to September 1995. Mr. Hasselbusch joined the Company in 1972.
Mr. Minor was elected Treasurer in February 1988 and was elected to the
additional office of Vice President in February 1997. Mr. Minor joined the
Company in 1983.
Mr. Nejes was elected Senior Vice President - Finance and Administration and
Chief Financial Officer in October 1993, previously having served as Vice
President - Finance and Chief Financial Officer from February 1988.
Mr. Ortwein was elected Senior Vice President - Rail Manufactured Products in
May 1998. Mr. Ortwein was Group Vice President - Rail Manufactured Products from
March 1997 to May 1998. Additionally, he served as Vice President - Rail
Manufacturing from October 1993 to March 1997. Mr. Ortwein joined the Company in
1992.
Ms. Patterson was elected Controller in February 1999, having previously served
as Assistant Controller since May 1997 and Manager of Accounting since March
1988. Prior to March 1988, she served in various other capacities with the
Company since her employment in 1977.
Mr. Ryker was elected Executive Vice President - Rail Products in March 2000.
Prior to joining the Company in March 2000, Mr. Ryker served from February 1999
as President of Motor Coils Manufacturing, a manufacturer of equipment for
locomotives, as President and Chief Executive Officer of Union Switch & Signal
Inc., a signaling company, from September 1997 to August 1998, and as Executive
Vice President of Harmon Industries, a signaling company, from April 1992 until
September 1997.
<PAGE>
Mr. Sigle was elected Vice President - Tubular Products in December 1990. Mr.
Sigle joined the Company in 1965.
Ms. Terpenning was elected Vice President - Human Resources in October 1987. Ms.
Terpenning joined the Company in 1985.
Mr. Voltz was elected Vice President, General Counsel and Secretary in December
1987. Mr. Voltz joined the Company in 1981.
Officers are elected annually at the organizational meeting of the Board of
Directors following the annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the 2000 Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Ownership of Securities by Management" and
"Principal Stockholders" in the 2000 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under "Certain Transactions" in the 2000 Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS
The following consolidated financial statements, accompanying notes and
Report of Independent Auditors in the Company's Annual Report to
Stockholders for 1999 have been included in Item 8 of this Report:
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Income For the Three Years Ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Cash Flows For the Three Years Ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 1999, 1998 and 1997.
<PAGE>
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. FINANCIAL STATEMENT SCHEDULE
Schedules for the Three Years Ended December 31, 1999, 1998 and 1997:
II - Valuation and Qualifying Accounts.
The remaining schedules are omitted because of the absence of the
conditions upon which they are required.
3. EXHIBITS
The exhibits marked with an asterisk are filed herewith. All exhibits are
incorporated herein by reference:
3.1 Restated Certificate of Incorporation as amended to date, filed
as Appendix B to the Company's April 17, 1998 Proxy Statement.
3.2 Bylaws of the Registrant, as amended to date, filed as Exhibit
3B to Form 8-K on May 21, 1997.
4.0 Rights Agreement, dated as of May 15, 1997, between L.B. Foster
Company and American Stock Transfer & Trust Company, including
the form of Rights Certificate and the Summary of Rights
attached thereto, filed as Exhibit 4A to Form 8-A dated May 23,
1997.
4.0.1 Amended Rights Agreement dated as of May 14, 1998 between L. B.
Foster Company and American Stock Transfer & Trust Company,
filed as Exhibit 4.0.1 to Form 10-Q for the quarter ended June
30, 1998.
4.1 Third Amended and Restated Loan Agreement by and among the
Registrant and Mellon Bank, N.A., PNC Bank, National Association
and First Union National Bank, dated as of June 30, 1999 and
filed as Exhibit 4.1 to Form 10-Q for the quarter ended June 30,
1999.
* 10.12 Lease between CXT Incorporated and Pentzer Development
Corporation, dated April 1, 1993.
* 10.12.1 Amendment dated March 12, 1996 to lease between CXT
Incorporated and Pentzer Corporation.
* 10.13 Lease between CXT Incorporated and Crown West Realty, L.L.C.,
dated December 20, 1996.
* 10.14 Lease between CXT Incorporated and Pentzer Development
Corporation, dated November 1, 1991.
* 10.15 Lease between CXT Incorporated and Union Pacific Railroad
Company, dated February 13, 1998.
10.16 Lease between Registrant and Greentree Building Associates for
Headquarters office, dated as of June 9, 1986, as amended to
date, filed as Exhibit 10.16 to Form 10-K for the year ended
December 31, 1988.
<PAGE>
10.16.1 Amendment dated June 19, 1990 to lease between Registrant and
Greentree Building Associates, filed as Exhibit 10.16.1 to Form
10-Q for the quarter ended June 30, 1990.
10.16.2 Amendment dated May 29, 1997 to lease between Registrant and
Greentree Building Associates, filed as Exhibit 10.16.2 to Form
10-Q for the quarter ended June 30, 1997.
10.19 Lease Between the Registrant and American Cast Iron Pipe Company
for Pipe-Coating Facility in Birmingham, Alabama dated December
11, 1991, filed as Exhibit 10.19 to Form 10-K for the year ended
December 31, 1991.
10.19.1 Amendment to Lease between the Registrant and American Cast Iron
Pipe Company for Pipe Coating Facility in Birmingham, Alabama
dated April 15, 1997, filed as Exhibit 10.19.1 to Form 10-Q for
the quarter ended March 31, 1997.
10.20 Asset Purchase Agreement, dated June 5, 1998 by and among the
Registrant and Northwest Pipe Company, filed as Exhibit 10.0 to
Form 8-K on June 18, 1998.
10.21 Stock Purchase Agreement dated June 3, 1999, by and among the
Registrant and the shareholders of CXT Incorporated, filed as
Exhibit 10.0 to Form 8-K on July 14, 1999.
10.33.2 Amended and Restated 1985 Long Term Incentive Plan, as amended
and restated February 26, 1997, filed as Exhibit 10.33.2 to Form
10-Q for the quarter ended June 30, 1997. **
10.34 Amended and Restated 1998 Long-Term Incentive Plan for Officers
and Directors, as amended and restated February 24, 1999 and
filed as Exhibit 10.34 to Form 10-K for the year ended December
31, 1998. **
10.45 Medical Reimbursement Plan, filed as Exhibit 10.45 to Form 10-K
for the year ended December 31, 1992. **
10.46 Leased Vehicle Plan, as amended to date, filed as Exhibit 10.46
to Form 10-K for the year ended December 31, 1997. **
* 10.50 L. B. Foster Company 2000 Incentive Compensation Plan. **
10.51 Supplemental Executive Retirement Plan, filed as Exhibit 10.51
to Form 10-K for the year ended December 31, 1994. **
19 Exhibits marked with an asterisk are filed herewith.
* 23.7 Consent of Independent Auditors.
* 27 Financial Data Schedule
** Identifies management contract or compensatory plan or arrangement
required to be filed as an Exhibit.
(b) Reports on Form 8-K
On July 14, 1999, the Registrant filed a Current Report on Form 8-K announcing
the June 30, 1999 purchase of all outstanding stock of CXT Incorporated.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
L. B. FOSTER COMPANY
March 28, 2000
By /s/ Lee B. Foster II
(Lee B. Foster II, Chief
Executive Officer and
Chairman of the Board)
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.
Name Position Date
- --------------------------------------------------------------------------------
By: /s/ Lee B. Foster II Chief Executive March 28, 2000
(Lee B. Foster II) Officer, Chairman of the
Board and Director
By: /s/Henry J. Massman, IV Director March 28, 2000
(Henry J. Massman, IV)
By: /s/ Roger F. Nejes Senior Vice President - March 28, 2000
(Roger F. Nejes) Finance & Administration
and Chief Financial Officer
By: /s/Linda K. Patterson Controller March 28, 2000
(Linda K. Patterson)
By: /s/John W. Puth Director March 28, 2000
(John W. Puth)
By: /s/William H. Rackoff Director March 28, 2000
(William H. Rackoff)
By: /s/ Richard L. Shaw Director March 28, 2000
(Richard L. Shaw)
<PAGE>
L. B. FOSTER COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(In Thousands)
Additions
------------------
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Other Deductions of Year
---------- ----------- ----- ---------- -------
1999
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $ 1,438 $ 180 $ - $ 63 (1) $1,555
================================================================================
Provision for de-
cline in market
value of inven-
tories $ 600 $ - $ - $ - $ 600
================================================================================
Not deducted from
assets:
Provision for
special termina-
tion benefits $ 5 $ - $ - $ - $ 5
================================================================================
Provision for
environmental
compliance &
remediation $ 329 $ 12 $ - $ 127 (2) $ 214
================================================================================
1998
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $ 1,468 $ 10 $ - $ 40 (1) $1,438
================================================================================
Provision for de-
cline in market
value of inven-
tories $ 600 $ - $ - $ - $ 600
================================================================================
Not deducted from
assets:
Provision for
special termina-
tion benefits $ 12 $ - $ - $ 7 (2) $ 5
================================================================================
Provision for
environmental
compliance &
remediation $ 284 $ 184 $ - $ 139 (2) $ 329
================================================================================
1997
Deducted from assets
to which they apply:
Allowance for
doubtful accounts $ 1,803 $ 199 $ - $ 534 (1) $1,468
================================================================================
Provision for de-
cline in market
value of inven-
tories $ 600 $ - $ - $ - $ 600
================================================================================
Not deducted from
assets:
Provision for
special termina-
tion benefits $ 22 $ 1 $ - $ 11 (2) $ 12
================================================================================
Provision for
environmental
compliance &
remediation $ 242 $ 61 $ - $ 19 (2) $ 284
================================================================================
(1) Notes and accounts receivable written off as uncollectible.
(2) Payments made on amounts accrued and reversals of accruals.
<PAGE>
Lease between
Spokane Industrial Park, A Division
Of PENTZER DEVELOPMENT CORPORATION,
A Washington corporation
Landlord
And
CXT, INCORPORATED
A Delaware corporation,
Tenant
Dated as of April 1, 1993
(Tract A BSP 88-21)
<PAGE>
TABLE OF CONTENTS PAGE
ARTICLE 1 1
Definitions
ARTICLE 2 2
Premises Leased
ARTICLE 3 2
Term
ARTICLE 4 2
Base Rent
ARTICLE 5 3
Security Deposit
ARTICLE 6 3
Use of Premises
ARTICLE 7 4
Repairs and Maintenance of Premises
ARTICLE 8 5
Hazardous Materials
ARTICLE 9 6
Taxes and Assessments
ARTICLE 10 7
Utilities
ARTICLE 11 8
Common Area Expenses
ARTICLE 12 9
All Expenses Other Than Specifically Dealt With, Audit Rights
ARTICLE 13 9
Indemnification of Landlord
ARTICLE 14 11
Insurance
ARTICLE 15 13
Limit on Landlord's Liability
ARTICLE 16 13
Defaults and Remedies
ARTICLE 17 15
Landlord's Right to Perform Tenant's Covenants
ARTICLE 18 15
Costs and Attorneys' Fees
ARTICLE 19 16
Interest on Overdue Payments
ARTICLE 20 16
No Total Payments Abatement
ARTICLE 21 16
Damage to Premises
ARTICLE 22 17
Condemnation
ARTICLE 23 17
Transfer of Tenant's Interest
ARTICLE 24 19
Subordination
ARTICLE 25 19
Surrender
ARTICLE 26 20
Holding Over
ARTICLE 27 20
Quiet Enjoyment
ARTICLE 28 21
Right of Inspection
ARTICLE 29 21
Recording
ARTICLE 30 21
Estoppel Certificates
ARTICLE 31 22
Non-waiver
ARTICLE 32 22
Authority
ARTICLE 33 23
Brokers
ARTICLE 34 23
Notices
ARTICLE 35 23
Construction
ARTICLE 36 23
Covenants to Bind and Benefit Respective Parties
ARTICLE 37 24
Sole Understanding of Parties
ARTICLE 38 24
Further Documents
ARTICLE 39 24
Venue
ARTICLE 40 24
Consultation
LEASE
This LEASE (hereinafter referred to as "the lease" or "this lease") is made
and entered into as of the lst day of April, 1993, by and between SPOKANE
INDUSTRIAL PARK, a division of PENTZER DEVELOPMENT CORPORATION, a Washington
corporation ("Landlord"), and CXT, INCORPORATED, a Delaware corporation
("Tenant").
ARTICLE 1.
Definitions
As used in this lease, the following terms are defined as follows:
1.1 "Improvements" shall mean all buildings, structures and
improvements now or hereafter situated, erected or constructed on the Property
and all personal property, equipment and trade fixtures not capable of being
removed without permanent damage to real property. Damage shall not be
considered permanent if it can be, and is, repaired by Tenant as required by
ARTICLE 25. "Existing Improvements" shall mean all Improvements situated,
erected or constructed on the Property or any part thereof as of the date
hereof. "New Improvements" shall mean all Improvements situated, erected or
constructed on the Property after the date hereof.
1.2 "Premises" shall mean the Property and the Improvements.
1.3 "Project " shall mean the following-described real property,
consisting of approximately 8,619,217 gross square feet, of which the Property
is a part:
All property located within
a) Spokane County Altered Binding Site Plan No. 87-17,
recorded in Volume 1 of Plats, page 22A, records of Spokane County, Washington;
b) Spokane County Binding Site Plan No. 88-21, recorded in
Volume 1 of Plats, page 23, records of Spokane County,
Washington; and
C) Spokane County Binding Site Plan No. 88-22, recorded in
Volume ___of Plats, page ___, records of Spokane County, Washington.
Landlord and Tenant acknowledge that a portion of the Project will not have
final binding site plan approval by Spokane County until completion of certain
Infrastructure Improvements. Pending completion of the Infrastructure
Improvements, the portion of the Project described in Section 1.3(c) of the
Lease shall be that real property described on Exhibit A attached to and made a
part of this lease.
1.4 *Property" shall mean the following-described real property,
consisting of approximately 529,254 gross square feet, and all easements,
licenses, privileges, rights and appurtenances related thereto, subject to all
easements, rights-of-way, restrictions and reservations of record:
Tract A, Spokane County Binding Site Plan No. 88-21, recorded in Volume 1
of Plats, page 23, records of Spokane County, Washington.
1.5 "Total Payment shall mean all monetary sums due from Tenant to or
for the account of Landlord during the term of this lease, including, without
limitation, all Base Rent and Additional Rent. "Base Rent" shall mean all sums
payable by Tenant under ARTICLE 4. "Additional Rent" shall mean and include
every other cost and expense which Tenant shall be obligated to pay under any
provision of this lease as well as all sums of money paid or advanced by
Landlord upon Tenant's behalf.
ARTICLE 2.
Premises Leased
2.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises, subject to all terms and conditions of this lease.
ARTICLE 3.
Term
3.1 The term of this lease shall commence April 1, 1993 and shall end on
March 31, 2003.
ARTICLE 4.
Base Rent
4.1 Tenant shall pay to Landlord Base Rent of Seventeen Thousand Five
Hundred Ten Dollars ($17,51O.OO) for each calendar month during the first year
of the lease term. On April 1, 1994 and on the first day of each April
thereafter, the monthly Base Rent payable for the succeeding year shall be
increased to equal one hundred three percent (103%) of the monthly Base Rent
payable in the immediately preceding year.
4.2 Base Rent for each calendar month shall be paid in lawful U.S.
money, at the address specified in ARTICLE 34 or such other place as Landlord
may from time to time designate in writing. Base Rent for each calendar month
shall be paid in advance on the first day of each month and without demand,
offset or deduction, except as expressly provided in this lease. Base Rent for
any portion of a calendar month at the beginning of the lease term or at the
end of the lease term shall be prorated.
<PAGE>
ARTICLE 5.
Security Deposit
5.1 Upon execution of this lease Tenant shall give to Landlord, and
thereafter within five (5) days after request shall deposit additional funds as
necessary to maintain with Landlord,
a security deposit of waived Dollars ($ waived). The security deposit shall be
held by Landlord and any interest thereon shall belong to Landlord. If Tenant
fails to make the "Total Payments" required under this Lease or defaults in
performance of its other obligations under this Lease, Landlord may use all or
pan of the security deposit to pay any such amounts in default or for payment
of any other amount which Landlord spends or becomes obligated to spend by
reason of Tenant's default, or for the payment to Landlord of any other loss or
damage which Landlord may suffer by reason of Tenant's default. Landlord shall
not be required to utilize the security deposit prior to declaring a default
under the Lease, nor shall the security deposit be a limitation on Landlord's
damages or other rights under this Lease for a payment of liquidated damages or
an advance payment of Total Payments. If Tenant shall have fully performed all
of the promises, covenants, terms and conditions of this lease and surrendered
the Premises in accordance with ARTICLE 25, the security deposit shall be
returned to Tenant within thirty (30) days after the expiration of this lease.
ARTICLE 6.
Use of Premises
6.1 The Premises shall be used for office purposes, the manufacture,
storage and distribution of pavers, concrete railroad ties, other concrete
products, and associated products, and for no other purpose without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
Landlord's withholding of consent shall not be unreasonable if based upon
increased risks posed by Tenant's use of hazardous substances.
6.2 Tenant shall not use or permit the Premises to be used for any
unlawful purpose and shall use the Premises and Improvements in accordance with
all laws, rules, regulations, ordinances and requirements now or hereafter in
effect, including, without limitation, any applicable to the generation, use,
manufacture, treatment, transportation, storage or disposal of hazardous
substances.
6.3 No change, alteration or improvement to the Improvements shall be
undertaken nor shall New Improvements be constructed without Landlord's prior
consent, which consent shall not be unreasonably withheld; provided, however,
Tenant shall not be required to obtain such consent for (i) changes,
alterations, improvements, or construction costing less than Ten Thousand
Dollars ($10,000.00) which do not affect the roof, exterior building materials,
any structural component or the primary electrical, plumbing, HVAC or other
major system of the Improvements. Tenant shall give written notice to Landlord
of any proposed change, alteration, improvement or construction requiring
consent prior to making such change, alteration, improvement or construction.
If a change, alteration, improvement or construction would involve a cost of
more than Ten Thousand Dollars ($10,000.00) or would affect the roof, exterior
building materials, any structural component or the primary electrical,
plumbing, HVAC or other major system of the Improvements, Tenant (a) shall
provide Landlord with complete plans and specifications therefor along with
Tenant's notice, and (b) shall not proceed without Landlord's prior written
consent, which shall be given or denied within fifteen (15) days after receipt
of Tenant's notice and complete plans and specifications. Landlord shall be
deemed to have consented to, and Tenant may proceed with any change,
alteration, improvement or construction for which Landlord's consent is
required, in the absence of any objection from Landlord within such fifteen
(15) day period. By written notice to Tenant, Landlord may extend the time for
granting or withholding consent to any proposed change, alteration, improvement
or construction for up to a maximum of thirty (30) additional days if necessary
due to the scope of Tenant's plans. All changes, alterations, improvements and
construction shall be at Tenant's sole cost, free of claims of lien, and shall
be performed in a good and workmanlike manner and in conformance with
applicable building codes and other laws, ordinances, rules and regulations.
6.4 Tenant shall conduct its business and control its employees,
agents, invitees and visitors in such manner as not to create any unlawful
nuisance, or unreasonably interfere with, annoy or disturb any other tenant of
the Project. Tenant shall not do anything which would cause Landlord's
insurance rates to increase unless Tenant pays the amount of such increase.
Tenant shall not do anything which is prohibited by insurance policies
maintained by Landlord or Tenant under this lease or which would cause a
cancellation of any such policies, unless substitute policies are procured,
which would permit such activities. Tenant shall pay all excess costs of such
substitute policies. Landlord shall reasonably cooperate with Tenant and
insurers in attempting to accommodate Tenant's activities, provided such
accommodation does not adversely affect Landlord or other tenants of premises
covered by Landlord's insurance policies.
6.5 Tenant shall comply with reasonable rules and regulations
promulgated from time to time by Landlord with respect to the use of common
access roads within and otherwise serving the Project, the private water and
sewer facilities, the appearance and location of signage within the Project,
and the appearance and regular maintenance of building exteriors and
landscaping within the Project. Landlord shall use good faith efforts to
uniformly enforce such rules and regulations; however, Landlord shall have no
liability for the failure of any other tenant to comply with such rules and
regulations, or for the conduct of tenants under leases predating the
promulgation of such rules and regulations.
ARTICLE 7.
Repairs and Maintenance of the Premises
7.1 Throughout the term of this lea-se, Tenant, at its sole cost,
shall keep the Premises in a habitable, safe, neat, clean and sanitary
condition, and in first class working order and repair, except as expressly set
forth otherwise in this lease. Tenant shall not cause or permit waste, damage
or injury to the Premises.
7.2 Landlord shall, within a reasonable time after written notice from
Tenant, perform all repairs to the Premises made necessary by casualty or other
loss insured against by Landlord's insurance policies described in Section 14.
1; provided, however, Tenant shall be liable for the lesser of (a) the cost of
such repairs or (b) the deductible under Landlord's insurance policy, up to a
maximum of One Thousand Dollars ($1,000.00).
7.3 Tenant shall make any and all repairs to the Premises, of any kind
or description whatsoever, made necessary by or arising out of Tenant's use and
occupancy of the Premises (excepting only (i) repairs to be performed by
Landlord pursuant to Section 7.2, and (ii) repairs made necessary by uninsured
catastrophic loss not attributable to Tenant's negligence or other fault,
including, without limitation, earthquake, flood, war and nuclear reaction),
structural or nonstructural, interior or exterior, including, without
limitation, repair or replacement of any glass as may become cracked or broken,
repair to the roof, floors, walls, sash, pipes, interior partitions and doors,
ceilings and to the heating, air conditioning and refrigeration plants,
electrical lighting, fire safety, fire sprinkler and plumbing fixtures, and to
all other fixtures, equipment and appurtenances thereto, and to the irrigation
system, parking lots, driveways and other exterior Improvements. Any such
repairs shall be performed in a good and workmanlike manner, and all items
shall be replaced with items of similar quality and first class condition.
Tenant shall make all repairs to the Premises required by federal, state,
county and city statutes, codes, ordinances and regulations. All repairs, other
than those covered by Landlord's insurance policy described in Section 14. 1,
shall be at Tenant's sole cost. Work on all repairs which Tenant is obligated
to make under this lease shall commence promptly after the need therefor
becomes known to Tenant, and Tenant shall pursue the repair work, to completion
with due diligence. Except in the case of emergency (when notice shall be given
as soon as practical), Tenant shall notify Landlord in advance of any planned
or necessary repairs to the roof, exterior building materials or structural
components or to the primary electrical, plumbing, HVAC or other major system
of the Improvements, and Landlord shall have the option of performing such
repairs at Tenant's cost; provided, however, in no event shall Tenant be
obligated to pay any costs in excess of the lowest fixed price bid received by
Tenant from a responsible licensed contractor reasonably acceptable to Landlord
to perform such repairs.
7.4 Tenant's obligations arising during the term of this lease under
this ARTICLE shall survive any termination or expiration of this lease.
ARTICLE 8.
Hazardous Materials
8.1 Tenant shall not, without prior written notice to Landlord, engage
in or allow the generation, use, manufacture, treatment, transportation,
storage or disposal of any hazardous substance in, on, under or adjacent to the
Premises. Prior to taking occupancy of the Premises, Tenant shall provide
Landlord with a description of any processes or activities involving the use of
hazardous substances to be conducted by Tenant as well as a description (by
type and amount) of any hazardous substances Tenant plans to generate, use,
manufacture, transport, store or dispose of in connection with its use of the
Premises. Tenant warrants that such description is and will be true, accurate
and complete. Tenant shall notify Landlord prior to any material changes in
such processes, activities or type and amount of hazardous substances utilized
by Tenant and in any event, Tenant shall report to Landlord at least once
yearly regarding any such processes, activities and hazardous substances.
Tenant shall contemporaneously provide Landlord with copies of all reports,
listings or other information required by any governmental entity relating to
any hazardous substances utilized by Tenant, and shall promptly provide any
other information related to Tenant's utilization of hazardous substances as
Landlord may reasonably request.
<PAGE>
8.2 Tenant shall not engage in or allow the unlawful release (from
underground tanks or otherwise) of any hazardous substance in, on, under or
adjacent to the Property (including air, surface water and groundwater on, in,
under or adjacent to the Property). Tenant shall at all times be in compliance
with all applicable law (and shall cause its employees, agents and contractors
to be) with respect to the Premises or any hazardous substance and shall handle
all hazardous substances in compliance with good industry standards and
practices. As used in this Lease, the term "hazardous substance" shall mean any
substance, chemical or waste, including any petroleum products or radioactive
substances, that is now or shall hereafter be listed, defined or regulated as
hazardous, toxic or dangerous under any applicable laws. As used in this
ARTICLE, "applicable law" shall mean any federal, state, or local laws,
ordinances, rules, regulations and requirements (including consent decrees and
administrative orders) relating to the generation, use, manufacture, treatment,
transportation, storage or disposal of any hazardous substance now or hereafter
enacted.
8.3 Tenant shall promptly notify Landlord, in writing, if Tenant has
or acquires notice or knowledge that any hazardous substance has been or is
threatened to be unlawfully released, discharged or disposed of, on, in, under
or from the Premises. Tenant shall immediately take such action as is necessary
to detain the spread of and remove, to the satisfaction of Landlord and any
governmental agency having jurisdiction, any hazardous substances released,
discharged or disposed of as the result of or in any way connected with the
conduct of Tenant's business, and which is now or is hereafter determined to be
unlawful or subject to governmentally imposed remedial requirements. Tenant
shall immediately notify Landlord and provide copies upon receipt of all
written complaints, claims, citations, demands, inquiries, reports or notices
relating to the condition of the Premises or compliance with environmental
laws. Tenant shall promptly cure and have dismissed with prejudice any such
actions or proceedings in any way connected to the conduct of Tenant's
business, to the satisfaction of Landlord, and Tenant shall keep the Premises
free of any lien imposed pursuant to any environmental law. Landlord shall have
the right at all reasonable times and from time to time to conduct
environmental audits of the Premises (including sampling, testing, monitoring
and accessing environmental records required by applicable law) by a consultant
of Landlord's choosing, and Tenant shall cooperate with the conduct of these
audits. If any violation of any applicable law by Tenant or any violation of
Tenant's obligations under this ARTICLE are discovered, in addition to any
other right Landlord may have against Tenant, the fees and expenses of such
consultant shall be borne by the Tenant and shall be paid by Tenant to Landlord
on demand.
8.4 Tenant's obligations under this ARTICLE with respect to any occurrence
during the term of this lease shall survive any termination or expiration of
this lease.
ARTICLE 9.
Taxes and Assessments
9.1 Tenant shall pay when due any and all taxes, installments of general or
special assessments (amortized over the longest permissible time), levies,
license and permit fees and other governmental charges and impositions of any
kind and nature whatsoever, together with any interest or penalties
attributable to Tenant's failure to pay the same when due, which at any time
during the term of this lease may be assessed, levied or become due and payable
out of or in respect of, or become a lien on the Premises, including, without
limitation, any sales tax, business and operation tax, excise tax or similar
tax or imposition imposed upon rent or Landlord's business of leasing property
within the Project (collectively the "Imposi6ons"); provided, however, Tenant
shall not be obligated to pay Landlord's net income taxes or any transfer or
excise tax. imposed upon the conveyance of the Premises, or business and
occupation taxes imposed upon Landlord's business activities other than leasing
property within the Project.
9.2 Impositions shall be paid by Tenant to Landlord in one or more
installments each year during the lease term, in an amount estimated by
Landlord. If Impositions are billed to Tenant based upon estimates, on or
before April 1st of each year, Landlord shall, but not less than once annually,
furnish to Tenant a statement of the actual amount of Impositions incurred.
Within thirty (30) days after receipt of such statement, Tenant shall pay
Landlord the amount by which the actual Impositions exceed estimated
Impositions paid by Tenant. If the estimated amount of Impositions paid by
Tenant exceeds the actual Impositions, such excess shall be credited against
the next Imposition payment due from Tenant. Notwithstanding the foregoing
Landlord may elect to require Tenant to pay all or some Impositions directly to
the governmental authority levying the same.
9.3 Tenant may seek a reduction in the assessed valuation of the
Premises for tax purposes and to contest in good faith by appropriate
proceedings, at Tenant's expense, the amount or validity of any tax or
assessment, provided that prior to the date when any penalties or interest may
be incurred, Tenant shall deposit with the appropriate entity making the tax or
assessment the sum contested or secure a bond in an amount sufficient to fully
satisfy the amount of any lien upon the Premises. Any bond posted shall name
Landlord as a co-obligee and shall be reasonably satisfactory, as to issuer and
form, to Landlord. Any refund allocable to the term of this lease shall belong,
to Tenant.
9.4 Tenant's obligations under this ARTICLE with regard to Impositions
arising during the term of this lease shall survive any termination or
expiration of this lease.
ARTICLE 10.
Utilities
10.1 Tenant shall pay, when due, any and all charges and fees for gas,
heat, electricity, water, sewer, garbage collection, telephone and all other
public or private utilities servicing the Premises and shall, upon request,
provide evidence of such payment. Tenant shall not be entitled to terminate
this lease or receive an abatement of rent as the result of any failure,
interruption or discontinuance of any utility service for any reason; provided
however, if such interruption or discontinuance which materially affects
Tenant's occupancy of the Premises results from the negligence of Landlord and
continues, after notice to Landlord, for a period in excess of seven (7)
business days, Total Payments shall abate until service is resumed.
10.2 Rates charged by Landlord to Tenant for utility services owned by
Landlord (upon execution of this lease, sewer and water) shall be based upon
consumption and will be the same rates charged to other tenants within the
Project.
10.3 Tenant's obligations under this ARTICLE with regard to utilities
furnished to the Premises during the term of this lease shall survive any
termination or expiration of this lease.
ARTICLE 11.
Common Area Expenses
11.1 Tenant shall pay Landlord its proportionate share of all reasonable and
customary costs (not including depreciation or costs of repairs resulting from
Landlord's negligence), paid or incurred by Landlord in operating and
maintaining the common access roadways, sidewalks, pathways, landscaped areas
and other similar areas or improvements which may be provided by Landlord for
the common use or benefit of tenants of the Project, (but not including common
areas specific to a particular building other than the Premises), including
without limitation, costs of personnel, equipment and material for maintenance,
repair, replacement, snow removal, striping, signage and other traffic control
measures, costs for lighting, insurance, property taxes, licenses, permits and
fees. Tenant's proportionate share of such expenses shall be a fraction, the
numerator of which is the area of the Property and the denominator of which is
the area of the Project (or, if the expense is incurred with respect to
property not co-extensive with the Project, such other fraction as reasonably
determined by Landlord). Capital expenses shall be amortized over their
reasonably expected useful life, as determined by Landlord. Common area charges
shall not include expenses of initial installation of roadways, initial
landscaping management fees or Landlord's general administrative expenses for
the Project.
11.2 Common area charges shall be paid by Tenant in one or more
installments each year during the lease term in an amount estimated by
Landlord. On or before April 1 of each year, Landlord shall furnish to Tenant a
statement of the actual amount of Tenant's proportionate share of common area
expenses for the preceding calendar year. Within thirty (30) days after receipt
of such statement, Tenant shall pay Landlord the amount by which such expenses
exceed Landlord's estimates. If Tenant has paid more than the actual amount of
such expenses, such excess shall be credited against expenses due for the
ensuing year.
11.3 The common area shall consist of easements shown on the Binding
Site Plans of the Project, landscaping easements twenty (20) feet in width
adjacent to all public and private roadways within the Project, and other
perimeter easements and necessary rights-of-way for utilities and private
roadways servicing the Project, for public streets, pathways and "208" drainage
areas, all as reasonably designated by Landlord, and the private sewer and
water and systems serving the Project. Landlord shall provide and maintain
landscaping within the landscaping easement described above. The common areas
are for the joint benefit of all tenants of the Project and adjacent property
owned by Landlord, and Landlord reserves the following rights with respect to
the common areas:
(a) to establish reasonable rules and regulations for the use of the common
areas;
(b) to close all or any portion of the common areas for reasonable periods to
make repairs and changes, and to change the location, layout or shape of the
common areas, provided Tenant's access to the Premises is not unreasonably
impaired;
(c) to grant access to the common areas to utility providers,
governmental entities and others to maintain and repair the improvements
serving the Project and the public;
(d) to dedicate the common areas to public use.
11.4 Tenant's obligations under this ARTICLE with regard to common
area charges arising during the term of this lease shall survive any
termination or expiration of this lease.
ARTICLE 12.
All Expenses Other Than Specifically Dealt With, Audit Rights
12.1 If, during the term of this lease, expenses arise, become due, or
are incurred by Landlord, relating to or resulting from the Project, the lease
of the Premises, use of the Improvements and personal property subsequently
placed upon the Premises or the business conducted by Tenant, which expenses
are not specifically dealt with in the lease, such expenses shall be allocated
between Landlord and Tenant in a manner consistent with the allocation of
expenses specifically dealt with in the lease so that each party receives
substantially the benefit of the bargain reflected in the lease.
12.2 Not more than once each calendar year, Tenant shall have the
right, upon thirty (30) days' prior notice to Landlord, to examine Landlord's
records for the prior year relating to Impositions (ARTICLE 9), insurance
(ARTICLE 14) and common area expenses (ARTICLE 11), and to challenge the amount
of any such charges. The amount of any charges found, by agreement or
otherwise, to be improper or excessive shall be credited against the next
installment(s) of Additional Rent due from Tenant.
ARTICLE 13.
Indemnification of Landlord
13.1 Tenant releases and, subject to the provisions of Section 14.5,
shall defend, indemnify and hold harmless Landlord, and each of its officers,
directors, shareholders, employees, agents and representatives, against and
from all liabilities, obligations, damages, penalties, judgments, claims,
costs, charges, fees and expenses, including, but not limited to, costs of
investigation and correction, reasonable architects, attorneys' and
consultants' fees and costs, which may be imposed upon, incurred by or asserted
against Landlord or its officers, directors, shareholders, employees, agents
and representatives by reason of any of the following:
(a) any act or omission during the term of this lease in, on, about or
arising out of or in connection with the use, operation, maintenance and
occupancy of the Premises or any part thereof, whether or not consented to by
Landlord; by Tenant, or
Tenant's agents, contractors, servants or employees (whether inside or outside
the scope of employment), licensees or invitees, except to the extent caused by
the negligence or intentional misconduct of Landlord or its agents,
contractors, subcontractors, servants or employees;
(b) any accident, injury, casualty, loss, theft or damage whatsoever
to any person or tangible property occurring in, on, about or arising out of or
in connection with the use or occupancy by Tenant of the Premises, any common
area, roadway, alley, basement, pathway, curb, parking area, passageway or
space under or adjacent thereto arising from any cause or occurrence
whatsoever, except to the extent caused by the negligence or intentional
misconduct of Landlord or its agents, contractors, subcontractors, servants or
employees;
(c) any failure on the part of Tenant or any of its agents, contractors,
subcontractors, servants or employees to perform or comply with any of the
covenants, agreements, terms, provisions, conditions or limitations contained
in this lease;
(d) any failure by Tenant to perform or comply with any of the terms
or provisions contained in this lease or any act per-formed by Landlord in
exercise of its rights under ARTICLE 17; or
(e) any presence, release, migration, discharge, disposal, dumping,
spilling or leaking, (accidental or otherwise), now or hereafter determined to
be unlawful or subject to governmentally imposed remedial requirements, caused
by Tenant or in any way connected with Tenant's business, of any hazardous,
dangerous or toxic substance of any kind (whether or not now or hereafter
regulated, defined or listed as hazardous, dangerous or toxic by any local,
state, or federal government) into, onto or under the Property or the air,
soil, surface water, or groundwater thereof, or the pavement, structures, sewer
system, fixtures, equipment, tanks, containers or personalty at the Property or
into, onto or under the property of others from the Premises. The foregoing
indemnity shall apply notwithstanding any provisions of federal, state or local
law which provides for the exoneration from liability in the event of
settlement with any governmental agency, and notwithstanding Landlord's
consent, knowledge, action or inaction-with respect to the act or occurrence
giving rise to such right of indemnity.
13.2 In case any action or proceeding is brought against Landlord or its
officers, directors, shareholders, employees, agents and representatives by
reason of any claim indemnified under Section 13. 1, Landlord shall promptly
notify Tenant of such claim and Tenant shall, at Tenant's expense, immediately
resist or defend such action or proceeding with counsel approved by Landlord in
writing, which approval shall not be unreasonably withheld. In connection with
any such action brought against Landlord by Tenant's employees, Tenant waives
any immunity, defense or other protection afforded by any worker's
compensation, industrial insurance or similar laws, with regard to such claim
or action against Landlord.
13.3 Tenant waives and releases all claims against Landlord, its officers,
directors, shareholders, employees, agents and representatives, for any loss,
injury, or damage (including consequential damages), to Tenant's property or
business during the term of this lease occasioned by theft, act of God, public
enemy, injunction, riot, strike, insurrection, war, court order, acquisition,
order of governmental body or authority, earthquake, flood, fire, explosion,
falling objects, steam, water, rain or snow, leak or by flow of water, rain or
snow from the Premises or onto the Premises or from the roof, street,
subsurface or from any other place, or by dampness, or by the breakage,
leakage, obstruction or defects of the pipes, sprinklers, wires, appliances,
plumbing, heating, air conditioning, lighting fixtures of the Improvements, or
by the construction, repair or alteration of the Premises or by any other acts
or omissions of any other tenant or occupant of the Project, or visitor to the
Premises or any third party whatsoever, or by any cause beyond Landlord's
control.
13.4 Tenant's obligations under this ARTICLE shall survive any
termination or expiration of this lease.
ARTICLE 14.
Insurance
14.1 At all times during the term of this lease, Landlord shall carry
and maintain (a) Special Form property insurance (or its then equivalent in the
insurance industry) covering the Improvements to their full insurable
replacement value, subject to a deductible of not less than One Thousand
Dollars ($1,000.00), (b) rental value insurance in an amount sufficient to
cover Tenant's Total Payments during any period of rental abatement caused by
repair or reconstruction of the Improvements, and (c) commercial general
liability insurance (or its then equivalent in the insurance industry) for the
Project in such amounts as Landlord determines from time to time in its
reasonable discretion.
14.2 Tenant shall reimburse Landlord for the costs of all insurance
maintained pursuant to Section 14. 1. If Landlord maintains blanket property
damage policies Tenant shall pay only that portion of policy premiums
reasonably allocable to the Premises. The cost of Landlord's liability
insurance shall be allocated in accordance with Section 11. 1. Insurance
charges shall be paid by Tenant in one or more installments each year during
the lease term in an amount estimated by Landlord. On or before April 1 of each
year, Landlord shall furnish to Tenant a statement of the actual amount of
insurance costs incurred for the preceding calendar year. Within thirty (30)
days after receipt of such statement, Tenant shall pay Landlord the amount for
which actual insurance expenses exceed estimated expenses paid by Tenant. If
the estimated amounts paid by Tenant exceed the actual insurance expenses, such
excess shall be credited against the next insurance expense payment due from
Tenant. Tenant's obligation under this Section shall survive any termination or
expiration of this lease.
14.3 Any loss to Tenant's personal property and fixtures or arising
out of the conduct of or interruption of Tenant's business shall be the sole
risk of Tenant. Tenant shall, at its sole cost, secure and maintain throughout
the term of this lease insurance policies with a company or companies
reasonably acceptable to Landlord and licensed to do business in the State,
insuring against the following perils:
(a) Liability Insurance. (i) Commercial general liability insurance
(or its then equivalent in the insurance industry) with combined single limits
of not less than One Million Dollars (S 1,000,000.00) per occurrence for
personal injury and property damage. Such policy shall name Landlord and any
lender of Landlord as additional insureds; shall contain cross-liability
provisions and shall include but not be limited to coverage for the occurrences
described in subsections 13. 1 (a) and (b), and acts of independent contractors
retained by Tenant, and (ii) auto liability insurance for vehicles owned,
leased or used by Tenant and non-owned vehicles used in connection with
Tenant's business with liability limits of not less than One Million Dollars
($1,000,000.00) per occurrence.
(b) Property Insurance. Special Form property insurance (or its then
equivalent in the insurance industry) naming Landlord, any lender of Landlord,
and Tenant as their interests may appear, covering all leasehold improvements
in, on, or upon the Premises, in an amount not less than the full replacement
cost without deduction for depreciation. All policy proceeds shall be used for
the repair or replacement of the property damaged or destroyed; however, if
this lease ceases under the provisions of ARTICLE 21, Tenant shall be entitled
to any proceeds equal to the remaining value to Tenant of leasehold
improvements for which Tenant has paid, and Landlord shall be entitled to all
other proceeds. Notwithstanding, the foregoing sentence, Landlord shall never
receive less than an amount equal to the reasonable cost of re-constructing
Improvements substantially identical to those originally delivered to Tenant.
(c) Other Insurance: Changes in Limits. Such other insurance in such
amounts as may from time to time be reasonably requested by Landlord against
other insurable hazards related to the Premises (including, without limitation,
hazards to the Premises related to Tenant's activities thereon), which at the
time are customarily insured against by owners or operators of similar types of
properties and Landlord may require changes in the amounts or limits of the
insurance to be maintained under this ARTICLE to maintain reasonably equivalent
coverage due to inflation, changes in Tenant's business operations, changes in
law or changes in policy terms.
14.4 Each insurance policy maintained by Tenant shall provide coverage
on an occurrence rather than a claims-made basis (or if coverage on an
occurrence basis is or becomes unavailable on commercially reasonable terms,
Tenant may obtain insurance coverage on a claims-made basis, provided such
policies are endorsed to provide for an extended reporting period of not less
than three (3) years) and shall provide that (a) no act, omission or default by
Tenant shall render the policy void as to Landlord or of Landlord's right to
recover thereon; and (b) the policy shall not be canceled or modified so as to
adversely affect Landlord until thirty (30) days after written notice to
Landlord. On or before commencement of the term hereof and thereafter upon the
request of Landlord, Tenant shall provide certificates of insurance evidencing
the required insurance and upon Landlord's request, copies of any required
policy. All policies shall be written as primary policies, not contributing
with, and not in excess of coverage which Landlord may carry.
14.5 Landlord and Tenant each waive any and all rights to recover
against the other or against the officers, directors, shareholders, employees,
agents or representatives of the other, for any loss or damage to such waiving
party arising from any cause covered by any insurance required to be carried by
such party pursuant to this ARTICLE or any other insurance actually carried by
such party; provided, however, Tenant shall remain liable for the lesser of (a)
the loss incurred by Landlord or (b) the deductible under Landlord's insurance
policies, up to a maximum of One Thousand Dollars (S 1,000.00). Landlord and
Tenant from time to time shall cause their respective insurers to issue
appropriate waiver of subrogation rights endorsements to all policies of
insurance carried in connection with the Premises or the contents of the
Premises. Tenant-agrees to cause all other occupants of the Premises claiming
by, under, or through Tenant to execute and deliver to Landlord such a waiver
of claims and to obtain such waiver of subrogation rights endorsements.
14.6 Landlord, its agents and employees make no representation that
the limits of liability specified to be carried by Tenant pursuant to this
ARTICLE are adequate to protect Tenant. If Tenant believes that any of such
insurance coverage is inadequate, Tenant shall obtain, at Tenant's sole
expense, such additional insurance coverage as Tenant deems adequate.
ARTICLE 15.
Limitation on Landlord's Liability
15.1 Notwithstanding any other provision of this lease, in the event
of any actual or alleged default under this lease by Landlord, Landlord's
liability shall be limited to Landlord's interest in the Project. Neither
Landlord nor any officer, director, shareholder, agent or representative of
Landlord shall have any personal liability for the breach of any obligations
under this lease.
15.2 If Landlord, or any subsequent owner of the Premises, transfers the
Premises, its liability for the performance of its agreements under this lease
shall end with respect to obligations arising after the date of the transfer of
the Premises, and the Tenant shall thereafter look solely to the transferee of
the Premises for the performance of those agreements. Tenant shall attorn to any
transferee of the Premises.
ARTICLE 16.
Defaults and Remedies
16.1 Landlord shall be entitled to exercise any of the rights and remedies
provided for in this lease (and/or by applicable law) if any one or more of the
following "Events of Default" shall occur:
(a) if Base Rent is not paid when due and remains unpaid for ten (10) days
after written notice; or
(b) if any Additional Rent or any other sum payable by Tenant is not paid
within twenty (20) days after written notice from Landlord to Tenant; or
(c) if default shall be made by Tenant in the prompt and full performance or
compliance with any of the promises, provisions, terms, covenants or conditions
in this lease other than those referred to in subsections (a) and (b) of this
Section, and any such default is not fully cured within thirty (30) days after
written notice from Landlord to Tenant, or if such default may not be
reasonably cured within such 30-day period, if Tenant does not commence to cure
within such 30-day period and thereafter diligently pursue such cure to
completion.
16.2 Upon the occurrence of any Event of Default, Landlord may, at its
discretion, apply the security deposit referred to in ARTICLE 5 against any
amounts due from Tenant; take any action permitted under ARTICLE 17; and
exercise any or all rights or remedies allowed under this lease or by law or
equity, including without limitation, the following:
(a) Landlord may terminate this lease in accordance with the laws of
the State of Washington, whereupon Tenant shall quit and peacefully surrender
the Premises. Upon termination, Landlord may re-enter the Premises and take
possession thereof, remove all parties in possession therefrom, and Tenant
shall have no further claim or demand whatsoever thereon or hereunder.
Landlord, without terminating this lease, may re-enter the Premises without
liability for trespass, remove by summary proceedings, ejectment, replevin,
unlawful detainer, lien foreclosure, or otherwise, all persons and personal
property from the Premises and may have, hold, and enjoy the Premises and have
the right to receive all rental income of and from the same. No act by Landlord
shall terminate this lease unless Landlord notifies Tenant in writing, that
Landlord elects to terminate this lease. Upon any re-entry, Landlord may relet
the Premises or an), part thereof 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 as Landlord, in its reasonable
discretion, may determine and may collect and receive the rents thereto. If
Tenant abandons the Premises, Landlord shall in no way be responsible or liable
if the Premises or any part thereof are not relet, or for any inability to
collect any rent due upon any such reletting. Tenant assumes full
responsibility for mitigating damages upon abandonment of the Premises and
waives any defense or claim based on Landlord's failure to mitigate damages
except as set forth in Section 23.6. No re-entry by Landlord, if the lease has
not been terminated, shall excuse or relieve Tenant of its liability and
obligations under this lease, and Tenant, until the end of the term of this
lease, shall be liable to Landlord for and shall pay to Landlord the amount of
Total Payments which are due and payable under this lease by Tenant, less the
proceeds realized by Landlord from any reletting. Tenant shall pay such
deficiency to Landlord on the first day of each month for which rent would have
been paid under this lease, and Landlord shall be entitled to recover from
Tenant each monthly deficiency. In addition, Tenant shall pay upon demand all
of Landlord's reasonable expenses whatsoever reasonably incurred in connection
with any reletting, including, without limitation, all repossession costs,
brokerage and management commissions or fees, all operating expenses,
accounting expenses, attorneys' fees. reasonable costs incurred in making,
alterations to the Improvements and removal, storage or disposition of personal
property on the Premises, and any expenses of advertising, and preparation for
reletting and any reasonable concessions granted in connection with such
reletting. Any sums received by Landlord upon a reletting of the Premises in
excess of the Total Payments reserved herein shall be the sole property of
Landlord; or
(b) Landlord may accelerate all of the Total Payments reserved for the
remaining balance of the term of this lease. Upon such acceleration, all of the
Total Payments reserved herein for the entire term shall immediately become due
and payable, discounted to their then present value using a discount rate equal
to the prime rate as of the date of the Event of Default, less the reasonable
rental value of the Premises for the remainder of the lease term, also
discounted to present value at the prime rate. The "prime rate" shall mean the
interest rate per annum announced by Seattle-First National Bank (or its
successor) from time to time as its prime lending rate to its most creditworthy
commercial customers. Tenant shall pay, upon demand, such accelerated amount
plus an amount equal to the total of all of Landlord's reasonable costs
resulting from Tenant's default including-, without limitation, costs of curing
any breach by Tenant of the terms of this Lease (other than failure to pay
Total Payments), repossession of the Premises, operating and administrative
expenses until the Premises may be relet, attorney's fees, costs of removal,
storage or disposition of personal property on the Premises, and the
unauthorized cost of any leasehold improvements or concessions granted in
connection with this Lease, plus interest thereon at the prime rate from the
date incurred until the date paid.
ARTICLE 17.
Landlord's Right to Perform Tenant's Covenants
17. 1 If Tenant shall at any time fail to make any payment or perform
any act required under this lease, then Landlord, after ten (10) days' notice
to Tenant in the case of monetary defaults (other than the payment of Base
Rent) or thirty (30) days' notice in the case or a non-monetary default, or
immediately without notice in the case of emergency, and without waiving, or
releasing Tenant from any obligation of Tenant contained in this lease or from
any default by Tenant and without waiving Landlord's right to take other action
permissible under this lease, may (but shall be under no obligation to) make
such payment or perform any other act required to be made, performed or
complied with by Tenant hereunder.
17.2 Landlord may enter the Premises for any purpose under Section
17.1 and take all such action thereon as may be necessary without incurring any
liability for trespass and without terminating Tenant's tenancy or interfering,
with Tenant's quiet enjoyment of the Premises. Any sums paid by Landlord and
all costs and expenses reasonably incurred by Landlord (including reasonable
attorneys' fees), in connection with the performance of any act, together with
interest thereon at the rate set forth in ARTICLE 19, from the date of such
payment or incurrence by Landlord shall be paid by Tenant to Landlord upon
demand.
ARTICLE 18.
Costs and Attorneys' Fees
18.1 In the event of any breach, default, delinquency or violation by
either party or any dispute involving the interpretation of this lease, the
non-prevailing party shall be responsible for and shall pay any and all
reasonable attorneys' fees and costs, or expenses incurred by the other party
by reason of such breach, default, delinquency, violation or dispute, whether
or not a legal action is filed, including those, if any, on appeal.
ARTICLE 19.
Interest on Overdue Payments
19.1 Any component of Total Payments payable by Tenant under the terms
of this lease, which Tenant does not pay when due, shall bear interest in favor
of Landlord from the due date at the rate of eighteen percent (18 %) per annum,
compounded monthly, or such lesser rate as may be the maximum allowed by law.
19.2 Any late or partial payments, if accepted by Landlord, may, at
Landlord's option, be applied first to interest, then to Additional Rent, and
finally to Base Rent.
ARTICLE 20.
No Total Payments Abatement
20.1 Except as otherwise expressly provided for in this lease, no
abatement, diminution, setoff, counterclaim or reduction of Total Payments or
charges due Landlord shall be claimed by or allowed to Tenant.
ARTICLE 21.
Damage to Premises
21.1 If the Improvements are damaged or destroyed by reason of fire or
any other cause, Tenant shall immediately notify Landlord. If the loss results
from a casualty covered by Landlord's insurance, provided Tenant is not in
default, Landlord shall apply the net proceeds of any fire or other casualty
insurance paid to Landlord (or to a trustee or depository at the request of the
holder of Landlord's mortgage), to repair or rebuild the Improvements. Provided
Tenant is not in default, if the loss results from a casualty not insured
against by Landlord's insurance and not attributable to Tenant's negligence or
other fault and the estimated costs of repair do not exceed fifty percent (50%)
of the sum of Base Rent due for the remainder of the lease term, Landlord shall
repair or rebuild the Improvements, in each case so as to make the Improvements
at least equal in value to the improvements existing immediately prior to the
occurrence and as nearly similar in character as is practicable and reasonable,
subject to any applicable building regulations. Landlord shall prosecute the
repairs or rebuilding to completion with diligence; subject, however, to
strikes, lockouts, acts of God, embargoes, governmental restrictions, and other
causes beyond Landlord's reasonable control.
1. 2 If (a) at any time during, the last two (2) years of the term of
this lease the Improvements are damaged by fire or other insured casualty so
that the cost of restoration exceeds twenty-five percent (1-5 %) of the
replacement value of the Improvements (exclusive of foundations) immediately
prior to the damage or (b) in Landlord's reasonable judgment, repair or
restoration after any insured casualty cannot be completed by one (1) year
prior to the end of the lease term or (c) a loss exceeding fifty percent (50
To) of the sum of Base Rent due for the remainder of the lease term results
from a casualty not insured against by Landlord's insurance, then Landlord may,
within thirty (30) days after such damage, give notice of its election to
terminate this lease and, subject to the provisions of this section, this lease
shall cease on the tenth (10th) day after the delivery of that notice. Total
Payments shall be apportioned and paid to the time of damage.
21.3 Total Payments shall be abated on a pro rata basis from the date
of the damage until the date of the completion of such repairs, based on the
proportion of the Premises that Tenant is unable to use during the repair
period. If any casualty not covered by rental value insurance is the result of
the willful conduct or negligent act or omission of Tenant, its agents,
contractors, employees, or invitees, Total Payments shall not be abated. Tenant
shall have no right to terminate this lease on account of any damage to the
Premises, or the Project, except as set forth in this lease.
ARTICLE 22.
Condemnation
22.1 In the event the Premises or any part thereof shall be condemned
and taken for a public or quasi-public use, the leasehold estate and interest
of Tenant in the Premises or the part thereof so taken shall forthwith cease
and terminate as of the date of final award. In the event of a partial taking,
the lease shall remain in full force as to any portion of the Premises not
taken, and Tenant's obligation to pay Base Rent and Additional Rent herein
reserved shall be equitably reduced or abated in proportion to the value of the
portion of the Premises which is lost on account of any partial taking. Rent
shall not be abated if the taking does not unreasonably affect Tenant's use of
the Premises. Notwithstanding the foregoing, in the event any part of the
Premises is taken which would render the remainder thereof unusable, Tenant may
elect to terminate this lease and all obligations of either party hereunder
accruing from and after the date of such partial taking.
22.2 Landlord reserves all rights to damages awarded for any partial
or total taking and Tenant hereby assigns to Landlord any right Tenant may have
to such damages or award except for moving, expenses, Tenant's personal
property or damage to or interference with Tenant's business, but only to the
extent awarded separately and not out of or as a pan of the damages recoverable
by Landlord.
ARTICLE 23.
Transfer of Tenant's Interest
23.1 Tenant shall not:
(a) transfer all or any portion of this lease or any of its leasehold
interest in the Premises, without the prior written consent of Landlord, which
may not be unreasonably withheld;
(b) mortgage, pledge, hypothecate or otherwise create or grant any
security interest in Tenant's leasehold interest (or any part thereof) in the
Premises without the prior written consent of Landlord, which may not be
unreasonably withheld or delayed, and, subject to Tenant's right to contest in
a manner similar to that provided in Section 9.3 for Impositions, Tenant shall
not voluntarily or involuntarily suffer or permit to be placed or enforced
against the Premises any lien, claim, demand or encumbrance of any type or
nature whatsoever.
23.2 Any request by Tenant for Landlord's consent to a transfer shall
be accompanied by information related to the proposed transferee's financial
position and proposed use of the property, and any other information Landlord
may reasonably request in order to evaluate the proposed transfer. Landlord's
consent to a transfer shall not be effective until Landlord has received the
written agreement of the transferee to assume and perform all of the
obligations of Tenant for the payment of Total Payments and the performance of
all the terms, covenants, conditions and provisions contained in this lease.
Any consent by Landlord to any single transfer shall not release Tenant from
any obligations under this lease and such consent shall only apply to the
specific transaction thereby authorized and shall not be construed as a waiver
of the duty to obtain Landlord's consent to any subsequent transfer.
23.3 Tenant shall reimburse Landlord for any costs reasonably incurred
in connection with any proposed transfer or creation of a security interest,
including, without limitation, legal fees and costs of investigating the
acceptability of the proposed transferee or security interest and preparation
or review of necessary documentation.
23.4 Any violation of the terms of this ARTICLE without Landlord's
prior written consent shall, at Landlord's option, be absolutely null and void.
23.5 Landlord's failure to detect or to protest an apparent or actual
default of this ARTICLE shall not constitute a waiver or estoppel thereof. The
acceptance of any rent by Landlord from a proposed transferee shall not
constitute consent by Landlord to any transfer or recognition of any transferee
or a waiver by Landlord of any failure of Tenant to comply with this ARTICLE.
23.6 If Tenant believes that Landlord has unreasonably withheld
consent to any transfer or creation of a security interest, Tenant's sole
remedies shall be to (a) seek a declaratory judgment that Landlord has
unreasonably withheld consent or (b) seek specific performance or an injunction
requiring Landlord to give consent.
23.7 Landlord's withholding of consent to a proposed transfer shall
not be unreasonable if Landlord determines, in the exercise of Landlord's
reasonable discretion, that (a) the proposed transferee is financially unable
to fulfill its obligations under the lease; (b) the proposed transferee (or the
principals thereof) has a substantial history of defaults under prior leases or
other agreements; (c) the proposed transferee's use of the Premises would be
incompatible with other uses within the Project or would pose substantial risks
of pollution, casualty loss, property damage or personal injury; or (d) would
otherwise substantially increase Landlord's risk or expense in connection with
this Lease.
23.8 For the purpose of this ARTICLE, 'transfer" shall include any
voluntary or involuntary sale, assignment, sublease, gift, conveyance,
disposition or parting with any or all of Tenant's rights, duties or interests
herein. Subject to the requirements of Sec-,ion 23.2 relating to information
and documents to be provided by Tenant, and Landlord's right to object and
withhold consent on the grounds set forth in Section 2-3.7, Tenant may assign
all or part of this lease, or sublease all or a part of the Premises, to:
(a) - any corporation or entity that has the power to direct Tenant's
management and operation, or any corporation or entity whose management and
operation is controlled by Tenant; or,
(b) any corporation or entity a majority of whose voting stock or ownership
interest is owned by Tenant; or
(c) any corporation or entity in which or with which Tenant or its
successors or assigns is merged or consolidated, in accordance with applicable
statutory provisions for merger or consolidation of corporations or other
entities, so long as the liabilities of the corporations or entities
participating in such merger or consolidation are assumed by the corporation or
entity surviving such merger or created by such consolidation; or
(d) any corporation or entity acquiring this lease and a substantial
portion of Tenant's assets.
ARTICLE 24.
Subordination
24.1 At Landlord's request, this lease shall be subordinated to any
mortgages, deeds of trust and other encumbrances arising through Landlord and
affecting the Premises, provided the mortgagee or beneficiary thereof agrees
not to disturb Tenant's possession so long as Tenant is not in default under
this lease. Tenant shall sign and deliver any reasonable documents required to
evidence such subordination, within twenty (20) days of Landlord's request.
ARTICLE 25.
Surrender
25.1 At the expiration of the lease term or upon any earlier
termination of this lease, Tenant shall immediately:
(a) deliver to Landlord free and clear title to the Improvements (excepting only
Tenant's personal property, equipment and trade fixtures which can be, and are,
removed by Tenant without permanent damage to the Premises) without any payment
to Tenant or allowance of any kind whatsoever by Landlord; provided that nothing
herein shall require Tenant to satisfy any obligations arising through Landlord.
Landlord may examine condition of tide at Tenant's cost to assure itself that
the title offered is in conformity with the terms of this lease; and
(b) restore the Premises to their condition at the commencement of
the lease, and repair any damage caused by removal of Tenant's personal
property, equipment or trade fixtures, or Tenant's occupancy of the Premises,
and quit, surrender and return possession of the Premises to Landlord in a
neat, clean, and sanitary condition, and in good working order reasonable wear
and tear and casualty loss excepted, and shall deliver to Landlord all
information documents and tangible items necessary or convenient to the
operation of the Premises, including, without limitation, any keys,
combinations to locks and access systems, manuals and instruction booklets,
warranties, receipts, bills, invoices, statements, licenses, and permits,
building plans and specifications, contracts and other documents.
25.2 Any personal property remaining on the Premises after the
expiration of the lease term may, at Landlord's option, be deemed abandoned by
Tenant and Tenant releases Landlord from all claims and liability in connection
with such personal property. Upon expiration, or if the lease is terminated
prior to its normal expiration, Landlord shall have the right, but not the
obligation, to remove all of Tenant's personal property from the Premises and
place the same in a public warehouse at Tenant's expense and risk. Landlord
shall have the right, but not the obligation, to sell such stored property if
it has not been claimed, and all charges for removal, packing, transport and
storage paid by Tenant within thirty (30) days, and the proceeds of sale shall
be applied first to the costs of sale, second to the costs of removal, packing,
transport and storage, third to the payment of any other sums due Landlord from
Tenant, and the balance, if any, shall be paid to Tenant.
ARTICLE 26.
Holding Over
26.1 This lease shall terminate without further notice upon the
expiration of the lease term as described in ARTICLE 3 or upon any earlier
termination of this lease. If Tenant holds over with the written consent of
Landlord, such action shall not constitute a renewal of this lease or any
extension thereof, but such tenancy shall be on a month-to-month basis, which
tenancy may be terminated as provided by the laws of the State of Washington.
During such period, Tenant shall pay to Landlord on the first day of each month
Base Rent equal to one-twelfth (1/12) the Total Payments payable by Tenant
during the prior calendar year multiplied by one hundred twenty.7five percent
(125 %) (plus all Additional Rent provided for in this Lease), and Tenant shall
continue to be bound by all of the promises, provisions, conditions and
covenants herein set forth, so far as the same may be applicable.
ARTICLE 27.
Quiet Environment
27.1 Landlord hereby covenants that if Tenant is not in default in the
payment of any monetary obligations or in the performance or observance of any
of its other obligations under this lease, Tenant shall be free from Landlord's
interference in the enjoyment of sole and exclusive use, occupancy and
possession of the Premises; subject, however, to the exceptions, reservations
and conditions of this lease.
<PAGE>
ARTICLE 28.
Right of Inspection
28.1 Landlord and its representatives shall be authorized to enter the
Premises upon notice (or at any time without notice in the event of emergency)
for the purposes of determining whether or not an Event of Default has
occurred; exhibiting the Premises to lenders, prospective purchasers and
tenants; making any necessary repairs to the Premises and performing any work
therein and for any other lawful purpose. Landlord shall not be liable for
inconvenience, annoyance, disturbance, loss of business or other damage to
Tenant or any other party by reason of such entrance or the making of such
repairs or the performance of any such work, or on account of bringing
materials, tools, supplies and equipment onto the Premises. In order to
preserve the security of Tenant's proprietary information, Tenant may accompany
Landlord on any inspection and may impose reasonable restrictions to prevent
unauthorized access to such proprietary information. Landlord shall not
disclose or use any confidential or proprietary information of Tenant learned,
observed or otherwise obtained by Landlord or its employees or agents in its
exercise of rights under this lease.
ARTICLE 29.
Recording
29.1 This lease shall not be recorded. On the request of either party, a
memorandum of this lease may be recorded.
ARTICLE 30.
Estoppel Certificates
30.1 Tenant shall, without charge to Landlord, at any time and from
time to time, within ten (10) days after request, certify by written
instrument, duly executed, acknowledged and delivered, to Landlord or any other
person, firm or corporation specified by Landlord:
(a) that this lease is unmodified and in full force and effect or, if
there have been any modifications, that the same is in full force and effect as
modified and stating the modifications or, indicating that this lease is not in
full force and effect if appropriate and stating the reason why;
(b) that any existing Improvements required by the terms of this lease to be
completed by Landlord have been completed to the satisfaction of Tenant or
specifying any Improvements which require correction by Landlord;
(c) whether or not there are then existing any set-offs or defense
against the enforcement of any of the agreements, terms, covenants or
conditions of this lease and any modifications thereto upon the part of the
certifying party to be performed or complied with and, if so, specifying the
same;
(d) the amount of monthly Base Rent and Additional Rent then due under
this lease, the dates, if any, to which any portion of the Base Rent and
Additional Rent due hereunder have been paid in advance;
(e) the amount of security deposit held by Landlord;
(f) the date of expiration of the current term and whether Tenant has
rights to extend the term (and the term of such extensions) or to purchase the
Premises or to lease additional property, if any; and
(g) any other information reasonably requested.
30.2 Tenant's failure to deliver a certificate within the time
specified shall be an Event of Default under ARTICLE 16 and shall conclusively
be deemed Tenant's approval of the statements set forth in the certificate
presented to Tenant, and may be relied upon as such by Landlord or any third
party.
ARTICLE 31.
Non-waiver
31.1 No waiver by Landlord or Tenant of any default by the other party
or of any circumstances permitting Landlord or Tenant to terminate this lease
shall be implied or inferred and no written waiver shall constitute a waiver of
any other circumstance permitting such termination, and no failure or delay on
the part of Landlord or Tenant to exercise any right it may have by the terms
hereof or by law upon the occurrence of an Event of Default shall operate as a
waiver of that or any other Event of Default, nor as a modification of this
lease. The subsequent acceptance of any payment or performance pursuant to this
lease shall not constitute a waiver of any prior default by Tenant other than
the default of the particular payment or the performance so accepted. The
consent or approval to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant. No payment by
Tenant or receipt by Landlord of a lesser amount than the Total Payments due
shall be deemed to be other than on account, nor shal.1 any endorsement or
statement on any check or letter accompanying 'any check or payment as rent be
deemed an accord and satisfaction or a waiver of any other or additional amount
owed.
ARTICLE 32.
Authority
32.1 Landlord and Tenant, or each person signing this lease on behalf of
Landlord and Tenant, warrants that he or she is authorized to execute this
lease.
32.2 If Tenant or Landlord is not a natural person, then such party warrants
that:
(a) such party is duly organized, validly existing, and qualified to
conduct business in the State of Washington;
(b) that the lease was duly authorized, executed and delivered by
such party and is the binding obligation of such party, in accordance with its
terms.
ARTICLE 33.
Brokers
33.1 Tenant and Landlord, respectively, represent that they have not
dealt with any broker or finder with respect to the Premises or this lease
other than Kiemle & Hagood, whose fee shall be paid by Landlord. Tenant and
Landlord shall indemnify the other and the other's agents and representatives,
and hold them harmless from any claims for fees or commissions by parties
(including, without limitation, all attorneys' fees and costs of defending any
alleged claim) arising out of the acts of the indemnifying party or its agents
or employees.
ARTICLE 34.
Notices
34.1 Any notices, demands, requests, consents, objections or other
communications required to be given or which may be given under or by the terms
and provisions of this lease or pursuant to law or otherwise shall be in
writing and delivered or mailed to the address set forth below each party's
signature on this lease or at such other place as either Landlord or Tenant may
hereafter designate in writing and shall be deemed given three (3) days after
deposit in the United States mail, certified or registered, return receipt
requested, postage prepaid, addressed to the party entitled to receive the
notice, or upon receipt when hand delivered.
ARTICLE 35.
Construction
35.1 This lease shall be construed in accordance with the laws of the
State of Washington. The table of contents, article headings and captions are
for convenience only and shall not be considered in any construction or
interpretation of this lease. If any ambiguity exists, the provision in
question sh;L11 not be construed or interpreted for or against Landlord or
Tenant by reason of any rule of construction. If any term, provision, Section,
ARTICLE or sentence in this lease or portion thereof shall, to any extent,
become invalid or unenforceable either by operation of law, statute, or by
court decree, the remainder of said term, provision, Section, ARTICLE or
sentence as well as the remainder of this lease shall not be affected thereby,
and each term, provision, Section, ARTICLE, sentence or portion thereof as well
as the remainder of this lease shall be valid and shall be enforceable to the
fullest extent permitted by law.
ARTICLE 36.
Covenants to Bind and Benefit Respective Parties
36.1 All of the promises, terms, covenants, provisions and conditions
set forth in this lease shall inure to the benefit of and shall be binding on,
the heirs, personal representatives, trustees, receivers, permitted assignees
and permitted transferees of the parties named herein.
ARTICLE 37.
Sole Understanding of Parties
37.1 This lease contains the entire understanding between the parties
with respect to its subject matter, the promises, duties, terms, covenants,
conditions and all other aspects of the relationship between Landlord and
Tenant, and there are no verbal agreements, representations, warranties, or
other understandings affecting the Property or its use or development that have
not been reduced in writing in this lease. No change in this lease in any
manner whatsoever shall be valid unless in writing and signed by both parties.
ARTICLE 38.
Further Documents
38.1 Landlord and Tenant shall, whenever and as often as it shall be
reasonably requested to do so by the other, execute, acknowledge and deliver or
cause to be executed, acknowledged or delivered any and all such further
confirmations, instruments and documents and take any and all actions as may be
reasonably helpful, necessary, expedient or proper, in order to evidence or
complete any and all transactions or to accomplish any and all matters provided
for in this lease.
ARTICLE 39.
Venue
Venue in any action arising out of this lease shall be laid in the
Superior Court of Spokane County, Washington.
ARTICLE 40.
Consultation
Tenant acknowledges that it has consulted or has had ample opportunity to
consult with
<PAGE>
an attorney concerning the content of this lease. Tenant represents that it has
read and understands the terms and conditions set forth in this lease.
EXECUTED as of the date first set forth above.
LANDLORD: TENANT:
SPOKANE INDUSTRIAL PARK, a CXT, INCORPORATED,
Division of PENTZER DEVELOPMENT a Delaware corporation
CORPORATION,
a Washington corporation
By /c/R. Rollnick By /c/J. White
Its President Its President
Address: N. 3808 Sullivan Road Address: N. 2420 Sullivan Road
Spokane, Washington 99216 Spokane, Washington 99216
STATE OF WASHINGTON)
:ss.
County of Spokane )
I certify that I know or have satisfactory evidence that Richard Rollnick
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President of SPOKANE INDUSTRIAL PARK, a
division of PENTZER DEVELOPMENT CORPORATION, a Washington corporation, to be
the free and voluntary act of such party for the uses and purposes mentioned in
the instrument.
Dated 8-19-93
/c/ Scott R. Brown
Notary Public in and for the State
of Washington, residing at Spokane
My commission expires: 8-31-94
OFFICIAL SEAL
SCOTT R. BROWN
NOTARY PUBLIC STATE OF WASHINGTON
My commission expires 8-31-94
<PAGE>
STATE OF WASHINGTON)
:ss.
County of Spokane )
I certify that I know or have satisfactory evidence that J. G. White is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President of CXT, INCORPORATED, a
Delaware corporation, to be the free and voluntary act of such party for the
uses and purposes mentioned in the instrument.
Dated July 30, 1993
Notary Public in the State
of Washington, residing at Spokane
My commission expires: September 11, 1994
FIRST AMENDMENT TO LEASE
THIS AMENDMENT, made and entered into this 12th day of March, 1996, by and
between CROWN WEST REALTY, L.L.C., hereinafter called "Lessor" and CXT,
INCORPORATED, A DELAWARE CORPORATION, hereinafter called "Lessee".
RECITALS
WHEREAS, on April 1, 1993, the Lessee and Lessor's predecessor
(Pentzer Development Corporation) entered into an agreement of lease ("the
Lease") covering those certain premises, situated in the County of Spokane, the
State of Washington, and more particularly described as follows:
3808 N. Sullivan Road, Building #S-16 and Tract A of BSP 88-21, within an
organized industrial district called "Spokane Business & Industrial Park"
Spokane, Washington, totaling 56,000 square feet, for a period of ten (10)
years commencing on the first day of April, 1993 at a monthly rental rate of
$17,5 10.00.
WHEREAS, the said Lessee now desires to expand its Premises to include
2.765 acres of Parcel A (located east of Tract A) as shown on Exhibits A and B.
This Amendment is subject to Lessor successfully perfecting a lot line
adjustment to have the 2.765 acres combined with Tract A.
NOW THEREFORE, in consideration of the Premises and agreements herein contained,
it is hereby agreed as follows:
1. Premises: The Premises shall expand to include the 2.765 acres of Parcel A.
2. Rent: Lessee's minimum monthly Base Rent shall increase by $1,000.00 and
thereafter shall increase pursuant to paragraph 4.1 of the Lease such that the
monthly Base Rent payable for each succeeding year shall be increased to equal
one hundred three percent (103%) of the monthly Base Rent payable in the
immediately preceding year. In summary, the total monthly rent for Building
#S-16, Tract A and the additional 2.765 acres is:
March 1, 1996 through March 31, 1996 $19,576.36 April 1, 1996 through March 31,
1997 $20,133.65 Annual compounded three percent (3%) increases thereafter.
3. Term: The effective date of this expansion shall be March 1, 1996 and shall
be coterminous with the Lease.
4. Common Area Expenses: Shall be in accordance with Article I I of the Lease,
provided however the 2.765 acres described in paragraph I above shall be added
to the Premises described in the Lease for purposes of calculating Common Area
Expenses.
5. Option: Lessee's option to extend the term of the Lease shall include this
expansion parcel.
<PAGE>
6. Lot Line Adjustment: Lessee shall reimburse Lessor for all out-of-pocket
expenses associated with Lessor perfecting the lot line adjustment to combine
the 2.765 acres of Parcel A with Tract A. In the event that Lessor is unable to
obtain the required governmental approvals within 60 days from the date hereof,
this Amendment will terminate, and each party hereto agrees to release the
other from all of the obligations contained herein. It is understood that no
improvements shall commence until Lessor advises Lessee that all governing
authorities have approved said lot line adjustment.
7. Easement: Lessor agrees to grant an easement (if required) to Union
Pacific Railroad for a new side track over the Premises described herein. This
easement will terminate upon expiration of the Lease.
Reference: Section 17(a)iv
LEASE AND ADDENDA FOR BUILDING #7
AND
FIVE ACRES OF LAND
(PRECAST PLANT AND STORAGE YARD)
<PAGE>
ADDENDUM TO LEASE
This is an addendum to that certain Lease dated December 20, 1996,
between CROWN WEST REALTY, L.L.C., as lessor, and CXT, INCORPORATED, as lessee,
pursuant to which the lessee leased from the lessor Building No. 7 and
approximately five acres of land.
Paragraph 5.1 of the said Lease is hereby amended to read as follows:
5.1 Option to Terminate This Lease Lessee is hereby granted the one-time option
to terminate this Lease effective December 31, 1999, by giving the lessor not
less than 90 days' prior written notice, said notice to be accompanied by a
payment of $100,000.00 which, should said option to terminate be exercised,
constitutes the consideration for the early termination of this Lease.
DATED this _____ day of _________,1998.
CROWN WE REALTY, L.L.C.
By: _____________________ By: ________________________
Title: President Title: President
STATE OF WASHINGTON
)ss.
County of Spokane
On this day personally appeared before me RICHARD D. ROLLNICK, and on oath
stated that he was authorized to execute the instrument and acknowledged it as
the President of CROWN WEST REALTY,, L.L.C.; to be the free and voluntary act of
such party for the uses and purposes therein mentioned.
GIVEN under my hand and official seal this ______ day of ________________.
Name Printed: _________________
NOTARY PUBLIC in and for the State of Washington,
residing at Spokane.
Appointment Expires:____________
<PAGE>
STATE OF WASHINGTON
)ss. county of Spokane
On this day personally appeared before me JOHN G. WHITE, and on oath
stated file he was authorized to execute the instrument and acknowledged it as
the President of CXT, INCORPORATED, to be the free and voluntary act of such
party the uses and purposes therein mentioned.
OQ
GIVEN under my hand and official seal this ___________ of ______________ 1998.
Name Printed.__________________ I
NOTARY PUBLIC in and for the State
of Washington, residing at Spokane.
Appointment Expires:
<PAGE>
LEASE
CROWN WEST REALTY, L.L.C.
Lessor
CXT INCORPORATED
Lessee
Dated: December 20, 1996
<PAGE>
Page No.
13.2 Pre-approved Additions .........................................6
13.2.1 Batch Plant ..................................................6
13.2.2 Rail Line ....................................................6
13.2.3 Additional Cranes ............................................6
13.2.4 Hot Oil Heat Exchangers ......................................6
13.2.5 Exterior 33-Ton Crane ........................................6
14. Repairs or Services by Lessor ....... . . . . . . . . . . . . 7
14.1 Building Repair . . . . . . . . . . . . . . . . . ........... 7
14.2 Services . . . . . . . . . . . . . . . . . . ........... . . .7
15. Repairs by Lessee . . . . . . . . . . .... . . . . . . . . . .7
16. Surrender on Termination . . . . . . . . ....... . . . . . . .7
17. Mechanic's Liens 8
18. Signs, Lights and Sounds 8
19. Displays of Merchandise ......................................8
20. Streets, Parking Areas and Rules ........... . . . . . . . . .8
21. Access . . ... . . . . . . . . . . . . . . . . . . . . . . . .9
22. Utilities . . . . . .... . . . . . . . . . . . . . . . . . . .9
23. All Charges Deemed Rent . ......... . . . . . . . . . . . . . 9
24. Indemnification and Insurance ................................9
24.1 In General ............... 9
24.1.1 Acts or Omissions ............................................9
24.1.2 Accidents ...................................................10
24.1.3 Breach of Lease .............................................10
24.1.4 Lessor's Performance ........................................10
24.1.5 Hazardous Substances ........................................10
24.2 Lessee Liability Insurance ..................................10
24.3 Notice of Claim .............................................11
24.4 Waiver by Lessee ............................................11
25. Insurance and Waiver of Subrogation .........................11
26. Damage/Rebuilding 12
27. Condemnation 12
28. Taxes, Assessments and Insurance Premiums 13
28.1 Reimbursement ................................... 13
28.2 Lessee's Taxe 13
29. Non-waiver of Breach 14
30. Default 14
31. Litigation Costs/Venue 14
32. Removal of Personal Property by Lessee 14
33. Removal of Property by Lessor 15
34. Loading Platforms .......................................... 15
35. Insolvency ..................................................15
36. Assignments and Subletting . ...... .........................15
36.1 Consent Required . . .. . . . . . . . . . . . . . 15
36.2 Change in Lessee Ownership . . . . . . . . . . . . ..... . . 15
36.3 Request for Consent . . . . . . . . . . . . . . .............15
36.4 Reimbursement of Costs ......................................16
36.5 Withholding Consent .........................................16
36.6 Conditions of Consent ............................ 16
36.7 Increased Rent Shared .......................................16
36.8 Submit Documents ............................................16
36.9 Assignee Bound ................................... 16
36.10 Lessee Remains Obligated ....................................16
36.11 Additional Notice ...........................................16
36.12 Joint Liability .............................................17
36.13 Default .....................................................17
37. Statements by Lessee . . . . . . . . . . . . . .......... . .17
38. Subordination . . . . . . . . ...... . . . . . . . ..........17
39. Short Form Lease . . . . . . . . . . . . . . . . ...... . . .17
<PAGE>
LEASE
This Lease made and entered into this 20th day of December, 1996, between CROWN
WEST REALTY, L.L.C. hereinafter referred to as "Lessor", and CXT INCORPORATED,
a Delaware corporation, hereinafter referred to as "Lessee",
WITNESSETH:
It is agreed by and between Lessor and Lessee as follows:
1. Description of Premises. Lessor hereby leases to Lessee and Lessee hereby
leases from Lessor those certain premises, hereinafter referred to as
"Premises", situated in Spokane County, State of Washington, described as:
Building #7 comprising approximately 120,000 square feet and approximately rive
acres of land to be used for storage immediately east of Building #7, across
5th Street, (See Exhibit B attached) located at 3808 N. Sullivan Road being
part of an organized industrial district commonly referred to as the "Spokane
Business & Industrial Park," hereinafter referred to as the "Park" as shown on
the attached Exhibit A and more particularly described as follows:
The South Half of Section 1, and that portion of Section 12 lying North of the
Northerly right of way line of the Spokane International Railroad, Township 25
North, Range 44 East of the Willamette Meridian, County of Spokane, State of
Washington.
The Lessee may use the five acres to store material. All materials shall be
stored in a neat and secure manner. Except for those improvements which the
Lessor specifically agrees to provide, as set forth in this Lease, the Lessee
shall be responsible for the installation, construction and maintenance of all
improvements to the Premises.
Lessee shall have the right to cross 5th Street between the said five-acre
parcel and Building 7 without going to an intersection, provided that
north-south traffic on 5th Street has the right of way and Lessee's vehicles
thus crossing 5th Street shall not unreasonably impede north-south traffic on
5th Street.
2. Term. The term of this Lease shall be 76 months, commencing on the 1st
day of December, 1996 and ending on the 31st day of March, 2003.
3. Rent. The monthly base rent which includes base year taxes, assessments,
insurance and common area costs, except as provided in paragraph 28, shall be as
follows:
December 1, 1996 through March 31, 1997 $ 0.00
April 1, 1997 through October 31, 1997 $15,600.00
November 1, 1997 through September 30, 1998 $16,800.00
October 1, 1998 through September 30, 1999 $20,400.00
<PAGE>
October 1, 1999 through September 30, 2000 $20,400.00
October 1, 2000 through September 30, 2001 $21,600.00
October 1, 2001 through September 30, 2002 $21,600.00
October 1, 2002 through March 31, 2003 $24,000.00
Said rental for each month shall be paid to Lessor monthly in advance on or
before the first business day of the month for which said rent is due at the
office of Lessor at the Park.
A late charge of 1%% of the delinquent amount will be added to all amounts of
base rent and additional due that are not received by the tenth of the month in
which they are due.
4. Option To Extend. Lessee is hereby granted options to extend this Lease for
two additional five-year terms upon all of the terms and conditions, except
rent, as provided in this Lease, modified only as necessary to conform to
applicable laws and regulations; provided that the Lessee is, both at the time
of exercising an option to extend and at the time of commencement of the
extended term, not in material default under the then-current lease. In order
to exercise an option to extend, the Lessee must give written notice to the
Lessor not less than 150 days prior to the expiration of the then-current lease
term.
The base rent during the option terms, if exercised, shall be as follows:
April 1, 2003 through March 31, 2004 $31,200.00
April 1, 2004 through March 31, 2005 $32,292.00
April 1, 2005 through March 31, 2006 $ 33,422.00
April 1, 2006 through March 31, 2007 $34,592.00
April 1, 2007 through March 31, 2008 $ 35,803.00
April 1, 2008 through March 31, 2009 $37,056.00
April 1, 2009 through March 31, 2010 $38,353.00
April 1, 2010 through March 31, 2011 $ 39,695.00
April 1, 2011 through March 31, 2012 $41,084.00
April 1, 2012 through March 31, 2013 $42,522.00
5.Options To Terminate.
5.1 This Lease. Lessee is hereby granted the one-time option to
terminate this Lease effective on February 28, 1999, by giving Lessor not less
than 150 days' prior written notice. If said option to terminate is exercised,
Lessee shall pay Lessor $32,500.00, representing reimbursement to Lessor of
$15,000.00, being 50% of the amount that the Lessor has agreed to pay toward
the cost of repairing cranes; plus $17,500.00, being approximately 50% of the
cost incurred by Lessor in complying with paragraph 10.7.
5.2 S-20 Lease. Lessee is currently leasing Building #S-20, on Lot 18,
BSP 88-21 from Lessor pursuant to a Lease dated November 1, 1991. Provided that
Lessee does not exercise its option to terminate this Lease as provided in
paragraph 5. 1, Lessee is hereby granted
<PAGE>
the option to terminate the said Lease of Building #S-20 effective on either
December 31, 1998, or December 31, 1999, by giving written notice to Lessor not
less than 150 days prior to the termination date, which shall be stated in the
notice, and by paying Lessor the sum of $4,800.00 per month on the first
business day of each month, commencing in the month of January immediately
following the termination date and continuing through March, 2003. Late charges
would apply if not paid on time, the same as with rent.*
*Should Lessee exercise its option to terminate its lease for Building #S-20
under this paragraph #5.2, then Lessee's option to terminate this lease for
Building #7 under paragraph #5.1 shall expire and become null and void.
6. Possession/Peaceful Enjoyment. Lessee shall be entitled to possession of the
Premises on December, 1, 1996, it being recognized that the prior tenant of
Building #7 is in the process of moving out so that the Lessee will not have
full use of the Premises until the prior tenant finishes moving out. Except as
provided above, the Lessee shall have peaceful and quiet enjoyment throughout
the term of this Lease and any exercised option terms, all subject to the
Lessee performing its obligations under this Lease.
7. Holding Over. If the Lessee shall, with the written consent of Lessor, hold
over after the expiration of the term of this Lease, or any exercised option
term, such tenancy shall be on a month-to-month basis, and may be terminated as
provided by the laws of the State of Washington. During such tenancy, Lessee
agrees to pay to the Lessor the rental rate set forth in the written consent,
and to be bound by all the terms, covenants and conditions of the lease then in
effect. If the Lessee holds over without the written permission of the Lessor,
Lessee shall be tenant at sufferance and shall pay base rent on a daily basis
at a rate per day equal to 5% of the monthly rent then in effect.
8. Lease Deposit. Waived.
9. Business Purposes. The Premises are to be used for the purpose of conducting
therein and thereon the following business: The manufacture of concrete
products, steel fabrication, equipment repair and other related manufacturing
activities, and the storage of related materials and products, and for none
other without the prior written consent of Lessor. Lessee shall promptly notify
Lessor of any proposed change in use of the Premises, but in no event later
than 14 days prior to said proposed change. Lessor's consent to any proposed
change shall not to be unreasonably withheld or delayed.
10. Acceptance of Premises.
10.1 As Is. Except as otherwise specifically provided in this Lease,
Lessee, having made a careful and complete inspection of the Premises, accepts
said Premises strictly "AS IS" in their present condition and without any
representations or warranties, express or implied, as to their condition or
suitability for Lessee's intended use.
10.2 Existing Cranes. There are presently three ten-ton cranes
installed in Building #7 which the parties recognize are in need of repair. The
Lessee will, within a reasonable time, perform all repairs necessary to put the
cranes in good working order and in compliance with applicable laws and
regulations. The Lessor will reimburse the Lessee for the cost of such
under this paragraph #5.2, then Lessee's option to terminate this lease for
Building #7 under paragraph #5.1 shall expire and become null and void.
<PAGE>
repairs to the extent of $30,000.00. Thereafter the Lessee shall maintain said
cranes in good working order throughout the term of this Lease and any
extensions or renewals thereof.
10.3 Office HVAC. The Lessor represents that the HVAC system for the
office area is in normal operating condition. The Lessor will perform any
repairs necessary to put the office HVAC system in normal operating condition,
provided that the need for repair is called to the Lessor's attention by
written notice given not later than December 13, 1996. Thereafter the Lessee
shall maintain said HVAC system in good working order throughout the term of
this Lease and any extensions or renewals thereof. Lessor shall provide Lessee
with a report from a licensed HVAC contractor certifying that both the heating
and air conditioning aspects of the HVAC system are in good operating condition
at the commencement of this Lease.
10.4 New Doors. The Lessor will, within a reasonable time, and in no
event later than January 31, 1997, install four additional electrically
operated truck access doors as shown on Exhibit C attached. Upon completion of
the installation of all four doors, the Lessee will reimburse the Lessor for
the cost thereof to the extent of $10,500.00.
10.5 Existing Doors. All existing overhead doors, man doors and
windows shall be in good operating condition as of the commencement of this
Lease. The Lessor will perform any repairs necessary to make such doors and
windows in operating condition, provided that the need for repair is called to
the Lessor's attention by written notice given not later than December 13,
1996. Thereafter the Lessee shall maintain said doors and windows in good
working order throughout the term of this Lease and any extensions or renewals
thereof.
10.6 Overhead Power Line. The Lessor will, upon the written request of
the Lessee given at any time during the first year of this Lease, and at the
Lessee's cost, relocate the existing overhead power line at the east end of the
building so as to provide reasonable 'clearance for the Lessee's equipment
moving in and out of Building #7.
10.7 Gravel. The Lessor will grade the five-acre parcel which is part
of the Premises and will remove topsoil, black dirt and organic matter in order
to establish a firm mineral soil base and will install three inches of7/s " or
11/4" minus crushed gravel, all within a reasonable time, and as weather
permits.
10.8 Paving. The Lessor will, within a reasonable time, and not later
than June 30, 1997, asphalt pave the area between the east end of Building #7
and 5th Street.
10.9 5th Street Gate. The Lessor will, within a reasonable time, and
not later than February 28, 1997, install a gate for access to the Park from
5th Street. The gate will be locked other than during general business hours.
The gate will be controlled by an access card system or similar device. A
reasonable number of access cards or similar access devices will be checked out
to the Lessee so that the Lessee will have access to Building #7 from 5th
Street at all times.
<PAGE>
10. 10 Interior Rail Line. Lessor will, upon receipt of such funds
from the prior tenant, reimburse Lessee to the extent of $5,000.00 of the
Lessee's cost of reinstalling interior continuous rail line in accordance with
plans approved by Lessor, such approval not to be unreasonably withheld or
delayed.
11. Compliance with Laws. Lessee shall, at all times, and at its sole expense,
keep and use the Premises in accordance with applicable laws and ordinances and
in accordance with applicable directions, rules and regulations of public
bodies or entities. Lessee shall not overload the floors, cranes or other parts
of the Premises, and shall permit no waste of, or damage or injury to, the
Premises, and will not permit the Premises to be used in any way which is
unlawful, offensive or dangerous, or which may be, or become, a nuisance, or in
any manner which is, by reason of the emission of dust, odor, gas, fumes,
smoke, or noise, noxious or offensive to a person of normal sensibilities
occupying space in an industrial park or in a manner that significantly
increases the risk of fire. The Lessee's use of concrete vibrators in the
ordinary course of its business shall not constitute a violation of this
paragraph.
12. General Obligations of Lessee. Lessee shall, at all times, keep the
Premises, loading platforms, parking area, and service areas adjacent to the
Premises clean and free from snow, ice, ash, rubbish, dirt, and unlawful
structures and shall store all products, materials (hazardous or otherwise),
dangerous substances, trash and garbage securely within the Premises. Lessee
shall arrange for weekly (or more often if needed) pick-up of such trash and
garbage as may be generated by Lessee, all at the Lessee's expense. Lessee may
install a waste dump area on the south side of Building #7 in accordance with
plans approved by Lessor, such approval not to be unreasonably withheld or
delayed. Should Lessee fail to remove trash, garbage, refuse or materials from
any location outside of the Premises within three days after written notice
from Lessor, Lessor, at its option, may remove such items at Lessee's expense.
Lessee agrees to hold Lessor harmless from any loss or damage resulting from
Lessor's removal of any such items. Lessee shall permit no animals to be kept
on the Premises.
13. Alterations.
13.1 Consent Required. Lessee shall not, without the prior written
consent of Lessor, make any alterations, additions, or improvements in or to
said Premises, which consent shall not be unreasonably withheld or delayed.
Lessor's consent may be conditioned on an agreement (a) that the same will be
removed by the Lessee at the termination of this Lease, or (b) that the same
will be maintained in good repair by the Lessee and left on the Premises at the
termination of this Lease. Lessee shall make no perforations in the building
shell without prior review and approval of a duly licensed structural engineer
and the prior written approval of the Lessor. Trade fixtures, appliances and
equipment shall not be deemed alterations, additions or improvements unless the
removal of the same would do material damage to the Premises. Unless
specifically agreed to by Lessor in writing, Lessee shall not be compensated in
any manner for an alteration, addition, or improvement to the Premises. Should
Lessee fail to request written consent from Lessor at least 14 days prior to
initiation of alterations, additions, or improvements, Lessee shall, at
Lessor's option, be obligated to pay all costs incurred by
<PAGE>
Lessor associated with performing a due diligence evaluation of Lessee's
proposal, including without limitation the cost of Lessor's employees and the
costs of legal, engineering and architectural services.
13.2 Pre-approved Additions. The following alterations, additions and
improvements are hereby approved by the Lessor, all to be performed at the sole
cost and expense of the Lessee and in accordance with plans approved by the
Lessor prior to the commencement of the work, approval not to be unreasonably
withheld:
13.2.1 Batch Plant. Lessee may erect a concrete batch plant
and wash down sump on the west or south side of Building #7 in accordance with
plans approved by Lessor, such approval not to be unreasonably withheld or
delayed. Lessee's plans shall include, but not be limited to, the precise area
to be occupied, the design of the structure and final paint color. All
construction shall be subject to environmental approvals, governmental
approvals and building permits. On the termination of this Lease the Lessee
may, and will, if so requested by Lessor, remove the batch plant and restore
the area, including parking, to its prior condition. Lessee shall give notice
to Lessor at least 30 days prior to the termination of this Lease as to whether
or not it elects to remove the batch plant. Within 30 days after receipt of
such notice or, if no notice is given, then within 30 days after the
termination of this Lease, Lessor may notify Lessee that Lessee is required to
remove the said batch plant
13.2.2 Rail Line. Lessor will make available to Lessee, at no
cost, all rail and switch material currently in its possession, which is not
presently being used or specifically planned for future use, for the purpose of
constructing approximately 1,000 feet of rail line in Building #7 and on the
five-acre parcel. The installation will be in accordance with plans approved in
writing by the Lessor prior to the commencement of the work, approval not to be
unreasonably withheld or delayed. The rail line, as thus installed, will be
left in place on termination of this Lease.
13.2.3 Additional Cranes. Lessee may install additional
cranes in the two, 39-foot span wing bays. Lessee will provide all steel
supports, duct bar and the cranes themselves. All such installation will be in
accordance with plans approved by the Lessor prior to the commencement of the
work, approval not to be unreasonably withheld or delayed. Lessee may, and
will, if so requested, in the same manner as provided in paragraph 13.2. 1,
remove all such installations and restore the Premises to its prior condition.
13.2.4 Hot Oil Heat Exchangers. Lessee may install a Hot Oil
Exchanger(s) inside the building, subject to all state, local and environmental
inspections and approvals, and approval of plans by Lessor prior to the
commencement of the work, approval not to be unreasonably withheld. Lessee may,
and will, if so requested, in the same manner as provided in paragraph 13.2. 1,
remove all such installations and restore the Premises to its prior condition.
13.2.5 Exterior 33-Ton Crane. Lessee may install a 33-ton overhead bridge
crane with supporting steel structure at the east end of Building #7 utili2ing
the existing
<PAGE>
concrete pillars. Lessee may, and will, if so requested by Lessor, in the same
manner as provided in paragraph 13.2.1, remove the same and the concrete
pillars, at the termination of this Lease.
14. Repairs or Services by Lessor.
14.1 Building Repair. Lessor shall, throughout the terms of this Lease
and any exercised renewal term, keep in good order, condition, and repair the
foundation, exterior walls (except the interior faces thereof), sprinkler
system, if any, down spouts, gutters, and roof of the Premises, except for
repairs necessitated or caused by any act or negligence of Lessee, its
employees, agents, invitees, licensees or contractors. Lessee shall be liable
for repairs necessitated by such negligence only to the extent of the
deductible amount under any policy of property damage insurance maintained by
Lessor, not to exceed the sum of $25,000, provided, however, that there shall
be no obligation to make such repairs as are the obligation of the Lessor,
until after the expiration of five days' written notice from Lessee to Lessor
of the need thereof.
14.2 Services. At any time during the Lease or any exercised option
term, should Lessee request any special services from Lessor not otherwise
provided for in this agreement, and if the services are of such a nature that
the Lessor can reasonably provide them, Lessor will use its best efforts to
provide said special services. Lessee shall be obligated to reimburse Lessor
for all reasonable costs incurred in providing said services. Reasonable costs
shall include but not be limited to such things as attorney fees, engineering
services, and other professional fees, salary and benefits for employees of the
Lessor and third parties employed by Lessor to provide such special services.
The term "special services" includes, but is not limited to, such things as
negotiations with financial institutions servicing Lessee, execution of Consent
and Waiver Agreements, and emergency response assistance by employees or
independent contractors employed by Lessor who assist Lessee in preventing or
reducing damage to the Premises for which Lessee is responsible.
15. Repairs by Lessee. Except as otherwise provided, Lessee shall keep and
maintain said Premises in a neat, clean and sanitary condition and in as good
condition as at the inception of this Lease or as they may be in at any time
during the continuance of this Lease, including without limitation all HVAC
systems and equipment, all electrical wiring and fixtures, all cranes, all
plumbing and sewage facilities and all windows, overhead doors and man doors,
docks and appurtenances, within or attached to Building #7 or on the Premises.
Lessee's duty to repair shall include replacement of parts or components of the
Premises, or fixtures in the Premises that cannot be repaired. In the event
Lessee fails to promptly undertake and reasonably complete repairs required
under this paragraph, Lessor may, at its option, make the repairs at the
expense of Lessee and the cost of the repairs shall be additional rent and
shall be immediately due and payable.
16. Surrender on Termination. At the expiration of this Lease or its earlier
termination, Lessee shall, without notice, turn in all keys and access cards,
or similar devices, and re-deliver possession of said Premises to Lessor broom
clean and in as good condition as they were in at any time during the Lease
term, including any exercised option, ordinary wear and tear and damage by
insured peril or uninsured casualty not the fault of the Lessee, excepted.
17. Mechanic's Liens. Lessee agrees to pay when due all sums that may become
due for any labor, services, materials, supplies, or equipment furnished at the
instance of the Lessee, in, upon or about the Premises and which may be secured
by any mechanic's, materialman's or other lien against the Premises and/or
Lessor's interest therein, and will cause each such lien to be fully discharged
and released at the time of any obligation secured by any such lien matures
and/or becomes due; provided that if the Lessee in good faith disputes the
claim of lien the Lessee may pursue such dispute in any lawful manner, provided
that it bonds against such lien to the Lessor's reasonable satisfaction.
18. Signs, Lights and Sounds. Lessee shall not erect or install any exterior
signs or symbols without Lessor's prior written consent. Lessee shall not use
any advertising media or other media, such as loudspeakers, phonographs or
radio broadcasts, that may be deemed objectionable to Lessor or other tenants
of the Park, or that can be heard outside the Park. Lessee shall not install
any exterior lighting, shades or awnings or any exterior decorations or
paintings, or build any fences or make any changes to the exterior portions of
the Premises without Lessor's consent. Any signs or symbols so placed on the
Premises shall be removed by the Lessee at the termination of this Lease and
the Lessee shall repair any related damage or injury to the Premises. If not so
removed by Lessee, the Lessor may have the same removed and repairs performed
at Lessee's expense.
19. Displays of Merchandise. Lessee shall not keep or display any merchandise
on, or otherwise obstruct, any street, loading platforms or areaways adjacent
to the Premises, except that Lessee may store products, materials or
merchandise in a neat and orderly manner in the area between the south wall of
Building #7 and the rail line immediately south of Building #7. Lessee shall
not otherwise store products, materials or merchandise in any areas outside of
the Premises, provided that Lessee may, with Lessor's prior approval, such
approval not to be unreasonably withheld or delayed, display its products at
the primary entrance to Building #7, but not in such a way as to obstruct any
street, platform or common areas.
20. Streets, Parking Areas and Rules. Lessor shall keep the streets 20 feet on
each side of the center lines and areas used in common by the tenants of the
Park, as designated by Lessor from time to time, in reasonable repair and
condition, including such snow removal as Lessor may reasonably deem necessary
for normal access to the Premises. Lessor reserves the right to promulgate such
reasonable rules and regulations relating to the use of the streets and parking
areas within the Park as it may deem appropriate and for the best interests of
all tenants and Lessee agrees to abide by such rules and to cooperate in the
observance thereof. Such rules and regulations shall be binding upon Lessee
upon delivery of a copy thereof to Lessee. Such rules and regulations may be
amended by Lessor from time to time with or without advance notice and all such
amendments shall be effective upon the delivery of a copy thereof to Lessee,
provided that such rules and regulations shall not be amended in such a way as
to impose an
<PAGE>
unreasonable financial burden on Lessee. Lessee shall not obstruct any portion
of the common areas. Any violation of such rules and regulations by Lessee, its
officers, agents, employees or invitees will constitute a breach of this Lease
and entitle the Lessor to claim a default in the same manner and to the same
extent as any other default under the Lease. Lessee shall comply with all rules
and regulations of the applicable fire district or other governmental entities
having jurisdiction over the Premises.
21. Access. Lessor shall have free access to the Premises at all reasonable
times for purposes of inspecting of the same or of making repairs, additions or
alterations to said Premises but this right shall not constitute or be
construed as an agreement on the part of Lessor to make any repairs, additions
or alterations, except such as Lessor is obligated to make. Lessor shall have
the right to place and maintain "For Rent" signs in a conspicuous place or
places on the Premises and to show the Premises to prospective tenants for 90
days prior to the expiration or sooner termination of this Lease.
22. Utilities. Lessee shall pay all charges for light, heat, water, gas,
sewage, telephone and aquifer protection and other utilities which shall be
provided to, or charged against, the Premises. In the event that electricity,
heat, water, telephone or other utilities are furnished through Lessor, Lessee
shall pay Lessor therefor according to Lessee's use thereof at the rates
established therefor by Lessor, said rates to be no higher, however, than those
which Lessee would be required to pay a third-party provider an available
public utility company if it directly furnished such service to Lessee.
23. All Charges Deemed Rent. All costs, expenses, and other charges which the
Lessee assumes or agrees to pay pursuant to this Lease shall be deemed to be
additional rent. In the event of a non-payment, Lessor shall have all the
rights and remedies herein provided for in case of non-payment of rent.
24. Indemnification and Insurance.
24.1 In General. Lessee releases and, subject to the provisions of
paragraph 25, shall defend, indemnify and hold harmless Lessor, and each of its
officers, directors, managers, members, owners, employees, agents and
representatives, from and against all liabilities, obligations, damages,
penalties, fines, judgments, claims, costs, charges, fees and expenses,
including, but not limited to, costs of investigation and correction, costs of
remediation or removal of hazardous materials, and reasonable architect,
attorney and consultant fees and costs, which may be imposed upon, incurred by,
or asserted against, Lessor or its officers, directors, members, owners,
employees, agents or representatives by reason of any of the following:
24.1.1 Acts or Omissions. Any act or omission in, on, about
or arising out of, or in connection with, the use, operation, maintenance and
occupancy of the Premises or any part thereof, whether or not consented to by
Lessor, by Lessee, or Lessee's agents, contractors, servants or employees
(whether or not within the scope of their employment), licensees or
<PAGE>
invitees, except to the extent caused by the negligence or intentional
misconduct of Lessor or its agents, contractors, subcontractors, servants or
employees;
24.1.2 Accidents. Any accident, injury, casualty, loss, theft
or damage whatsoever to any person or tangible property occurring in, on, about
or arising out of, or in connection with, the use or occupancy by Lessee of the
Premises, any common area, roadway, alley, basement, pathway, curb, parking
area, passageway or space under or adjacent thereto arising from any cause or
occurrence whatsoever, except to the extent caused by the negligence or
intentional misconduct of Lessor or its agents, contractors, subcontractors,
servants or employees;
24.1.3 Breach of Lease. Any failure on the part of Lessee or
any of its agents, contractors, subcontractors, servants or employees to
perform or comply with any of the covenants, agreements, terms, provisions,
conditions or limitations contained in this Lease;
24.1.4 Lessor's Performance. Any act performed by Lessor in the exercise of
any of Lessor's rights under this Lease; or
24.1.5 Hazardous Substances. Any presence, release,
discharge, disposal, dumping, spilling or leaking (accidental or otherwise),
now or hereafter determined to be unlawful or subject to environmental laws or
governmentally imposed remedial requirements, occurring on the Premises during
the Lessee's occupancy thereof, of any hazardous, dangerous or toxic substance
of any kind (whether or not now or hereafter regulated, defined or listed as
hazardous, dangerous or toxic by any local, state, or federal government) into,
onto or under the ground or the air, soil, surface water, or ground water
thereof, or the pavement, structure, sewer system, fixtures, equipment, tanks,
containers or personalty at the Premises, or from the Premises, into, onto
orunder the Park or the property of others. Any violation of paragraph 42. The
foregoing indemnity shall apply notwithstanding any provisions of federal,
state or local law which provide for exoneration from liability in the event of
settlement with any governmental agency, and notwithstanding Lessor's consent,
knowledge, action or inaction with respect to the act or occurrence giving rise
to such right of indemnity, provided that Lessee shall, in no event, have any
liability with respect to any hazardous substances that are present on the
Premises at the inception of this Lease. Lessor shall indemnify Lessee and hold
Lessee harmless with respect to any liability with respect to any hazardous
substances that are present on the Premises at the inception of this Lease.
24.2 Lessee Liability Insurance. Lessee agrees to carry Commercial
General liability insurance insuring both Lessee and Lessor, with insurance
carriers satisfactory to Lessor, with not less than $2,000,000 single limit and
providing a Certificate of Insurance evidencing the same with not less than a
30-day cancellation clause, provided, however, that Lessee's obligation to
indemnify and hold harmless Lessor as provided in this paragraph shall be to
the extent only of the degree of negligence attributable to Lessee, its
officers, employees, agents, invitees, or guests. Such insurance certificate
shall also include not less than $50,000 "Fire Damage" liability for damage to
the Premises. In the alternative, Lessee may carry "Building Legal Liability
Insurance Special Form" (insurance industry forms CP0040 and CP1030 or
equivalent) against Lessee's liability (pursuant to paragraphs (14.1 and 25).
24.3 Notice of Claim. If any action or proceeding is brought against
Lessor or its officers, directors, managers, members, owners, employees, agents
or representatives by reason of any claim indemnified under paragraph 24 Lessor
shall promptly notify Lessee of such claim and Lessee, at Lessee's expense,
shall immediately resist or defend such action or proceeding employing counsel
approved by Lessor in writing, which approval shall not be unreasonably
withheld. In connection with any such action brought against Lessor by any one
or more of Lessee's employees, Lessee waives any immunity, defense or other
protection that might be afforded to Lessee by any worker's compensation,
industrial insurance or similar laws, with regard to such claim or action
against Lessor.
24.4 Waiver by Lessee. Lessee waives and releases all claims against
Lessor, its officers, managers, partners, employees, agents and
representatives, for any loss, injury or damage (including consequential
damages), to Lessee's property or business during the term of this Lease
occasioned by theft, act of God, public enemy, riot, strike, insurrection, war,
order of court, governmental body or authority not resulting from any act or
omission of Lessor, earthquake, flood, fire, explosion, falling objects, steam,
water, rain or snow, leak or by flow of water, rain or snow from the Premises
or onto the Premises or from the roof, street, surface or subsurface or from
any other place, or by dampness, or by the breakage, leakage, obstruction or
defects of the pipes, sprinklers, wires, appliances, plumbing, heating, air
conditioning, lighting fixtures of the Improvements, or by the construction,
repair or alteration of the Premises or by any other acts or omissions of any
other tenant or occupant of the Park, or visitor to the Park or the Premises or
by any third party whomsoever, or by any cause which is beyond Lessor's
control.
24.5 Lessee's obligations under this paragraph 24 shall survive any
termination or expiration of this Lease.
25. Insurance and Waiver of Subrogation. Lessor shall maintain fire and
extended coverage insurance on the buildings and improvements at the Park which
belong to Lessor and pay for the same, subject to partial reimbursement as
provided in paragraph 28.1. If the activities of the Lessee shall increase the
cost of such insurance or jeopardize the availability of coverage due to
Lessee's operations or failure to comply with fire codes and regulations,
Lessor shall have the right to increase the rental payable hereunder by an
amount equal to the increased cost of insurance premiums resulting therefrom.
If Lessor's insurance hereunder should be canceled due to any actions of
Lessee, Lessor may terminate this Lease upon 20 days' notice to Lessee as
provided in paragraph 30.
Lessee shall maintain appropriate property insurance covering its personal
property, assets, and fixtures located on the Premises.
<PAGE>
Lessor and Lessee each waive all rights to recover against the other or against
the officers, directors, shareholders, partners, members, owners, joint
ventures, employees, agents, customers, invitees, or business visitors of the
other for any loss or damage to its property arising from any cause except that
Lessee shall remain liable for Lessor's -deductible up to a maximum amount of
$25,000 for its obligations under paragraphs 14 and 15 and the waiver provided
herein to that extent shall not apply. Lessor and Lessee will cause their
respective insurers to issue appropriate waiver of subrogation rights
endorsements to all policies of insurance carried in connection with the
Premises or the contents thereof.
26. Damage/Rebuilding. If the Premises are destroyed or damaged by acts of war,
the elements (including earthquake), or fire to such an extent as to render the
same untenantable in whole or in substantial part, the Lessor has the option of
rebuilding or repairing the same to be exercised by giving notice to Lessee of
its intent to rebuild or repair the Premises or the part so damaged within 30
days after receiving notice of the occurrence of any such damage. If the Lessor
elects to rebuild or repair and does so without unnecessary delay, Lessee shall
continue to be bound by this Lease except that during such period the base rent
shall be abated in the same proportion that the Premises are rendered unfit for
occupancy by Lessee. If the Lessor fails, for 30 days after the Lessee gives
notice of the damage-causing event, to give notice of its intent to repair,
Lessee shall have the right to declare this Lease terminated. Lessor's
obligation (should it elect to repair or rebuild) shall be limited to the
Premises as they existed at the commencement of this Lease, including those
improvements which the Lessor was required to perform, and Lessee shall
forthwith replace or fully repair, at its expense, all exterior signs, trade
fixtures, equipment and other installations originally installed by Lessee or
remove the same and repair any damage caused by their removal. Lessee agrees to
give prompt written notice to Lessor of any fire loss or of any other damage
which may occur to the leased Premises or any portion thereof, or of any other
condition or occurrence causing the leased -Premises to be untenantable.
27. Condemnation. If the Premises, or any part thereof the loss of which
impairs the utility of the Premises to a significant extent, are appropriated
or taken for any public use by virtue of eminent domain or condemnation
proceeding, or by conveyance in lieu thereof, or if by reason of law or
ordinance or by court decree, whether by consent or otherwise, the use of the
Premises by Lessee for any of the specific purposes herein before referred to
shall be prohibited, Lessee shall have the right to terminate this Lease upon
written notice to Lessor, and rent shall be paid only to the time when the
Lessee surrenders possession of the Premises. In the event of a partial taking,
if Lessee is entitled to, but does not elect to, terminate this Lease it shall
continue in possession of that part of the Premises not so taken under the same
terms and conditions hereof, except that there shall be an equitable reduction
of the base rental payment hereunder. All compensation awarded or paid upon
such a total or partial taking of the fee of the Premises shall belong to and
be the property of Lessor, whether such compensation be awarded or paid as
compensation for diminution in value of the leasehold or to the fee; provided
however, Lessor shall not be entitled to any award made to Lessee for loss of
business, depreciation to, and cost of removal of stock and/or fixtures,
provided that no award for such claims shall reduce the amount of any award
made to Lessor.
<PAGE>
28. Taxes, Assessments and Insurance Premiums.
28.1 Reimbursement. The Lessee will reimburse the Lessor for increases
over 1996 (base year) amounts in the amount of real property taxes and
assessments, and for this purpose assessments will be paid by the Lessor in the
minimum required amount per year, and premiums for fire insurance, with
extended coverage applicable to all insurable buildings and improvements in the
Park, including without limitation the cranes now or hereafter installed in the
Premises, and with deductibles of $25,000.00 for losses by fire and other
insured causes. All other common area costs are the sole responsibility of the
Lessor. The Premises, taking into account both the building and the storage
area, constitute approximately 3.2% of the Park. It is, therefore, agreed that
the taxes, assessments and insurance premiums ("TAIP") applicable to the
Premises is 3.2% of the total TAIP applicable to the Park. In the event that
there is a material change in the Park, either in land area or in improvements
such that the Premises is significantly different from 3.2% of the Park, there
will be an equitable adjustment in the Lessee's percentage.
Commencing with the month of January, 1997, the Lessee will pay as additional
rent, monthly, at the same time as base rent, if any, is due, an amount equal
to 1/12th of 3.2% of the amount by which the TAIP for the current year exceeds
the amount of the TAIP for the year 1996, when it was $638,679-00.
Inasmuch as the TAIP for any given year will not be fully known as of January 1
of such year, the Lessee will continue to pay at the prior year's rate,
adjusted to the extent that the amounts that make up the TAIP for the current
year are known. At such time as all amounts that make up the TAIP for the
current year are known the monthly payment on account of TAIP will be changed
and a further payment, or refund, as the case may be, will be made to
compensate for any shortage or overage in the added rent paid in the preceding
months. If there is a refund due it will be sent with the notice of the new
TAIP amount. If there is a further amount owed it will be paid along with the
next monthly rent.
28.2 Lessee's Taxes. Lessee shall pay all personal property taxes
imposed on Lessee's fixtures and equipment and all other taxes, installments of
assessments (amortized over the longest permissible time), except general
property taxes and assessments, levies, licenses and permit fees, utility
hook-up fees and facility charges, and other governmental charges and
impositions of any kind and nature whatsoever, together with any interest or
penalties attributable to tenant's failure to pay the same when due, which at
any time during the term of this Lease may be assessed, levied or become due
and payable out of, or in respect of, the Premises or Lessee's use thereof, or
become a lien on the Premises, including, without limitation, any sales tax,
business and occupation tax, excise tax or similar tax or imposition imposed
upon rent or Lessor's business of leasing property, and the cost of compliance
with any governmental requirements or regulations relating the Lessee's use of
the Premises or the utility services thereto, or the conduct of Lessee's
business (collectively, the "Impositions"); provided, however, Lessee shall not
be obligated to pay Lessor's net income taxes or any transfer or excise tax
imposed upon the conveyance of the Premises, or business and occupation taxes
imposed
<PAGE>
upon Lessor's business activities other than leasing property. Impositions
shall be paid by Lessee when due if billed directly to Lessee, and within 30
days of receipt of billing by Lessor if such Impositions are billed to the
Lessor.
29. Non-waiver of Breach. The waiving of any of the covenants of this Lease by
either party shall be limited to the particular instance and shall not be
deemed to waive any other breaches of such covenants. The consent by Lessor to
any act by Lessee requiring Lessor's consent shall not be deemed to waive
consent to any subsequent similar act by Lessee. The failure of the Lessor to
insist upon strict performance of the covenants and agreements of this Lease,
shall not be construed to be a waiver or relinquishment of any such covenants
or agreements, but the same shall remain in full force and effect.
30. Default. If Lessee should fail to remedy any default (a) in the payment of
any sum due under this Lease within ten days after notice, or (b) in the
keeping of any other term, covenant or condition herein with all reasonable
dispatch, within 20 days after notice, then in any of such events, Lessor shall
have the right, at its option, in addition to, and not exclusive of, any other
remedy Lessor may have by operation of law, without further demand or notice,
to re-enter the Premises and eject all persons therefrom, using all necessary
force so to do, and either (i) declare this Lease at an end, in which event
Lessee shall immediately pay to Lessor a sum of money equal to the amount, if
any, by which the value of the rent reserved hereunder for the balance of the
term of this Lease, discounted to present value at 8% per annurn, exceeds the
then reasonable rental value of the Premises for the balance of said term,
discounted in like manner, net of all costs incident to reletting the Premises,
or (ii) without terminating this Lease may relet the Premises, or any part
thereof, as the agent and for the account of Lessee upon such terms and
conditions as Lessor may deem advisable, in which event the rents received on
such reletting shall be applied first to the expenses of such re-letting,
including without limitation necessary renovation and alterations of the
Premises, reasonable attorney fees, real estate commissions paid, and
thereafter toward payment of all sums due or to become due Lessor hereunder,
and if a sufficient sum shall not be thus realized to pay such sums and other
charges, Lessee shall pay Lessor any deficiency monthly, notwithstanding Lessor
may have received rental in excess of the rental stipulated in this Lease in
previous or subsequent months, and Lessor may bring an action therefore as such
monthly deficiencies shall arise.
31. Litigation Costs/Venue. If any legal action is instituted to enforce or
construe this Lease, or any part thereof, the prevailing party shall be
entitled to recover reasonable attorney fees and expenses. If any legal fees
are incurred by Lessor relative to the enforcement of any term of this Lease,
with or without suit, Lessee shall be liable to Lessor for said fees and shall,
within ten days of demand by Lessor therefor, pay the same to Lessor. Venue of
any legal action brought hereunder shall be Spokane County, State of
Washington.
32. Removal of Personal Property by Lessee. Lessee shall have the right to
remove all of its personal property, trade fixtures, and office equipment,
whether or not attached to the Premises, provided that such may be removed
without serious damage to the Premises. All damage to the Premises caused by
removal of such items shall be promptly restored or repaired
<PAGE>
by Lessee. M property not so removed as of the termination of this Lease
shall be deemed abandoned by Lessee.
33. Removal of Property by Lessor. If Lessor lawfully re-enters or takes
possession of the Premises prior to the stated expiration of this Lease, Lessor
shall have the right, but not the obligation, to remove from the Premises all
personal property located therein and may place the same in storage in a public
warehouse at the expense and risk of Lessee, and shall have the right to sell
such stored property, without notice to Lessee, after it has been stored for a
period of 30 days or more, the proceeds of such sale to be applied first to the
cost of such sale, second to the payment of the charges for storage, if any,
and third to the payment of any other sums which may then be due from Lessee to
Lessor under any of the terms hereof, the balance, if any, to be paid to the
Lessee.
34. Loading Platforms. The Lessee shall maintain all loading platforms
attached to Building #7.
35. Insolvency. If Lessee becomes insolvent, voluntarily or involuntarily
bankrupt, or if a receiver, assignee, or other liquidating officer is appointed
for the business of Lessee, then Lessor may cancel this Lease at its option.
36. Assignments and Subletting.
36.1 Consent Required. The Lessee shall not assign this lease, or any
interest therein, or sublet the Premises, or any part thereof, or allow, permit
or suffer any other entity to use or occupy any part of the Premises without
the prior written consent of the Lessor.
36.2 Change in Lessee Ownership. Lessee being a corporation, any
change in the ownership or voting power of the Lessee which cumulatively
amounts to more than 40%, whether in a single transaction or in a series of
transactions, or which results in a transfer of the control of the Lessee,
shall constitute an assignment requiring the Lessor's prior written consent;
provided that changes in ownership which occur in the ordinary course of the
conduct of the ESOP will not trigger the application of this paragraph, and
provided further, that any other change in ownership which would otherwise
trigger the application of this paragraph shall be submitted to Lessor for
waiver of this paragraph, such waiver not to be unreasonably withheld or
delayed.
36.3 Request for Consent. If at any time the Lessee desires to assign
or sublet this lease in whole or in part, the Lessee shall submit a written
request to the Lessor, including with the request, the identification of the
proposed assignee or sublessee, a history of its prior operations, a
description of its proposed operations, audited financial statements for its
most recently completed fiscal period and a statement of the terms upon which
the assignment or the subletting is proposed to be made. The Lessee will
promptly, on request, submit to the Lessor such further documentation relative
to the proposed assignment or sublease as the Lessor may request.
<PAGE>
36.4 Reimbursement of Costs. The Lessee will reimburse the Lessor for
all costs and expenses reasonably incurred by the Lessor in evaluating the
proposed assignment or subletting.
36.5 Withholding Consent. The Lessor may withhold its consent on any
of the following bases: If the liquidity and/or net worth and/or profitability
of the proposed assignee or sublessee is materially less than that of the
Lessee; if the proposed use by the assignee or sublessee would, in the Lessor's
reasonable judgment, have an adverse effect on the Park; if the proposed
assignee's or sublessee's history as a tenant is, in the reasonable judgment of
the Lessor, unsatisfactory; if any other reason exists which the Lessor, in its
reasonable judgment, deems to be sufficient. Consent otherwise shall not be
unreasonably withheld or delayed.
36.6 Conditions of Consent. If consent to the assignment or subletting
is granted, it may be granted on such reasonable conditions as the Lessor may
deem appropriate in light of all of the circumstances, including the proposed
use by the assignee or sublessee, and any change in conditions since the
commencement of this lease. The conditions may include a reasonable additional
charge for administrative services of the Lessor incident to the transaction.
36.7 Increased Rent Shared. If the assignee or sublessee would pay
more for the Premises which it has proposed to occupy than is being paid by the
Lessee, or if the proposed assignee or sublessee is paying any consideration to
the Lessee for the assignment or subletting, then 50% of any such payment shall
be paid to the Lessor as additional rent.
36.8 Submit Documents. All documents incident to the proposed
transaction will be submitted to the Lessor in their proposed form and shall be
subject to the Lessor's approval. If approval is given, then, promptly
following their execution, copies of all such executed documents of assignment
or subletting, or incident thereto, shall be furnished to the Lessor.
36.9 Assignee Bound. Any assignee or sublessee shall be subject to all
of the terms and conditions of this lease, including without limitation, those
terms and conditions applicable to assignment or subletting, provided that the
assignment or sublease may be canceled or terminated, but not otherwise
modified, without the consent of the Lessor, but, in any such event, the Lessor
shall be promptly notified of the cancellation or termination and provided with
copies of all documents incident thereto.
36. 10 Lessee Remains Obligated. No assignment or subletting shall, to any
extent, impair, limit or qualify the continuing obligation of the Lessee to
perform all of the obligations of the Lessee under this lease, all the same as
if the assignment or subletting had not taken place.
36.11 Additional Notice. If so requested by the Lessee, or included in
the documents of assignment or subletting, and that provision is specifically
called to the attention of the Lessor by written notice, the Lessor will give
to the assignee or sublessee any notice that it gives to the Lessee, but if
such provision is included, then, on that account, the monthly rent may be
increased by a reasonable amount to defray the Lessor's additional
administrative costs.
<PAGE>
36.12 Joint Liability. In the event of any default under the lease
which in any way relates to the assignment or subletting, the Lessee and the
assignee or sublessee shall be jointly and severally obligated to the Lessor to
remedy the default and to pay any damages that the Lessor may sustain on
account of the default.
36.13 Default. Any purported assignment or subletting in whole or in
part, without full compliance with this paragraph 36, shall constitute a
default under this lease and shall vest no rights in the purported assignee or
sublessee.
37. Statements by Lessee. Lessee agrees at any time and from time to time, upon
not less than ten days' prior request by Lessor, to execute, acknowledge and
deliver to Lessor a statement in writing (Estoppel Certificates), certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), and the dates to which the base rent and additional
rent have been paid in advance, if any, it being intended that any such
statement delivered. pursuant to this paragraph may be relied upon by any
existing or prospective purchaser, mortgagee, or assignee of the Premises or
the Park.
38. Subordination. Lessee, upon request of Lessor, will subordinate this Lease
to any mortgage, deed of trust, or other security interest (mortgage) which now
or hereafter affects the Premises, and to any renewals, modifications or
extensions of such mortgage. Lessee will execute and deliver, at Lessor's
expense, such instruments thus subordinating this Lease or evidencing such
subordination; provided, however, Lessor shall deliver or cause to be delivered
to Lessee an agreement in writing from any such mortgagee to the effect that so
long as Lessee shall faithfully discharge its obligations under this Lease, its
tenancy will not be disturbed nor this Lease affected by any default of such
mortgage, and that in the event of a sale of the Premises in foreclosure or any
sale, transfer or conveyance in lieu thereof, that same will be sold,
transferred or conveyed subject to this Lease.
39. Short Form Lease. Each party agrees to execute upon request of the
other a short form lease for the purpose of recordation. Each party agrees to
re-execute this Lease at any time upon the request of the other.
40. Miscellaneous.
40.1 Use of Terms. Whenever the singular number is used in this Lease
and whenever required by the context, the same shall include the plural, and
the masculine gender shall include the feminine and neuter genders, and the
word "person" shall include corporation, firm or association or other entity.
If there be more than one lessee, the obligations hereunder imposed upon Lessee
shall be joint and several.
40.2 Entire Agreement/Modifications. This instrument contains all of the
agreements and conditions made between the parties hereto and may not be
modified orally or in any other
<PAGE>
manner than by an agreement in writing signed by all of the parties hereto or
their respective successors in interest.
40.3 Time of the Essence. Time is and shall be of the essence of each term
and provision of this Lease.
40.4. Heirs and Successors. All the covenants, agreements, provisions, and
conditions of this Lease shall inure to the benefit of and be binding upon the
parties hereto, their successors, heirs, executors, administrators and assigns.
40.5. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any of the provisions hereof.
40.6. No Other Agreements. The parties acknowledge that no representation
or condition or agreements varying or adding to this Lease have been made either
orally or in writing.
40.7. Notices. All notices and demands required or allowed to be given
hereunder shall be in writing and sent by registered or certified mail, return
receipt requested, or hand delivered and receipted for, to the respective
parties at the following addresses, or at such other address that either party
may designate by notice in writing:
Lessor: 3808 N. Sullivan Road, Building N-15, Spokane, WA 99216
Lessee: P. 0. Box 14918, Spokane, WA 99214-0918
41. Riders. The riders or exhibits, if any, attached to this Lease are made
part hereof by reference.
42. Environmental Considerations. As used in this lease, the term "Hazardous
Substance" shall mean any substance, chemical or waste, including petroleum
products or radioactive substances, that is now or shall hereafter be listed,
defined or regulated as hazardous, toxic or dangerous under any applicable
Environmental Laws.
As used in this lease, "Environmental Law" shall mean any federal,
state, or local laws, ordinances, rules, regulation and requirements now or
hereafter enacted or adopted (including without limitation, consent decrees and
administrative orders) relating to the generation, use, manufacture, treatment,
transportation, storage, disposal, or release of any Hazardous Substance.
Lessee shall not, without prior written notice to Lessor, engage in or
allow the generation, use, manufacture, treatment, transportation, storage,
investigation, testing, release or disposal of any Hazardous Substance in, on,
under or adjacent to the Premises. Lessee shall ensure that at all times Lessor
has true, complete and accurate information regarding any of Lessee's
activities on the Premises involving Hazardous Substances. Lessee shall provide
Lessor with (a) a description of any processes or activities involving the use
of Hazardous Substances to be conducted by Lessee on the Premises, (b) a
description (by type and amount) of any Hazardous Substances Lessee plans to
generate, use, manufacture, transport, store or dispose of in connection with
its use of the Premises, and (c) a description of techniques and management
practices to be utilized by Lessee to reduce the amount of Hazardous Substances
used and/or generated, to prevent release of Hazardous Substances to the
environment and to ensure the proper handling labeling, use and disposal of
Hazardous Substances used by Lessee on the Premises. Lessee shall notify Lessor
prior to any material changes in such processes, activities, type and amount of
Hazardous Substances and/or techniques and management practices and in any
event, Lessee shall report to Lessor at least once yearly regarding any such
processes, activities, Hazardous Substances, techniques, and management
practices. Lessee shall contemporaneously provide Lessor with copies of all
reports, listings or other information required by any governmental entity
relating to any Hazardous Substances utilized by Lessee, and shall promptly
provide any other information related to Lessee's utilization of Hazardous
Substances as Lessor may reasonably request.
Lessee shall not engage in or allow the unlawful release (from
underground tanks or otherwise) of any Hazardous Substance in, on, under or
adjacent to the property (including air, surface water and ground water on, in,
under or adjacent to the property). Lessee, with respect to the Premises, shall
at all times, and shall cause its employees, agents and contractors at all
times, to be in compliance with all Environmental Laws with respect to any
Hazardous Substances and shall handle all Hazardous Substances in compliance
with applicable Environmental Law and good industry standards and management
practices.
Lessee shall promptly notify Lessor, in writing, if Lessee has, or
acquires, notice or knowledge that any Hazardous Substance has been, or is
threatened to be, released, discharged or disposed of, on, in, under or from
the Premises. Lessee shall immediately take such action as is necessary to
report to governmental agencies as required by applicable law and to detain the
spread of and remove, to the satisfaction of Lessor and any governmental agency
having jurisdiction, any Hazardous Substances released, discharged or disposed
of as the result of, or in any way connected with, Lessee's activities on the
Premises and which is now, or is hereafter determined to be, unlawful or
subject to Environmental Laws and/or governmentally imposed remedial
requirements. Lessee shall immediately notify Lessor and provide copies upon
receipt of all written complaints, claims, citations, demands, inquiries,
reports or notices relating to the condition of the Premises or compliance with
Environmental Laws. Lessee shall promptly cure and have dismissed with
prejudice any such actions or proceedings in any way connected with Lessee's
activities on the Premises, to the reasonable satisfaction of Lessor, and
Lessee shall keep the Premises free of any lien imposed pursuant to any
Environmental Law. Lessor shall have the right at all reasonable times, and
from time to time, to conduct environmental audits of the Premises (including
sampling, testing, monitoring and accessing environmental records required by
applicable law) by a consultant of Lessor's choosing, and Lessee shall
cooperate with the conduct of such audits. If any violation of any
Environmental Law by Lessee or any violation of Lessee's obligations under this
paragraph are discovered, in addition to any
other
<PAGE>
right Lessor may have, the costs incident to such audit, including the fees and
expenses of such consultant, shall be paid by Lessee to Lessor on demand as
additional rent.
Lessee shall at all times maintain an employee or consultant familiar
with Environmental Laws and charged with responsibility for Lessee's compliance
with all Environmental Laws and shall advise Lessor of the name, address and
phone number of such employee or consultant. Lessee shall implement a system to
review Lessee's Hazardous Substance activities on a regular basis and shall in
good faith (consistent with sound business practices) implement and maintain
best management practices to minimize the hazards posed by materials utilized
by Lessee, for example, by reducing the amounts of Hazardous Substances used
and disposed of, by utilizing less dangerous or less toxic materials or by
implementing programs to ensure the safe and proper handling, labeling, use and
disposal of Hazardous Substances.
Each year, between January 1 and March 31, Lessee shall conduct a self
environmental audit of Lessee's operations, regulatory compliance status, and
the Premises utilizing Lessor's standard format and checklists. Lessee shall
present the results of the environmental audit, and proposed operational
changes to address any audit deficiencies, to Lessor in writing within six
weeks after conducting the audit.
Prior to its vacation of the Premises, in addition to all other
requirements under this lease, Lessee shall remove any Hazardous Substances
placed on the Premises during the term of this lease or Lessee's possession of
the Premises, and shall demonstrate such removal to the Lessor's reasonable
satisfaction.
Lessee's obligations under this paragraph with respect to any
occurrence during the term of this lease shall survive any termination or
expiration of this lease.
Lessee is solely responsible for all costs and expenses related to the
clean up, remediation or monitoring of Hazardous Substances on the Premises or
any other properties which become contaminated with Hazardous Substances as a
result of activities on, or the contamination of, the Premises during the term
of this lease or any extension, renewal or holding over.
Lessee's obligations are unconditional and shall survive and continue
in effect after the termination of the lease or the transfer of the Premises
voluntarily or involuntarily, to the Lessor or others.
Lessor shall, at the inception of this Lease, advise Lessee in writing
as to the present condition of the Premises vis-a-vis hazardous substances
according to the best knowledge, information and belief of Lessor.
43. Brokers and Finders. Neither party has had any contact or dealings
regarding the Premises, or any communication in connection with the subject
matter of this Lease, through any real estate broker or other person who is
entitled to claim a commission or finder's fee in connection with the Lease
contemplated hereby. In the event that any broker or finder makes
<PAGE>
a claim for a commission *or finder's fee based upon, or alleged to be based
upon, any such contract, dealings or communication, the party through whom the
broker or finder makes its claim shall be responsible for, and shall indemnify,
defend and hold harmless the other party from, such claim for commission or fee
or allegation thereof and all costs and expenses (including reasonable attorney
fees) incurred by the other party in defending against the same.
44. Arbitration. In the event that a dispute should arise under this lease, as
a condition precedent to suit, the dispute shall be submitted to arbitration in
the following manner: The party seeking arbitration shall submit to the other
party a statement of the issue(s) to be arbitrated and shall designate such
party's nominated arbitrator. The responding party shall respond with any
additional or counter statement of the issue(s), to be arbitrated and shall
designate the responding party's arbitrator, all within fourteen (14) days
after receipt of the initial notice. The two arbitrators thus nominated shall
proceed promptly, and in any event within ten days, to select a third
arbitrator. The arbitrators shall, as promptly as the circumstances allow and
within a time established by a majority vote of the arbitrators, conduct a
hearing on the issues submitted to them, and shall render their decision in
writing. Any decision as to procedure or substance made by a majority of the
arbitration panel shall be binding. A decision by a majority of the arbitrators
on any issue submitted shall be the decision of the arbitration panel as to
that issue. The arbitrators have authority to award costs and attorney fees to
either party in accordance with the merits and good faith of the positions
asserted by the parties. In lieu of appointing three arbitrators in the manner
set forth above, the parties may, by agreement, designate a single arbitrator.
Except as provided herein the arbitration proceedings shall be conducted in
accordance with the rules of the American Arbitration Association and the
statutes of the State of Washington pertaining to binding arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
LESSEE: LESSOR:
CXT INCORPORATED CROWN WEST REALTY, L.L.C.
a Delaware corporation
By: ______________________ By: ___________________________
John G. White, President & CEO Richard D. Rollnick, President
<PAGE>
STATE OF WASHINGTON
) ss.
County of Spokane
On this day 30th day of December, 1996, personally appeared JOHN G. WHITE to me
known to be the President and CEO of CXT INCORPORATED, the corporation that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that he was
authorized to execute the said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year first above written.
Name Printed: March Combs
-----------
NOTARY PUBLIC in and for the State
-
of Washington, residing at Spokane.
My Commission Expires: 8/1/98
STATE OF WASHINGTON
ss.
COUNTY OF SPOKANE
On this 30th day of December, 1996, personally appeared RICHARD D. ROLLNICK, to
me known to be the President of CROWN WEST REALTY, L.L.C., the limited
liability company that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said company, for the uses and purposes therein mentioned, and on oath stated
that he was authorized to execute the said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year first above written.
Name Printed: March Combs
NOTARY PUBLIC in and for the State
-
of Washington, residing at Spokane.
My Commission Expires: 8/1/98
NOTICE OF LEASE
NOTICE IS HEREBY GIVEN that as of the lst day of November, 1991, Pentzer
Development Corporation, a Washington corporation, as Landlord, has entered
into a lease with CXT Incorporated, a Delaware corporation, as Tenant, with
regard to the following described premises:
Lot 18, Spokane County Binding Site Plan 88-21, recorded in
Volume 1 of Plats, page 23, records of Spokane County,
Washington;
1. TERM: The term of the lease commences November 1, 1991, and expires
March 31, ------ 2003.
2. OPTION TO RENEW: Tenant has the option to renew the lease for a term
commencing ----------------- April 1, 2003 and expiring on March 31, 2013.
3. RIGHT OF FIRST REFUSAL: Tenant has the right of first refusal to
purchase the ------------------------ Premises through the term of the lease,
including the renewal term.
EXECUTED as of the lst day of November, 1991.
PENTZER DEVELOPMENT CORPORATION CXT INCORPORATED
By _________________________ By ________________________
Its _______________________ Its _______________________
<PAGE>
STATE OF WASHINGTON
ss.
County of Spokane
I certify that I know or have satisfactory evidence that
________________________ is the person who appeared bef re me, and said person
acknowledged that he/she signed
this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the ________________ of PENTZER DEVELOPMENT
CORPORATION to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated ______________________
Notary Public in and for the State of
Washington, residing at
Spokane,
My commission
expires: _________
STATE OF WASHINGTON
ss.
County of Spokane
I certify that I know or have satisfactory evidence that ___________________is
the person who appeared before me, and said person acknowledged that he/she
signed this
instrument, on oath stated that he/she was authorized to execute the instrument
and acknowledged it as the _______________of CXT INCORPORATED to be the free
and voluntary act, of such parry for the uses and purposes mentioned in the
instrument.
Dated __________________
Notary Public in and for the State
of
Washington, residing
at Spokame
My commission expires: ____________
<PAGE>
LEASE
Between
SPOKANE INDUSTRIAL PARK, A Division
of PENTZER DEVELOPMENT CORPORATION,
a Washington corporation,
Landlord,
and
CXT, INCORPORATED
a Delaware corporation,
Tenant
Dated as of November 1, 1991
(Lot 18 BSP 88-21)
TABLE OF CONTENTS
ARTICLE I 1
Definitions
ARTICLE 2 2
Premises Leased
ARTICLE 3 2
Term
ARTICLE 4 2
Base Rent
ARTICLE 5 3
Security Deposit
ARTICLE 6 3
Use of Premises
ARTICLE 7 4
Repairs and Maintenance of the Premises
ARTICLE 8 5
Hazardous Materials
ARTICLE 9 6
Taxes and Assessments
ARTICLE 10 7
Utilities
ARTICLE 11. 8
Common Area Expenses
ARTICLE 12. 9
All Expenses Other Than Specifically Dealt With, Audit Rights
ARTICLE 13. 9
Indemnification of Landlord
ARTICLE 14. 11
Insurance
ARTICLE 15. 13
Limit on Landlord's Liability
<PAGE>
ARTICLE 16 13
Defaults and Remedies
ARTICLE 17. 15
Landlord's Right to Perform Tenant's Covenants
ARTICLE 18. 15
Costs and Attorneys Fees
ARTICLE 19 16
Interest on Overdue Payments
ARTICLE 20. 16
No Total Payment Abatement
ARTICLE 21. 16
Damage to Premises
ARTICLE 22. 17
Condemnation
ARTICLE 23. 17
Transfer of Tenant's Interest
ARTICLE 24. 19
Subordination
ARTICLE 25. 19
Surrender
ARTICLE 26. 20
Holding Over
ARTICLE 27. 20
Quiet Enjoyment
ARTICLE 28...... 21
Right of Inspection
ARTICLE 29. 21
Recording
ARTICLE 30. 21
Estoppel Certificates
ARTICLE 31. 22
Nonwaiver
ARTICLE 32. 22
Authority
ARTICLE 33. 23
Brokers
ARTICLE 34. ....................................23
Notices
ARTICLE 35. ....................................23
Construction
ARTICLE 36. 23
Convenants to Bind and Benefit Respective Parties
ARTICLE 37.
Understanding of Parties
ARTICLE 38 ................... 24
Further Documents
ARTICLE 39 ..................... 24
Venue
ARTICLE 40 ..................... 24
Consultation
<PAGE>
LEASE
This LEASE (hereinafter referred to as "the lease" or "this lease") is
made and entered into as of the lst day of November, 1991, by and between
SPOKANE INDUSTRIAL PARK, a division of PENTZER DEVELOPMENT CORPORATION, . a
Washington corporation ("Landlord"), and CXT, INCORPORATED, a Delaware
corporation ("Tenant").
ARTICLE 1.
Definitions
As used in this lease, the following terms are defined as follows:
1.1 "Improvements" shall mean all buildings, structures and
improvements now or hereafter situated, erected or constructed on the Property
and all personal property, equipment and trade fixtures not capable of being
removed without permanent damage to real property. Damage shall not be
considered permanent if it can be, and is, repaired by Tenant as required by
ARTICLE 25. "Existing Improvements" shall mean all Improvements situated,
erected or constructed on the Property or any part thereof as of the date
hereof "New Improvements" shall mean all Improvements situated, erected or
constructed on the Property after the date hereof.
1.2 "Premises" shall mean the Property and the Improvements.
1.3 "Project" shall mean the following-described real property,
consisting of approximately 8,619,217 gross square feet, of which the Property
is a part:
All property located within
a) Spokane County Altered Binding Site Plan No. 87-17,
recorded in Volume 1 of Plats, page 22A, records of
Spokane County, Washington;
b) Spokane County Binding Site Plan No. 88-21, recorded in
Volume 1 of Plats, page 23, records of Spokane County,
Washington; and
C) Spokane County Binding Site Plan No. 88-22, recorded in
Volume______ of Plats, page _, records of Spokane
County, Washington.
Landlord and Tenant acknowledge that a portion of the Project
will not have final binding site plan approval by Spokane County until
completion of the Infrastructure Improvements described in SC-6 of the Special
Conditions attached hereto and made a part
<PAGE>
hereof by this reference. Pending completion of the Infrastructure
Improvements, the portion of the Project described in Section 1.3(c) of the
Lease shall be that real property described on Exhibit A attached to and made a
part of this lease.
1.4 "Property" shall mean the following-described real property,
consisting of approximately 147,233 gross square feet, and all easements,
licenses, privileges, rights and appurtenances related thereto, subject to all
easements, rights-of-way, restrictions and reservations of record:
Lot 18, Spokane County Binding Site Plan No. 88-21, recorded in Volume 1 of
Plats, page 23, records of Spokane County, Washington.
1.5 "Total Payments" shall mean all monetary sums due from Tenant to
or for the account of Landlord during the term of this lease, including,
without limitation, all Base Rent and Additional Rent. "Base Rent" shall mean
all sums payable by Tenant under ARTICLE 4. "Additional Rent" shall mean and
include every other cost and expense which Tenant shall be obligated to pay
under any provision of this lease as well as all sums of money paid or advanced
by Landlord upon Tenant's behalf.
ARTICLE 2.
Premises Leased
2.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises, subject to all terms and conditions of this lease.
ARTICLE 3.
Term
3.1 The term of this lease shall commence on November 1, 1991, and shall
end on March 31, 2003
ARTICLE 4.
Base Rent
4.1 Tenant shall pay Landlord Base Rent for each calendar month during
the lease term in accordance with SC-3 of the Special Conditions.
4.2 Base Rent for each calendar month shall be paid in lawful U.S.
money, at the address specified in ARTICLE 34 or such other place as Landlord
may from time to time designate in writing. Base Rent for each calendar month
shall be paid in advance on the first day of each month and without demand,
offset or deduction, except as expressly provided in this lease. Base Rent for
any portion of a calendar month at the beginning of the lease term or at the
end of the lease term shall be prorated.
<PAGE>
ARTICLE 5.
Security Deposit
5.1 Upon execution of this lease Tenant shall give to Landlord, and
thereafter within five (5) days after request shall deposit additional funds as
necessary to maintain with Landlord, a security deposit of waived . Dollars ($
waived ). The security deposit shall be held by Landlord and any interest
thereon shall belong to Landlord. If Tenant fails to make the "Total Payments"
required under this Lease or defaults in performance of its other obligations
under this Lease, Landlord may use all or part of the security deposit to pay
any such amounts in default or for payment of any other amount which Landlord
spends or becomes obligated to spend by reason of Tenant's default, or for the
payment to Landlord of any other loss or damage which Landlord may suffer by
reason of Tenant's default. Landlord shall not be required to utilize the
security deposit prior to declaring a default under the Lease, nor shall the
security deposit be a limitation on Landlord's damages or other rights under
this Lease for a payment of liquidated damages or an advance payment of Total
Payments. If Tenant shall have fully performed all of the promises, covenants,
terms and conditions of this lease and surrendered the Premises in accordance
with ARTICLE 25, the security deposit shall be returned to Tenant within thirty
(30) days after the expiration of this lease.
ARTICLE 6.
Use of Premises
6.1 The Premises shall be used for office purposes, the manufacture,
storage and distribution of pavers, concrete railroad ties, other concrete
products, and associated products, and for no other purpose without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
Landlord's withholding of consent shall not be unreasonable if based upon
increased risks posed by Tenant's use of hazardous substances.
6.2 Tenant shall not use or permit the Premises to be used for any
unlawful purpose and shall use the Premises and Improvements in accordance with
all laws, rules, regulations, ordinances and requirements now or hereafter in
effect, including without limitation, any applicable to the generation, use,
manufacture, treatment, transportation, storage or disposal of hazardous
substances.
6.3 No change, alteration or improvement to the Improvements shall be
undertaken nor shall New Improvements be constructed without Landlord's prior
consent, which consent shall not be unreasonably withheld; provided, however,
Tenant shall not be required to obtain such consent for (i) changes,
alterations, improvements, or construction costing less than Ten Thousand
Dollars ($10,000.00) which do not affect the roof, exterior building materials,
any structural component or the primary electrical, plumbing, HVAC or other
major system of the Improvements. Tenant shall give written notice to Landlord
of any proposed change, alteration, improvement or construction requiring
consent prior to making such change, alteration, improvement or construction.
If a change, alteration, improvement or construction would involve a cost of
more than Ten Thousand Dollars ($10,000.00) or would affect the roof, exterior
building materials, any structural component or the primary electrical,
plumbing, HVAC or other major system of the Improvements, Tenant (a) shall
provide Landlord with complete
<PAGE>
plans and specifications therefor along with Tenant's notice, and (b) shall not
proceed without Landlord's prior written consent, which shall be given or
denied within fifteen (15) days after receipt of Tenant's notice and complete
plans and specifications. Landlord shall be deemed to have consented to, and.
Tenant may proceed with any change, alteration, improvement or construction for
which Landlord's consent is required, in the absence of any objection from
Landlord within such fifteen (15) day period. By written -notice to Tenant,
Landlord may extend the time for granting or withholding consent to any
proposed change, alteration, improvement or construction for up to a maximum of
thirty (30) additional days if necessary due to the scope of Tenant's plans.
All changes, alterations, improvements and construction shall be at Tenant's
sole cost, free of claims of lien, and shall be performed in a good and
workmanlike manner and in conformance with applicable building codes and other
laws, ordinances, rules and regulations.
6.4 Tenant shall conduct its business and control its employees,
agents, invitees and visitors in such manner as not to create any unlawful
nuisance, or unreasonably interfere with, annoy or disturb any other tenant of
the Project. Tenant shall not do anything which would cause Landlord's
insurance rates to increase unless Tenant pays the amount of such increase.
Tenant shall not do anything which is prohibited by insurance policies
maintained by Landlord or Tenant under this lease or which would cause a
cancellation of any such policies, unless substitute policies are procured,
which would permit such activities. Tenant shall pay all excess costs of such
substitute policies. Landlord shall reasonably cooperate with Tenant and
insurers in attempting to accommodate Tenant's activities, provided such
accommodation does not adversely affect Landlord or other tenants of premises
covered by Landlord's insurance policies.
6.5 Tenant shall. comply with reasonable rules and regulations
promulgated from time to time by Landlord with respect to the use of common
access roads within and otherwise serving the Project, the private water and
sewer facilities, the appearance and location of signage within the Project,
and the appearance and regular maintenance of building exteriors and
landscaping within the Project. Landlord shall use good faith efforts to
uniformly enforce such rules and regulations; however, Landlord shall have no
liability for the failure of any other tenant to comply with such rules and
regulations, or for the conduct of tenants under leases predating the
promulgation of such rules and regulations.
ARTICLE 7.
Repairs and Maintenance of the Premises
7.1 Throughout the term of this lease, Tenant, at its sole cost, shall keep
the Premises in a habitable, safe, neat, clean and sanitary condition, and in
first class working order and repair, except as expressly set forth otherwise in
this lease. Tenant shall not cause or permit waste damage or injury to the
Premises.
7.2 Landlord shall, within a reasonable time after written notice from
Tenant, perform all repairs to the Premises made necessary by casualty or other
loss insured against by Landlord's insurance policies described in Section 14.
1; provided, however, Tenant shall be liable for the lesser of (a) the cost of
such repairs or (b) the deductible under Landlord's insurance policy, up to a
maximum of One Thousand Dollars ($1,000.00).
<PAGE>
7.3 Tenant shall make any and all repairs to the Premises, of any kind
or description whatsoever, made necessary by or arising out of Tenant's use and
occupancy of the Premises (excepting only (i) repairs to be performed by
Landlord pursuant to Section 7.2, and (ii) repairs
made necessary by uninsured catastrophic loss not attributable to Tenant's
negligence or other fault, including, without limitation, earthquake, flood,
war and nuclear reaction), structural or nonstructural, interior or exterior,
including, without limitation, repair or replacement of any glass as may become
cracked or broken, repair to the roof, floors, walls, sash, pipes, interior
partitions and doors, ceilings and to the heating, air conditioning and
refrigeration plants, electrical lighting, fire safety, fire sprinkler and
plumbing fixtures, and to all other fixtures, equipment and appurtenances
thereto, and to the irrigation system, parking lots, driveways and other
exterior Improvements. Any such repairs shall be performed in a good and
workmanlike manner, and all items shall be replaced with items of similar
quality and first class condition. Tenant shall make all repairs to the
Premises required by federal, state, county and city statutes, codes,
ordinances and regulations. All repairs, other than those covered by Landlord's
insurance policy described in Section 14. 1, shall be at Tenant's sole cost.
Work on all repairs which Tenant is obligated to make under this lease shall
commence promptly after the need therefor becomes known to Tenant, and Tenant
shall pursue the repair work to completion with due diligence. Except in the
case of emergency (when notice shall be given as soon as practical), Tenant
shall notify Landlord in advance of any planned or necessary repairs to the
roof, exterior building materials or structural components or to the primary
electrical, plumbing, HVAC or other major system of the Improvements, and
Landlord shall have the option of performing such repairs at Tenant's cost;
provided, however, in no event shall Tenant be obligated to pay any costs in
excess of the lowest fixed price bid received by Tenant from a responsible
licensed contractor reasonably acceptable to Landlord to perform such repairs.
7.4 Tenant's obligations arising during the term of this lease under
this ARTICLE shall survive any termination or expiration of this lease.
ARTICLE 8.
Hazardous Materials
8.1 Tenant shall not, without prior written notice to Landlord, engage
in or allow the generation, use, manufacture, treatment, transportation,
storage or disposal of any hazardous substance in, on, under or adjacent to the
Premises. Prior to taking occupancy of the Premises, Tenant shall provide
Landlord with a description of any processes or activities involving the use of
hazardous substances to be conducted by Tenant as well as a description (by
type and amount) of any- hazardous substances Tenant plans to generate, use,
manufacture, transport, store or dispose of in connection with its use of the
Premises. Tenant warrants that such description is and will be true, accurate
and complete. Tenant shall-notify Landlord prior to any material changes in
such processes, activities or type and amount of hazardous substances utilized
by Tenant and in any event, Tenant shall report to Landlord at least once
yearly regarding any such processes, activities and hazardous substances.
Tenant shall contemporaneously provide Landlord with copies of all reports,
listings or other information required by any governmental entity relating to
any hazardous substances utilized by Tenant, and shall promptly provide any
other information related to Tenant's utilization of hazardous substances as
Landlord may reasonably request.
<PAGE>
8.2 Tenant shall not engage in or allow the unlawful release (from
underground tanks or otherwise) of any hazardous substance in, on, under or
adjacent to the Property (including air, surface water and groundwater on, in,
under or adjacent to the Property). Tenant shall at all times be in compliance
with all applicable law (and shall cause its employees, agents and contractors
to be) with respect to the Premises or any hazardous substance and shall handle
all h:;7n dous substances in compliance with good industry standards and
practices. As used in this Lease, the term "hazardous substance" shall mean any
substance, chemical or waste, including any petroleum products or radioactive
substances, that is now or shall hereafter be listed, defined or regulated as
hazardous, toxic or dangerous under any applicable laws. As used in this
ARTICLE, "applicable law" shall mean any federal, state, or local laws,
ordinances, rules, regulations and requirements (including consent decrees and
administrative orders) relating to the generation, use, manufacture, treatment,
transportation, storage or disposal of any hazardous substance now or hereafter
enacted.
8.3 Tenant shall promptly notify Landlord, in writing, if Tenant has
or acquires notice or knowledge that any hazardous substance has been or is
threatened to be unlawfully released, discharged or disposed of, on, in, under
or from the Premises. Tenant shall immediately take such action as is necessary
to detain the spread of and remove, to the satisfaction of Landlord and any
governmental agency having jurisdiction, any hazardous substances released,
discharged or disposed of as the result of or in any way connected with the
conduct of Tenant's business, and which is now or is hereafter determined to be
unlawful or subject to governmentally imposed remedial requirements. Tenant
shall immediately notify Landlord and provide copies upon receipt of all
written complaints, claims, citations, demands, inquiries, reports or notices
relating to the condition of the Premises or compliance with environmental
laws. Tenant shall promptly cure and have dismissed with prejudice any such
actions or proceedings in any way connected to the conduct of Tenant's
business, to the satisfaction of Landlord, and Tenant shall keep the Premises
free of any lien imposed pursuant to any environmental law. Landlord shall have
the right at all reasonable times and from time to time to conduct
environmental audits of the Premises (including sampling, testing, monitoring
and accessing environmental records required by applicable law) by a consultant
of Landlord's choosing, and Tenant shall cooperate with the conduct of these
audits. If any violation of any applicable law by Tenant or any violation of
Tenant's obligations under this ARTICLE are discovered, in addition to any
other right Landlord may have against Tenant, the fees and expenses of such
consultant shall be borne by the Tenant and shall be paid by Tenant to Landlord
on demand.
8.4 Tenant's obligations under this ARTICLE with respect to any
occurrence during the term of this lease shall survive any termination or
expiration of this lease.
ARTICLE 9.
Taxes and Assessments
9.1 Tenant shall pay when due any and all taxes, installments of
general or special assessments (amortized over the longest permissible time),
levies, license and permit fees and other governmental charges and impositions
of any kind and nature whatsoever, together with any interest or penalties
attributable to Tenant's failure to pay the same when due, which at any time
during the term of this lease may be assessed, levied or become due and payable
out of or M respect of, or become a lien on the Premises, including, without
limitation, any sales tax, business and operation tax, excise tax or similar
tax or imposition imposed upon rent or Landlord's business of leasing property
within the Project (collectively the "Impositions"); provided, however, Tenant
shall not be obligated to pay Landlord's net income taxes or any transfer or
excise tax imposed upon the conveyance of the Premises, or business and
occupation taxes imposed upon Landlord's business activities other than leasing
property within the Project.
9.2 Impositions shall be paid by Tenant to Landlord in one or more
installments each year during the lease term, in an amount estimated by
Landlord. If Impositions are billed to Tenant based upon estimates, on or
before April lst of each year, Landlord shall, but not less than once annually,
furnish to Tenant a statement of the actual amount of Impositions incurred.
Within thirty (30) days after receipt of such statement, Tenant shall pay
Landlord the amount by which the actual Impositions exceed estimated
Impositions paid by Tenant. If the estimated amount of Impositions paid by
Tenant exceeds the actual Impositions, such excess shall be credited against
the next Imposition payment-due from Tenant. Notwithstanding the foregoing
Landlord may elect to require Tenant to pay all or some Impositions directly to
the governmental authority levying the same.
9.3 Tenant may seek a reduction in the assessed valuation of the
Premises for tax purposes and to contest in good faith by appropriate
proceedings, at Tenant's expense, the amount or validity of any tax or
assessment, provided that prior to the date when any penalties or interest may
be incurred, Tenant shall deposit with the appropriate entity making the tax or
assessment the sum contested or secure a bond in an amount sufficient to fully
satisfy the amount of any lien upon the Premises. Any bond posted shall name
Landlord as a co-obligee and shall be reasonably satisfactory, as to issuer and
form, to Landlord. Any refund allocable to the term of this lease shall belong
to Tenant.
9.4 Tenant's obligations under this ARTICLE with regard to Impositions
arising during the term of this lease shall survive any termination or
expiration of this lease.
ARTICLE 10.
Utilities
10. 1 Tenant shall pay, when due, any and all charges and fees for
gas, heat, electricity, water, sewer, garbage collection, telephone and all
other public or private utilities servicing the Premises and shall, upon
request, provide evidence of such payment. Tenant shall not be entitled to
terminate this lease or receive an abatement of rent as the result of any
failure, interruption or discontinuance of any utility service for any reason;
-provided however, if such interruption or discontinuance which materially
affects Tenant's occupancy of the Premises results from the negligence of
Landlord and continues, after notice to Landlord, for a period in excess of
seven (7) business days, Total Payments shall abate until service is resumed.
10.2 Rates charged by Landlord to Tenant for utility services owned by
Landlord (upon execution of this lease, sewer and water) shall be based upon
consumption and will be the same rates charged to other tenants within the
Project.
<PAGE>
10.3 Tenant's obligations under this ARTICLE with regard to utilities
furnished to the Premises during the term of this lease shall survive any
termination or expiration of this lease.
ARTICLE 11.
Common Area Exl&nses
11. 1 Tenant shall pay Landlord its proportionate share of all
reasonable and customary costs (not including depreciation or costs of repairs
resulting from Landlord's negligence), paid or incurred by Landlord in
operating and maintaining the common access roadways, sidewalks, pathways,
landscaped areas and other similar areas or improvements which may be provided
by Landlord for the common use or benefit of tenants of the Project, (but not
including common areas specific to a particular building other than the
Premises), including without limitation, costs of personnel, equipment and
material for maintenance, repair, replacement, snow removal, striping, signage.
and other traffic control measures, costs for lighting, insurance, property
taxes, licenses, permits and fees. Tenant's proportionate share of such
expenses shall be a fraction, the numerator of which is the area of the
Property and the denominator of which is the area of the Project (or, if the
expense is incurred with respect to property not co-extensive with the Project,
such other fraction as reasonably determined by Landlord). Capital expenses
shall be amortized over their reasonably expected useful life, as determined by
Landlord. Common area charges shall not include expenses of initial
installation of roadways, initial landscaping, management fees or Landlord's
general administrative expenses for the Project.
11.2 Common area charges shall be paid by Tenant in one or more
installments each year during the lease term in an amount estimated by
Landlord. On or before April 1 of each year, Landlord shall furnish to Tenant a
statement of the actual amount of Tenant's proportionate share of common area
expenses for the preceding calendar year. Within thirty (30) days after receipt
of such statement, Tenant shall pay Landlord the amount by which such expenses
exceed Landlord's estimates. If Tenant has paid more than the actual amount of
such expenses, such excess shall be credited against expenses due for the
ensuing year.
11.3 The common area shall consist of easements shown on the Binding
Site Plans of the Project, landscaping easements twenty (20) feet in width
adjacent to all public and private roadways within the Project, and other
perimeter easements and necessary rights-of-way for utilities and private
roadways servicing the Project, for public streets, pathways and "208" drainage
areas, all as reasonably designated by Landlord, and the private sewer and
water and systems serving the Project. Landlord shall provide and maintain
landscaping within the landscaping easement described above. The common areas
are for the joint benefit of all tenants of the Project and adjacent property
owned by Landlord, and Landlord reserves the following rights with respect to
the common areas:
(a) to establish reasonable rules and regulations for the use of the common
areas;
<PAGE>
(b) to close all or any portion of the common areas for reasonable
periods to make repairs and changes, and to change the location, layout or
shape of the common areas, provided Tenant's access to the Premises is not
unreasonably impaired;
(c) to grant access to the common areas to utility providers,
governmental entities and others to maintain and repair the improvements
serving the Project and the public;
(d) to dedicate the common areas to public use.
11.4 Tenant's obligations under this ARTICLE with regard to common
area charges arising during the term of this lease shall survive any
termination or expiration of this lease.
ARTICLE 12.
All Expenses Other Than Specifically Dealt With, Audit Rights
12.1 If, during the term of this lease, expenses arise, become due, or
are incurred by Landlord, relating to or resulting from the Project, the lease
of the Premises, use of the Improvements and personal property subsequently
placed upon the Premises or the business conducted by Tenant, which expenses
are not specifically dealt with in the lease, such expenses shall be allocated
between Landlord and Tenant in a manner consistent with the allocation of
expenses specifically dealt with in the lease so that each party receives
substantially the benefit of the bargain reflected in the lease.
12.2 Not more than once each calendar year, Tenant shall have the
right, upon thirty (30) days' prior notice to Landlord, to examine Landlord's
records for the prior year relating to Impositions (ARTICLE 9), insurance
(ARTICLE 14) and common area expenses (ARTICLE 11), and to challenge the amount
of any such charges. The amount of any charges found, by agreement or
otherwise, to be improper or excessive shall be credited against the next
installment(s) of Additional Rent due from Tenant.
ARTICLE 13.
Indemnification of Landlord
13.1 Tenant -releases and, subject to the provisions of Section 14.5,
shall defend, indemnify and hold harmless Landlord, and each of its officers,
directors, shareholders, employees, agents and representatives, against and
from all liabilities, obligations, damages, penalties, judgments, claims,
costs, charges, fees and expenses, including, but not limited to, costs of
investigation and correction, reasonable architects', attorneys' and
consultants' fees and costs, which may be imposed upon, incurred by or asserted
against Landlord or its officers, directors, shareholders, employees, agents
and representatives by reason of any of the following:
(a) any act or omission during the term of this lease in, on, about or
arising out of or in connection with the use, operation, maintenance and
occupancy of the Premises or any part thereof, whether or not consented to by
Landlord; by Tenant, or
<PAGE>
Tenant's agents, contractors, servants or employees (whether inside or outside
the scope of employment), licensees or invitees, except to the extent caused by
the negligence or intentional misconduct of Landlord or its agents,
contractors, subcontractors, servants or employees;
(b) any accident, injury, casualty, loss, theft or damage whatsoever
to any person or tangible property occurring in, on, about or arising out of or
in connection with the use or occupancy by Tenant of the Premises, any common
area, roadway, alley, basement, pathway, curb, parking area, passageway or
space under or adjacent thereto arising from any cause or occurrence
whatsoever, except to the extent caused by the negligence or intentional
misconduct of Landlord or its agents, contractors, subcontractors, servants or
employees;
(c) any failure on the part of Tenant or any of its agents,
contractors, subcontractors, servants or employees to perform or comply with
any of the covenants, agreements, terms, provisions, conditions or limitations
contained in this lease;
(d) any failure by Tenant to perform or comply with any of the terms
or provisions contained in this lease or any act performed by Landlord in
exercise of its rights under ARTICLE 17; or
(e) any presence, release, migration, discharge, disposal, dumping,
spilling or leaking (accidental or otherwise), now or hereafter determined to
be unlawful or subject to governmentally imposed remedial requirements, caused
by Tenant or in any way connected with Tenant's business, of any hazardous,
dangerous or toxic substance of any kind (whether or not now or hereafter
regulated, defined or listed as hazardous, dangerous or toxic by any local,
state, or federal government) into, onto or under the Property or the air,
soil, surface water, or groundwater thereof, or the pavement, structures, sewer
system, fixtures, equipment, tanks, containers or personality at the Property
or into, onto or under the property of others from the Premises. The foregoing
indemnity shall apply notwithstanding any provisions of federal, state or local
law which provides for the exoneration from liability in the event of
settlement with any governmental. agency, and notwithstanding Landlord's
consent, knowledge, action or inaction with respect to the act or occurrence
giving rise to such right of indemnity.
13.2 In case any action or proceeding is brought against Landlord or
its officers, directors, shareholders, employees, agents and representatives by
reason of any claim indemnified under Section 13. 1, Landlord shall promptly
notify Tenant of such claim and Tenant shall, at Tenant's expense, immediately
resist or defend-such action or proceeding with counsel approved by Landlord in
writing, which approval shall not be unreasonably withheld. In connection with
any such action brought against Landlord by Tenant's employees, Tenant waives
any immunity, defense or other protection afforded by any worker's
compensation, industrial insurance or similar laws, with regard to such claim
or action against Landlord.
13.3 Tenant waives and releases all claims against Landlord, its
officers, directors, shareholders, employees, agents and representatives, fcr
any loss, injury, or damage (including
<PAGE>
consequential damages), to Tenant's property or business during the term of
this lease occasioned by theft, act of God, public enemy, injunction, riot,
strike, insurrection, war, court order, acquisition, order of governmental body
or authority, earthquake, flood, fire, explosion, falling objects, steam,
water, rain or snow, leak or by flow of water, rain or snow from the Premises
or onto the Premises or from the roof, street, subsurface or from any other
place, or by dampness, or by the breakage, leakage, obstruction or defects of
the pipes, sprinklers, wires, appliances, plumbing, heating, air conditioning,
lighting fixtures of the Improvements, or by the construction, repair or
alteration of the Premises or by any other acts or omissions of any other
tenant or occupant of the Project, or visitor to the Premises or any third
party whatsoever, or by any cause beyond Landlord's control.
13.4 Tenant's obligations under this ARTICLE shall survive any
termination or expiration of this lease.
ARTICLE 14.
Insurance
14.1 At all times during the term of this lease, Landlord shall carry
and maintain (a) Special Form property insurance (or its then equivalent in the
insurance industry) covering the Improvements to their full insurable
replacement value, subject to a deductible of not less than One Thousand
Dollars ($1,000.00), (b) rental value insurance in an amount sufficient to
cover Tenant's Total Payments during any period of rental abatement caused by
repair or reconstruction of the Improvements, and (c) commercial general
liability insurance (or its then equivalent in the insurance industry) for the
Project in such amounts as Landlord determines from time to time in its
reasonable discretion.
14.2 Tenant shall reimburse Landlord for the costs of all insurance
maintained pursuant to Section 14. 1. If Landlord maintains blanket property
damage policies Tenant shall pay only that portion of policy premiums
reasonably allocable to the Premises. The cost of Landlord's liability
insurance shall be allocated in accordance with Section 11. 1. Insurance
charges shall be paid by Tenant in one or more installments each year during
the lease term in an amount estimated by Landlord. On or before April I of each
year, Landlord shall furnish to Tenant a statement of the actual amount of
insurance costs incurred for the preceding calendar year. Within thirty (30)
days after receipt of such statement, Tenant shall pay Landlord the amount for
which actual insurance expenses exceed estimated expenses paid by Tenant. If
the estimated amounts paid by Tenant exceed the actual insurance expenses, such
excess shall be credited against the next insurance expense payment due from
Tenant. Tenant's obligation under this Section shall survive any termination or
expiration of this lease.
14.3 Any loss to Tenant's personal property and fixtures or arising
out of the conduct of or interruption of Tenant's business shall be the sole
risk of Tenant. Tenant shall, at its sole cost, secure and maintain throughout
the term of this lease insurance policies with a company or companies
reasonably acceptable to Landlord and licensed to do business in the State,
insuring against the following perils:
<PAGE>
(a) Liability Insurance. (i) Commercial general liability insurance
(or its then equivalent in the insurance industry) with combined single limits
of not less than One Million Dollars ($ 1,000,000.00) per occurrence for
personal injury and property damage. Such policy shall. name Landlord and any
lender of Landlord as additional insureds; shall contain cross liability
provisions and shall include but not be limited to coverage for the occurrences
described in subsections 13. l (a) and (b), and acts of independent contractors
retained by Tenant, and (ii) auto liability insurance for vehicles owned,
leased or used by Tenant, and non-owned vehicles used in connection with
Tenants' business, with liability limits of not less than One Million Dollars
($1,000,000.00) per occurrence.
(b) PropgM Insurance. Special Form property insurance (or its then
equivalent in the insurance industry) naming Landlord, any lender of Landlord,
and Tenant as their interests may appear, covering all leasehold improvements
in, on, or upon the Premises, in an amount not less than the full replacement
cost without deduction for depreciation. All policy proceeds shall be used for
the repair or replacement of the property damaged or destroyed; however, if
this lease ceases under the provisions of ARTICLE 21, Tenant shall be entitled
to any proceeds equal to the remaining value to Tenant of leasehold
improvements for which Tenant has paid, and Landlord shall be entitled to all
other proceeds. Notwithstanding the foregoing sentence, Landlord shall never
receive less than an amount equal to the reasonable cost of re-constructing
Improvements substantially identical to those originally delivered to Tenant.
(c) Other Insurance: Changes in Limits. Such other insurance in such
amounts as may from time to time be reasonably requested by Landlord against
other insurable hazards related to the Premises (including, without limitation,
hazards to the Premises related to Tenant's activities thereon), which at the
time are customarily insured against by owners or operators of similar types of
properties and Landlord may require changes in the amounts or limits of the
insurance to be maintained under this ARTICLE to maintain reasonably equivalent
coverage due to inflation, changes in Tenant's business operations, changes in
law or changes in policy terms.
14.4 Each insurance policy maintained by Tenant shall provide coverage
on an occurrence rather than a claims-made basis (or if coverage on an
occurrence basis is or becomes unavailable on commercially reasonable terms,
Tenant may obtain insurance coverage on a claims-made basis, provided such
policies are endorsed to provide for an extended reporting period of not less
than three (3) years) and shall provide that (a) no act, omission or default by
Tenant shall render the policy void as to Landlord or of Landlord's right to
recover thereon; and (b) the policy shall not be canceled or modified so as to
adversely affect Landlord until thirty (30) days after written notice to
Landlord. On or before commencement of the term hereof and thereafter upon the
request of Landlord, Tenant shall provide certificates of insurance evidencing
the required insurance and upon Landlord's request, copies of any required
policy. All policies shall be written as primary policies, not contributing
with, and not in excess of coverage which Landlord may carry.
14.5 Landlord and Tenant each waive any and all rights to recover
against the other or against the officers, directors, shareholders, employees,
agents or representatives of the other,
<PAGE>
14.5 Landlord and Tenant each waive any and all rights to recover
against the other or against the officers, directors, shareholders, employees,
agents or representatives of the other, for any loss or damage to such waiving
party arising from any cause covered by any insurance required to be carried by
such party pursuant to this ARTICLE or any other insurance actually carried by
such party; provided, however, Tenant shall remain liable for the lesser of (a)
the loss incurred by Landlord or (b) the deductible under Landlord's insurance
policies, up to a maximum of One Thousand Dollars ($1,000.00). Landlord and
Tenant from time to time shall cause their respective insurers to issue
appropriate waiver of subrogation rights endorsements to all policies of
insurance carried in connection with the Premises or the contents of the
Premises. Tenant agrees to cause all other occupants of the Premises claiming
by, under, or through Tenant to execute and deliver to Landlord such a waiver
of claims and to obtain such waiver of subrogation rights endorsements.
14.6 Landlord, its agents and employees make no representation that
the limits of liability specified to be carried by Tenant pursuant to this
ARTICLE are adequate to protect Tenant. If Tenant believes that any of such
insurance coverage is inadequate, Tenant shall obtain, at Tenant's sole
expense, such additional insurance coverage as Tenant deems adequate.
ARTICLE 15.
Limitation on Landlord's Liability
15.1 Notwithstanding any other provision of this lease, in the event
of any actual or alleged default under this lease by Landlord, Landlord's
liability shall be limited to Landlord's interest in the Project. Neither
Landlord nor any officer, director, shareholder, agent or representative of
Landlord shall have any personal liability for the breach of any obligations
under this lease.
15.2 If Landlord, or any subsequent owner of the Premises, transfers
the Premises, its liability for the performance of its agreements under this
lease shall end with respect to obligations arising after the date of the
transfer of the Premises, and the Tenant shall thereafter look solely to the
transferee of the Premises for the performance of those agreements. Tenant
shall attorn to any transferee of the Premises.
ARTICLE 16.
Defaults and Remedies
16.1 Landlord shall be entitled to exercise any of the rights and
remedies provided for in this lease (and/or by applicable law) if any one or
more of the following "Events of Default" shall occur:
(a) if Base Rent is not paid when due and remains unpaid for ten (10) days
after written notice; or
(b) if any Additional Rent or any other sum payable by Tenant is not paid
within twenty (20) days after written notice from Landlord to Tenant; or
<PAGE>
(c) if default shall be made by Tenant in the prompt and full
performance or compliance with any of the promises, provisions, terms,
covenants or conditions in this lease other than those referred to in
subsections (a) and (b) of this Section, and any such default is not fully
cured within thirty (30) days after written notice from Landlord to Tenant, or
if such default may not be reasonably cured within such 30-day period, if
Tenant does not commence to cure within such 30-day period and thereafter
diligently pursue such cure to completion.
16.2 Upon the occurrence of any Event of Default, Landlord may, at its
discretion, apply the security deposit referred to in ARTICLE 5 against any
amounts due from Tenant; take any action permitted under ARTICLE 17; and
exercise any or all rights or remedies allowed under this lease or by law or
equity, including without limitation, the following:
(a) Landlord may terminate this lease in accordance with the laws of
the State of Washington, whereupon Tenant shall quit and peacefully surrender
the Premises. Upon termination, Landlord may re-enter the Premises and take
possession thereof, remove all parties in possession therefrom, and Tenant
shall have no further claim or demand whatsoever thereon or hereunder.
Landlord, without terminating this lease, may re-enter the Premises without
liability for trespass, remove by summary proceedings, ejectment, replevin,
unlawful detainer, lien foreclosure, or otherwise, all persons and personal
property from the Premises and may have, hold, and enjoy the Premises and have
the right to receive all rental income of and from the same. No act by Landlord
shall terminate this lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this lease. Upon any re-entry, Landlord may relet
the Premises or any part thereof 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 as Landlord, in its reasonable
discretion, may determine and may collect and receive the rents thereto. If
Tenant abandons the Premises, Landlord shall in no way be responsible or liable
if the Premises or any part thereof are not relet, or for any inability to
collect any rent due upon any such reletting. Tenant assumes full
responsibility for mitigating damages upon abandonment of the Premises and
waives any defense or claim based on Landlord's failure to mitigate damages
except as set forth in Section 23.6. No re-entry by Landlord, if the lease has
not been terminated, shall excuse or relieve Tenant of its liability and
obligations under this lease, and Tenant, until the end of the term of this
lease, shall be liable to Landlord for and shall pay to Landlord the amount of
Total Payments which are due and payable under this lease by Tenant, less the
proceeds realized by Landlord from any reletting. Tenant shall pay such
deficiency to Landlord on the first day of each month for which rent would have
been paid under this lease, and Landlord shall be entitled to recover from
Tenant each monthly deficiency. In addition, Tenant shall pay upon demand all
of Landlord's reasonable expenses whatsoever reasonably incurred in connection
with any reletting, including, without limitation, all repossession costs,
brokerage and management commissions or fees, all operating expenses,
accounting expenses, attorneys' fees, reasonable costs incurred in making
alterations to the Improvements and removal, storage or disposition of personal
property on the Premises, and any expenses of advertising and preparation for
reletting and any reasonable concessions granted in connection with such
reletting. Any sums received by Landlord upon a reletting of the Premises in
excess of the Total Payments reserved herein shall be the sole property of
Landlord; or
(b) Landlord may accelerate all of the Total Payments reserved for the
remaining balance of the term of this lease. Upon such acceleration, all of the
Total Payments reserved herein for the entire term shall immediately become due
and payable, discounted to their then present value using a discount rate equal
to the prime rate as of the date of the Event of Default, less the reasonable
rental value of the Premises for the remainder of the lease term, also
discounted to present value at the prime rate. The "prime rate" shall mean the
interest rate per annum announced by Seattle-First National Bank (or its
successor) from time to time as its prime lending rate to its most creditworthy
commercial customers. Tenant shall pay, upon demand, such accelerated amount
plus an amount equal to the total of all of Landlord's reasonable costs
resulting from Tenant's default including, without limitation, costs of curing
any breach by Tenant of the terms of this Lease (other than failure to pay
Total Payments), repossession of the Premises, operating and administrative
expenses until the Premises may be relet, attorney's fees, costs of removal,
storage or disposition of personal property on the Premises, and the
unauthorized cost of any leasehold improvements or concessions granted in
connection with this Lease, plus interest thereon at the prime rate from the
date incurred until the date paid.
ARTICLE 17.
Landlord's Right to Perform Tenant's Covenants
17.1 If Tenant shall at any time fail to make any payment or perform
any act required under this lease, then Landlord, after ten (10) days' notice
to Tenant in the case of monetary defaults (other than the payment of Base
Rent) or thirty (30) days' notice in the case of a nonmonetary default, or
immediately without notice in the case of emergency, and without waiving or
releasing Tenant from any obligation of Tenant contained in this lease or from
any default by Tenant and without waiving Landlord's right to take other action
permissible under this lease, may (but shall be under no obligation to) make
such payment or perform any other act required to be made, performed or
complied with by Tenant hereunder.
17.2 Landlord may enter the Premises for any purpose under Section
17.1 and take all such action thereon as may be necessary without incurring any
liability for trespass and without terminating Tenant's tenancy or interfering
with Tenant's quiet enjoyment of the Premises. Any sums paid by Landlord and
all costs and expenses reasonably incurred by Landlord (including reasonable
attorneys' fees), in connection with the performance of any act, together with
interest thereon at the rate set forth in ARTICLE 19, from the date of such
payment or incurrence by Landlord shall be paid by Tenant to Landlord upon
demand.
ARTICLE 18.
Costs and Attorneys' Fees
18.1 In the event of any breach, default, delinquency or violation by
either party or any dispute involving the interpretation of this lease, the
non-prevailing party shall be responsible
<PAGE>
for and shall pay any and all reasonable attorneys' fees and costs, or expenses
incurred by the other party by reason of such breach, default, delinquency,
violation or dispute, whether or not a legal action is filed, including those,
if any, on appeal.
ARTICLE 19.
Interest on Overdue Payments
19.1 Any component of Total Payments payable by Tenant under the terms
of this lease, which Tenant does not pay when due, shall bear interest in favor
of Landlord from the due date at the rate of eighteen percent (18 %) per annum,
compounded monthly, or such lesser rate as may be the maximum allowed by law.
19.2 Any late or partial payments, if accepted by Landlord, may, at
Landlord's option, be applied first to interest, then to Additional Rent, and
finally to Base Rent.
ARTICLE 20.
No Total Payments Abatement
20.1 Except as otherwise expressly provided for in this lease, no
abatement, diminution, setoff, counterclaim or reduction of Total Payments or
charges due Landlord shall be claimed by or allowed to Tenant.
ARTICLE 21.
Damage to Premises
21.1 If the Improvements are damaged or destroyed by reason of fire or
any other cause, Tenant shall immediately notify Landlord. If the loss results
from a casualty covered by Landlord's insurance, provided Tenant is not in
default, Landlord shall apply the net proceeds of any fire or other casualty
insurance paid to Landlord (or to a trustee or depository at the request of the
holder of Landlord's mortgage), to repair or rebuild the Improvements. Provided
Tenant is not in default, if the loss results from a casualty not insured
against by Landlord's insurance and not attributable to Tenant's negligence or
other fault and the estimated costs of repair do not exceed fifty percent (50%)
of the sum of Base Rent due for the remainder of the lease term, Landlord shall
repair or rebuild the Improvements, in each case so as to make the Improvements
at least equal in value to the Improvements existing immediately prior to the
occurrence and as nearly similar in character as is practicable and reasonable,
subject to any applicable building regulations. Landlord shall prosecute the
repairs or rebuilding to completion with diligence; subject, however, to
strikes, lockouts, acts of God, embargoes, governmental restrictions, and other
causes beyond Landlord's reasonable control.
21.2 If (a) at any time during the last two (2) years of the term of
this lease the Improvements are damaged by fire or other insured casualty so
that the cost of restoration exceeds twenty-five percent (25 %) of the
replacement value of the Improvements (exclusive of foundations) immediately
prior to the damage or (b) in Landlord's reasonable judgment, repair or
restoration after any insured casualty cannot be completed by one (1) year
prior to the end of the lease term or (c) a loss exceeding fifty percent (50%)
of the sum of Base Rent due for the
<PAGE>
remainder of the lease term results from a casualty not insured against by
Landlord's insurance, then Landlord may, within thirty (30) days after such
damage, give notice of its election to terminate this lease and, subject to the
provisions of this section, this lease shall cease on the tenth (10th) day
after the delivery of that notice. Total Payments shall be apportioned and paid
to the time of damage.
21.3 Total Payments shall be abated on a pro rata basis from the date
of the damage until the date of the completion of such repairs, based on the
proportion of the Premises that Tenant is unable to use during the repair
period. If any casualty not covered by rental value insurance is the result of
the willful conduct or negligent act or omission of Tenant, its agents,
contractors, employees, or invitees, Total Payments shall not be abated. Tenant
shall have no right to terminate this lease on account of any damage to the
Premises, or the Project, except as set forth in this lease.
ARTICLE 22.
Condemnation
22.1 In the event the Premises or any part thereof shall be condemned
and taken for a public or quasi-public use, the leasehold estate and interest
of Tenant in the Premises or the part thereof so taken shall forthwith cease
and terminate as of the date of final award. In the event of a partial taking,
the lease shall remain in full force as to any portion of the Premises not
taken, and Tenant's obligation to pay Base Rent and Additional Rent herein
reserved shall be equitably reduced or abated in proportion to the value of the
portion of the Premises which is lost on account of any partial taking. Rent
shall not be abated if the taking does not unreasonably affect Tenant's use of
the Premises. Notwithstanding the foregoing, in the event any part of the
Premises is taken which would render the remainder thereof unusable, Tenant may
elect to terminate this lease and all obligations of either party hereunder
accruing from and after the date of such partial taking.
22.2 Landlord reserves all rights to damages awarded for any partial
or total taking, and Tenant hereby assigns to Landlord any right Tenant may
have to such damages or award except for moving expenses, Tenant's personal
property or damage to or interference with Tenant's business, but only to the
extent awarded separately and not out of or as a part of the damages
recoverable by Landlord.
ARTICLE 23.
Transfer of Tenant's Interest
23.1 Tenant shall not:
(a) transfer all or any portion of this lease or any of its leasehold
interest in the Premises, without the prior written consent of Landlord, which
may not be unreasonably withheld;
(b) mortgage, pledge, hypothecate or otherwise create or grant any security
interest in Tenant's leasehold interest (or any part thereof) in the Premises
without the
<PAGE>
prior written consent of Landlord, which may not be unreasonably withheld or
delayed, and, subject to Tenant's right to contest in a manner similar to that
provided in Section 9.3 for Impositions, Tenant shall not voluntarily or
involuntarily suffer or permit to be placed or enforced against the Premises
any lien, claim, demand or encumbrance of any type or nature whatsoever.
23.2 Any request by Tenant for Landlord's consent to a transfer shall
be accompanied by information related to the proposed transferee's financial
position and proposed use of the property, and any other information Landlord
may reasonably request in order to evaluate the proposed transfer. Landlord's
consent to a transfer shall not be effective until Landlord has received the
written agreement of the transferee to assume and perform all of the
obligations of Tenant for the payment of Total Payments and the performance of
all the terms, covenants, conditions and provisions contained in this lease.
Any consent by Landlord to any single transfer shall not release Tenant from
any obligations under this lease and such consent shall only apply to the
specific transaction thereby authorized and shall not be construed as a waiver
of the duty to obtain Landlord's consent to any subsequent transfer.
23.3 Tenant shall reimburse Landlord for any costs reasonably incurred
in connection with any proposed transfer or creation of a security interest,
including, without limitation, legal fees and costs of investigating the
acceptability of the proposed transferee or security interest and preparation
or review of necessary documentation.
23.4 Any violation of the terms of this ARTICLE without Landlord's
prior written consent shall, at Landlord's option, be absolutely null and void.
23.5 Landlord's failure to detect or to protest an apparent or actual
default of this ARTICLE shall not constitute a waiver or estoppel thereof. The
acceptance of any rent by Landlord from a proposed transferee shall not
constitute consent by Landlord to any transfer or recognition of any transferee
or a waiver by Landlord of any failure of Tenant to comply with this ARTICLE.
23.6 If Tenant believes that Landlord has unreasonably withheld
consent to any transfer or creation of a security interest, Tenant's sole
remedies shall be to (a) seek a declaratory judgment that Landlord has
unreasonably withheld consent or (b) seek specific performance or an injunction
requiring Landlord to give consent.
23.7 Landlord's withholding of consent to a proposed transfer shall
not be unreasonable if Landlord determines, in the exercise of Landlord's
reasonable discretion, that (a) the proposed transferee is financially unable
to fulfill its obligations under the lease; (b) the proposed transferee (or the
principals thereof) has a substantial history of defaults under prior leases or
other agreements; (c) the proposed transferee's use of the Premises would be
incompatible with other uses within the Project or would pose substantial risks
of pollution, casualty loss, property damage or personal injury; or (d) would
otherwise substantially increase Landlord's risk or expense in connection with
this Lease.
<PAGE>
23.8 For the purpose of this ARTICLE, "transfer" shall include any
voluntary or involuntary sale, assignment, sublease, gift, conveyance,
disposition or parting with any or all of Tenant's rights, duties or interests
herein. Subject to the requirements of Section 23.2 relating to information and
documents to be provided by Tenant, and Landlord's right to object and withhold
consent on the grounds set forth in Section 23.7, Tenant may assign all or part
of this lease, or sublease all or a part of the Premises, to:
(a) any corporation or entity that has the power to direct Tenant's
management and operation, or any corporation or entity whose management and
operation is controlled by Tenant; or,
(b) any corporation or entity a majority of whose voting stock or ownership
interest is owned by Tenant; or
(c) any corporation or entity in which or with which Tenant or its
successors or assigns is merged or consolidated, in accordance with applicable
statutory provisions for merger or consolidation of corporations or other
entities, so long as the liabilities of the corporations or entities
participating in such merger or consolidation are assumed by the corporation or
entity surviving such merger or created by such consolidation; or
(d) any corporation or entity acquiring this lease and a substantial
portion of Tenant's assets.
ARTICLE 24.
Subordination
24.1 At Landlord's request, this lease shall be subordinated to any
mortgages, deeds of trust and other encumbrances arising through Landlord and
affecting the Premises, provided the mortgagee or beneficiary thereof agrees
not to disturb Tenant's possession so long as Tenant is not in default under
this lease. Tenant shall sign and deliver any reasonable documents required to
evidence such subordination, within twenty (20) days of Landlord's request.
ARTICLE 25.
Surrender
25.1 At the expiration of the lease term or upon any earlier
termination of this lease, Tenant shall immediately:
(a) deliver to Landlord free and clear title to the Improvements
(excepting only Tenant's personal property, equipment and trade fixtures which
can be, and are, removed by Tenant without permanent damage to the Premises)
without any payment to Tenant or allowance of any kind whatsoever by Landlord;
provided that nothing herein shall require Tenant to satisfy any obligations
arising through Landlord. Landlord may examine condition of title at Tenant's
cost to assure itself that the title offered is in conformity with the terms of
this lease; and
<PAGE>
(b) restore the Premises to their condition at the commencement of the
lease, and repair any damage caused by removal of Tenant's personal property,
equipment or trade fixtures, or Tenant's occupancy of the Premises, and quit,
surrender and return possession of the Premises to Landlord in a neat, clean,
and sanitary condition, and in good working order, reasonable wear and tear and
casualty loss excepted, and shall deliver to Landlord all information documents
and tangible items necessary or convenient to the operation of the Premises,
including, without limitation, any keys, combinations to locks and access
systems, manuals and instruction booklets, warranties, receipts, bills,
invoices, statements, licenses, and permits, building plans and specifications,
contracts and other documents.
25.2 Any personal property remaining on the Premises after the
expiration of the lease term may, at Landlord's option, be deemed abandoned by
Tenant and Tenant releases Landlord from all claims and liability in connection
with such personal property. Upon expiration, or if the lease is terminated
prior to its normal expiration, Landlord shall have the right, but not the
obligation, to remove all of Tenant's personal property from the Premises and
place the same in a public warehouse at Tenant's expense and risk. Landlord
shall have the right, but not the obligation, to sell such stored property if
it has not been claimed, and all charges for removal, packing, transport and
storage paid by Tenant within thirty (30) days, and the proceeds of sale shall
be applied first to the costs of sale, second to the costs of removal, packing,
transport and storage, third to the payment of any other sums due Landlord from
Tenant, and the balance, if any, shall be paid to Tenant.
ARTICLE 26.
Holding Over
26.1 This lease shall terminate without further notice upon the
expiration of the lease term as described in ARTICLE 3 or upon any earlier
termination of this lease. If Tenant holds over with the written consent of
Landlord, such action shall not constitute a renewal of this lease or any
extension thereof, but such tenancy shall be on a month-to-month basis, which
tenancy may be terminated as provided by the laws of the State of Washington.
During such period, Tenant shall pay to Landlord on the first day of each month
Base Rent equal to one-twelfth (1/12) the Total Payments payable by Tenant
during the prior calendar year multiplied by one hundred twenty-five percent
(125%) (plus all Additional Rent provided for in this Lease), and Tenant shall
continue to be bound by all of the promises, provisions, conditions and
covenants herein set forth, so far as the same may be applicable.
ARTICLE 27.
Quiet Enjoyment
27.1 Landlord hereby covenants that if Tenant is not in default in the
payment of any monetary obligations or in the performance or observance of any
of its other obligations under this lease, Tenant shall be free from Landlord's
interference in the enjoyment of sole and exclusive use, occupancy and
possession of the Premises; subject, however, to the exceptions, reservations
and conditions of this lease.
<PAGE>
ARTICLE 28.
Right of Inspection
28.1 Landlord and its representatives shall be authorized to enter the
Premises upon notice (or at any time without notice in the event of emergency)
for the purposes of determining whether or not an Event of Default has
occurred; exhibiting the Premises to lenders, prospective purchasers and
tenants; making any necessary repairs to the Premises and performing any work
therein and for any other lawful purpose. Landlord shall not be liable for
inconvenience, annoyance, disturbance, loss of business or other damage to
Tenant or any other party by reason of such entrance or the making of such
repairs or the performance of any such work, or on account of bringing
materials, tools, supplies and equipment onto the Premises. In order to
preserve the security of Tenant's proprietary information, Tenant may accompany
Landlord on any inspection and may impose reasonable restrictions to prevent
unauthorized access to such proprietary information. Landlord shall not
disclose or use any confidential or proprietary information of Tenant learned,
observed or otherwise obtained by Landlord or its employees or agents in its
exercise of rights under this lease.
ARTICLE 29.
Recording
29.1 This lease shall not be recorded. On the request of either party, a
memorandum of this lease may be recorded.
ARTICLE 30.
Estoppel Certificates
30.1 Tenant shall, without charge to Landlord, at any time and from
time to time, within ten (10) days after request, certify by written
instrument, duly executed, acknowledged and delivered, to Landlord or any other
person, firm or corporation specified by Landlord:
(a) that this lease is unmodified and in full force and effect or, if
there have been any modifications, that the same is in full force and effect as
modified and stating the modifications or, indicating that this lease is not in
full force and effect if appropriate and stating the reason why;
(b) that any existing Improvements required by the terms of this lease
to be completed by Landlord have been completed to the satisfaction of Tenant
or specifying any Improvements which require correction by Landlord;
(c) whether or not there are then existing any set-offs or defense
against the enforcement of any of the agreements, terms, covenants or
conditions of this lease and any modifications thereto upon the part of the
certifying party to be performed or complied with and, if so, specifying the
same;
<PAGE>
(d) the amount of monthly Base Rent and Additional Rent then due under
this lease, the dates, if any, to which any portion of the Base Rent and
Additional Rent due hereunder have been paid in advance;
(e) the amount of security deposit held by Landlord;
(f) the date of expiration of the current term and whether Tenant has
rights to extend the term (and the term of such extensions) or to purchase the
Premises or to lease additional property, if any; and
(g) any other information reasonably requested.
30.2 Tenant's failure to deliver a certificate within the time
specified shall be an Event of Default under ARTICLE 16 and shall conclusively
be deemed Tenant's approval of the statements set forth in the certificate
presented to Tenant, and may be relied upon as such by Landlord or any third
party.
ARTICLE 3 1.
Nonwaiver
31.1 No waiver by Landlord or Tenant of any default by the other party
or of any circumstances permitting Landlord or Tenant to terminate this lease
shall be implied or inferred and no written waiver shall constitute a waiver of
any other circumstance permitting such termination, and no failure or delay on
the part of Landlord or Tenant to exercise any right it may have by the terms
hereof or by law upon the occurrence of an Event of Default shall operate as a
waiver of that or any other Event of Default, nor as a modification of this
lease. The subsequent acceptance of any payment or performance pursuant to this
lease shall not constitute a waiver of any prior default by Tenant other than
the default of the particular payment or the performance so accepted. The
consent or approval to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant. No payment by
Tenant or receipt by Landlord of a lesser amount than the Total Payments due
shall be deemed to be other than on account, nor shall any endorsement or
statement on any check or letter accompanying any check or payment as rent be
deemed an accord and satisfaction or a waiver of any other or additional amount
owed.
ARTICLE 32.
Authority
32.1 Landlord and Tenant or each person signing this lease on behalf
of Landlord and Tenant, warrants that he or she is authorized to execute this
lease.
32.2 If Tenant or Landlord is not a natural person, then such party wan-ants
that:
(a) such party is duly organized, validly existing and qualified to conduct
business in the State of Washington;
<PAGE>
(b) that the lease was duly authorized, executed and delivered by such
party and is the binding obligation of such party, in accordance with its
terms.
ARTICLE 33.
Brokers
33.1 Tenant and Landlord, respectively, represent that they have not
dealt with any broker or finder with respect to the Premises or this lease
other than Kiemle & Hagood, whose fee shall be paid by Landlord. Tenant and
Landlord shall indemnify the other and the other's agents and representatives,
and hold them harmless from any claims for fees or commissions by parties
(including, without limitation, all attorneys' fees and costs of defending any
alleged claim) arising out of the acts of the indemnifying party or its agents
or employees.
ARTICLE 34.
Notices
34.1 Any notices, demands, requests, consents, objections or other
communications required to be given or which may be given under or by the terms
and provisions of this lease or pursuant to law or otherwise shall be in
writing and delivered or mailed to the address set forth below each party's
signature on this lease or at such other place as either Landlord or Tenant may
hereafter designate in writing and shall be deemed given three (3) days after
deposit in the United States mail, certified or registered, return receipt
requested, postage prepaid, addressed to the party entitled to receive the
notice, or upon receipt when hand delivered.
ARTICLE 35.
Construction
35.1 This lease shall be construed in accordance with the laws of the
State of Washington. The table of contents, article headings and captions are
for convenience only and shall not be considered in any construction or
interpretation of this lease. If any ambiguity exists, the provision in
question shall not be construed or interpreted for or against Landlord or
Tenant by reason of any rule of construction. If any term, provision, Section,
ARTICLE or sentence in this lease or portion thereof shall, to any extent,
become invalid or unenforceable either by operation. of law, statute, or by
court decree, the remainder of said term, provision, Section, ARTICLE or
sentence as well as the remainder of this lease shall not be affected thereby,
and each term, provision, Section, ARTICLE, sentence or portion thereof as well
as the remainder of this lease shall be valid and shall be enforceable to the
fullest extent permitted by law.
ARTICLE 36. -
Covenants to Bind and Benefit ReMggtLive Parties
36.1 All of the promises, terms, covenants, provisions and conditions
set forth in this lease shall inure to the benefit of and shall be binding on,
the heirs, personal representatives, trustees, receivers, permitted assignees
and permitted transferees of the parties named herein.
<PAGE>
ARTICLE 37.
Sole Understanding of Parties
37.1 This lease contains the entire understanding between the parties
with respect to its subject matter, the promises, duties, terms, covenants,
conditions and all other aspects of the relationship between Landlord and
Tenant, and here are no verbal agreements, representations, warranties, or
other understandings affecting the Property or its use or development that have
not been reduced in writing in this lease. No change in this lease in any
manner whatsoever shall be valid unless in writing and signed by both parties.
ARTICLE 38.
Further Documents
38.1 Landlord and Tenant shall, whenever and as often as it shall be
reasonably requested to do so by the other, execute, acknowledge and deliver or
cause to be executed, acknowledged or delivered any and all such further
confirmations, instruments and documents and take any and all actions as may be
reasonably helpful, necessary, expedient or proper, in order to evidence or
complete any and all transactions or to accomplish any and all matters provided
for in this lease.
ARTICLE 39.
Venue
Venue in any action arising out of this lease shall be laid in the
Superior Court of Spokane County, Washington.
ARTICLE 40.
Consultation
Tenant acknowledges that it has consulted or has had ample opportunity
to consult with an attorney concerning the content of this lease. Tenant
represents that it has read and understands the terms and conditions set forth
in this lease.
EXECUTED as of the date first set forth above.
LANDLORD: TENANT:
SPOKANE INDUSTRIAL PARK, a CXT, INCORPORATED,
Division of PENTZER DEVELOPMENT a Delaware corporation
CORPORATION, a Washington corporation
BY ________________________ BY _____________________
its its
Address: North 3808 Sullivan Road Address: North 2420 Sullivan Road
Spokane, Washington 99216 Spokane, WA99216
STATE OF WASHINGTON
:ss.
County of Spokane
I certify that I know or have satisfactory evidence that ____________________
is the person who appeared before me, and said person acknowledged that he
signed this instrument and that he was authorized to execute the instrument and
acknowledged it as the ____________________of SPOKANE INDUSTRIAL PARK, a
division of PENTZER DEVELPMENT CORPORATION, a Washington corporation, to be the
free and voluntary act of such party for the uses and purposes mentioned in the
instrument.
Dated _____________________
- ----------------------------
Notary Public in and for the
State
of Washington, residing at
Spokane
My commission expires:
- ------------
STATE OF WASHINGTON
:ss.
County of Spokane
I certify that I know or have satisfactory evidence that is the person
who appeared before me, and said person acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument and
acknowledged it as the ________________ of CXT, INCORPORATED, a Delaware
corporation, to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated _____________________
- ----------------------------
Notary Public in and for the
State
of Washington, residing at
Spokane
My commission expires:
- ------------
Reference: Section 17(a)iv
LEASE OF INDUSTRIAL PROPERTY
FROM U.P.
(GRAND ISLAND, NEBRASKA)
<PAGE>
LEASE OF INDUSTRIAL PROPERTY
THIS LEASE ("Lease") is entered into on the 13 day of February 1998
between UNION PACIFIC RAILROAD COMPANY ("Lessor") and CXT INCORPORATED, whose
address is North 2420 Sullivan Road, P. 0. Box 14918, Spokane, Washington
99214-0918 ("Lessee").
IT IS AGREED BETWEEN THE PARTIES AS FOLLOWS:
Article I. PREMISES USE.
Lessor leases to Lessee and Lessee leases from Lessor the premises
("Premises") at Grand Island, Nebraska, as shown on the print dated February 6,
1998, marked Exhibit A, hereto attached and made a part hereof, subject to the
provisions of this Lease and of Exhibit B attached hereto and made a part
hereof. The Premises may be used for manufacture of concrete ties for the
Lessor's use, and such other uses as may be permitted in the Restated Supply
Agreement referred to in Article II of this Lease, and for no other purpose.
Article II. TERM.
The term of this Lease shall commence on the Thirteenth day of
February, 1998, and shall extend for a term of run coterminous with that
certain Restated Supply Agreement dated October 1, 1997, by and between the
Lessor and lessee. This Lease shall terminate or expire on the same date that
said Restated Supply Agreement terminates or expires.
Article III. RENT.
A. Lessee shall pay to Lessor, in advance, rent of One Dollar ($1.00)
per annum.
B. Not more than once every sixty eight (68) months, Lessor may
redetermine the rent. In the event Lessor does redetermine the rent, Lessor
shall notify Lessee of such change.
Article IV. SPECIAL PROVISIONS.
A. The words, "which shall not be unreasonably withheld." shall be
added to the end of the first
sentence of Section 10.A. of Exhibit B.
B. Section 13.B of Exhibit B shall be deleted.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first herein written.
UNION PACEFIC RAILROAD COMPANY CXT INCORPORATED
By: /c/Michael P. Horn By: /c/J. White
Title: Sr. Mgr. - Real Estate Title: President & CEO
NOTE: New.
<PAGE>
IND LS 110695
APPROVED, LAW
EXHIBIT B
Section 1. IMPROVEMENTS.
No improvements placed upon the Premises by Lessee shall become a part of the
realty.
Section 2. RESERVATIONS AND PRIOR RIGHTS.
A. Lessor reserves to itself, its agents and contractors, the right to
enter the Premises at such times as will not unreasonably interfere with
Lessee's use of the Premises.
3. Lessor reserves (i) the exclusive right to permit third party
placement of advertising signs an the Premises, and (ii) the right to
construct, maintain and operate now and existing facilities (including, without
limitation, trackage, fences, communication facilities, roadways and utilities)
upon, over, across or under the Premises, and to grant to others such rights,
provided that Lessee's use of the Premises is not interfered with unreasonably.
C. This Lease is made subject to all outstanding rights, whether or not of
record. Lesser reserves the right to renew such outstanding rights.
Section 3. PAYMENT OF RENT.
Rent (which includes the annual rent and all other amounts to be paid
by Lessee under this Lease) shall be paid in lawful money of the United States
of America, at such place as shall be designated by the Lessor, and without
offset or deduction.
Section 4. TAXES AND ASSESSMENTS.
A. Losses shall pay, prior to delinquency, all taxes levied during the
life of this Leese an all personal property and improvements on the Premises
not belonging to Lessor. If such taxes are paid by Lessor, either separately or
an a part of the levy on Lessor's real property, Lessee shall reimburse Lessor
in full within thirty (30) days after rendition of Lessor's bill.
B. If the Premises are specially assessed for public improvements, the annual
rent will be automatically increased by 12% of the full assessment amount.
Section 5. WATER RIGHTS.
This Lease does not include any right to the use of water under any
water right of Lessor, or to establish any water rights except in the name of
Lesser.
Section 6. CARE AND USE OF PREMISES.
A. Lessee shall use reasonable care and caution against damage or
destruction to the Premises. Lessee shall not use or permit the use of the
Premises for any unlawful purpose, maintain any nuisance, permit any waste, or
use the Premises in any way that creates a hazard to persons or property.
Lessee shall keep the Premises in a safe, neat, clean and presentable
condition, and in good condition and repair. Lessee shall keep the sidewalks
and public ways on the Premises, and the walkways appurtenant to any railroad
spur track(s) on or serving the Premises, free and clear from any substance
which might create a hazard and all water flow shall be directed away from the
tracks of the Lessor.
3. Lesses shall not permit any sign on the Premises, except signs relating
to Lessee's business.
C. If any improvement on the Premises not belonging to Lessor is
damaged or destroyed by fire or other casualty, Lessee shall, within thirty
(30) days after such casualty, remove all debris resulting therefrom. If Lessee
fails to do so, Lessor may remove such debris and Lesee agrees to reimburse
Lessor for all expenses incurred within thirty (30) days after rendition of
Lesser's bill.
D. Lessee shall comply with all governmental laws, ordinances, rules,
regulations and orders relating to Leseee's use of the Premises.
Section 7. HAZARDOUS MATERIALS, SUBSTANCES AND WASTES.
A. Without tho prior written consent of Lessor, Lessee shall not use
or permit the use of the Premises for the generation, use, treatment,
manufacture, production, storage or recycling of any Hazardous Substances,
except that Lessee may use (i) small quantities of common chemicals such as
adhesives, lubricants and cleaning fluids in order to conduct business at the
Premises and (ii) other Hazardous Substances, other than hazardous wastes as
defined in the Resource Conservation and Recovery Act, 42 U.S.C. 55 6901, et
seq., as amended ("RCRA"), that are necessary for the conduct of Lessee's
business at the Premises as specified in Article I. The consent of Lessor may
be withheld by Lessor for any reason whatsoever, and may be subject to
conditions in addition to those set forth below. It shall the sole
responsibility of Lessee to determine whether or not a contemplated use of the
premises is a Hazardous Substance use.
B. In no event shall Lessee (i) release, discharge or dispose
of any Hazardous Substances, (ii) bring any hazardous wastes
as defined in RCRA onto the Premises, (iii) install or use
on the Premises any underground storage tanks, or (iv) store
any Hazardous Substances within one hundred feet (100') of
the center line of any main track.
C. If Lessee uses or permits the use of the Premises for a Hazardous
Substance use, with or without Lessor's consent, Lessee shall furnish to Lessor
copies of all permits, identification numbers and notices issued by
governmental agencies in connection with such Hazardous Substance use, together
with such other information an the Hazardous Substance use as may be requested
by Lessor. If requested by Lessor. Lessee shall cause to be performed an
environmental assessment of the Premises upon termination of the Lease and
shall furnish Lessor a copy of such report, at Lessee's sole cost and expense.
D. Without limitation of the provisions of Section 12 of this Exhibit
B, Lessee, shall be responsible for all damages, losses, costs, expenses,
claims, fines and penalties related in any manner to any Hazardous Substance
use of the Premises (or any property in proximity to the Premises) during the
term of this Lease or, if longer, during Lessee's occupancy of the Premises,
regardless of Lossor's consent to such use, or any negligence, misconduct or
strict liability of any Indemnified Party (as defined in Section 12), and
including, without limitation, (i) any diminution in the value of the Premises
and/or any adjacent property of any of the Indemnified Parties, and (ii) the
cost and expense of clean-up, restoration, containment, remediation,
decontamination, removal, investigation. monitoring, closure or post-closure.
Notwithstanding the foregoing, Lessee shall not be responsible for Hazardous
Substances (i) existing on, in or under the Premises prior to the earlier to
occur of the commencement of the term of the Lease or Lessee's taking occupancy
of the Premises, or (ii) migrating from adjacent property not controlled by
Lessee, or (iii) placed on, in or under the Premises by any of the Indemnified
Parties; except where the Hazardous Substance is discovered by, or the
contamination is exacerbated by, any excavation or investigation undertaken by
or at the behest of Lessee. Lessee shall have the burden of proving by a
preponderance of the evidence that any exceptions of the foregoing to Lessee's
responsibility for Hazardous Substances applies.
E. In addition to the other rights and remedies of Lessor under this
Lease or as may be provided by law, it Lessor reasonably determines that the
Premises may have been used during the term of this Lease or any prior lease
with Lessee for all or any portion of the Premises, or are being used for any
Hazardous Substance use, with or without Lessor's consent thereto, and that a
release or other contamination may have occurred, Lessor may, at its election
and at any time during the life of this Lease or thereafter (i) cause the
Premises and/or any adjacent premises of Lessor to be tested, investigated, or
monitored for the presence of any Hazardous Substance, (ii) cause any Hazardous
Substance to be removed from the Premises and any adjacent lands of Lessor,
(iii) cause to be performed any restoration of the Premises and any adjacent
lands of Lessor, and (iv) cause to be performed any remediation of, or response
to, the environmental condition of the Premises and the adjacent lands of
Lessor, aa Landlord reasonably may deem necessary or desirable, and the cost
and expense thereof shall be reimbursed by Lessee to Lessor within thirty (30)
days after rendition of Lessor's bill. In addition, Lessor may, at its
election, require Lessee, at Lessee's sole cost and expense, to perform such
work, in which event, Lessee shall promptly commence to perform and thereafter
diligently prosecute to completion such work, using one or more contractors and
a supervising consulting engineer approved in advance by Lessor.
F. For purposes of this Section 7, the term "Hazardous Substance" shall
mean (i) those substances included within the definitions of "hazardous
substance", "pollutant", "contaminant", or "hazardous waste", in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. SS 9601, et. seq., as amended or in RCRA, the regulations promulgated
pursuant to either such Act, or state laws and regulations similar to or
promulgated pursuant to either such Act, (ii) any material, waste or substance
which is (A) petroleum, (B) asbestos, (C) flamable or explosive, or D)
radioactive; and (iii) such other substances, materials and wastes which are or
become regulated or classified an hazardous or toxic under federal, state or
local law.
Section 8. UTILITIES
A. Lessee will arrange and pay for all utilities and services supplied to
the Premises or to Lessee.
B. All utilities and services will be separately metered to Lessee. If not
separately metered, Lessee shall pay its proportionate share as reasonably
determined by Lessor.
Section 9. LIENS.
Lesee shall not allow any liens to attach to the Premises for any services,
labor or Materials furnished to the Premises or otherwise arising from Lessee's
use of the Premises. Lessor shall have the right to discharge any such liens at
Lessee's expense.
Section 10. ALTERATIONS AND IMPROVEMENTS; CLEARANCES.
A. No alterations, improvements or installations may be made an the
Premises without the prior consent of Lassor. Such consent, if given, shall be
subject to the needs and requirements of the Lessor in the operation of its
Railroad and to such other conditions as Lessor determines to impose. In all
events such consent shall be conditioned upon strict conformance with all
applicable govornmental requirements and Lessor's then-current clearance
standards.
B. All alterations, improvements or installations shall be at Lessee's sole
cost and expense.
C. Lessee shall comply with Lessor's then-current clearance standards,
except (i) where to do so would cause Lessee to violate an applicable
governmental requirement, or (ii) for any improvement or device in place prior
to Lessee taking possession of the Premises if such improvement or device
complied with Lessor's clearance standards at the time of its installation.
D. Any actual or implied knowledge of Lessor of a violation of the
clearance requirements of this Lease or of any governmental requirements shall
not relieve Lessee of the obligation to comply with such requirements, nor
shall any consent of Lessor be deemed to be a representation of such
compliance.
Section 11. AS-IS.
Lessee accepts the Premises in its present condition with all faults,
whether patent or latent, and without warranties or covenants, express or
implied. Lessee acknowledges that Lessor shall have no duty to maintain, repair
or improve the Premises.
Section 12. RELEASE AND INDEMNITY
A. As a material part of the consideration for this Lease, Lessee, to
the extent it may lawfully do so, waives and releases any and all claims
against Lessor for, and agrees to indemnify, defend and hold harmless Lessor,
its affiliates, and its and their officers, agents and employees ("Indemnified
Parties") from and against, any loss, damage (including, without limitation,
punitive or consequential damages), injury, liability, claim, demand, cost or
expense (including, without limitation, attorneys' fees and court costs), fine
or penaIty (collectively, "Loss") incurred by any person (including, without
limitation, Lessor, Lessee, or any employee of Lessor or Lessee) and arising
from or related to (i) any use of the Premises by Lessee or any invitee or
licensee of Lessee, (ii) any act or emission of Lessee, its officers, agents,
employees, licensees or invitees, or (iii) any breach of this Lease by Lessee.
B. The foregoing release and indemnity shall apply regardless of any
negligence, misconduct or strict liability of any Indemnified Party, except
that the indemnity, only, shall not apply to any Loss caused by the sole,
active and direct negligence of any Indemnified Party if the Loss (i) was not
occasioned by fire or other casualty, or (ii) was not occasioned by water,
including, without limitation, water damage due to the position, location,
construction or condition of any structures or other improvements or facilities
of any Indemnified Party.
C. Where applicable to the Loss, the liability provisions of any
contract between Lessor and Lessee covering the carriage of shipments or
trackage serving the Premises shall govern the Loss and shall supersede the
provisions of this Section 12.
D. No provision of this Lease with respect to insurance shall limit the
extent of the release and indemnity provisions of this Section 12.
Section 13. TERMINATION.
A. Lessor may terminate this Lease by giving Lessee notice of
termination, if Lessee (i) fails to pay rent within fifteen (15) days after the
due date, or (ii) defaults under any other obligation of Lessee under this
Lease and, after written notice is given by Lessor to Lessee specifying the
default, Lessee fails either to immediately commence to cure the default, or to
complete the cure expaditiously but in all events within thirty (30) days after
the default notice is given.
B. Notwithstanding the term of this Lease set forth in Article II.A.,
Lessor or Lessee may terminate this Lease without cause upon thirty (30) days'
notice to the other party; provided. however, that at Lessor's election, no
such termination by Lessee shall be effective unless and until Lessee has
vacated and restored the Premises as required in Section 15A, at which time
Lessor shall refund to Lessee, on a pro rata basis, any unearned rental paid in
advance.
Section 14. LESSOR'S REMEDIES.
Lessor's remedies for Lessee's default are to (a) enter and take
possession of the Premises, without terminating this Lease, and relet the
Premises an behalf of Lessee, collect and receive the rent from reletting, and
charge Lessee for the cost of reletting, and/or (b) terminate this Lease as
<PAGE>
provided in Section 13 A) above and sue Lessee for damages, and/or (c) exercise
such other remedies as Lessor may have at law or in equity. Lesser may enter
and take possession of the Premises by self - help, by changing locks, if
necessary, and may lock out Leesee, all without being liable for damages.
Section 15. VACATION OF PREMISES: REMOVAL OF LESSEE'S PROPERTY
A. Upon termination howsoever of this Lease, Lessee (i) shall have peaceably
and quietly vacated and surrendered possession of the Premises to Lessor.
without Lessor giving any notice to quit or demand for possession, and (ii)
shall have removed from the Premises all structures, property and other
materials not belonging to Lessor, and restored the surface of the ground to as
good a condition as the same was in before such structures were erected,
including, without limitation. the removal of foundations, the filling in of
excavations and pits, and the removal of debris and rubbish.
a. If Lessee has not completed such removal and restoration within
thirty (30) days after termination of this Lease, Lessor may, at its election,
and at any time or times, (i) perform the work and Lessee shall reimburse
Lessor for the cost thereof within thirty (30) days after bill is rendered,
(ii) take title to all or any portion of such structures or property by giving
notice of such election to Lessee, and/or (iii) treat Lessee as a holdover
tenant at will until such removal and restoration is completed.
Section 16. FIBER OPTICS.
Lessee shall telephone Lessor at 1-800-336-9193 (a 24-hour number) to
determine if fiber optic cable is buried an the Premises. If cable is buried on
the Premises, Lessee will telephone the telecommunications campany(ies),
arrange for a cable locator, and make arrangements for relocation or other
protection of the cable. Notwithstanding compliance by Lessee with this Section
16, the release and indemnity provisions of Section 12 above shall apply fully
to any damage or destruction of any telecommunications system.
Section 17. NOTICES.
Any notice, consent or approval to be given under this Lease, shall be
in writing, and personally served, sent by reputable courier service, or sent
by certified mail, postage prepaid, return receipt requested, to Lessor at:
Contracts a Real Estate Department, Room 1100, 1416 Dodge Street, Omaha,
Nebraska 68179; and to Lessee at the above address, or such other address as a
party may designate in notice given to the other party. Mailed notices shall be
deemed served five (5) days after deposit in the U.S. Mail. Notices which are
personally served or sent by courier service shall be deemed served upon
receipt.
Section 18. ASSIGNMENT.
A. Lessee shall not sublease the Premises, in whole or in part, or
assign, encumber or transfer (by operation of law or otherwise) this Lease,
without the prior consent of Lessor, which consent may be denied at Lessor's
sole and absolute discretion. Any purported transfer or assignment without
Lessor's consent shall be void and shall be a default by Lessee.
B. Subject to this Section 18, this Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
Section 19. CONDEMNATION.
If, as reasonably determined by Lessor, the Premises cannot be used by
Lessee because of a condemnation or sale in lieu of condemnation, then this
Lease shall automatically terminate. Lessor shall be entitled to the entire
award or proceeds for any total or partial condemnation or sale in lieu
thereof, including, without limitation, any award or proceeds for the value of
the leasehold estate created by this Lease. Notwithstanding the foregoing,
Lessee shall have the right to pursue recovery from the condemning authority of
such compensation as may be separately awarded to Lessee for Lessee's
relocation expenses, the taking of Lessee's personal property and fixtures, and
the interruption of or damage to Lessee's business.
Section 20. ATTORNEY'S FEES.
If either party retains an attorney to enforce this Lease (including, without
limitation, the indemnity provisions of this Lease), the prevailing party in
entitled to recover reasonable attorney's fees.
Section 21. ENTIRE AGREEMENT.
This Lease is the entire agreement between the parties, and supersedes all
other oral or written agreements between the parties pertaining to this
transaction. Except for the unilateral redetermination of annual rent as
provided in Article III., this Lease may be amended only by a written instrument
signed by Lessor and Lessee.
Approved 3/1/00
L. B. FOSTER COMPANY
2000 INCENTIVE COMPENSATION PLAN
I. PURPOSE
To provide incentives and rewards to salaried employees based upon
overall corporate profitability and the performance of individual operating
units.
II. CERTAIN DEFINITIONS
The terms below shall be defined as follows for the purposes of the L. B.
Foster Company 2000 Incentive Compensation Plan. The definitions of accounting
terms shall be subject to such adjustments as are approved by the Corporation's
Chief Executive Officer.
2.1 "Average Unit Income" shall mean for each Operating Unit the sum of
such Operating Unit's "Operating Unit Income" for the years 1997, 1998 and 1999
divided by three, subject to such adjustments as may be made by the Chief
Executive Officer.
2.2 "Base Compensation" shall mean the total base salary, rounded to
the nearest whole dollar, actually paid to a Participant during 2000, excluding
payment of overtime, incentive compensation, commissions, reimbursement of
expenses incurred for the Participant's benefit, or any other payments not
deemed part of a Participant's base salary; provided, however, that the
Participant's contributions to the Corporation's Voluntary Investment Plan shall
be included in Base Compensation. Base Compensation for employees who die,
retire or are terminated shall include only such compensation paid to such
employee during 2000 with respect to the period prior to death, retirement or
termination.
2.3 "Base Fund" shall mean the aggregate amount of all cash payments to
be made pursuant to this Plan prior to adjustments pursuant to Article IV, which
amount shall be determined pursuant to Section 3.1 hereof.
2.4 "Committee" shall mean the Personnel and Compensation Committee of the
Board of Directors and any successors thereto.
2.5 "Corporation" shall mean L. B. Foster Company and those subsidiaries
thereof in which L.B. Foster Company owns 100% of the outstanding common stock,
excluding (except for the purpose of calculating "Pre-Incentive Income")
Natmaya, Inc. Fosmart, Inc. and CXT Incorporated.
2.6 "Cost of Capital" shall mean a charge imposed on an Operating Unit
based upon the assets employed by such Operating Unit, as determined by the
Chief Executive Officer.
2.7 "Fund" shall mean the aggregate amount of all payments made to Plan
Participants under this Plan, after deducting all discretionary payments made
pursuant to Section 3.3 hereof and subject to Article IV.
2.8 "Individual Incentive Award" shall mean the amount paid to a
Participant pursuant to this Plan, which amount shall be determined pursuant to
Section 3.5 hereof and which award shall not exceed the lower of: (a) twice the
amount of a Participant's Target Award; or (b) the sum of (i) the portion of the
Participant's Individual Incentive Award allocable to the General Pool; plus
(ii) the Participant's Target Award allocable to the Product Pool multiplied by
a percentage equal to twice the percentage of Target Award paid to Participants
in the General Pool; subject, however, to the provisions of Article VII of this
Plan. The limitations herein shall not affect amounts distributed under Sections
3.3 or 6.2.
2.9 "Operating Unit" shall mean the following units or divisions which
are reported in the Company's internal financial statements: Foster Coated Pipe,
Threaded Products, Allegheny Rail Products, Foster Technologies, Inc., New Rail,
Relay Rail, Transit Products, Mining Products, Piling, Fabricated Products and
Geotech, subject to such adjustments as may be made by the Chief Executive
Officer.
2.10 "Operating Unit Income" shall mean an Operating Unit's 2000 gross
profit at actual plus (minus) other income (expense) less allocated and direct
sales expense and direct administrative expense and Cost of Capital, subject to
such adjustments as may be made by the Chief Executive Officer.
2.11 "Participant" shall mean a salaried employee of the Corporation
who satisfies all of the eligibility requirements set forth in Article V hereof.
2.12 "Plan" shall mean the L. B. Foster Company 2000 Incentive Compensation
Plan, which Plan shall be in effect only with respect to the fiscal year ending
December 31, 2000.
2.13 "Pool" shall mean the Product Pool and/or General Pool, as
calculated pursuant to Section 3.4 hereof, subject to such adjustments as are
approved by the Chief Executive Officer.
2.14 "Pre-Incentive Income" shall mean the audited pre-tax income of
the Corporation for the fiscal year ending December 31, 2000 determined in
accordance with generally-accepted accounting principles, excluding (i) benefits
payable under this Plan; and (ii) any portion of gains or losses arising from
transactions not in the ordinary course of business which the Committee, in its
sole discretion, determines to exclude.
2.15 "Target Award" shall mean the product of a Participant's Base
Compensation multiplied by said Participant's Target Percentage.
2.16 "Target Percentage" shall mean those percentages assigned to
Participants pursuant to Section 3.2 hereof.
III. PLAN DESCRIPTION
3.1 Base Fund. Subject to Article IV, the amount of the Base Fund shall be
calculated by adding the flat rate contribution determined in 3.1A to the
marginal rate contributions determined in 3.1B.
3.1A Flat Rate Contribution. The flat rate contribution shall be determined
by multiplying the Corporation's Pre-Incentive Income by the following
percentages:
Pre-Incentive Income Percentage Flat Rate Contribution
$0 - $5,999.999 0 0
$6,000,000 and Over 15 $900,000 and Over
3.1B Marginal Rate Contribution. If the Corporation achieves any of the
following levels of Pre-Incentive Income, the marginal rate contribution shall
be determined by adding together the marginal rate contributions through the
level of Pre-Incentive Income actually achieved.
Marginal Maximum
Pre-Incentive Income Percentage Marginal
Rate Rate
Contribution
- --------------------------- --------------------------------
- --------------------------- --------------------------------
$0 - $6,999,999 0 0
- --------------------------- -------------------------------
- --------------------------- -------------------------------
$7,000,000 - $7,999,999 1 $10,000
- --------------------------- ---------------------------------
- --------------------------- --------------------------------
$8,000,000 - $8,999,999 2 $20,000
- --------------------------- --------------------------------
- --------------------------- --------------------------------
$9,000,000 - $9,999,999 3 $30,000
- --------------------------- --------------------------------
- --------------------------- --------------------------------
$10,000,000 - $10,999,999 4 $40,000
- --------------------------- --------------------------------
- --------------------------- --------------------------------
$11,000,000 and Over 5 N/A
- --------------------------- --------------------------------
Example: If the Corporation earned $11,500,000 in Pre-Incentive Income the
Base Fund would be $1,850,000, calculated as follows:
=
a. Calculate Flat Rate Contribution
$11,500,000 X 15% = $1,725,000
b. Calculate Marginal Rate Contribution
$10,000 + $20,000 + $30,000 + $40,000 + ($500 ,000 X 5%) = $125,000
c. Calculate Base Fund
$1,725,000 + $125,000 = $1,850,000
3.2 Target Percentages. Subject to adjustment as set forth below, each
Participant shall have a Target Percentage based upon the grade level of such
Participant, unless determined otherwise by the Chief Executive Officer, on July
1, 2000, as follows:
Result: % Of Base
Grade Levels Compensation
Grade 10, Plant Managers 12.5
Grade 10, Product Managers 12.5
Grade 11, Plant Managers 15.0
Grade 11, Product Managers 15.0
Grade 6, Sales Positions 15.0
Grade 8, Sales Positions 20.0
Grade 9, Sales Positions 21.0
Grade 10, Sales Positions 22.0
Grade 11, Sales Positions 23.0
Grade 12, Sales or Management Positions 25.0
Grade 13, Sales or Management Positions 27.0
Grade 14, Sales or Management Positions 30.0
Grade 15, Sales or Management Positions 32.0
Grade 16, Sales or Management Positions 36.0
Grade 17, Sales or Management Positions 38.0
Grade 18, Sales or Management Positions 39.0
Grade 19, Sales or Management Positions 40.0
Grade 20, Sales or Management Positions 50.0
Grade 21, Sales or Management Positions 52.0
Grade 22, Sales or Management Positions 54.0
Grade 23 and Above 60.0
Other Employees selected, in writing, by L. B. Foster Company's Chairman of the
Board and Chief Executive Officer may also be made Participants in the Plan on
such terms as may be approved by the Chairman of the Board and Chief Executive
Officer.
The Chief Executive Officer may determine performance goals for
Participants selected by the Chief Executive and the Target Percentage for each
such Participant will be adjusted upward or downward based upon such
Participant's achievement of such goals. The precise method for determining such
adjustments for each such Participant shall be separately scheduled and deemed
incorporated herein by reference.
Those Participants who have retired or died prior to July 1, 2000 shall
have a Target Percentage based upon their grade level at death or retirement.
3.3 Discretionary Payments. Ten percent (10%) of the Base Fund, plus
amounts reallocated pursuant to Section 6.1, shall be reserved for discretionary
payments to employees of the Corporation including, for purposes of this Section
3.3, employees of CXT Incorporated. The recipients of all such awards and the
amounts of any such awards initially shall be selected by the Chief Executive
Officer, subject to final approval by the Committee. If any amounts are not paid
from the amount herein reserved, such remaining amount shall be allocated to the
Fund for distribution among the Pools.
3.4 Calculation of Pools. Each Participant and all or any portion of
each Participant's Target Award shall be assigned to a Pool or Pools by the
Chief Executive Officer of the Company. In the absence of a contrary
determination by the Chief Executive Officer, 25% of the Target Awards of
Participants in the Product Pool shall be allocated to the General Pool. The
dollar amount of each Pool will be determined by dividing the portion of the
Target Awards assigned to the Pool by the total Target Awards of all
Participants and then multiplying such amount by the Fund.
EXAMPLE 1:
THE CORPORATION'S PRE-INCENTIVE INCOME IS $7,100,000. THE TOTAL OF ALL TARGET
AWARDS FOR ALL PLAN PARTICIPANTS IS $2,100,000, WITH $1,000,000 ALLOCATED TO THE
GENERAL POOL AND $1,100,000 ALLOCATED TO THE PRODUCT POOL. THE DOLLAR AMOUNT OF
EACH POOL WOULD BE CALCULATED AS FOLLOWS:
(a) Determine Base Fund
($7,100,000) x 15% + ($100,000 x 1%) = $1,066,000
(b) Calculate Fund By Deducting 10% For "Discretionary Awards"
$1,066,000 x 90% = $959,400
(c) Determine Amount of Each Pool
1. General Pool
$1,000,000
--------------- x $959,400 = $456,857
$2,100,000
2. Product Pool
$1,100,000
--------------- x $959,400 = $502,543
$2,100,000
3.5 Calculation of Individual Incentive Awards. The calculation of an
Individual Incentive Award shall be determined based on the Pool(s) to which a
Participant is assigned.
3.5A General Pool Individual Incentive Awards. A General Pool
Participant's Individual Incentive Award shall be calculated, subject to the
limitations in Section 2.8, as follows:
(a) Divide Participant's Target Award allocated to General Pool by the sum
of all Target Awards allocated to General Pool;
(b) Multiply (a) by amount of General Pool.
EXAMPLE 2:
THE GENERAL POOL IS $306,000. THE SUM OF ALL GENERAL POOL PARTICIPANTS'
TARGET AWARDS IS $1,000,000. MANAGER JONES HAS A TARGET AWARD OF $19,200:
$ 19,200
------------- x $306,000 = $5,875 (Individual Incentive Award)
$1,000,000
3.5B Product Pool Individual Incentive Awards. The Product Pool shall
be divided based upon the relative improvement in the Operating Units'
"Operating Unit Income" and the Operating Units' respective shares of all Units'
"Operating Unit Income". All Participants in the Product Pool shall be assigned
to one or more Operating Unit(s) and their respective Target Awards shall be
allocated among one or more Operating Unit(s), all as determined by the Chief
Executive Officer. Individual awards shall be calculated, subject to the
limitations in Section 2.8, as follows:
(a) Add together: (i) all Operating Units' "Operating Unit
Income" (disregarding any annual loss which an Operating Unit
may have sustained); and (ii) the total improvement in all
Units' "Operating Unit Income" over all Units' "Average Unit
Income" (disregarding any Unit that did not improve and, for
purposes of calculating improvement, counting only a reduced
percentage of such improvement, as determined by the Chief
Executive Officer but in no event greater than 50%, which
represents a reduction from negative "Average Unit Income" to
zero).
(b) Divide (a) into the sum of all Operating Units'
Operating Unit Income (calculated in the same manner
as in (a) above) and multiply the resulting quotient
by the amount in the Product Pool (the "Product
Operating Income Subpool")
(c) Divide (a) into the sum of all improvement in all
Units' Operating Unit Income over such Units'
respective Average Unit Incomes (calculated in the
same manner as in (a) above) and multiply the
resulting quotient by the amount in the Product Pool
(the "Product Improvement Subpool").
(d) To determine an Operating Unit's share of the Product
Operating Income Subpool, multiply the amount in the
Product Operating Income Subpool by a fraction, the
numerator of which is the Operating Unit's Operating
Income and the denominator is the sum of all Units'
Operating Income (calculated in the same manner as in
(a) above).
(e) To determine an Operating Unit's share of the Product
Improvement Subpool, multiply the amount of the
Product Improvement Subpool by a fraction, the
numerator of which is the Operating Unit's
improvement (calculated in the same manner as in (a)
above) and the denominator of which is the sum of all
Operating Units' improvement (calculated in the same
manner as in (a) above).
(f) To determine a Participant's share of the Product
Operating Income Subpool, multiply the amount
calculated in (d) above by a fraction, the numerator
of which is the Participants' Target Bonus allocated
to the Operating Unit and the denominator of which is
the sum of all Target Bonuses allocated to the
Operating Unit.
(g) To determine a Participant's share of the Product
Improvement Subpool, multiply the amount calculated
in (e) above by a fraction, the numerator of which is
the Participants' Target Bonus allocated to the
Operating Unit and the denominator of which is the
sum of all Target Bonuses allocated to the Operating
Unit.
EXAMPLE 3:
THE PRODUCT POOL IS $336,600. RELAY RAIL'S OPERATING UNIT INCOME IS $900,000
WHILE ITS AVERAGE UNIT INCOME IS A LOSS OF $100,000. THE SUM OF ALL OPERATING
UNITS' "OPERATING UNIT INCOME" IS $6,800,000 AND THE SUM OF ALL OPERATING UNITS'
IMPROVEMENT OVER THE SUM OF THEIR "AVERAGE UNIT INCOMES" IS $1,900,000. PRODUCT
MANAGER SMITH HAS A TARGET AWARD OF $20,000 AND THE SUM OF ALL TARGET AWARDS
ALLOCATED TO RELAY RAIL IS $120,000. TWENTY-FIVE PERCENT (25%) OF SMITH'S TARGET
AWARD IS ALLOCATED TO THE GENERAL POOL, TEN PERCENT (10%) IS ALLOCATED TO
MIDWEST AND SIXTY-FIVE PERCENT (65%) IS ALLOCATED TO RELAY RAIL. IT HAS BEEN
DETERMINED THAT FIFTY PERCENT (50%) OF IMPROVEMENT FOR REDUCTION OF LOSSES SHALL
BE COUNTED. THE PORTION OF SMITH'S INDIVIDUAL INCENTIVE AWARD ATTRIBUTABLE TO
RELAY RAIL IS CALCULATED AS FOLLOWS:
(a) Determine Allocation Between Product Operating Income Subpool and
Product Improvement Subpool:
1. $6,800,000 + $ 1,900,000 = $8,700,000
2. $6,800,000 / $ 8,700,000 = 78.16%
3. $1,900,000 / $ 8,700,000 = 21.84%
4. $ 336,600 x 78.16% = $263,087
("Product Operating Income Subpool")
5. $ 336,600 x 21.84% = $ 73,513
("Product Improvement Subpool")
(b) Determine Relay Rail's share of Product Operating Income Subpool and
Product Improvement Subpool:
1. $ 900,000
--------------- x $263,087 = $34,820
$6,800,000 (Relay Rail's Share of Product
Operating Income Subpool)
2. $ 900,000 + ($100,000 X 50%)
--------------- x $ 73,513 = $36,757
$1,900,000 (Relay Rail's Share of Product
Improvement Subpool)
(c) Determine Smith's Individual Award from Relay Rail:
1. $ 20,000 x 65% = $13,000
(Smith's Target Award
Allocable to Relay Rail)
2. $ 13,000
------------ x $34,820 = $ 3,772
$120,000 (Smith's Share of Product
Operating Income Subpool)
3. $ 13,000
------------- x $36,757 = $ 3,982
$120,000 (Smith's Share of Product
Improvement Income Subpool)
Smith would also be able to receive an additional award based upon Midwest's
performance and a portion of the General Pool.
IV. STOCK IN LIEU OF CASH FOR EXECUTIVE OFFICERS
Notwithstanding any other provision of this Plan, the Corporation's
executive officers, as determined by the Committee, shall receive shares of the
Corporation's Common Stock ("Stock"), subject to such restrictions on
transferability as the Corporation's legal counsel may deem necessary or
appropriate (such restrictions shall provide for no less than a two-year
restriction on the voluntary transfer of such stock), in lieu of cash equal to
25% of the Individual Incentive Awards (without taking into account any
discretionary payments under Section 3.3) that would otherwise be payable to
such officers under the Plan. In the event such restriction on transferability
should be violated, all proceeds derived from such transaction shall be
forfeited to the Company. Such stock shall be forfeited and revert to the
Company in the event the Participant's employment with the Company should cease
within two (2) years after the date of grant, unless such forfeiture is waived
by the Committee or said termination is attributable to the Participant's death,
permanent disability, retirement with the consent of the Company's Chief
Executive Officer or in the event of a "Change of Control". The amount of stock
to be granted to an executive officer shall be calculated by: (a) dividing the
closing price of the stock on the day preceding the date cash distributions are
made under the Plan into a sum equal to 25% of the Individual Incentive Award
that, but for this Article IV, would have been payable to such executive
officer; and (b) multiplying the resulting quotient by 115% with fractional
share interest being rounded to the nearest number of whole shares. Stock shall
be deemed distributed to the executive officers on the first day of the calendar
month following the date cash distributions are made or as soon thereafter as is
practicable but the corporation shall retain custody of such shares until the
Participant's risk of forfeiture has ended. Cash which would have been payable
to executive officers, but for this Article IV, shall not be distributed and
shall remain the property of the Corporation.
"Change of Control" shall mean: (i) any person or group of persons (as
used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations thereunder) shall have
become the beneficial owner (as defined in Rules 13d-3 and 13d-5 promulgated by
the Securities and Exchange Commission (the "SEC") under the Exchange Act) of
20% or more of the combined voting power of all the outstanding voting
securities of the Corporation or, (ii) at any time following any merger,
consolidation, acquisition, sale of assets or other corporate restructuring of
Corporation, during any period of six consecutive calendar months, individuals
who were directors of the Corporation on the first day of such period, together
with individuals elected as directors by not less than two-thirds of the
individuals who were directors of the Corporation on the first day of such
period, shall cease to constitute a majority of the members of the board of
directors of the Corporation.
V. ELIGIBILITY
Unless changed or amended by the Committee, an employee shall be deemed
a Participant in the Plan only if all of the following requirements are
satisfied:
A. A Participant must be a salaried employee of the Corporation, at a grade
level set forth in Section 3.2 or as otherwise approved by L. B. Foster
Company's Chairman of the Board and Chief Executive Officer for at least six (6)
months of the entire fiscal year, unless deceased or retired.
B. A Participant must not have: (i) been terminated for cause; (ii)
voluntarily have resigned (other than due to retirement with the Company's
consent) prior to the date Individual Incentive Awards are paid; or (iii),
unless the Corporation agrees in writing that the employee shall remain a
Participant in this Plan, been terminated for any reason whatsoever and have
received money from the Corporation in connection with said termination.
C. A Participant's services must not primarily be provided to the
Corporation's Monitor Group Division, Natmaya, Inc., Fosmart, Inc. or CXT
Incorporated, unless otherwise approved by the Chief Executive Officer.
Notwithstanding the foregoing, Brian N. Southon, George H. Nelson and
Franklin B. Davis shall not be Participants in the Plan.
As used herein, "cause" to terminate employment shall exist upon (i)
the failure of an employee to substantially perform his duties with the
Corporation; (ii) the engaging by an employee in any criminal act or in other
conduct injurious to the Corporation; or (iii) the failure of an employee to
follow the reasonable directives of the employee's superior(s).
VI. REALLOCATIONS
6.1 In the event an employee has satisfied the eligibility criteria set
forth in Article V(A), but has not satisfied the eligibility criteria set forth
in Article V(B), the portion of the Individual Incentive Awards allocable to the
Product Pool shall be calculated as though such employee was a Participant and
any amounts which would have been payable to such employee from the Product Pool
shall be used for discretionary payments under Section 3.3.
6.2 Any portion of the Fund not otherwise distributed ("Excess Funds")
shall be awarded to each Participant in an amount calculated by multiplying the
amount of the Excess Funds by a fraction, the numerator of which shall be the
Participant's Target Bonus and the denominator of which shall be the sum of all
Participants' Target Bonuses.
VII. PAYMENT OF AWARDS
Payment of Individual Incentive Awards will be made on or before March
15, 2000, except that the timing of the distribution of stock pursuant to
Article IV shall be governed by Article IV.
VIII. LIMITATIONS ON AWARDS
Notwithstanding any other provision of this Plan, Individual Incentive
Awards shall normally be limited to the amount of a Participant's Target Award.
IX. ADMINISTRATION AND INTERPRETATION OF THE PLAN
A determination by the Committee in carrying out, administering or
interpreting this Plan shall be final and binding for all purposes and upon all
interested persons and their heirs, successors and personal representatives.
The Committee may, from time to time, amend the Plan; provided,
however, that the Committee may not amend, terminate or suspend the Plan so as
to reduce the Base Fund payable under the Plan.
The Chief Executive Officer may delegate any of his duties herein.
The Corporation's independent public accountants will review and verify
the Corporation's determination of Pre-Incentive Income.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements Nos.
33-35152, 33-79450, 333-65885 and 333-81535 of L. B. Foster Company, as
amended and restated, of our report dated January 25, 2000, with respect to
the consolidated financial statements and schedule of L.B. Foster Company
included in this Form 10-K for the year ended December 31, 1999.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
March 28, 2000
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