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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1995
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 0-11069
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INTERPOINT CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0850556
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10301 WILLOWS ROAD, P.O. BOX 97005
REDMOND, WASHINGTON 98073-9705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (206) 882-3100
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of voting stock held by nonaffiliates of the
registrant is $29,182,622 as of December 31, 1995, based on the average of the
closing bid and ask prices of such stock in the over-the-counter market on that
date.
There were 3,827,841 shares of common stock outstanding as of December 31,
1995.
The Index to Exhibits appears on page 28.
Part III is incorporated by reference from the proxy statement to be filed
in connection with the 1996 Annual Meeting of Shareholders.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Interpoint Corporation (Interpoint or the Company) was incorporated in 1969
to manufacture customized hybrid microelectronics used primarily in aerospace
and defense markets. The Company has sought to sustain a high rate of revenue
growth and substantial profitability in five ways: (1) increasing the
proprietary content of its products; (2) developing or acquiring additional
niche products; (3) increasing market share in existing markets; (4)
establishing and maintaining cost advantaged manufacturing; and (5) diversifying
its customer base.
This strategy has resulted in revenue growth from $12 million in fiscal
1985 to $71 million in fiscal 1995, a compounded annual rate of 19 percent. Over
the same period, Interpoint has been consistently profitable, with net income
growing from $363,000 to $3,088,000, despite the effects of economic and
political cycles in the Company's original aerospace and defense markets. The
1985 amounts referred to are prior to the Company's restatement of financial
results done in connection with two subsequent pooling-of-interest transactions.
Users of financial information may be well served to review results as
originally stated, as well as reported herein, for this ten-year period.
The Company currently has two principal business segments, microelectronics
products and data storage products. Cash is allocated between the two segments
depending on the relative return on the opportunities presented. Over the past
two years, profits from the more mature microelectronics business have been
redeployed to sustain growth in the data storage market.
The microelectronics product segment is dominated by the manufacture of
proprietary, standardized DC-to-DC power supplies which use microcircuit
technology to serve primarily aerospace and defense applications. The remaining
original custom microelectronics business now represents approximately 38
percent of the microelectronics segment and is divided between a rapidly-growing
medical device market and the traditional aerospace market.
The data storage product segment is based upon the acquisitions of Advanced
Digital Information Corporation (ADIC) and ADIC Europe in 1994. ADIC designs,
manufactures and markets specialized, automated high-performance data storage
products used to file or archive electronic data in conjunction with integrated
computer systems, including local area networks, workstations and other
microcomputer systems. ADIC offers automated tape libraries in 4mm (DAT), 8mm,
QIC and DLT tape technologies. These libraries support drives from multiple
manufacturers and are compatible with a variety of system and back-up software
configurations. Interpoint directors and management have been involved with ADIC
since 1984.
All products are manufactured in ISO 9001 certified and qualified
facilities. Approximately 43 percent of microelectronics products are
manufactured in Taiwan.
Additional information including net sales, operating profit and total
assets specific to the microelectronics and data storage segments is presented
in Note 12 to the Consolidated Financial Statements.
DESCRIPTION OF MICROELECTRONICS BUSINESS
Power Products represent 62 percent of the microelectronics business and
include proprietary DC-to-DC power supplies which enjoy a large market share in
a specialized market that the Company believes to be growing. Custom Products
represent the remaining 38 percent and compete in a highly fragmented market,
including high growth medical microcircuit applications, as well as traditional
defense and aerospace applications.
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The Company's Power Products are complex high-density DC-to-DC (direct
current to direct current) power conversion circuits that rely on power supply
design and testing expertise developed by its engineering team over the last 15
years. Such products are completely designed by the Company to meet the needs of
a general market or a specific customer.
Custom Products are based upon a customer's electronic specification and
intended to meet a specific application. The Company's designers work with the
customer to transform the customer's concept or design into a microcircuit.
Custom circuits frequently make use of application specific integrated circuits
(ASICs) which perform complex electronic functions and require specialized
testing expertise.
All microelectronics products, including power, custom and medical
applications, are manufactured utilizing hybrid or a combination of hybrid and
surface mount microcircuit technology. Hybrid microcircuit technology produces
electrical circuits of a small size and high reliability by mounting unpackaged
integrated circuits (ICs) and other electronic components on specially designed
substrates and sealing the entire assembly in a durable, often hermetic package.
Because they eliminate the separate packages and duplicate interconnections for
each semiconductor and electronic component, such as is characterized by
standard printed circuit board (PCB) assembly, hybrid microcircuits offer a
substantial reduction in size and weight as well as improved device reliability
and stability over PCBs. Surface mount technology is a widely used method of
packaging integrated circuits for incorporation in electronic systems where size
is at a premium. Microelectronics sales comprised 55 percent of total Company
sales in 1995.
All processes and methods are controlled to stringent quality assurance
procedures and specifications. Interpoint's Redmond, Washington manufacturing
facilities have been certified as being in compliance with MIL-STD-1772, a
comprehensive U.S. government quality standard recognized internationally by
designers of both military and commercial high-reliability electronic systems.
Both Redmond facilities are also certified to ISO 9001 standards.
In addition to its Redmond, Washington facilities, the Microelectronics
business operates a manufacturing facility in Taiwan. Products manufactured in
the Taiwan facility must meet the same overall quality standard as those
manufactured in the Redmond plants. The Taiwan facility serves as a primary or
alternative manufacturing site for both Power Products and Custom Products.
MIL-STD-1772 certification is not available in Taiwan but the Company has also
obtained ISO 9001 approval for this facility.
Raw materials are obtainable from several suppliers and the Company allows
for appropriate lead times for delivery of materials. The manufacturing process
includes substantial reliance on robotic or semiautomatic equipment for the
attachment of individual components and interconnection or wirebonding of such
components to the substrate.
Products
The Company is a worldwide supplier of high-density, high-reliability
DC-to-DC power converters and believes it is the largest supplier of such
DC-to-DC power supplies for critical applications.
Interpoint's DC-to-DC power converters convert single direct current input
voltage to one or more different direct current output voltages. Distributed
power, a major trend in complex electronic systems, uses multiple converters to
supply power for a system. Distributed power can reduce device and circuitry
redundancies, save weight and space, increase reliability and make it easier for
systems engineers to design independent subsystems. Pioneered in the aerospace
sector, distributed power designs have expanded to numerous applications such as
telecommunications and computers and have made high density DC-to-DC power
converters among the highest growth areas in the power supply industry.
The Company's power converters are sold primarily to high end markets, such
as the commercial aerospace and military electronics industries, where high
reliability and small size are critical. New products include power converters
using surface mount technology, which the Company began shipping in 1995.
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Most of the Company's power converters are standard devices; however, in
some cases they may be customized to meet a customer's individual needs. Certain
of the Company's converters are fully compliant with MIL-STD-883, the U.S.
government's highest quality rating for military electronic components.
Power Products sales have experienced growth during the last three years,
showing a compound annual growth rate of 13% since 1992 and a higher growth rate
in new orders and backlog.
Custom Products are designed to meet customer specifications. Medical
applications for these products include an implantable defibrillator, an
electronic heart-assist pump and surgical tools. Such applications typically
involve a greater degree of partnership between Interpoint and its customer than
is typical with the Company's traditional military/aerospace customers. Such a
partnership may include significant co-development of products, sole source
procurement, shared clinical qualification and shared market or inventory risk.
Where the risk of product liability exposure has been deemed to be different
than that for the Company's other products, Interpoint seeks indemnification
from its customers and appropriate insurance coverage.
Interpoint manufactures other custom microcircuits principally for use in
military electronics applications such as surveillance devices, avionics and
missile systems, in addition to industrial equipment and commercial aircraft
applications where small size is important. Typically, a customer designs the
circuit for a product and furnishes the Company with specifications relating to
the electrical, mechanical and functional requirements of the circuit. The
Company then develops a custom microcircuit product that conforms to the
specifications.
The Company's business relationships with its Custom Products customers
usually develop through a competitive bidding process, which generally involves
several competitors. Factors considered by customers in awarding contracts
include component price, timeliness of delivery, quality control, reliability,
production capability and service support.
Sales of custom products to the military/aerospace industry declined over
the period from 1992 to 1994, stabilizing in 1995. Growth in custom products in
1995 and anticipated growth in 1996 result primarily from products serving the
medical market.
Sales and Distribution
Microelectronics products are sold through direct sales activities,
independent sales representatives and stocking agents. Domestic direct sales are
conducted out of the Company's offices in Redmond, Washington and out of its
sales offices located in key market areas. Sales engineers in Redmond also
manage the domestic independent sales representatives. Independent sales
representatives solicit orders on behalf of Interpoint, with shipments made
directly to the customer by the Company.
International microelectronics sales are comprised primarily of Power
Products. A United Kingdom sales office staff manages certain European, Middle
East, Australian and Asian representatives as well as directly selling to U.K.
customers. The staffs of sales offices in Paris, France and Frankfurt, Germany
solicit orders from their customers in these markets as well as overseeing
representatives in certain other European markets. Shipments are made directly
to European customers from the Company. In some areas, stocking representatives
buy from the Company and resell to their customers.
Order Backlog
Orders for the Company's Custom Products, and for Power Products which are
customized to a customer's particular needs, generally involve contracts
scheduling deliveries over a period of time. Orders for standard Power Products
may also be scheduled out over a specified period of time. At October 31, 1995,
the Company had firm contracts with Microelectronics customers for products
aggregating approximately $41.9 million, of which approximately 60% is scheduled
for shipment during fiscal 1996. Backlog at October 31, 1994, was approximately
$34.9 million.
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The backlog includes orders on which the Company is subcontractor to a U.S.
government prime contractor. Pursuant to the terms with the prime contractors,
the Company would be compensated by the prime contractor for costs expended and
profits earned to date if any of these contracts were cancelled.
Patents
Individuals within the power products team have applied for and been
granted patents on behalf of the Company for various aspects of converter
design. The Company recognizes the value of patents in electrical designs and
processes and expects to seek additional such patents. The Company also seeks to
protect its technology and proprietary information through trademarks,
copyrights, licenses and trade secret protection measures.
Competition
The ability of Interpoint's Power Products to compete depends on, among
other things, the Company's development and timely introduction of products that
withstand rapid changes in technology and whose product lifecycles exceed their
product development cycle. The Company continues new product development efforts
which are designed to maintain or increase market share in the high reliability,
board-mountable DC-to-DC converter world market, and which can protect that
share advantage in the future. The Company has built on its highest volume sales
lines by generating smaller, more powerful versions of those products, as well
as by producing a complete line of products which are fully compliant to MIL-STD
883, an exacting military standard. Power Products based on the new technology
provide users with improved performance and more power per dollar of product
price.
The microcircuit market for Custom Products is highly fragmented and
competition among the various manufacturers is intense. While the overall market
is large, many of the potential customers for these products have internal
manufacturing capacity. Military and aerospace markets, which in the past which
have been the primary users of Custom Products, have been shrinking recently and
the Company has actively pursued a strategy of focusing on those customers and
projects which provide better profit margins and greater cash generation.
Medical products are sold to a small number of commercial customers and the
Company generally enjoys close working relationships with these customers as
described above.
DESCRIPTION OF DATA STORAGE BUSINESS
Advances in microprocessor technology, the increasing complexity of
application software, the expanding role of networks and the increasing use of
graphics and other data-intensive applications have accelerated the demand for
greater data storage capabilities. Because critical data is expensive to
maintain on disk and data can be lost for many reasons, regular archiving and
rapid access to stored data have become essential. ADIC is a leading drive
independent manufacturer of tape libraries integrating proprietary robotic
changing mechanisms with multiple choices of tape drive technology.
Numerous companies are involved in the design and manufacture of data
storage devices for this market which is intensely competitive and subject to
rapid technological change. Potential competitors, who also represent current
and prospective OEM customers for ADIC's products, include these suppliers of
storage devices that ADIC incorporates into its libraries. Libraries vary
considerably in configuration, price and capabilities, and are typically
differentiated by capacity, access time and configuration. Total storage
capacity and access time depend on the model and tape technology chosen.
Products
ADIC offers a full range of desktop or rack-mountable automated tape
libraries in 4mm Digital Audio Tape (DAT), 8mm, QIC and Digital Linear Tape
(DLT) tape technologies. Throughout most of fiscal year 1995, ADIC's principal
product has been the DAT Library. This is a software-controlled, robotic data
storage subsystem that provides access to multiple storage tapes housed in a
desktop enclosure. When bundled with storage management software, the DAT
Library provides a complete solution for automating data storage and retrieval
in network and workstation environments.
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In the fall of 1993, ADIC introduced the VLS-8 (Virtual Library System).
The VLS-8 utilizes dual 8mm helical scan tape drives accessing an 11 cassette
magazine to provide over 150 gigabytes of storage capacity (a gigabyte is one
billion bytes), three times the capacity of the original 4mm DAT Library.
In the last quarter of 1995, the VLS DLT and Scalar products were
introduced and began to ship. The Company believes that the VLS DLT library
offers the highest sustained throughput of any desktop library currently
available and is ideal for high capacity backup and restore solutions for large
networks with up to 500 users. The Scalar series of DLT libraries is designed to
provide data centers with scaleable, multiple-drive libraries for multi-tasking
hierarchical storage management applications. The Scalar libraries offer up to
four DLT drives and up to 48 cartridges providing total capacity of up to 1.92
terabytes (a terabyte is one thousand gigabytes).
Sales of these library products comprised approximately 65 percent of ADIC
sales in 1995. Other products include related stand alone drives and external
backup solutions, both of which generally have lower margins.
Each new library version capitalizes on the development of the previous
design, which ADIC believes yields higher reliability and shorter development
cycles. It has been ADIC's policy to retain all intellectual property rights in
connection with the development of new OEM configurations of its library
products, which may then also be marketed under ADIC's brand.
Sales and Distribution
ADIC's products are sold through multiple channels including original
equipment manufacturers (OEMs), value-added resellers (VARs) and commercial
distribution. Regional sales offices are located in New York, Illinois, Georgia,
Texas and California; all other domestic personnel are located at its Redmond,
Washington facility. In June 1994, the Company acquired ADIC Europe (ADE) to
market and distribute ADIC's data storage products throughout Europe. Based
outside Paris, ADE sells and supports ADIC products in Europe, Middle East and
Africa.
Competition
ADIC believes that its products presently enjoy a competitive advantage in
versatility and adaptability with respect to device technologies, media types,
and operating systems. ADIC does not, however, possess proprietary drive
technology and consequently is dependent upon a limited number of third-party
manufacturers of storage devices for incorporation in its libraries.
ADIC's strategy for launching new products is to initiate market
penetration through OEMs in proprietary markets, through integrators in specific
system markets and through ADIC distributor channels in the PC based markets. In
certain instances, ADIC will make direct sales to large companies that have
in-house integration departments that are able to directly support ADIC
products.
ADIC provides sales leads, training, technical service and support for its
resellers. ADIC expects to continue to rely on OEMs and VARs to provide
additional value-added services to their respective markets.
Patents
ADIC has patented some of its early library systems designs and expects to
patent some of the specific characteristics of its new Scalar product. The
product name "Scalar" is a trademark of ADIC.
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RESEARCH AND DEVELOPMENT
Significant research and development costs are expended by both ADIC and
Microelectronics in the design and test of new products. Additional, often
significant, costs are incurred in connection with new manufacturing processes.
Of these total costs, a portion are undertaken in connection with custom
programs and are compensated in part by the customer. For Federal income tax
purposes, the Company believes that substantial costs in excess of those
reported for financial statement purposes, qualify as research expenses.
FOREIGN OPERATIONS AND EXPORT SALES
Export sales of Interpoint products during fiscal 1995, 1994 and 1993
represented approximately 33%, 26% and 20%, respectively, of net sales. Such
sales are made both in U.S. dollars and in foreign currencies. The Company takes
appropriate actions to minimize exposure to fluctuations in foreign currencies.
Interpoint Taiwan Corporation (ITC) serves as a manufacturing facility for
the Microelectronics Group. Personnel located in Redmond procure raw materials
and send them to Kaohsiung, Taiwan for assembly. When completed and fully
tested, the finished goods are returned to Redmond for shipment to the customer.
ITC has no direct sales. See Footnote 13 to the Consolidated Financial
Statements for further information.
TEAM MEMBERS (EMPLOYEES)
At October 31, 1995, the Company had 480 domestic team members. These team
members are located primarily in Redmond, Washington. In addition, 120 team
members are located in Kaohsiung at ITC and another 24 at the Company's
facilities in Europe.
ITEM 2. PROPERTIES
The Company owns a 7-acre parcel of land and a 40,000 square foot building
in Redmond, Washington. This site houses the Company's executive operations and
a portion of the administrative and assembly operations of the Microelectronics
business. The property is encumbered by a $2,350,000 deed of trust in favor of a
bank providing a standby letter of credit, which is the security for the
purchasers of Industrial Development Revenue Bonds issued by the Redmond Public
Corporation. Adjacent to this site is the ADIC facility which houses all of its
domestic operations. This facility is 41,000 square feet and is leased through
2005. Additionally, the Company has leased 25,000 square feet through June 1998
at a nearby location to house additional Microelectronics administrative and
assembly operations.
ITC owns its building in Kaohsiung and leases the land for this facility
under a long-term agreement. In addition, the Company leases sales offices at
various sites in the United States and Europe.
ITEM 3. LEGAL PROCEEDINGS
The Company has no pending legal proceedings of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
Company's fourth quarter.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market. As of
October 31, 1995, there were 281 shareholders of record.
The following table shows the range of high and low market prices as
reported by the Nasdaq National Market. The Company has never paid cash
dividends on its common shares. It is not anticipated that any cash dividends
will be paid on its common shares in the foreseeable future.
NATIONAL MARKET SYMBOL: INTP
<TABLE>
<CAPTION>
Years ended October 31 1995 1994
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<S> <C> <C>
1st Quarter........................ 9 1/2 - 6 3/4 $13 3/4 - 7
2nd Quarter......................... 9 1/4 - 7 13 - 7
3rd Quarter......................... 10 3/4 - 7 1/2 11 - 7
4th Quarter......................... 12 1/2 - 9 11 1/2 - 8
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended October 31,
----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales .............. $71,056 $54,755 $52,081 $47,832 $42,089
Acquisition expenses ... $ -- $ 729 $ -- $ -- $ --
Net income ............. $ 3,088 $ 1,726 $ 2,320 $ 2,143 $ 41
Average number of common
and common equivalent
shares outstanding ... 4,002 3,995 3,921 3,861 3,871
Net income per share ... $ .77 $ .43 $ .59 $ .56 $ .01
</TABLE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,
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1995 1994 1993 1992 1991
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(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets ............ $47,920 $39,139 $34,100 $34,006 $30,356
Long-term debt, excluding
current portion ....... $ 3,551 $ 4,029 $ 5,935 $ 7,372 $ 5,775
Stockholders' equity .... $21,351 $18,023 $15,784 $13,298 $11,014
</TABLE>
In February 1994, Interpoint acquired ADIC in a merger accounted for as a
pooling-of-interests. Consequently, all amounts presented are as if the
companies had been combined as of the beginning of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Interpoint Corporation manufactures specialized technology products
targeting high share growth markets. Its operations are comprised of two
business segments which operate in different industries. ADIC manufactures and
sells automated tape library products for data storage as well as complementary
data storage products. The
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Microelectronics business designs, manufactures and sells DC-to-DC power
supplies as well as custom medical and military/aerospace products. Corporate
growth has been achieved and is expected to continue through a combination of
internal growth and acquisitions.
The acquisition of ADIC in February 1994 was accounted for as a
pooling-of-interests, consequently, all amounts are presented as if the
companies had been combined as of the beginning of the periods presented.
RESULTS OF OPERATIONS
Net sales. For the fiscal year ended October 31, 1995, sales increased 30
percent to $71.1 million from $54.8 million in 1994. While there was growth in
both business units, the increase in sales was primarily attributable to ADIC
data storage products which had revenue growth of 58 percent.
At ADIC, sales of library systems and other storage products totaled $31.7
million in the most recent fiscal year. Within this data storage segment,
libraries represent the Company's proprietary technology. These libraries have
doubled from $10.3 million in sales in 1994 to $20.4 million in 1995. Part of
the growth is due to increased international sales due to the 1994 acquisition
of ADIC Europe which has become a significant distributor of these products.
Related but lower margin complementary products also comprise a significant
growth area. Sales of ADIC products increased 17 percent from 1993 to 1994 as a
result of increased volumes of library products which was partially offset by
price decreases in these products and a sales decline in certain discontinued
integration and peripheral products.
Sales for Microelectronics increased with proprietary power products
growing by seven percent to a total of $24.6 million for 1995, while custom
products, led by medical microelectronics, grew by 27 percent, to $14.8 million.
Fiscal year 1994 sales were essentially flat as compared to 1993 at $35 million.
This lack of growth in fiscal 1994 was the product of an increase in sales of
proprietary power products being offset by a decline in custom
military/aerospace products.
Fiscal 1995 bookings for Microelectronics were strong, resulting in a
year-end backlog of $42 million. This compares to a backlog at October 31, 1994
of $35 million. These orders are scheduled to be shipped over the next several
years, as customers continue to look for single supplier, long-term
relationships.
Gross profit. Gross profit as a percent of sales for the fiscal year ended
October 31, 1995, remained equivalent to the previous year at 31 percent. 1994
showed an increase to 31 percent from the 1993 level of 29 percent. Gross profit
for Microelectronics increased in 1995 due primarily to the increased volumes.
The gross profit percentage at ADIC decreased in 1995 as compared to 1994 based
upon a product mix change which included sales of lower margin, non-library
products. The 1994 percentage growth as compared to 1993 reflected the shift in
sales toward the high margin power products.
Selling and administrative. Selling and administrative costs have remained
consistent at 21 percent of sales in 1995 and 1994. These costs represented 18
percent of sales in 1993. The principal dollar increases were at ADIC and ADIC
Europe which invested heavily to support expected future sales increases.
Additionally, ADIC Europe has undertaken efforts beginning in 1994 and
continuing in 1995 to build a more extensive distribution channel network.
Research and development. Research and development costs remained at
comparable levels throughout 1995, 1994 and 1993, decreasing slightly in 1995 as
a percentage of sales. The Company has introduced a significant number of new
products in the last quarter of 1995, a portion of which costs are considered
cost of sales for financial statement purposes.
Acquisition expense. Acquisition expenses in 1994 relate to the merger of
Interpoint Corporation and ADIC.
Interest expense. Interest expenses have increased in 1995 as compared to
1994 due both to higher interest rates and higher short-term borrowings. The
1994 decrease as compared to fiscal 1993 related to the repayment of an ADIC
note payable which had been at the prime rate plus 2.75 percent.
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Income taxes. The effective tax rate in 1995 is 27 percent. The rate
benefited from the combination of research and development credits available for
federal tax purposes and the recognition of a net operating loss carryforward at
ADIC Europe. The 1994 effective tax rate was higher due to lower research and
development credits and the non-deductibility of certain of the acquisition
expenses.
Inflation. The Company believes inflation has not had a material effect on
its operations in the most recent three year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash was $778,000 at October 31, 1995, compared with $542,000
at October 31, 1994. Cash provided by operating activities was minimal due
primarily to growth in inventories and accounts receivable. Inventory growth
resides primarily at ADIC which has strived to have a greater amount of product
in work and available for immediate shipment, and which also has purchased
significant quantities of DLT-based products. Receivable growth relates directly
to the growth in sales much of which was concentrated in the later part of the
year.
The Company's available sources of credit at October 31, 1995 included a
$10.5 million line of credit which bears interest at the bank's prime rate or
adjusted LIBOR rate. This line is subject to certain restrictive covenants on
working capital etc., the Company is well within acceptable limits regarding
these covenants.
Interpoint had no material or unusual commitment for capital expenditures
as of October 31, 1995. The Company has a line of credit of $750,000 with which
to fund capital expenditures, none of which was used at year-end.
The Company expects that cash flow from operations, existing cash balances
and borrowings available under its credit lines will be adequate to meet the
Company's cash requirements for 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
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PAGE
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Report of Independent Accountants........................................... 11
Consolidated Statements of Income........................................... 12
Consolidated Balance Sheets................................................. 13
Consolidated Statements of Stockholders' Equity............................. 14
Consolidated Statements of Cash Flows....................................... 15
Notes to Consolidated Financial Statements.................................. 16
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Interpoint Corporation
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated financial statements listed in the index appearing
under Item 14(a)(1) and (2) present fairly, in all material respects, the
financial position of Interpoint Corporation and its subsidiaries at October 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended October 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Advanced Digital Information Corporation for the year
ended October 31, 1993, which statements reflect total revenues of $17,108,522.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
1993 amounts included for Advanced Digital Information Corporation, is based
solely on the report of the other auditors. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Seattle, Washington
December 5, 1995
11
<PAGE> 12
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales ................................. $ 71,055,680 $ 54,754,560 $ 52,080,552
Cost of sales ............................. 49,250,027 37,732,445 36,830,085
------------ ------------ ------------
Gross profit ......................... 21,805,653 17,022,115 15,250,467
Operating expenses:
Selling and administrative ........... 14,856,539 11,362,127 9,358,354
Research and development ............. 1,991,320 1,728,069 1,929,436
Acquisition expenses ................. -- 728,743 --
------------ ------------ ------------
16,847,859 13,818,939 11,287,790
------------ ------------ ------------
Operating profit .......................... 4,957,794 3,203,176 3,962,677
Non-operating income (expense):
Interest expense ..................... (978,167) (798,462) (817,969)
Interest income ...................... 2,801 10,835 8,911
Foreign currency transaction losses... (28,482) (1,227) (55,618)
Equity in net income of an affiliate.. 297,971 103,081 83,619
------------ ------------ ------------
(705,877) (685,773) (781,057)
------------ ------------ ------------
Income before provision for income taxes... 4,251,917 2,517,403 3,181,620
Provision for income taxes:
Current .............................. 1,493,871 509,732 829,725
Deferred ............................. (329,627) 281,968 32,191
------------ ------------ ------------
1,164,244 791,700 861,916
------------ ------------ ------------
Net income ................................ $ 3,087,673 $ 1,725,703 $ 2,319,704
============ ============ ============
Average number of common and common
equivalent shares outstanding ........ 4,002,421 3,994,905 3,920,704
============ ============ ============
Net income per share ...................... $ 0.77 $ 0.43 $ 0.59
============ ============ ============
</TABLE>
See accompanying notes.
12
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash ................................................................. $ 777,844 $ 541,805
Trade accounts receivable, less allowance for doubtful
accounts of $133,000 in 1995 ($108,000 in 1994) .................... 16,963,322 12,095,295
Inventories (Note 3) ................................................. 18,008,496 14,453,920
Prepaid expenses and other ........................................... 418,447 399,206
Deferred income taxes (Note 9) ....................................... 764,253 467,830
----------- -----------
Total current assets ........................................ 36,932,362 27,958,056
Property, plant and equipment, at cost (Note 6):
Land ................................................................. 1,334,988 1,324,988
Buildings and improvements ........................................... 4,538,204 4,890,474
Machinery and equipment .............................................. 12,961,154 11,946,535
Office equipment ..................................................... 2,630,205 2,620,412
Leasehold improvements ............................................... 526,940 405,929
----------- -----------
21,991,491 21,188,338
Less accumulated depreciation and amortization ....................... 13,275,299 11,950,335
----------- -----------
Net property, plant and equipment ........................... 8,716,192 9,238,003
Investment in common stock (Note 4) ....................................... 1,629,640 1,331,669
Other assets .............................................................. 641,932 611,593
----------- -----------
$47,920,126 $39,139,321
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable (Note 5) ............................................... $ 8,583,680 $ 6,253,840
Accounts payable ..................................................... 6,799,365 4,584,858
Income taxes payable (Note 9) ........................................ 1,335,080 230,409
Accrued wages and commissions ........................................ 2,919,042 2,484,036
Other current liabilities ............................................ 576,604 564,131
Long-term debt, current portion (Note 6) ............................. 1,342,464 1,504,502
----------- -----------
Total current liabilities ................................... 21,556,235 15,621,776
Long-term debt (Note 6) ................................................... 3,551,357 4,029,172
Accrued retirement benefits (Note 8) ...................................... 572,260 518,451
Other liabilities ......................................................... 85,503 112,870
Deferred income taxes (Note 9) ............................................ 804,232 834,387
Commitments (Note 11)
Stockholders' equity (Note 7):
Preferred stock, 500,000 shares authorized, none issued .............. -- --
Common stock, 10,000,000 shares authorized,
3,827,754 shares issued and outstanding (3,802,272 in 1994),
502,287 shares reserved ............................................ 4,707,331 4,561,859
Retained earnings .................................................... 16,212,902 13,125,229
Cumulative translation adjustments ................................... 430,306 335,577
----------- -----------
Total stockholders' equity .................................. 21,350,539 18,022,665
----------- -----------
$47,920,126 $39,139,321
=========== ===========
</TABLE>
See accompanying notes.
13
<PAGE> 14
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
------------------------------ RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1992 ........ 3,691,301 $ 4,029,351 $ 8,972,637 $ 296,472 $ 13,298,460
Exercise of stock options,
including tax benefit of
$92,000 ................... 68,332 379,807 379,807
Shares returned to the
Company as payment for
stock option exercise ..... (18,475) (164,797) (164,797)
Net income .................. 2,319,704 2,319,704
Translation adjustment ...... (48,707) (48,707)
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1993 ........ 3,741,158 4,244,361 11,292,341 247,765 15,784,467
Exercise of stock options,
including tax benefit of
$114,000 .................. 60,905 334,170 334,170
Shares returned to the
Company as payment for
stock option exercise ..... (10,791) (104,672) (104,672)
Shares granted in acquisition
(Note 14) ................. 11,000 88,000 88,000
Net income .................. 1,725,703 1,725,703
Translation adjustment ...... 87,812 87,812
ADIC net income for
October 1993 .............. 107,185 107,185
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1994 ........ 3,802,272 4,561,859 13,125,229 335,577 18,022,665
Exercise of stock options,
including tax benefit of
$36,600 ................... 27,507 161,421 161,421
Shares returned to the
Company as payment for
stock option exercise ..... (2,025) (15,949) (15,949)
Net income .................. 3,087,673 3,087,673
Translation adjustment ...... 94,729 94,729
------------ ------------ ------------ ------------ ------------
Balance, October 31, 1995 ........ 3,827,754 $ 4,707,331 $ 16,212,902 $ 430,306 $ 21,350,539
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
14
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................... $ 3,087,673 $ 1,725,703 $ 2,319,704
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ........ 2,005,241 1,827,149 1,699,741
Deferred income tax .................. (329,487) 233,365 32,191
Equity in net income of an affiliate . (297,971) (103,081) (83,619)
Net book value of assets retired ..... 245,037 124,373 23,274
Change in assets and liabilities:
Receivables .......................... (4,802,852) (3,294,592) 986,040
Inventories .......................... (3,509,756) (1,506,036) (1,304,620)
Prepaid expenses and other ........... (14,935) 125,649 (147,183)
Other assets ......................... (108,551) (10,444) 5,758
Accounts payable ..................... 2,190,205 1,424,204 (912,525)
Income taxes payable ................. 1,141,434 (225,846) 291,776
Accrued liabilities .................. 432,841 327,129 (214,109)
Accrued retirement benefits .......... 72,961 71,249 110,140
Other liabilities .................... (27,366) (11,649) 93,756
----------- ----------- -----------
Net cash provided by
operating activities .......... 84,474 707,173 2,900,324
Cash used in investing activities:
Purchases of property, plant and
equipment .............................. (1,662,273) (1,431,923) (1,185,201)
Investment in business equipment
and assets ............................. -- (49,035) (125,275)
Acquisition of ADIC Europe, net
of cash acquired ....................... -- (493,553) --
----------- ----------- -----------
Net cash used in investing
activities .................... (1,662,273) (1,974,511) (1,310,476)
Cash flows provided by (used in) financing
activities:
Net proceeds from (repayments of)
loans payable .......................... 2,329,840 2,336,305 (382,465)
Proceeds from long-term borrowings ....... 757,505 272,664 333,198
Repayment of long-term debt .............. (1,397,358) (2,270,595) (1,579,115)
Proceeds from issuance of common
stock for stock options ................ 108,871 115,499 123,010
----------- ----------- -----------
Net cash provided by (used in)
financing activities .......... 1,798,858 453,873 (1,505,372)
Effect of exchange rate changes on cash ....... 14,980 5,113 (2,109)
----------- ----------- -----------
Net increase (decrease) in cash ............... 236,039 (808,352) 82,367
Cash at beginning of period ................... 541,805 1,185,106 1,102,739
Adjustment to conform fiscal year
of ADIC (Note 2) ............................ -- 165,051 --
----------- ----------- -----------
Cash at end of period ......................... $ 777,844 $ 541,805 $ 1,185,106
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during period for:
Interest ............................. $ 992,875 $ 807,110 $ 854,748
Income taxes ......................... $ 352,600 $ 732,848 $ 551,491
</TABLE>
See accompanying notes.
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995, 1994 AND 1993
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The financial statements consolidate the
accounts of Interpoint Corporation (Interpoint) and its wholly-owned
subsidiaries, Advanced Digital Information Corporation (ADIC), Interpoint Taiwan
Corporation (ITC), Interpoint (UK) Ltd., Interpoint France SARL (incorporated in
1993), ADIC Europe (ADE), Interpoint GmbH (incorporated in 1995) and Interpoint
Trade Corp., a foreign sales corporation. All intercompany transactions have
been eliminated. The consolidated group is collectively referred to as the
"Company."
Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market, and include certain nonrecurring engineering costs
associated with orders for non-proprietary items. The costs are charged to cost
of sales as the order is shipped.
Depreciation and amortization. Depreciation and amortization are computed
on the straight-line method over the estimated useful lives of the assets as
follows: building, 40 years; machinery and equipment, 3 to 10 years; office
equipment, 3 to 10 years; leasehold improvements, life of lease.
Foreign currency translations. The financial statements of non-U.S.
subsidiaries have been translated into U.S. dollars in accordance with Statement
of Financial Accounting Standards No. 52, "Foreign Currency Translation." Under
the provisions of this Statement, all assets and liabilities in the balance
sheets of ITC and ADE, whose functional currency is other than the U.S. dollar,
are translated at year-end exchange rates, and translation gains and losses are
accumulated in a separate component of stockholders' equity. Because Interpoint
(UK) Ltd., Interpoint France SARL and Interpoint GmbH are effectively extensions
of Interpoint operations, their records are consolidated using the U.S. dollar
as the functional currency.
In an effort to minimize the effect of exchange rate fluctuations on the
results of its operations, the Company hedges its foreign currency exposure by
using forward exchange contracts and by incurring non-U.S. dollar denominated
debt to offset same currency receivables. Market value gains and losses of these
hedges offset foreign currency transaction gains or losses.
Per share data. Per share calculations are determined on the weighted
average number of common and common equivalent shares outstanding during each
period.
Cash and cash equivalents. The Company considers short-term investments
with maturities from the date of purchase of three months or less to be cash
equivalents.
Concentration of credit risk. The Company sells products to a wide variety
of industries on a worldwide basis. In countries or industries where the Company
is exposed to material credit risk, sufficient collateral, including cash
deposits and/or letters of credit, is required prior to the completion of a
transaction. The Company does not believe there is a material credit risk beyond
that provided for in the financial statements in the ordinary course of
business. In the fiscal years ended October 31, 1995, 1994 and 1993, no customer
accounted for more than 10% of sales.
Income taxes. Provision for income taxes have been recorded in accordance
with Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting
for Income Taxes". Under the liability method of FAS 109, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
and laws that will be in effect when the differences are expected to be
recovered or settled.
Reclassification. Certain items in the previous year financial statements
have been reclassified to conform with the current year presentation.
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
NOTE 2. MERGER AGREEMENT WITH ADIC
On February 11, 1994, Interpoint acquired ADIC pursuant to an Agreement and
Plan of Merger dated October 29, 1993, in which ADIC was merged into a
wholly-owned subsidiary of Interpoint. Pursuant to the terms of the merger
agreement, each outstanding share of Common Stock of ADIC was converted into .55
shares of Interpoint Common Stock. A total of 1,340,255 shares of Common Stock
of Interpoint were issued to ADIC shareholders. The acquisition was accounted
for as a pooling-of-interests in accordance with Accounting Principles Board
Opinion No. 16 "Business Combinations."
ADIC had a September 30 year end and, accordingly, the ADIC Statements of
Income and Cash Flows for the fiscal year ended September 30, 1993 have been
combined with the corresponding Interpoint statements for the fiscal year ended
October 31, 1993. In order to conform ADIC's year end to Interpoint's year end,
ADIC's financial statements for the month of October 1993 are not included in
the Statements of Income or Cash Flows for either fiscal year 1993 or fiscal
year 1994. ADIC net income from October 1993 has increased retained earnings.
Results of this month are as follows:
<TABLE>
<S> <C>
Net sales.............................. $1,826,744
Gross profit........................... 673,861
Income before provision
for income taxes..................... 162,402
Net income............................. $ 107,185
</TABLE>
Results of operations prior to acquisition. Results of operations of
Interpoint and ADIC for the period from November 1, 1993 to January 31, 1994 are
as follows:
<TABLE>
<CAPTION>
INTERPOINT ADIC TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
Net sales.............................. $7,724,335 $ 4,702,734 $12,427,069
Gross profit........................... 2,096,827 1,605,135 3,701,962
Acquisition expense.................... 138,743 590,000 728,743
Income (loss) before provision
for income taxes..................... 15,556 (303,656) (288,100)
Net loss .............................. $ (30,944) $ (222,156) $ (253,100)
</TABLE>
Amounts previously reported. Amounts for the year ended October 31, 1993 as
previously reported for Interpoint are as follows:
<TABLE>
<S> <C>
Net sales.............................................. $34,972,030
Net income............................................. $ 1,239,355
</TABLE>
NOTE 3. INVENTORIES
Inventory is comprised as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Finished goods ....................... $ 4,736,490 $ 3,667,549
Work-in-process ...................... 6,483,072 4,488,689
Raw materials ........................ 7,693,764 6,901,990
----------- -----------
18,913,326 15,058,228
Allowance for inventory obsolescence.. 904,830 604,308
----------- -----------
$18,008,496 $14,453,920
=========== ===========
</TABLE>
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
NOTE 4. INVESTMENT IN COMMON STOCK
In 1990, the Company purchased 1,000,000 shares of common stock of Apex
Microtechnology Corporation (Apex) at a cash price of $904,200. This investment
represents approximately one-third of the outstanding stock of Apex, a
privately-held company, and is accounted for using the equity method. A total of
$725,440 of undistributed earnings of Apex are included in retained earnings.
NOTE 5. LOANS PAYABLE
Loans payable is comprised as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revolving lines of credit:
Interpoint .......... $8,350,000 $6,250,000
ITC ................. 233,680 3,840
---------- ----------
$8,583,680 $6,253,840
========== ==========
</TABLE>
Interpoint has $10.5 million in unsecured lines of credit with a bank
expiring February 28, 1996. $2,150,000 was available at October 31, 1995.
Borrowings against the line of credit bear interest at the bank's prime rate or
adjusted LIBOR rate. At October 31, 1995, these rates were 8.75 and 8.01
percent, respectively. At October 31, 1994, these rates were 7.75 and 7.30
percent, respectively. In addition, ITC has $538,000 total lines of credit of
which approximately $304,000 was available at October 31, 1995. Borrowings under
these lines of credit bear interest at variable bank rates, 8.34 percent at
October 31, 1995, and are collateralized by certain of ITC's assets.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Variable Rate Industrial Development
Revenue Bonds, payable in increasing
amounts to $400,000 annually through
July 2003 ............................ $2,350,000 $2,550,000
Various equipment notes payable, secured
by equipment, due $90,554 per month,
including interest, at rates from
7.15% to 10.06% through August 2000 .. 1,946,899 2,060,752
Bank note payable, secured by business
equipment and assets acquired,
due $27,167 per month plus interest at
prime plus 3/8%, through August 1997 . 596,922 922,922
---------- ----------
4,893,821 5,533,674
Less long-term debt, current portion ... 1,342,464 1,504,502
---------- ----------
$3,551,357 $4,029,172
========== ==========
</TABLE>
Principal payments on long-term debt are as follows:
<TABLE>
<S> <C>
1997...................... $ 903,902
1998...................... 628,264
1999...................... 505,441
2000...................... 413,750
Thereafter................ 1,100,000
----------
$3,551,357
==========
</TABLE>
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
The net book value of property, plant and equipment pledged as collateral
on the above long-term debt aggregates approximately $5,827,000 at October 31,
1995.
The Variable Rate Industrial Development Revenue Bonds were issued in 1988
to repay previously outstanding bonds issued for the construction of the
Company's manufacturing and headquarters facility. The Bond loan provides for
annual principal payments and monthly interest payments based upon an interest
rate established weekly, 3.9 percent average during 1995. The bonds are enhanced
by a bank letter of credit. The agreement with the bank prohibits the Company
from either buying capital equipment or incurring debt of greater than $2
million in any twelve month period without approval.
The bondholders have the right, on seven days notice, to tender their bonds
back to the issuer. In the event the bonds could not be re-marketed, the letter
of credit bank would pay the bondholders, and the Company in turn, would
reimburse the letter of credit bank at the end of one year. If, during the year,
the bonds are placed with a new bondholder, the proceeds from such placement
would reimburse the letter of credit bank and relieve the Company's obligation.
Costs incurred in connection with the Variable Rate Industrial Development
Revenue Bonds have been capitalized and are being amortized through 2003.
NOTE 7. STOCK OPTIONS
At October 31, 1995, a total of 439,700 shares of common stock were
reserved under two incentive stock option plans for officers and key team
members. Currently, the plans provide that either qualified or non-qualified
options may be issued. All of the existing outstanding options are
non-qualified. Other terms require the option price to be equal to the fair
market value on the date of grant. Options may be exercisable for all or part of
the shares as determined by the option. All options issued under these plans
expire 10 years from the date of grant or earlier as determined by the
Compensation and Stock Option Committee of the Board of Directors. The majority
of the options vest over a four-year period. In 1993 and 1995, grants were made
to certain key team members which vest upon the earlier of the date on which the
market price of the Company's stock has been at a certain level per share for 40
days, or ten years from the date of grant. Options granted under ADIC's stock
option plan prior to the merger were replaced with options to purchase
Interpoint common shares.
In addition, at October 31, 1995, 62,587 shares of common stock were
reserved under a non-qualified stock option plan for directors, key team
members, agents, consultants and independent contractors of the Company. Terms
of the plan are substantially the same as the incentive stock option plans
described above. The stock option plans expire at December 31, 1995. A new plan
is expected to be put into place in fiscal 1996, subject to shareholder
approval.
The following summarizes the activity of the option plans for the year
ended October 31, 1995:
<TABLE>
<CAPTION>
OPTION PRICE
TOTAL ------------------------------------
OPTIONS PER SHARE TOTAL
------- ---------------- ------------
<S> <C> <C> <C>
Outstanding, October 31, 1994................. 444,546 $0.745 - 10.500 $ 2,160,276
Options granted............................ 101,800 $8.625 - 11.000 937,516
Options forfeited.......................... (59,392) $3.130 - 11.000 (453,833)
Options exercised.......................... (27,507) $3.130 - 8.125 (123,598)
------- ------------
Outstanding, October 31, 1995................. 459,447 $0.745 - 11.000 $ 2,520,361
======= ============
</TABLE>
At October 31, 1995, a total of 313,873 option shares were exercisable.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
NOTE 8. RETIREMENT BENEFITS
ITC has a retirement plan covering all Taiwan team members. The plan
provides for normal retirement at age 60, with benefits based on length of
service and base pay at time of retirement. Accrued retirement benefits are
funded in accordance with government policy. Net periodic pension cost included
the following components:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost, benefits earned during the period.. $ 67,117 $ 65,920 $ 90,861
Interest cost on projected benefit obligation ... 60,791 64,433 93,795
Actual return on plan assets .................... (4,921) (6,616) (8,660)
Net amortization ................................ 25,404 20,653 38,131
--------- --------- ---------
Net pension expense ............................. $ 148,391 $ 144,390 $ 214,127
========= ========= =========
</TABLE>
The following table sets forth the plan's funded status and amounts
recorded in the Company's consolidated balance sheets at October 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $42,082 ($32,668 in 1994) .......................... $ 532,218 $ 458,721
=========== ===========
Projected benefit obligation for service rendered to date $ 1,165,163 $ 934,834
Plan assets at fair value (principally cash) ................ (97,521) (87,830)
----------- -----------
Projected benefit obligation in excess of plan assets ....... 1,067,642 847,004
Unrecognized net gain ....................................... 81,452 308,213
Unrecognized net transitional obligation .................... (576,834) (636,766)
----------- -----------
Retirement benefits liability ............................... $ 572,260 $ 518,451
=========== ===========
</TABLE>
Significant assumptions used in determining pension expense and related
pension obligations as of October 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Long-term rate of return on assets............... 7% 7%
Discount rate for obligation..................... 7% 7%
Rate of compensation increase.................... 7% 6%
</TABLE>
NOTE 9. FEDERAL INCOME TAX
Income before provision for income taxes was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current income tax:
U.S. Federal ..................... $ 1,298,304 $ 344,879 $ 789,656
State and local .................. 75,000 10,000 2,000
Foreign .......................... 120,567 154,853 38,069
----------- ----------- -----------
Total current .................... 1,493,871 509,732 829,725
Deferred income tax:
U.S. Federal ..................... (154,183) 295,248 32,191
Foreign .......................... (175,444) (13,280) --
----------- ----------- -----------
Total deferred ................... (329,627) 281,968 32,191
----------- ----------- -----------
Total provision for income taxes.. $ 1,164,244 $ 791,700 $ 861,916
=========== =========== ===========
</TABLE>
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
The provision for Federal income tax differs from the amount computed by
applying the statutory Federal income tax rate to income before provision for
income taxes for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax at statutory rate of 34% ... $ 1,445,652 $ 855,917 $ 1,081,751
Utilization of net operating loss carryforward/
removal of valuation allowance ............ (139,326) (61,373) --
Tax credits ................................... (166,345) 42,089 (150,000)
Activity of domestic subsidiaries ............. (86,114) (29,790) (24,166)
Non-deductible acquisition expenses ........... -- 67,913 --
Activity of foreign subsidiaries .............. 22,821 (75,259) (87,599)
State income taxes ............................ 75,000 10,000 2,000
Other ......................................... 12,556 (17,797) 39,930
----------- ----------- -----------
$ 1,164,244 $ 791,700 $ 861,916
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at October 31, 1995, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Inventory and other allowances............ $ 441,960 $ 319,886 $ 316,289
Team member benefits, primarily
compensated absences ................... 220,382 187,036 163,728
Pension benefits ......................... 63,253 49,613 --
Research and development and alternative
minimum tax credit carryforwards ....... -- -- 265,999
Net operating loss carryforwards ......... 97,114 300,919 --
Other .................................... 55,783 99,962 23,002
----------- ----------- -----------
Gross deferred tax assets ........... 878,492 957,416 769,018
Deferred tax assets valuation allowance... -- (300,919) --
----------- ----------- -----------
Net deferred tax assets ........... 878,492 656,497 769,018
Deferred tax liabilities:
Plan and equipment excess of tax
depreciation over book depreciation .... (891,490) (936,148) (903,931)
Other .................................... (26,981) (86,906) (6,069)
----------- ----------- -----------
Gross deferred tax liabilities ...... (918,471) (1,023,054) (910,000)
----------- ----------- -----------
Net deferred tax liability .......... $ (39,979) $ (366,557) $ (140,982)
=========== =========== ===========
</TABLE>
At October 31, 1995, ADE had net operating loss carryforwards of
approximately $300,000 which are available to offset future ADE taxable income.
The October 31, 1994, deferred tax assets valuation allowance has been removed
based upon expectations of future ADE operating income.
Deferred U.S. income taxes are not provided for the earnings of foreign
subsidiaries because the Company expects those earnings will be permanently
reinvested. Net pretax operating results from foreign subsidiaries are $187,000
for 1995, $748,000 for 1994, and $337,000 for 1993.
NOTE 10. PROFIT INCENTIVE AND BONUS PLANS
The Company has a non-contributory profit incentive plan for key
microelectronics and ADIC team members and a non-contributory profit sharing
plan for all regular full-time domestic team members. These plans are generally
based upon pretax profits.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
The profit incentive plan allows the Board of Directors to provide up to 10
percent of the pretax profits, after a set minimum profitability is achieved,
for distribution to the plan's participants. There were no contributions in
1993. The profit sharing plan provides that 15 percent of pretax profits will be
contributed to the plan. Prior to 1995, ADIC team members had a separate plan
based on certain ADIC financial performance criteria. The Company's contribution
to all plans was $800,432, $657,602, and $340,483 for the fiscal years ended
October 31, 1995, 1994 and 1993, respectively.
NOTE 11. COMMITMENTS
The Company has leased facilities of approximately 66,000 square feet in
Redmond, Washington. In addition, ITC leases the land for its operating facility
under an agreement expiring May 19, 1996, with an option to renew the lease.
Sales offices are leased at various sites in the United States and Europe.
Minimum annual rental commitments at October 31, 1995, for noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
Year ended October 31 Amount
--------------------- --------
<S> <C>
1996......................................... $671,000
1997......................................... 743,000
1998......................................... 664,000
1999......................................... 515,000
2000......................................... 473,000
</TABLE>
Rent expense aggregated $570,000 in 1995, $508,100 in 1994, and $360,000 in
1993.
NOTE 12. INDUSTRY SEGMENT INFORMATION
Information by identifiable business segment is presented in the tables
below. The Company operates principally in two industries. Operations in the
Microelectronics industry include the design, sale and manufacture of DC-to-DC
power supplies as well as custom medical and military/aerospace products. The
second industry is served by ADIC which designs, manufactures and markets
automated, high performance data storage products. There are no sales between
industry segments.
Operating profit by segment is calculated on a basis consistent with
operating profit on the Consolidated Statements of Income. Identifiable assets
by industry are those assets that are used in the Company's operations in each
industry. Corporate assets relate to the investment in common stock of Apex.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales:
Microelectronics ................. $ 39,339,308 $ 34,671,285 $ 34,972,030
Data Storage ..................... 31,716,372 20,083,275 17,108,522
------------ ------------ ------------
71,055,680 54,754,560 52,080,552
Operating profit:
Microelectronics ................. 4,271,744 3,272,091 2,304,316
Data Storage ..................... 686,050 659,828 1,658,361
Acquisition expenses ............. -- (728,743) --
------------ ------------ ------------
4,957,794 3,203,176 3,962,677
Total assets:
Microelectronics ................. 32,393,465 29,318,105 26,977,069
Data Storage ..................... 13,897,021 8,489,547 5,894,501
Corporate ........................ 1,629,640 1,331,669 1,228,588
------------ ------------ ------------
47,920,126 39,139,321 34,100,158
Depreciation and amortization expense:
Microelectronics ................. 1,521,502 1,495,996 1,535,602
Data Storage ..................... 483,739 331,153 164,139
------------ ------------ ------------
2,005,241 1,827,149 1,699,741
Capital expenditures:
Microelectronics ................. 905,338 981,221 901,098
Data Storage ..................... 756,935 450,702 284,103
------------ ------------ ------------
1,662,273 1,431,923 1,185,201
</TABLE>
NOTE 13. GEOGRAPHIC SEGMENT INFORMATION
Major operations outside the United States include sales subsidiaries in
the United Kingdom, France and Germany; a sales and distribution subsidiary in
France; and a manufacturing subsidiary in Taiwan. Certain information regarding
operations in these geographic segments is presented in the table below.
Transfers between geographic areas are made at arms-length prices consistent
with rules and regulations of governing tax authorities. The profit on these
transfers are not recognized until sales are made to non-affiliated customers.
Excluded from U.S. net sales are transfers from the U.S. to European
subsidiaries of $5,180,000, $2,416,000 and $1,424,000 in 1995, 1994 and 1993,
respectively. Included in U.S. sales are export sales to unaffiliated customers
of $7,571,000, $8,149,000 and $8,574,000 in 1995, 1994 and 1993, respectively.
As the Company has expanded its European presence by opening direct
offices, certain sales transactions previously considered to be export sales of
the United States are now being served by European subsidiaries and are
considered to be European sales in the table below.
ITC, located in Kaohsiung, Taiwan, serves as a manufacturing facility for
the Microelectronics business. As such, it has no direct sales and minimal
operating income.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States .. $55,291,013 $48,598,717 $50,255,362
Europe ......... 15,764,667 6,155,843 1,825,190
----------- ----------- -----------
71,055,680 54,754,560 52,080,552
Operating profit:
United States .. 4,804,213 2,544,194 3,731,532
Europe ......... 153,581 658,982 231,145
----------- ----------- -----------
4,957,794 3,203,176 3,962,677
Identifiable assets:
United States .. 41,414,566 34,872,203 33,032,378
Europe ......... 6,505,560 4,267,118 1,067,780
----------- ----------- -----------
47,920,126 39,139,321 34,100,158
</TABLE>
NOTE 14. PURCHASE OF ADIC EUROPE
On June 17, 1994, Interpoint acquired ADIC Europe (ADE), formerly known as
GigaTrend Europe SARL, a manufacturer and integrator of tape storage products
for the computer network and workstation markets. The total purchase price of
ADE was approximately $628,000 paid in a combination of cash, equipment and
stock. The acquisition is accounted for as a purchase.
NOTE 15. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---------------------------------------- ------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.................... $13,542 $16,041 $18,890 $22,583 $12,427 $11,359 $14,307 $16,661
Gross profit............. $ 4,222 $ 5,094 $ 6,020 $ 6,470 $ 3,702 $ 2,967 $ 4,682 $ 5,671
Net income (loss)........ $ 109 $ 618 $ 1,094 $ 1,267 $ (253) $ 1 $ 911 $ 1,067
Net income (loss)
per share.............. $ .03 $ .16 $ .27 $ .31 $ (.07) $ .00 $ .23 $ .27
</TABLE>
All amounts are presented as if Interpoint and ADIC had been combined as of the
beginning of the period presented. Consequently, amounts above differ from
amounts previously reported for quarters ending prior to the merger date of
February 1994.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The information called for by Part III (Items 10, 11, 12 and 13) will be
included in the Registrant's Proxy Statement and is incorporated herein by
reference. Such Proxy Statement will be filed within 120 days of the
Registrant's last fiscal year end, October 31, 1995.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES PAGE
---------------------------------------------------------------------------- ----
<S> <C>
a. The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Accountants............................................................ 11
Consolidated Statements of Income for each of the three years in the period ended
October 31, 1995.......................................................................... 12
Consolidated Balance Sheets at October 31, 1995 and 1994..................................... 13
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended October 31, 1995............................................................. 14
Consolidated Statements of Cash Flows for each of the three years in the period
ended October 31, 1995.................................................................... 12
Notes to Consolidated Financial Statements................................................... 16
(2) Supplemental Financial Statement Schedules for each of the three years in the
period ended October 31, 1995
VIII -- Valuation and Qualifying Accounts.............................................. 26
Independent Auditors' Report of Advanced Digital Information Corporation..................... 27
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
b. Reports on Form 8-K. None.
c. Exhibits. See page 28 for index to exhibits.
25
<PAGE> 26
INTERPOINT CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Balance at Additions
beginning charged to Balance at
of year income Deductions Other end of year
---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable:
1995 ............. $108,247 $ 67,994 $ 43,405 $ -- $132,836
======== ======== ======== ======== ========
1994 ............. $127,140 $ 11,959 $ 30,852 $ -- $108,247
======== ======== ======== ======== ========
1993 ............. $ 95,000 $ 91,606 $ 59,466 $ -- $127,140
======== ======== ======== ======== ========
Allowance for inventory
obsolescence:
1995 ............. $604,308 $379,000 $ 77,780 $ (698) $904,830
======== ======== ======== ======== ========
1994 ............. $816,639 $384,686 $597,674 $ 657 $604,308
======== ======== ======== ======== ========
1993 ............. $630,307 $455,570 $268,138 $ (1,100) $816,639
======== ======== ======== ======== ========
</TABLE>
"Deductions" represents amounts written off against the allowance, net of
recoveries.
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Interpoint Corporation:
We have audited the statements of income, stockholders' equity, and cash flows
of Advanced Digital Information Corporation for the year ended September 30,
1993 not presented separately herein. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Advanced
Digital Information Corporation for the year ended September 30, 1993, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Seattle, Washington
November 9, 1993
27
<PAGE> 28
INTERPOINT CORPORATION
INDEX TO EXHIBITS
(ITEM 14C)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
(3.1) Restated Articles of Incorporation and Amendment (A)
(3.2) Bylaws and Amendments
(10.1) Management Incentive Plan (A)
(10.2) Registration Rights Agreement among the Company and Certain
Shareholders of ADIC, dated as of February 11, 1994 (B)
(10.3) Lease Agreement between K-M Properties and Advanced Digital
Information Corporation
(21) Subsidiaries of Registrant
(23) Consent of Independent Auditors
(23.1) Consent of Independent Auditors
(27) Financial Data Schedule
- -----------------------
</TABLE>
(A) Incorporated herein by reference to 1989 10-K Statement filed January 26,
1990.
(B) Incorporated herein by reference to Current Report on Form 8-K filed
February 11, 1994.
28
<PAGE> 29
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.
INTERPOINT CORPORATION
(REGISTRANT)
Date: January 8, 1996 By /s/Peter H. van Oppen
--------------------------
Peter H. van Oppen
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
By /s/Leslie S. Rock Vice President, January 8, 1996
----------------------------------- Chief Accounting Officer
Leslie S. Rock
By /s/Christopher T. Bayley Director January 8, 1996
-----------------------------------
Christopher T. Bayley
By /s/Walter P. Kistler Director January 8, 1996
-----------------------------------
Walter P. Kistler
By /s/Russell F. McNeill Director January 8, 1996
-----------------------------------
Russell F. McNeill
By /s/John W. Stanton Director January 8, 1996
-----------------------------------
John W. Stanton
By /s/Peter H. van Oppen Chairman and Chief January 8, 1996
----------------------------------- Executive Officer
Peter H. van Oppen
By /s/David A. Uvelli Senior Vice President and January 8, 1996
----------------------------------- General Manager, Director
David A. Uvelli
By /s/Walter F. Walker Director January 8, 1996
-----------------------------------
Walter F. Walker
By /s/Calvin A.H. Waller Director January 8, 1996
-----------------------------------
Calvin A.H. Waller
</TABLE>
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
INTERPOINT CORPORATION
Article I.
Offices
The principal office of the corporation in the State of Washington
shall be located in the city of Bellevue. The corporation may have such other
offices, either within or without the State of Washington as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
The registered office of the corporation required by the Washington
Business Corporation Act to be maintained in the State of Washington may be,
but need not be, identical with the principal office in the State of
Washington, and the address of the registered office may be changed from time
to time by the Board of Directors or by officers designated by the Board of
Directors.
Article II.
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held in the month of February in each year, or any other time as may be fixed
by action of the shareholders, for the purpose of electing Directors and the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday in the State of
Washington, such meeting shall be held on the next succeeding business day. If
the election of Directors shall not be held on the day designated herein for any
annual meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as conveniently may be.
Section 2. Special Meeting. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by stature, may be called
by the President or by the Board of Directors, or the holders of not less than
one-tenth of all outstanding shares of the corporation entitled to vote at the
meeting.
<PAGE> 2
Section 3. Place of Meeting. The Board of Directors may designate any
place within or without the State of Washington as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Washington, as the
place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation in the State of Washington.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
or the Secretary, or the persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his adress as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten days immediately preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a date as
the record date for any such determination of shareholders, such date in any
case to be not more than fifty days and, in case of a meeting of shareholders,
not less than ten days prior to the determination of shareholders, is to be
taken. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the
-2-
<PAGE> 3
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof.
Section 6. Voting Record. For at least ten days before each meeting,
the officer or agent having charge of the stock transfer books for shares of
the corporation shall make and keep on file at the registered office of the
corporation a complete record of the shareholders entitled to vote at that
meeting of shareholders or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each. That record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.
Section 7. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxy shall be filed with the secretary
of the corporation before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy.
Section 9. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders and, if a quorum is present, the affirmative vote of
the majority of such shares represented at the meeting shall be the act of the
shareholders.
Section 10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by
-3-
<PAGE> 4
such officer, agent or proxy as the bylaws of such corporation may prescribe,
or, in the absence of such provision, as the Board of Directors of such
corporation may determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver is
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock held by the corporation, nor those held
by another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
Section 11. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
Article III.
Board of Directors
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The Board shall be
composed of not less than six nor more than ten Directors, the specific number
to be set by resolution of the Board. The Board of Directors of the
corporation shall be divided into three classes which shall be as nearly equal
in number as is possible, with any director or directors in excess of the
-4-
<PAGE> 5
number divisible by three being assigned to Class 3 or to Class 3 and Class 2,
as the case may be. At the first election of directors to such classified Board,
each Class 1 director shall be elected to serve until the next ensuing annual
meeting of shareholders, each Class 2 director shall be elected to serve until
the second ensuing annual meeting of shareholders and each Class 3 director
shall be elected to serve until the third ensuing annual meeting of
shareholders, and in each case until his or her successor is elected and
qualified or until his or her earlier death, resignation or removal from office.
At each annual meeting of shareholders following the meeting at which the Board
of Directors is initially classified, the number of directors equal to the
number of the class whose term expires at the time of such meeting shall be
elected to serve until the third ensuing annual meeting of shareholders.
Notwithstanding any of the foregoing provisions of this Section 9, directors
shall serve until their successors are elected and qualified or until their
earlier death, resignation or removal from office.
In the event of any change in the authorized number of directors, the
number of directors in each class shall be adjusted so that thereafter each of
the three classes shall be composed, as nearly as may be possible, of one-third
of the authorized number of directors, any director or directors in excess of
the number divisible by three being assigned to the class or classes having the
shortest unexpired terms; provided, that any change in the authorized number of
directors shall not increase or shorten the term of any director, and any
decrease shall become effective only as and when their term or terms of office
of the class or classes of directors affected thereby shall expire, or a vacancy
or vacancies in such class or classes shall occur.
Section 3. Regular Meeting. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Washington, for the holding of additional regular meetings without
other notice than such resolution.
Section 4. Special Meeting. Special meetings of the Board of Directors
or any committee designated by the Board of Directors may be called by or at
the request of the President or any two Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any
place, either within or without the State of Washington, as the place) for
holding any special meeting of the Board of Directors called by them.
-5-
<PAGE> 6
Section 5. Notice. Notice of any special meeting shall be given at
least two days previously thereto by written notice delivered personally or
mailed to each Director at his business address, or by telegram. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail, so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any Director may waive notice of any
meeting. The attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting, except where a Director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 6. Quorum. A majority of the number of Directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the Directors present may
adjourn the meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. Action Without a Meeting. Any action that may be taken by
the Board of Directors at a meeting may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
Directors.
Section 9. Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by affirmative vote of a majority of the
outstanding shares entitled to vote at a meeting of shareholders called
expressly for that purpose.
Section 10. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of Directors by the shareholders.
-6-
<PAGE> 7
Section 11. Compensation. Except by resolution of the Board of
Directors, no salary or fees shall be payable to the Directors for their
services as Directors or in connection with their attendance at meetings of
Directors.
Section 12. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting, or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof, or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 13. Telephonic Meetings. Members of the Board of Directors or
any committee designated by the Bylaws or appointed by the Board of Directors
may participate in a meeting of such board or committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
Article IV.
Officers
Section 1. Number. The officers of the corporation shall be a Chairman,
a President, any number or no Vice Presidents (the number thereof to be
determined by the Board of Directors), a Secretary, and a Treasurer (which
latter two offices may be combined as determined by the Board of Directors),
each of whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two or more offices may be held by the same person,
except the offices of President and Secretary, except that when all of the
issued and outstanding stock of the corporation is owned of record by one
shareholder, one person may hold all or any combination of offices.
Section 2. Election and Term of Office. The officers of the corporation
to be elected by the Board of Directors shall be elected annually be the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of shareholders. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as conveniently
may be. Each officer shall hold
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<PAGE> 8
office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 3. Resignation or Removal. Any officer or agent may be removed,
with or without cause, by the Board of Directors whenever in its judgment the
best interests of the corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of Directors and meetings of Shareholders and shall
also perform such other duties as may be assigned to him by the Board of
Directors in a duly enacted resolution, the Chairman of the Board shall be the
Chief Executive Officer and in such capacity shall have general supervision and
control over the business and affairs of the corporation subject to the
authority of the Board of Directors.
Section 5. President. The President shall be the Chief Operating
Officer of the corporation reporting to the Chairman of the Board unless
designated as the Chief Executive Officer in a duly enacted resolution. The
Chief Executive Officer or the President, when so directed, may sign with the
Secretary or any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed. In general, the President
shall perform all duties incident to the office of Chief Operating Officer and
such other duties as may be prescribed by the Chairman of the Board from time
to time.
Section 6. The Vice President. In the absence of the President or in
the event of his death, inability or refusal to act, the Executive Vice
President, if one is designated, and otherwise the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election shall perform the duties of
the President and when so acting, shall have all the powers of the President
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the
corporation; and
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<PAGE> 9
shall perform such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 7. The Secretary. The Secretary shall: (a) keep the minutes of
the proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the Secretary by such shareholders; (e) sign with the President, or a Vice
President, certificates for shares of the corporation, or contracts, deeds or
mortgages the issuance or execution of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation subject to the authority delegated to a
transfer agent or registrar if appointed; and (g) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
Section 8. The Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the corporation;
(b) receive and give receipts for moneys due and payable to the corporation from
any source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article VI of these bylaws; and
(c) in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine.
Section 9. Assistant Secretaries and Assistant Treasurer. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice President certificates for shares of the corporation or
contracts, deeds or mortgages the issuance or execution of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Treasurers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sum and with such surety or sureties
as the Board of Directors shall determine. The
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<PAGE> 10
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary of the Treasurer,
respectively, or by the President or the Board of Directors.
Section 10. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
corporation.
Section 11. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Article V.
Executive Committee
Section 1. Appointment. The Board of Directors by resolution adopted by a
majority of the full board, may designate two or more of its members to
constitute an Executive Committee. The designation of such committee and the
delegation thereof of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
Section 2. Authority. The Executive Committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the Executive Committee and except also
that the Executive Committee shall not have the authority of the Board of
Directors in reference to amending the articles of incorporation, adopting a
plan of merger or consolidation, recommending to the shareholders the sale,
lease or other disposition of all or substantially all of the property and
assets of the corporation otherwise than in the usual and regular course of its
business, recommending to the shareholders a voluntary dissolution of the
corporation or a revocation thereof, or amending the bylaws of the corporation.
Section 3. Tenure and Qualifications. Each member of the Executive
Committee shall hold office until the next regular annual meeting of the Board
of Directors following his designation and until his successor is designated as
a member of the Executive Committee and is elected and qualified.
Section 4. Meetings. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time by
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<PAGE> 11
resolution. Special meetings of the Executive Committee may be called by any
member thereof upon not less than one day's notice stating the place, date and
hour of the meeting, which notice may be written or oral, and if mailed, shall
be deemed to be delivered when deposited in the United States mail addressed to
the member of the Executive Committee at his business address. Any member of
the Executive Committee may waive notice of any meeting and no notice of any
meeting need be given to any member thereof who attends in person. The notice
of a meeting of the Executive Committee need not state the business proposed to
be transacted at the meeting.
Section 5. Quorum. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action that may be taken by
the Executive Committee at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
all of the members of the Executive Committee.
Section 7. Vacancies. Any vacancy in the Executive Committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
Section 8. Resignations and Removal. Any member of the Executive
Committee may be removed at any time or without cause by resolution adopted by
a majority of the full Board of Directors. Any member of the Executive
Committee may resign from the Executive Committee at any time by giving written
notice to the President or Secretary of the corporation, and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 9. Procedure. The Executive Committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall
not be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information
at the meeting thereof held next after the proceedings shall have been taken.
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<PAGE> 12
Article VI.
Contracts, Loans, Checks and Deposits
Section 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instruments in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
Article VII.
Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and sealed with the
corporate seal or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent, or registered by a registrar, other than the corporation
itself or one of its employees. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued
<PAGE> 13
therefor upon such terms and indemnity to the corporation as the Board of
Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of
the corporation, or with its transfer agent, if any, and on surrender for
cancellation of the certificate for such shares. The person in whose name
shares stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
Article VIII.
Fiscal Year
The fiscal year of the corporation shall begin on the first day of
November and end on the 31st day of October in each year.
Article IX.
Dividends
The Board of Directors may, from time to time, declare and the
corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and its articles of incorporation.
Article X.
Corporate Seal
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
Article XI.
Waiver of Notice
Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of these bylaws or under the
provisions of the Articles of Incorporation or under the provisions of the
Washington Business Corporation Act, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
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<PAGE> 14
Article XII.
Indemnification
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the corporation
or, being or having been such a director or officer, he or she is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the full extent permitted by applicable law as then in
effect, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that no indemnification shall be provided to any such person if the corporation
is prohibited by the nonexclusive provisions of the Washington Business
Corporation Act or other applicable law as then in effect from paying such
indemnification; and provided, further, that except as provided in Section 2 of
this Article with respect to proceedings seeking to enforce rights to
indemnification, this corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred
in this Section shall be a contract right and shall include the right to be paid
by the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of a proceeding shall be made only
upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise.
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<PAGE> 15
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 of
this Article is not paid in full by the corporation within sixty days after a
written claim has been received by the corporation, except in the case of a
claim for expenses incurred in defending a proceeding in advance of its final
disposition, in which case the applicable period shall be twenty days, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, to the extent successful in whole or
in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. The claimant shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim (and, in
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the required undertaking
has been tendered to the corporation) and thereafter the corporation shall have
the burden of proof to overcome the presumption that the claimant is not so
entitled. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
or reimbursement or advancement of expenses to the claimant is proper in the
circumstances nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses shall be a defense to the action or create a
presumption that the claimant is not so entitled.
Section 3. Nonexclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Articles of Incorporation, Bylaws, agreement, vote or shareholders or
disinterested directors or otherwise.
Section 4. Insurance, Contracts and Funding. The corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense,
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<PAGE> 16
liability or loss under the Washington Business Corporation Act. The
corporation may enter into contracts with any director or officer of the
corporation in furtherance of the provisions of this Article and may create a
trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article.
Section 5. Indemnification of Employees and Agents of the Corporation.
The corporation may, by action of its Board of Directors from time to time,
provide indemnification and pay expenses in advance of the final disposition of
a proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.
Article XIII
Amendments
These Bylaws may be altered, amended or repealed and new bylaws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
I hereby certify the foregoing to be the Restated Bylaws of Integrated
Circuits Incorporated which were adopted on June 20, 1990.
/s/ Russell F. McNeill
-----------------------------
Secretary
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<PAGE> 1
EXHIBIT 10.3
K-M PROPERTIES
ESTIMATED PAYMENT SCHEDULE ASSOCIATED
WITH ADIC'S OCCUPANCY
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM *COST PAYMENT DATE
===========================================================================================================================
<S> <C> <C>
**Tenant Improvements: Total Cost: $100,000 Approx. July 1, 1995
1. Wall Reconfiguration: $ 50,000
2. Carpet & Tile: $ 50,000
- ---------------------------------------------------------------------------------------------------------------------------
Building Improvements: Total Cost: Approx. $140,000
1. Paint Interior: 15,000 Approx. July 1, 1995
2. Elevator: 50,000 Approx. July 1, 1997
3. Parking Area: 25,000 Approx. July 1, 1997
4. Paint Bldg.: 20,000 Approx. July 1, 1997
5. Stairwell: 30,000 Approx. July 1, 1997
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Commissions Total Cost: Approx. $ 79,730 50% - Approx. April 1, 1995 (Lease Execution)
50% - July 1, 1995 (Lease Commencement)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Above costs are only estimates.
**Tenant improvements will potentially be paid by K-M Properties, and amortized
over the lease term, and added to the rent.
<PAGE> 2
BASIC LEASE INFORMATION
- --------------------------------------------------------------------------------
Lease Date: April 20, 1995
Landlord: K-M Properties
Address of Landlord:
Tenant: Advanced Digital Information Corporation ("ADIC")
Premises: K-M Building
PARAGRAPH 1 Premises approximately 31,148 square feet for year one, and
41,352 square feet thereafter in The K-M Building of
approximately 41,352 square feet, such premises being shown
and outlined in red on the plan attached hereto as Exhibit A,
and being part of the real property described in Exhibit B
attached hereto.
PARAGRAPH 1 Lease Term: Commencing on the "Commencement Date" as
hereinafter defined and ending 120 months thereafter except
that in the event the Commencement Date is a date other than
the first day of a calendar month, said term shall extend for
said number of days in addition to the remainder of the
calendar month following the Commencement Date.
PARAGRAPH 1 Scheduled Term Commencement Date: September 1, 1995
PARAGRAPH 2 Monthly Base Rent: Year 1: $23,361.00 NNN
Years 2 - 3: $33,082.00 NNN
Years 4 - 5: $35,149.00 NNN
Years 6 - 7: $38,457.00 NNN
Years 8 - 10: $42,593.00 NNN
PARAGRAPH 2B Security Deposit: $35,149.00
PARAGRAPH 4A Tenant's Initial Monthly Escrow Payment for Taxes and Other
Charges: N/A
PARAGRAPH 7 Tenant's Initial Monthly Common Area Maintenance Charge: N/A
PARAGRAPH 14B Tenant's Initial Monthly Insurance Escrow Payment: $297.00
Tenant's Initial Monthly Payment Total: $297.00
The foregoing Basic Lease Information is hereby incorporated
into and made a part of this Lease. Each reference in this
Lease to any of the Basic Lease Information shall mean the
respective information herein above set forth and shall be
construed to incorporate all of the terms provided under the
particular Lease paragraph pertaining to such information. In
the event of any conflict between any Basic Lease Information
and the Lease, the former shall control.
Please Initial
Landlord CHM
Tenant BWB
<PAGE> 3
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between K-M Properties,
hereinafter referred to as "Landlord", and Advanced Digital Information
Corporation, hereinafter referred to as "Tenant";
WITNESSETH
1. PREMISES AND TERM.
A. In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby demises and leases to Tenant, and
Tenant hereby takes and leases from Landlord those certain Premises as
outlined in red on Exhibit "A" attached hereto (hereinafter referred to
as the "Premises") and incorporated herein by reference, together with
all rights, privileges, easements, appurtenances, and amenities
belonging to or in any way appertaining to the Premises and together
with buildings and other improvements situated or to be situated upon
land described in Exhibit "B" attached hereto.
B. TO HAVE AND TO HOLD the same for a term commencing on the
"Commencement Date", as hereinafter defined, and ending thereafter as
specified in the Basic Lease Information, attached hereto, (the "Lease
Term"), provided, however, that, in the event the "Commencement Date"
is a date other than the first day of a calendar month, said term shall
extend for said number of days in addition to the remainder of the
calendar month following the "Commencement Date".
C. The "Commencement Date" shall be the Scheduled Term Commencement
Date shown in the Basic Lease Information, attached hereto and
incorporated herein by reference, or the date upon which the Premises
shall have been substantially completed in accordance with the plans
and specification described in Exhibit "C" and Exhibit "C-1" attached
hereto and incorporated herein by reference, whichever is earlier. If
the Premises shall not have been substantially completed as aforesaid
by the Scheduled Term Commencement Date, Tenant's obligations to pay
rent and its other obligations for payment under this Lease shall
commence on the date the Premises are substantially completed as
aforesaid, and Landlord shall not be liable to Tenant for any loss or
damage resulting from such delay. Landlord shall notify Tenant in
writing as soon as Landlord deems the Premises to be substantially
completed and ready for occupancy. In the event that the Premises have
not in fact been substantially completed as aforesaid, Tenant shall
notify Landlord of its objections. Landlord shall have a reasonable
time after delivery of such notice in which to take such corrective
action as may be necessary, and shall notify Tenant in writing as soon
as it deems such corrective action has been completed so that the
Premises are substantially completed and ready for occupancy. The
taking of possession by Tenant shall be deemed conclusively to
establish that the Premises have been substantially completed in
accordance with the plans and specifications and that the Premises are
in good and satisfactory condition, as of when possession was so taken.
Tenant acknowledges that no representations as to the repair of the
Premises have been made by Landlord, unless such are expressly set
forth in this Lease. After the Commencement Date, Tenant shall, upon
demand, execute and deliver to Landlord a letter of acceptance of
delivery of the Premises, specifying the Commencement Date and the rent
commencement date, in recordable form. In the event of any dispute as
to the substantial completion or work performed or required to be
performed by Landlord, the certificate of Landlord's architect or
general contractor shall be conclusive.
2. BASE RENT AND SECURITY DEPOSIT.
A. Tenant agrees to pay to Landlord Base Rent for the Premises, in
advance without demand, deduction or set off, for the entire Lease Term
hereof at the rate specified in the Basic Lease Information, payable in
monthly installments. One such monthly installment shall be due and
payable on the commencement date and a like monthly installment shall
be due and payable on or before the first day of each calendar month
succeeding the Commencement Date recited above during the Lease Term,
except that the rental payment for any factional calendar month at the
commencement or end of the Lease period shall be prorated on the basis
of a 30-day month.
B. In addition, Tenant agrees to deposit with Landlord on the date
hereof a security deposit in the amount specified in the Basic Lease
Information, which sum shall be held by Landlord, without obligation
for interest, as security for the performance of Tenant's covenants and
obligation under this Lease, it being expressly understood and agreed
that such deposit is not an advance rental deposit, not the last
month's rent nor a measure of Landlord's damages in the event of
Tenant's default. Upon the occurrence of any event of default by
Tenant, Landlord may, from time to time, without prejudices to any
other remedy provided herein or provided by law, use such deposit to
the extent necessary to make good any arrears of rent or other payments
due Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default; or to perform any obligation
required of Tenant under the Lease; and Tenant shall pay to Landlord on
demand the amount so applied in order to restore the security deposit
to its original amount. Although the security deposit shall be deemed
the property of Landlord, any remaining balance of such deposit shall
be returned by Landlord to Tenant at such time after termination of
this Lease that all of Tenant's obligation under this Lease have been
fulfilled.
1
Please Initial
Landlord CHM
Tenant BWB
<PAGE> 4
3. USE.
A. The Premises shall be used only for the purpose of general office,
receiving, storing, shipping, assembly, light manufacturing, and
selling (other than retail) products, materials and merchandise made
and/or distributed by Tenant and for such other lawful purposes as may
be incidental thereto. Outside storage, including without limitation,
trucks and other vehicles, is prohibited without Landlord's prior
written consent. Tenant shall at its own cost and expense obtain any
and all licenses and permits necessary for its use of the Premises.
Tenant shall comply with all governmental laws, ordinances and
regulations applicable to the use of the Premises, and shall promptly
comply with all governmental orders and directive including but not
limited to those regarding the correction, prevention and abatement of
nuisances in or upon, or connected with, the Premises, all at Tenant's
sole expense. Tenant shall not permit any objectionable or unpleasant
orders, smoke, dust, gas, noise or vibrations to emanate from the
Premises, nor take any other action which would constitute a nuisance
or would disturb or endanger any other tenants of the building in which
the Premises are situated or unreasonably interfere with their use of
their respective Premises. In addition to any other remedies Landlord
may have for a breach by Tenant of the terms of this Section 3,
Landlord shall have the right to have Tenant evicted from the Premises.
Without Landlord's prior written consent, Tenant shall not receive,
store or otherwise handle any product, material or merchandise which is
explosive or highly inflammable. Tenant will not permit the Premises to
be used for any purpose or in any manner (including without limitation
any method of storage) which would render the insurance thereon void or
the insurance risk more hazardous or cause the State Board of Insurance
or other insurance authority to disallow any sprinkler credits. In the
event Tenant's use of Premises shall result in an increase in insurance
premiums, Tenant shall be solely responsible for said increase.
B. With respect to any release of toxic or hazardous substances or
wastes or other condition of the Premises occurring on or after the
date of the Lease and caused by or resulting from the negligent acts or
omissions or willful misconduct of Tenant, its employees, authorized
agents, or contractors, and which release or other condition violates
the provisions of, or necessitates any removal, treatment, or other
remedial action under, any past, present, or future federal, state, or
local statute or ordinance or any regulation, directive, or requirement
or any governmental authority with jurisdiction relating to protection
of the environment, Tenant agrees to defend, indemnify, and hold
harmless Landlord, its partners, employees, agents, and contractors,
from and against any and all losses, claims, liabilities, damages,
demands, fines, costs, and expenses (including reasonable attorney's
fees and legal expenses) arising out of or resulting therefrom. The
provisions of this paragraph shall survive the termination or
expiration of this Lease and the surrender of the Premises by Tenant,
with respect to releases, events, or condition occurring prior to such
termination, expiration, or surrender. With respect to any release of
toxic or hazardous substances or wastes or other condition of the
Premises occurring prior to the date of this Lease and caused by or
resulting from the negligent acts or omissions or willful misconduct of
Landlord, its employees, authorized agents, or contractors, and which
release or condition violates the provisions of, or necessitates any
removal, treatment, or other remedial action under, any past, present,
or future federal, state, or local statute or ordinance or any
regulation, requirement, or directive of any governmental authority
with jurisdiction relating to protection of the environment, Landlord
agrees to defend, indemnify, and hold harmless Tenant from and against
any and all losses, claims, liabilities, damages, demands, fines,
costs, and expenses (including reasonable attorneys' fees and legal
expenses) arising out of or resulting therefrom.
4. TAXES AND OTHER CHARGES.
A. Tenant agrees to pay its proportionate share of any and all real and
personal property taxes, regular and special assessments, license fees,
public service impact fees and other charges of any kind and nature
whatsoever, payable by Landlord as a result of any public or
quasi-public authority, private party, or owner's association levy,
assessment or imposition against, or arising out of Landlord's
ownership of or interest in, the real estate described in Exhibit "B"
attached hereto, together with the building and the grounds, parking
areas, driveways, roads, and alleys around the building in which the
Premises are located, or any part thereof (hereinafter collectively
referred to as the "Charges"). Landlord will deliver Tenant a statement
of taxes owed by March 15th, and September 15th, of each year of the
Lease term. Tenant shall make payment for said taxes on or before April
1st, and October 1st annually. Each Payment shall be due and payable,
as additional rent at the same time and in the same manner as the
payment of monthly rental as provided herein. The amount of the initial
and last Payment will be prorated accordingly. Tenant's proportionate
share of the Charges shall be computed by multiplying the Charges by a
fraction, the numerator of which shall be the number of gross leasable
square feet of floor space in the Premises and the denominator of which
shall be the total applicable gross leasable square footage; or such
other equitable apportionment as may be reasonably determined.
B. If Tenant should fail to pay any taxes required to be paid by Tenant
hereunder, in addition to any other remedies provided herein, Landlord
may, if it so elects, pay such taxes, assessments, license fees and
other charges. Any sums so paid by Landlord shall be deemed to be so
much additional rental owing by Tenant to Landlord and due and payable
upon demand as additional rental plus interest at the rate of eighteen
percent (18%) per annum from the date of payment by Landlord until
repaid by Tenant.
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C. (1) If at any time during the Lease Term, the present method
of taxation shall be changed so that in lieu of the whole or
any part of any taxes, assessments, fees or charges levied,
assessed or imposed on real estate and the improvements
thereon, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents
received therefrom and/or a franchise tax, assessment, levy or
charge measured by or based, in whole or in part, upon such
rents or the present or any future building or buildings, then
all such taxes, assessments, fees or charges, or the part
thereof so measured or based, shall be deemed to be included
within the term "Charges" for the purposes hereof.
(2) Tenant may, alone or along with other tenants of the
building containing the Premises, at its sole cost and
expense, in its or their own name(s) dispute and contest any
Charges by appropriate proceedings diligently conducted in
good faith, but only after Tenant and all other tenants, if
any, joining with Tenant in such contest have deposited with
Landlord the amount so contested and unpaid or their
proportionate shares thereof as the case may be, which shall
be held by Landlord without obligation for interest until the
termination of the proceedings, at which time the amount(s)
deposited shall be applied by Landlord toward the payment of
the items held valid (plus any court costs, interest,
penalties and other liabilities associated with the
proceeding(s), and Tenant's share of any excess shall be
returned to Tenant. Tenant further agrees to pay to Landlord
upon demand Tenant's share (as among all Tenants who
participated in the contest) of all court costs, interest,
penalties and other liabilities relating to such proceedings.
Tenant hereby indemnifies and agrees to hold harmless the
Landlord from and against any cost, damage or expense
(including attorney's fees) in connection with any such
proceedings.
(3) Any payment to be made pursuant to this Paragraph 4 with
respect to the calendar year in which this Lease commences or
terminates shall bear the same ratio to the payment which
would be required to be made for the full calendar year as
that part of such calendar year by the Lease Term bears to a
full calendar year.
D. Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by Tenant in the Premises. If any
such taxes are levied against Landlord or Landlord's property and if
Landlord elects to pay the same or if the assessed value of Landlord's
property is increased by inclusion of personal property and trade
fixtures placed by Tenant in the Premises and Landlord elects to pay
the taxes based on such increase, Tenant shall pay to Landlord upon
demand that part of such taxes for which Tenant is primarily liable
hereunder.
5. TENANT'S MAINTENANCE.
A. Tenant shall at its own cost and expense keep and maintain all parts
of the Premises (except those for which Landlord is expressly
responsible under the terms of this Lease) in good condition, promptly
making all necessary repair and replacements, including but not limited
to, windows, glass and plate glass, doors, any special office entry,
interior walls and finish work, floor and floor covering, roof (up to
$1,000 per year - see paragraph #6), downspouts, gutters, heating and
air-conditioning systems, dock boards, truck doors, dock bumpers,
paving, plumbing work and fixtures, termite and pest extermination,
regular removal of trash and debris, keeping the parking areas,
driveways, alleys and the whole of the Premises in a clean and sanitary
condition and maintain the landscaping. Tenant shall not be obligated
to repair any damage caused by fire, tornado, or other casualty covered
by the insurance to be maintained by Landlord pursuant to subparagraph
14(A) below, except that Tenant shall be obligated to repair all wind
damage to glass except with respect to tornado or hurricane damage.
B. Tenant shall not damage any demising wall or disturb the integrity
and support provided by any demising wall and shall, at its sole cost
and expense, promptly repair any damage or injury to any demising wall
caused by Tenant or its employees, agents, licensees or invites.
C. Tenant and its employees, customers and licensees shall have the
right to use the parking areas, if any, as may be designated by
Landlord in writing, subject to such reasonable rules and regulations
as Landlord may from time to time prescribe and subject to rights of
ingress and egress of other tenants. Landlord shall not be responsible
for enforcing Tenant's exclusive parking rights against any third
parties. If Tenant or any other particular tenant of the building can
be clearly identified as being responsible for obstructions or stoppage
of a common sanitary sewage line, then Tenant, if Tenant is
responsible, or such other responsible Tenant, shall pay the entire
cost thereof, upon demand, as additional rent.
D. Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance
contractor or servicing all heating and air-conditioning systems and
equipment within the Premises.
E. Tenant shall at its own cost and expense provide for all services
and repairs to the Premises including but not limited to lighting,
water, sewage, trash removal, exterior painting after the initial
painting to be paid for by Landlord, exterior window cleaning,
sweeping, policing, maintaining of plumbing and sewer drain lines,
plumbing, paving, landscape maintenance, and other like charges
necessary to maintain, operate, and keep the premises in reasonably
good condition and repair.
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6. LANDLORD'S REPAIRS. After reasonable notice from Tenant, Landlord shall
repair the exterior walls and foundations, and the cost thereof shall
be paid by Landlord. In addition, after reasonable notice from Tenant,
Landlord shall repair the roof, only if said repair is in excess of
$1,000.00 per year (not to be cumulative). If said repair is less than
$1,000.00, said repair shall be passed through to Tenant as stated in
paragraph #7. However, after Landlord installs a new roof on the
building, all costs for repair and maintenance of the roof thereafter
shall be borne by Tenant, with a cumulative annual cap of $1,000.00.
Tenant shall repair and pay for any damage to such items to be
maintained by Landlord caused by any act, omission or negligence of
Tenant, or Tenant's employees, agents, licensees or invitees, or caused
by Tenant's default hereunder. The term "walls" as used herein shall
not include windows, glass or plate glass, doors, special store fronts
or office entries. Tenant shall immediately give Landlord written
notice of defect or need for repairs, after which Landlord shall have a
reasonable opportunity and time to repair same or cure such defect.
Landlord's liability with respect to any defects, repairs or
maintenance for which Landlord is responsible under any of the
provisions of this Lease shall be limited to the cost of such repairs
or maintenance for the curing of such defect.
7. MONTHLY COMMON-AREA MAINTENANCE CHARGE. Tenant agrees to pay as an
additional charge each month its proportionate share of the cost of
operation and maintenance of the Common Area, unless said costs are
paid directly by Tenant, which shall be defined from time to time by
Landlord. Common Area costs which may be incurred by Landlord, at its
discretion, shall include, but not be limited to costs incurred for
lighting, water, sewage, trash removal, paving, exterior painting,
exterior window cleaning, sweeping, accounting, policing, services
negotiation, customary property management fee not to exceed 5% of said
costs, sewer lines, plumbing, paving, landscape maintenance, plant
material replacement and other like charges, and for administration of
the items set forth in this paragraph. Landlord shall maintain the
Common Areas in reasonably good condition and repair. The proportionate
share to be paid by Tenant of the cost of operation and maintenance of
the Common Area shall be computed on the ratio that the gross leasable
square feet of the Premises bears to the total applicable gross
leasable square footage or such other equitable apportionment as may be
reasonably determined. Landlord shall make monthly or other periodic
charges based upon the estimated annual cost of operation and
maintenance of the Common Area, payable in advance but subject to
adjustment after the end of the year on the basis of the actual cost
for such year. Any such periodic charges shall be due and payable upon
delivery of notice thereof. The initial Common-Area Maintenance
Charges, subject to adjustment as provided herein, shall be due and
payable, as additional rent, at the same time and in the same manner as
the time and manner of the payment of monthly rental as provided
herein. The amount of the initial monthly Common-Area Maintenance
Charge shall be as specified in the Basic Lease Information.
It is the intent of this Lease that the Tenant shall pay all
common-area maintenance charges, and operating expenses directly once
Allied Signal has vacated and its lease expires for the third floor,
except for building insurance, which will be billed to Tenant once a
year. This paragraph #7 is to apply if a second building is constructed
on this property. In the event a second building is constructed on this
property, the appropriate common-area maintenance charges, and
operating expenses shall be pro-rated accordingly.
8. RENTAL ADJUSTMENT
The base monthly rental rate stated in Paragraph 2 of the Lease shall
be adjusted annually in the following manner.
<TABLE>
<S> <C>
Year 1: $23,361.00 per month, NNN
Years 2 - 3: $33,082.00 per month, NNN
Years 4 - 5: $35,149.00 per month, NNN
Years 6 - 7: $38,457.00 per month, NNN
Years 8 - 10: $42,593.00 per month, NNN
</TABLE>
In the event Allied Signal vacates the third floor prior to the
beginning of year two of this Lease, Tenant shall pay an additional
$1,500.00 per month as base rent plus all operating expenses for said
space (approximately 10,204 sf), for the balance of year one if this
space remains unoccupied. In the event Tenant occupies this space prior
to the beginning of year two of this Lease (other than for storage
purposes), Tenant shall pay rent for this space of $2,500.00 per month,
NNN as base rent for said space, if the elevator and stairs are not
required by Tenant prior to the beginning of year two of this Lease. In
the event Tenant occupies this space prior to the beginning of year two
of this Lease (other than for storage purposes), Tenant shall pay
$7,653.00 per month, NNN ($.75 psf, NNN) as base rent for said space,
but only if Tenant requires Landlord to install an elevator and stairs
to the third floor prior to the beginning of year two of this Lease.
9. ALTERATIONS.
A. Tenant shall not make any alterations, additions or improvements to
the Premises (including but not limited to roof and wall penetrations)
without the prior written consent of Landlord, which consent shall not
be unreasonably withheld. Tenant may, without the consent of Landlord,
but at its own cost and expense and in a good workmanlike manner erect
such shelves, bins, machinery and trade fixture as it may deem
advisable, without altering the basic character of the building or
improvements and without overloading or damaging such building or
improvements, and in each case complying with all applicable
governmental laws, ordinances, regulations and other requirements. All
alterations, additions,
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improvements and partitions erected by Tenant shall be and remain the
property of Tenant during the Term of the Lease and Tenant shall,
unless Landlord otherwise elects as hereinafter provided, to remove all
alterations, additions, improvements and partitions erected by Tenant
and restore the Premises to their original condition by the date of
termination of this Lease or upon earlier vacating of the Premises,
provided, however, that if Landlord so elects prior to termination of
this Lease or upon earlier vacating of the Premises, such alterations,
additions, improvements and partitions shall become the property of
Landlord as of the date of termination of this Lease or upon earlier
vacating of the Premises and shall be delivered up to the Landlord with
the Premises. All shelves, bins, machinery and trade fixtures installed
by Tenant may be removed by Tenant prior to the termination of this
Lease if Tenant so elects, and shall be removed by the date of
termination of this Lease or upon earlier vacating of the Premises if
required by Landlord; upon any such removal Tenant shall restore the
Premises to their original condition, less reasonable wear and tear.
All such removals and restoration shall be accomplished in good
workmanlike manner so as not to damage the primary structure or
structural qualities of the buildings and other improvements situated
on the Premises.
B. Tenant shall remove any sumps and clarifiers and any related
Hazardous Materials ("Hazardous Material" shall mean petroleum and
petroleum products, asbestos, and PCBs and any "hazardous substances",
"hazardous materials", or "toxic substances" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Hazardous Materials Transportation Act, as amended, or the
Resource Conservation and Recovery Act, as amended, and "hazardous" or
"toxic" in the regulations adopted or publication promulgated pursuant
to any of said laws) in or about the Premises and associated with
Tenant's use and occupancy thereof upon the expiration or earlier
termination of this Lease.
C. Notwithstanding anything to the contrary contained herein, Landlord
agrees that the Tenant shall not be responsible for, and Landlord shall
hold Tenant harmless against, any costs of cleanup or removal arising
from or associated with any hazardous material existing in, on or
throughout the Premises, as of the date Tenant occupies the Premises
pursuant to the terms of this Lease.
10. SIGNS. Tenant shall not install signs upon the Premises without
Landlord's prior written approval, and any such signage shall be
subject to any applicable governmental laws, ordinances, regulations
and other requirements. Tenant shall remove all such signs by the
termination of this Lease. Such installations and removals shall be
made in such a manner as to avoid injury or defacement of the building
and other improvements, and Tenant shall repair any injury or
defacement, including without limitation discoloration caused by such
installation and/or removal.
11. INSPECTION.
A. Upon reasonable notice, Landlord and Landlord's agents and
representatives shall have the right to enter and inspect the Premises
at any reasonable time during business hours, for the purpose of
ascertaining the condition of the Premises or in order to make such
repairs as may be required or permitted to be made by Landlord under
the terms of this Lease. During the period that is six (6) months prior
to the end of the Term hereof, Landlord and Landlord's agents and
representatives shall have the right to enter the Premises at any
reasonable time during business hours for the purpose of showing the
Premises and shall have the right to erect on the Premises a suitable
sign indicating the Premises are available.
B. Tenant shall give written notice to Landlord at least thirty (30)
days prior to vacating the Premises and shall arrange to meet with
Landlord for a joint inspection of the Premises prior to vacating. In
the event of Tenant's failure to give such notice or arrange such joint
inspection, Landlord's inspection at or after Tenant's vacating the
Premises shall be conclusively deemed correct for the purposes of
determining Tenant's responsibility for repairs and restoration. It
shall be the responsibility of Tenant, prior to vacating the Premises,
to clean and repair the Premises and restore them to the condition in
which they were in upon delivery of the Premises to Tenant at the
Commencement Date, reasonable wear and tear excepted. Cleaning, repair
and restoration shall include, but not be limited to, removal of all
trash, cleaning and repainting of walls, where necessary, cleaning of
carpet and flooring, replacement of light bulbs and tubes, cleaning and
wiping down of all fixtures, maintenance and repair of all heating and
air-conditioning systems, and all similar work, which shall be done at
the latest practical date prior to vacation of the Premises.
12. UTILITIES. Landlord agrees to provide at its cost water, electricity
and gas service connections into the Premises; but Tenant shall pay for
all water, gas, heat, light, power, telephone, sewer, sprinkler charges
and other utilities and services used on or from the premises, together
with any taxes, penalties, surcharges or the like pertaining thereto
and any maintenance charges for utilities and shall furnish all
electric light bulbs and tubes. If any such services are not separately
metered to Tenant, Tenant shall pay a reasonable proportion as
determined by Landlord of all charges jointly metered with other
Premises. Landlord shall in no event be liable for any interruption or
failure of utility services on the Premises.
13. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not have the right, voluntarily or involuntarily, to
assign, convey, transfer, mortgage or sublet the whole or any part of
the Premises under this Lease without the prior written consent of
Landlord, which consent shall not be unreasonably withheld.
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B. Notwithstanding any permitted assignment or subletting, Tenant shall
at all times remain directly, primarily and fully responsible and
liable for the payment of the rent herein specified and for compliance
with all of its other obligations under the terms, provisions and
covenants of this Lease. Upon the occurrence of an "event of default"
as hereinafter defined, if the Premises or any part thereof are then
assigned or sublet, Landlord, in addition to any other remedies herein
provided, or provided by law, may at its option collect directly from
such assignee or subtenant all rents becoming due to Tenant under such
assignment, transfer or sublease and apply such rent against any sums
due to Landlord from Tenant hereunder, and no such collection shall be
construed to constitute a novation or a release of Tenant from the
further performance of Tenant's obligations hereunder.
14. INSURANCE, FIRE AND CASUALTY DAMAGE.
A. Landlord agrees to maintain insurance covering the building of which
the Premises are a part in the amount not less than eighty percent
(80%) (or such greater percentage as may be necessary to comply with
the provisions of any co-insurance clauses of the policy) of the
"replacement costs" thereof as such term is defined in the Replacement
Cost Endorsement to be attached thereto, insuring against the perils of
Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief,
extended by Special Extended Coverage Endorsement to insure against all
other Risks of Direct Physical Loss, such coverages and endorsements to
be as defined, provided and limited in the standard bureau forms
prescribed by the insurance regulatory authority for the State in which
the Premises are situated for use by insurance companies admitted in
such state for the writing of such insurance on risks located within
such state. Subject to the provisions of subparagraph 14, C, D, E
below, such insurance shall be for the sole benefit of Landlord and
under its sole control.
B. Tenant agrees to pay its proportionate share of Landlord's cost of
carrying fire and extended coverage insurance ("Insurance") on the
building. During each month of the term of this Lease, Tenant shall
make a monthly escrow deposit with Landlord equal to one-twelfth of its
proportionate share of the insurance on the buildings and grounds which
will be due and payable for that particular year. Tenant authorizes
Landlord to use the funds deposited by him with Landlord under this
paragraph to pay the cost of such Insurance. Each Insurance Escrow
Payment shall be due and payable, as additional rent, at the same time
and manner of the payment of the monthly rental as provided herein. The
initial share of the estimated insurance for the year in question, and
the monthly Insurance Escrow Payment is subject to increase or decrease
as determined by Landlord to reflect an accurate monthly escrow of
Tenant's estimated proportionate share of this Insurance. The Insurance
Escrow Payment account of Tenant shall be reconciled annually. If the
Tenant's total Insurance Escrow Payments are less than Tenant's actual
pro rata share of the Insurance, Tenant shall pay to Landlord upon
demand the difference; if the total Insurance Escrow Payments of Tenant
are more than Tenant's actual pro rata share of the Insurance, Landlord
shall promptly refund the balance of such excess to Tenant after first
crediting the excess to the next monthly payment by Tenant for its
proportionate share of Taxes and Insurance. Tenant's cost of Insurance
shall be computed by multiplying the cost of insurance by a fraction,
the numerator of which shall be the number of gross leasable square
feet of floor space in the Premises and the denominator of which shall
be the total applicable gross leasable square footage. The amount of
the initial monthly Insurance Escrow Payment will be as specified in he
Basic Lease information.
C. If the building, of which the Premises are a part, should be damaged
or destroyed by fire, tornado, earthquake or other casualty, Tenant
shall give immediate written notice thereof to Landlord.
D. If the building, of which the Premises are a part, should be totally
destroyed by fire, tornado or other casualty, or if it should be so
damaged thereby that rebuilding or repairs cannot in Landlord's
estimation be completed within two hundred (200) days after the date
upon which Landlord is notified by Tenant of such damage, this Lease
shall terminate and the rent shall be abated during the unexpired
portion of this Lease, effective upon the date of the occurrence of
such damage. Landlord shall give notice to Tenant in writing of its
determination to terminate this Lease within ninety (90) days following
the date of the occurrence of such damage.
E. If the building, of which the Premises are a part, should be damaged
by any peril covered by the insurance to be provided by Landlord under
subparagraph 14(a) above, but only to such extent that rebuilding or
repairs can in Landlord's estimation be completed within two hundred
(200) days after the date upon which Landlord is notified by Tenant of
such damage, this Lease shall not terminate, and Landlord shall at its
sole cost and expense thereupon proceed with reasonable diligence to
rebuild and repair such building to substantially restore the condition
in which it existed prior to such damage, except that Landlord shall
not be required to rebuild, repair or replace any part of the
partition, fixtures, additions and other improvements which may have
been placed in, or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the rent
payable hereunder during the period in which they are untenantable
shall be reduced to such extent as may be fair and reasonable under all
of the circumstances. In the event that Landlord shall fail to complete
such repairs and rebuilding within two hundred (200) days after the
date upon which Landlord is notified by Tenant of such damage, Tenant
may at its option terminate this Lease by delivering written notice of
termination at Tenant's exclusive remedy, whereupon, all rights and
obligations hereunder shall cease and terminate.
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F. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises required that the insurance proceeds be applied
to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within
fifteen (15) days after such requirement is made by any such holder,
whereupon all rights and obligations hereunder shall cease and
terminate.
G. Each of Landlord and Tenant hereby releases the other from any loss
or damage to property caused by fire or any other perils insured
through or under them by way of subrogation or otherwise for any loss
or damage to property caused by fire or any other perils insured in
policies of insurance covering such property, even if such loss or
damage shall have been caused by the fault or negligence of the other
party, or anyone for whom such party may be responsible; provided,
however, that this release shall be applicable and in force and effect
only with respect to loss or damage occurring during such times as the
releasor's policies shall contain a clause or endorsement to the effect
that any such release shall not adversely affect or impair said
policies or prejudice the right of the releasor to recover thereunder
and then only to the extent of the insurance proceeds payable under
such policies. Each of the Landlord and Tenant agrees that it will
request its insurance carriers to include in its policies such a clause
or endorsement. If extra cost shall be charged therefor, each party
shall advise the other thereof and of the amount of the extra cost, and
the other party, at its election, may pay the same, but shall not be
obligated to do so.
15. LIABILITY. Landlord shall not be liable to Tenant or Tenant's
employees, agents, servants, guests, invitees or visitors, or to any
other person whomsoever, for any injury to person or damage to property
on or about the Premises, resulting from and/or caused in part or whole
by the negligence or misconduct of Tenant, its employees, agents,
servants, guests, invitees or visitors, or of any other person entering
upon the Premises, or caused by the building and improvements located
on the Premises becoming out of repair, or caused by leakage of gas,
oil, water or steam or by electricity emanating from the Premises, or
due to any cause whatsoever related to the Lease tenancy, and Tenant
hereby covenants and agrees that it will at all times indemnify and
hold safe and harmless the property, the Landlord (including without
limitation the trustee and beneficiaries if Landlord is a trust),
Landlord's employees, agents, servants, guests, invitees and visitors
from any loss, liability, claims, suits, costs, expenses, including
without limitation attorney's fees and damages, both real and alleged,
arising out of any such damage or injury; except injury to persons or
damage to property the cause of which is the negligence of Landlord or
Landlord's employees or Agents or the failure of Landlord to repair any
part of the Premises which Landlord is obligated to repair and maintain
hereunder within a reasonable time after the receipt of written notice
from Tenant of needed repairs. Tenant's obligation to indemnify
Landlord under this Paragraph 15 includes an obligation to indemnify
for losses resulting from death or injury to Tenant's employees, and
Tenant accordingly hereby waives any and all immunities it now has or
hereafter may have under any Industrial Insurance Act, or other
worker's compensation, disability benefit or other similar act which
would otherwise be applicable in the case of such a claim. Tenant shall
procure and maintain throughout the term of this Lease a policy or
policies of Insurance , at its sole cost and expense, insuring both
Landlord and Tenant against all claims, demands or actions arising out
of or in connection with: (i) the Premises; (ii) the condition of the
Premises; (iii) Tenant's operations in and maintenance and use of the
Premises; and (iv) Tenant's liability assumed under this Lease, the
limits of such policy or policies to be in the amount of not less than
$3,000,000 per occurrence in respect of injury to persons (including
death) and in respect of property damage or destruction, including loss
of use thereof. All such policies shall be procured by Tenant from
responsible insurance companies satisfactory to Landlord. A Certificate
of Insurance shall be delivered to Landlord prior to the Commencement
Date of this Lease. Not less than fifteen (15) days prior to the
expiration date of any such Certificate of Insurance. A Certificate of
Insurance shall be delivered to Landlord. Not less than thirty (30)
days written notice shall be given to Landlord before such policy may
be cancelled or changed to reduce insurance provided thereby.
16. CONDEMNATION.
A. If the whole or any substantial part of the Premises should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in
lieu thereof and the taking would prevent or materially interfere with
the use of the Premises for the purpose for which they are being used,
this Lease shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective when the physical taking of
said Premises shall occur.
B. If part of the Premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof,
and this Lease is not terminated as provided in the subparagraph above,
this Lease shall not terminate but the rent payable hereunder during
the unexpired portion of this Lease shall be reduced to such extend as
may be fair and reasonable under all of the circumstances.
C. In the event of any such taking or private purchase in lieu thereof,
Landlord shall be entitled to receive the entire award. Tenant shall be
entitled to make a claim in any condemnation proceedings which does not
reduce the amount of Landlord's award, for the value of any furniture,
furnishings and fixtures installed by and at the sole expense of
Tenant.
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17. HOLDING OVER. Tenant will, at the termination of this Lease by lapse of
time or otherwise, yield up immediate possession to Landlord. If
Landlord agrees in writing that Tenant may hold over after the
expiration or termination of this Lease, unless the parties hereto
otherwise agree in writing on the terms of such holding over, the hold
over tenancy shall be subject to termination by Landlord at any time
upon not less than thirty (30) days advance written notice, or by
Tenant at any time upon not less than thirty (30) days advance written
notice, and all of the other terms and provisions of this Lease shall
be applicable during that period, except that Tenant shall pay Landlord
from time to time upon demand, as rental for the period of any hold
over, an amount equal to one and one-half (1-1/2) the Base Rent in
effect on the termination date, plus all additional rental as defined
herein, computed on a daily basis for each day of the hold over period.
No holding over by Tenant, whether with or without consent of Landlord,
shall operate to extend this Lease except as otherwise expressly
provided. The preceding provisions of this paragraph 17 shall not be
construed as Landlord's consent for Tenant to hold over.
18. QUITE ENJOYMENT. Landlord covenants that it now has, or will acquire
before Tenant takes possession of the Premises, good fee or leasehold
title to the Premises, free and clear of all liens and encumbrances,
excepting only the lien for current taxes not yet due, such mortgage or
mortgages as are permitted by the terms of this Lease, zoning
ordinances and other building and fire ordinances and governmental
regulations relating to the use of such property, and easements,
restrictions and other conditions of record. In the event this Lease is
a sublease, then Tenant agrees to take the Premises subject to the
provisions of the prior leases. Landlord represents and warrants that
it has full right and authority to enter into this Lease and that
Tenant , upon paying the rental herein set forth and performing its
other covenants and agreements herein set forth, shall peaceably and
quietly have, hold and enjoy the Premises for the term hereof without
hindrance or molestation from Landlord, subject to the terms and
provisions of this Lease.
19. EVENTS OF DEFAULT. The following events shall be deemed to be events of
default by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any payment with respect to taxes hereunder when due, or
any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of five (5) days from
the date such payment was due.
B. Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
C. Tenant shall file a petition under any section or chapter of the
National Bankruptcy Act, as amended, or under any similar law or
statute of the United States or any State thereof; or Tenant shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant
thereunder.
D. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant.
E. Tenant shall fail to comply with any term, provision or covenant of
this Lease (other than the foregoing in this Paragraph 19), and shall
not cure such failure within twenty (20) days after written notice
thereof to Tenant.
20. REMEDIES. Upon the occurrence of any such events of default described
in Paragraph 19 hereof, Landlord shall have the option to pursue any
one or more of the following remedies without any notice or demand
whatsoever.
A. Landlord may accelerate all rent payments due hereunder which shall
then become immediately due and payable.
B. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails so to do,
Landlord may, without prejudice to any other remedy which it may have
for possession or arrearage in rent, enter upon and take possession of
the Premises and expel or remove Tenant and any other person who may be
occupying such Premises or any part thereof, by all legal means without
being liable for prosecution or any claim of damages therefor, and
Tenant agrees to pay to Landlord on demand the amount of all loss and
damage which Landlord may suffer by reason of such termination, whether
through inability to relet the Premises on satisfactory terms or
otherwise.
C. Enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying such Premises or any
part thereof, by all legal means without being liable for prosecution
or any claim for damages therefor, and relet the Premises for such
terms ending before, on or after the expiration date of the Lease Term,
at such rentals and upon such other conditions (including concessions
and prior occupancy periods) as Landlord in its sole discretion may
determine, and receive the rent therefor; and Tenant agrees to pay to
the Landlord on demand any deficiency that may arise by reason of such
reletting. Landlord shall use its good faith efforts to relet the
Premises but shall not be liable for refusal or failure to relet or in
the event of reletting for refusal or failure to collect any rent due
upon such reletting. In the event Landlord is successful in reletting
the Premises at a rental in excess of that agreed to be paid by Tenant
pursuant to the terms of this Lease, Landlord and Tenant each mutually
agree that Tenant shall not be entitled, under any circumstances, to
such excess rental, and Tenant does hereby specifically waive any claim
to such excess rental.
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D. Enter upon the Premises, by all legal means without being liable for
prosecution or any claim for damages therefor, and do whatever Tenant
is obligated to do under the terms of this Lease; and Tenant agrees to
reimburse Landlord on demand for any expenses which Landlord may incur
in thus effecting compliance with Tenant's obligations under this
Lease, and Tenant further agrees that Landlord shall not be liable for
any damages resulting to the Tenant from such action, whether caused by
the negligence of Landlord or otherwise.
E. Whether or not Landlord retakes possession or relets the Premises,
Landlord shall have the right to recover unpaid rent and all damages
caused by Tenant's default, including attorney's fees. Damage shall
include, without limitation, all rents lost, all legal expenses and
other related costs incurred by Landlord following Tenant's default,
all costs incurred by Landlord in restoring the Premises to good order
and condition, or in remodeling, renovating or otherwise preparing the
Premises for reletting, all costs (including without limitation any
brokerage commissions and the value of Landlord's time) incurred by
Landlord, plus interest thereon from the date of expenditure until
fully repaid at the rate of eighteen percent (18%) per annum.
F. In the event Tenant fails to pay an installment of rent, additional
rent or other charges hereunder as and when such installment is due, to
help defray the additional cost to Landlord for processing such late
payments Tenant shall pay to Landlord on demand a late charge in an
amount equal to five percent (5%) of such installment; and the failure
to pay such amount within ten (10) days after demand therefor shall be
an event of default hereunder. The provision for such late charge shall
be in addition to all of Landlord's other rights and remedies hereunder
or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner. Any and all late rent shall
bear an eighteen percent (18%) interest rate.
G. Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies
provided by law, such remedies being cumulative and non-exclusive, nor
shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing
to Landlord by reason of the violation of any of the terms, provisions
and covenants herein contained. No act or thing done by the Landlord or
its agents during the Lease Term hereby granted shall be deemed a
termination of this Lease or an acceptance of the surrender of the
Premises, and no agreement to terminate this Lease or accept a
surrender of said Premises shall be valid unless in writing signed by
Landlord. No waiver by Landlord of any violation or breach of any of
the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other violation or breach of
any of the terms, provisions and covenants herein contained. Landlord's
acceptance of the payment of rental or other payments hereunder after
the occurrence of an event of default shall not be construed as a
waiver of such default, unless Landlord so notifies Tenant in writing.
Forbearance by Landlord to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default or of Landlord's right to enforce
any such remedies with respect to such default or any subsequent
default. If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this Lease, it shall
become necessary or appropriate for Landlord to employ or consult with
an attorney concerning or to enforce or defend any of Landlord's rights
or remedies hereunder, Tenant agrees to pay any reasonable attorney's
fees so incurred.
21. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgage (s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the Premises or the improvements
situated thereon provided, however, that if the mortgagee, trustee or
holder of any such mortgage or deed of trust elects to have Tenant's
interest in this Lease superior to any such instrument, then by notice
to Tenant from such mortgagee, trustee or holder, this Lease shall be
deemed superior to such lien, whether this Lease was executed before or
after said mortgages or deed of trust. Tenant shall at any time
hereafter on reasonable demand execute any reasonable instruments,
releases or other documents which may be required by any mortgagee for
the purpose of subjecting and subordinating this Lease to the lien of
any such mortgage.
22. LANDLORD'S DEFAULT. In the event Landlord should become in default in
any payment due on any such mortgage described in Paragraph 22 hereof
or in the payment of taxes or any other item which might become a lien
upon the Premises and which Tenant is not obligated to pay under the
terms and provisions of this Lease, Tenant is authorized and empowered
after giving Landlord five (5) days prior written notice of such
default and Landlord's failure to cure such default, to pay any such
items for and on behalf of Landlord, and the amount of any item so paid
by Tenant for or on behalf of Landlord, together with any interest or
penalty required to be paid in connection therewith, shall be payable
on demand by Landlord to Tenant; provided, however, that Tenant shall
not be authorized and empowered to make any payment under the terms of
this Paragraph 23 unless the item paid shall be superior to Tenant's
interest hereunder. In the event Tenant pays any mortgage debt in
full, in accordance with this paragraph, it shall, at its election, be
entitled to the mortgage security by assignment or subrogation.
23. MECHANICS LIENS. Tenant shall have no authority, express or Implied, to
create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the interest of Landlord in
the Premises or to charge the rentals payable hereunder for any claim
in favor of any person dealing with Tenant, including those who may
furnish materials or perform labor for any construction or repairs, and
each such claim shall affect and each such lien shall attach
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to, if at all, only the leasehold interest granted to Tenant by this
instrument. Tenant covenants and agrees that it will pay or cause to be
paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed
on the Premises on which any lien is or can be validly and legally
asserted against its leasehold interest in the Premises or the
improvements thereon and that it will save and hold Landlord harmless
from any and all loss, cost or expense based on or arising out of
asserted claims or liens against the leasehold estate or against the
right, title and interest of the Landlord in the Premises or under the
terms of this Lease.
24. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with
reference to the sending, mailing or delivery of any notice or the
making of any payment by Landlord to Tenant or with reference to the
sending, mailing or delivery of any notice or the making of any payment
by Tenant or Landlord shall be deemed to be complied with when and if
the following steps are taken:
A. All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address
hereinbelow set forth or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay rent and any other amounts to Landlord under
the terms of this Lease shall not be deemed satisfied until such rent
and other amounts have been actually received by Landlord.
B. All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address hereinbelow set forth, or at
such other address within the continental United States as Tenant may
specify from time to time by written notice delivered in accordance
herewith.
C. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or
not after three (3) days from deposit in the United States Mail,
postage prepaid, Certified or Registered Mail, addressed to the parties
hereto at the respective addresses set out below, or at such other
address as they have theretofore specified by written notice delivered
in accordance herewith:
LANDLORD: TENANT:
K-M Properties Advanced Digital Information Corp.
10201 Willows Road NE
Redmond, WA 98073
If and when included within the term "Landlord" as used in this
instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of
such a notice specifying some individual at some specific address for
the receipt of notices and payments to Landlord: if and when included
within the term "Tenant", as used in this instrument, there are more
than one person, firm or corporation, all shall jointly arrange among
themselves for their joint execution of such a notice specifying some
individual at some specific address within the continental United
States for the receipt of notices and payments to Tenant. All parties
included within the terms "Landlord" and "Tenant", respectively, shall
be bound by notices given in accordance with the provisions of this
paragraph to the same effect as if each had received such notice.
25. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in this
Lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly
provided. Landlord shall have the right to assign any of its rights and
obligations under this Lease. Each party agrees to furnish to the
other, promptly upon demand, a corporate resolution, proof of due
authorization by partners, or other appropriate documentation
evidencing the due authorization of such party to enter into this
Lease.
C. The captions inserted in this Lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this
Lease, or any provision hereof, or in any way affect the interpretation
of this Lease.
D. Tenant agrees from time to time within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an
estoppel certificate stating that this Lease is in full force and
effect, the date to which rent has been paid, the unexpired term of
this Lease and such other matters pertaining to this Lease as may be
requested by Landlord. It is understood and agreed that Tenant's
obligation to furnish such estoppel certificates in a timely fashion is
a material inducement for Landlord's execution of this Lease.
E. This Lease may not be alter, changed or amended except by an
instrument in writing signed by both parties hereto.
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F. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall
survive the expiration or earlier termination of the term hereof,
including without limitation all payment obligations with respect to
taxes and insurance and all obligations concerning the condition of the
Premises. Upon the expiration or earlier termination of the Term
hereof, and prior to Tenant vacating the Premises, Tenant shall pay to
Landlord any amount reasonably estimated by Landlord as necessary to
put the Premises, including without limitation all heating and
air-conditioning systems and equipment therein, in good condition and
repair pursuant to Paragraph 11 (B) hereof. Tenant shall also, prior to
vacating the Premises, pay to Landlord the amount, as estimated by
Landlord, of Tenant's obligation hereunder for real estate taxes and
insurance premiums for the year in which the Lease expires or
terminates. All such amounts shall be used and held by Landlord for
payment of such obligations of Tenant hereunder, with Tenant being
liable for any additional costs therefor upon demand by Landlord, or
with any excess to be returned to Tenant after all such obligations
have been determined and satisfied, as the case may be. Any security
deposit held by Landlord shall be credited against the amount payable
by Tenant under this Paragraph 26 (F).
G. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term of
this Lease, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby,
and it is also the intention of the parties to this Lease that in lieu
of each clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added as part of this Lease contract a clause
or provision as similar in terms to such illegal, invalid or
unenforceable clause of provision as may be possible and be legal,
valid and enforceable.
H. Because the Premises are on the open market and are presently being
shown, this Lease shall be treated as an offer with the Premises being
subject to prior lease and such offer subject to withdrawal or
non-acceptance by Landlord or to other use of the Premises without
notice, and this Lease shall not be valid or binding unless and until
accepted by Landlord in writing and a fully executed copy delivered to
both parties hereto.
I. All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time,
on which all parties hereto have executed this Lease.
J. During the term of this Lease and any subsequent option periods,
Landlord shall have the right to request and obtain Tenant's current
financial statements with reasonable advance notice. Tenant shall
comply with Landlord's request for financial statements in a reasonable
time frame not to exceed thirty (30) days from the date of request.
26. LIABILITY OF LANDLORD. Tenant agrees that no trustee, officer,
employee, agent or individual partner of Landlord, or its constituent
entitles, shall be personally liable for any obligation of Landlord
hereunder, and that Tenant must look solely to the interests of
Landlord, or its constituent entitles in the subject real estate, for
the enforcement of any claims against Landlord arising hereunder.
27. POSSESSION. Landlord will provide Tenant with partial possession of the
premises approximately July 17, 1995 to start any tenant improvement
work required. Beginning August 1, 1995, Landlord will deliver the
premises with new paint throughout the first and second floors. Tenant
shall pay a base rent of $5,250.00 plus operating expenses for floors
one and two for rent during this early occupancy period of August,
1995.
28. RIGHT OF FIRST OPPORTUNITY TO NEGOTIATE. If and when Landlord chooses
to sell the subject building during the lease term, and provided that
Tenant is not in default, Landlord agrees to give Tenant the first
opportunity to negotiate with Landlord for the purchase of the
building. Tenant shall have thirty (30) days from the date Landlord
advises Tenant of Landlord's decision to sell to negotiate a definitive
purchase and sale agreement with Landlord. During this thirty (30) day
period, neither party is under any compulsion, express or implied, to
enter into a purchase and sale agreement.
After expiration of the thirty (30) day period, Landlord shall have the
unrestricted right to sell the property to any other parties, or at its
sale option, to continue to negotiate with Tenant.
If the Landlord has not entered into a letter of intent, option, or
purchase and sale agreement by the end of six (6) months following
expiration of the initial thirty (30) day negotiation opportunity
period, then Tenant shall have a second right to negotiate with
Landlord for an additional thirty (30) day period, provided Landlord is
still offering the building for sale.
During the first and second opportunity periods Landlord shall have the
right to receive and entertain offers from other prospective buyers of
the building.
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30. ADDITIONAL PROVISIONS.
Exhibit "A" - Building Floor Plates
Exhibit "B" - Legal Description
Exhibit "C" - Floor Plan
Exhibit "D" - Rules & Regulations
LANDLORD: TENANT:
K-M PROPERTIES ADVANCED DIGITAL INFORMATION CORPORATION
By: /s/ CHARLES H. MORSE By: /s/ BARRY W. BRUGMAN
------------------------- -------------------------
Its: Partner Its: VP Operations
------------------------ ------------------------
Date: 5/11/95 Date: 5/9/95
----------------------- -----------------------
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CORPORATE ACKNOWLEDGEMENT:
State of Washington )
) ss.
County of King )
On this 9th day of May, 1995 before me personally appeared Barry
Brugman to me known to be the Vice President of the corporation that executed
the within and foregoing instrument, and acknowledged the same 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 they were authorized to
execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal the day and year first written above.
Signature: /s/ ROBERT C. PINCUS
-------------------------------------
Print Name: Robert C. Pincus
-------------------------------------
Notary Public in and for the
(Seal) State of Washington
----------------------------
Residing in Washington
-------------------------
My appointment expires March 22, 1999
--------------
CORPORATE ACKNOWLEDGEMENT:
State of_________________)
) ss.
County of________________)
On this _____ day of _________, 19__ before me personally appeared
__________________________ to me known to be the _______________________________
of the corporation that executed the within and foregoing instrument, and
acknowledged the same 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 they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal the day and year first written above.
Signature:
------------------------------------
Print Name:
------------------------------------
Notary Public in and for the
(Seal) State of
----------------------------
Residing in
-------------------------
My appointment expires
--------------
INDIVIDUAL ACKNOWLEDGEMENT:
State of_________________)
) ss.
County of________________)
On this _____ day of _________, 19__ before me personally appeared
__________________________ to me known to be the individual, or individuals,
described in and who executed the within and foregoing instrument, and
acknowledged that __________________________ signed the same as _______________
free and voluntary act and deed, for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official
seal the day and year first written above.
Signature:
------------------------------------
Print Name:
------------------------------------
Notary Public in and for the
(Seal) State of
----------------------------
Residing in
-------------------------
My appointment expires
--------------
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GUARANTY OF LEASE
THIS GUARANTY OF LEASE is attached to and is hereby made a part of that
certain Lease dated April 20, 1995, between K-M Properties (Landlord), and
Advanced Digital Information Corporation (Tenant).
FOR VALUE RECEIVED and in consideration of and as an inducement to
Landlord entering into this Lease, the undersigned guarantor ("Guarantor")
unconditionally and continuously guarantees to Landlord, its successors and
assigns, the full and timely performance and observance by Tenant of all the
terms and conditions of the Lease to be performed and observed by Tenant.
This Guaranty and the obligations of Guarantor hereunder shall not be
terminated or impaired by reason of the granting by Landlord of any indulgences
to Tenant or the assertion by Landlord against Tenant of any of Landlord's
rights or remedies under the Lease, or by the relief of Tenant from any of
Tenant's obligations under the Lease by operation of law or otherwise, whether
or not Guarantor has received notice of same. Guarantor waives all suretyship
defenses and waives notice of any breach by Tenant.
This Guaranty shall continue in full force and effect as to any
renewal, amendment, modification, extension, assignment or transfer of the Lease
or any subletting of the Lease premises, whether or not Guarantor shall have
received notice of or consented to the same. The liability of Guarantor under
this Guaranty is primary and absolute, and Landlord may at its option proceed
against Guarantor without proceeding against Tenant. Any action against
Guarantor may be brought in the county in which the Lease premises are located,
or in King County, Washington, at Landlord's option.
Landlord's delay or failure to insist upon the strict performance or
observance of any obligation of Tenant under the Lease or to exercise any right
or remedy available under the Lease or at law or in equity, shall not be
construed to be a waiver of Landlord's prerogative to insist upon such strict
performance or observance or to exercise any such right or remedy. Receipt by
Landlord of rent or other payment with knowledge of a breach of any term or
condition of the Lease shall not be construed to be a waiver of such breach.
The liability of Guarantor hereunder shall not be affected or limited
by: the release or discharge of Tenant in any creditors', receivership,
bankruptcy or other proceedings; the impairment, limitation or modification of
the liability of the Tenant or the estate of the Tenant in bankruptcy, or of any
remedy for the enforcement of Tenant's said liability under the Lease, resulting
from the operation of any present or future provision of the federal bankruptcy
laws or other statutes or from the decision in any court; the rejection of
disaffirmance of the Lease in any such proceedings; any disability or other
defense of Tenant; or the cessation, from any cause whatsoever, of the liability
of Tenant.
Until all the terms, conditions and agreements of the Lease are fully
performed and observed by Tenant, Guarantor hereby waives the right to enforce
any claim, right of remedy with Guarantor now has or hereafter shall have
against Tenant by reason of any one or more payments or acts of performance in
compliance with the obligations of Guarantor hereunder, and Guarantor hereby
subordinates any liability or indebtedness of Tenant now or hereafter held by
Guarantor to the obligations of Tenant to Landlord under the Lease.
This Guaranty shall inure to the benefit of the Landlord, its
affiliates, successors and assigns, and shall be binding upon the successors and
assigns of Guarantor.
This Guaranty is irrevocable and may not be changed, affected,
discharged or terminated other than by an agreement in writing signed by
Guarantor and Landlord.
Guarantor shall pay all costs and expenses paid or incurred by Landlord
in enforcing either the Lease or this Guaranty, including court costs and a
reasonable amount for legal services performed by counsel, whether employed or
retained by Landlord.
DATED this 9th day of May, 1995.
GUARANTOR: INTERPOINT CORPORATION
By: /s/ LESLIE S. ROCK
---------------------------------
(Signature)
Leslie S. Rock
---------------------------------
(Name - PLEASE PRINT)
Its: Vice President, Treasurer
--------------------------------
BUSINESS ADDRESS: 10301 Willows Road
-------------------------------
Redmond, WA 98052
-------------------------------
BUSINESS TELEPHONE: (206) 882-3100
-------------------------------
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EXHIBIT C-1
Lease Agreement between K-M Properties and Advanced Digital Information
Corporation.
TENANT AND BUILDING IMPROVEMENTS
Landlord will deliver a clean building in an "as is" condition, and will repair
damages, if any exist. Landlord shall provide the following tenant and building
improvements, at its sole cost and expense, by the date shown next to each item.
<TABLE>
<CAPTION>
Item: Date:
<S> <C>
A) Paint the interior of floors 1 &2. No later than August 1, 1995.
B) Paint the exterior of the building. No later than September 1, 1997.
C) Add approximately 40 parking spaces. No later than September 1, 1997.
D) Add an elevator and interior stairway to the 3rd floor. No later than September 1, 1996.
</TABLE>
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EXHIBIT 21
SUBSIDIARIES OF INTERPOINT CORPORATION
ADVANCED DIGITAL INFORMATION CORPORATION
ADIC EUROPE
INTERPOINT TAIWAN CORPORATION
INTERPOINT (UK) LIMITED
INTERPOINT SARL
INTERPOINT GMBH
INTERPOINT TRADE CORP.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-21987, 33-48200, 33-39237, 33-58441) of
Interpoint Corporation of our report dated December 5, 1995 appearing in this
Form 10-K.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Seattle, Washington
January 26, 1996
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Interpoint Corporation:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-21987, 33-48200, 33-58441 and 33-39237) on Form S-8 of Interpoint
Corporation of our report dated November 9, 1993, with respect to the statements
of income, stockholders' equity and cash flows of Advanced Digital Information
Corporation for the year ended September 30, 1993, which report appears in the
October 31, 1995 annual report on Form 10-K of Interpoint Corporation.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Seattle, Washington
January 26, 1996
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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