<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended October 27, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ............................... to...............
Commission file number 0-14365
------------------------
ALPHA TECHNOLOGIES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<C> <C>
DELAWARE 76-0079338
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9465 WILSHIRE BLVD., SUITE 717
BEVERLY HILLS, CA 90212
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 385-1494
------------------------
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.03 par value
(TITLE OF EACH 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. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$21,129,911 at January 17, 1997
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Common Stock, 6,746,329 shares outstanding at January 17, 1997
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement to be filed on or about February
24, 1997 is incorporated by reference into Part III of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Alpha Technologies Group, Inc. ("Alpha" or the "Company"), through its
wholly-owned subsidiaries, Wakefield Engineering, Inc. ("Wakefield") and
Uni-Star Industries, Inc. ("Uni-Star"), designs, manufactures and sells thermal
management products and connectors. The Company's thermal management products,
principally heat sinks, which dissipate heat generated by electronic components,
serve the microprocessor, computer, consumer electronics, transportation, power
supply, aerospace and defense industries. The Company's sub-miniature,
micro-miniature and ultra-miniature connector products and its
backplane/midplane-type assemblies, the majority of which are custom
manufactured to meet rigid specifications, serve the aerospace, automotive,
communications, defense, factory automation, industrial controls, medical
electronics, scientific/process instrumentation and test/measurement industries.
The Company was incorporated as Synercom Technology, Inc. in Texas in 1969
and was reincorporated in Delaware in 1983. In April 1995, it changed its name
to Alpha Technologies Group, Inc. In 1993, the Company began its transformation
from a software company to its current business as an electronics components
manufacturer. In September of 1994, the Company sold the remaining aspects of
its software and related services business. Since October 1993, the Company has
grown through a combination of acquisitions and internal growth.
Acquisitions
In August 1996, the Company acquired Lockhart Industries, Inc.
("Lockhart"), a manufacturer of sophisticated thermal management devices used
primarily in the aerospace and military markets. Management anticipates that
Lockhart will expand the Company's thermal management business by providing
access to new markets and expanding its technological capabilities. The
consideration for the transaction was the issuance of 280,556 shares of the
Company's common stock, which is subject to reduction if Lockhart's net working
capital at closing (as defined in the merger agreement) is below certain
thresholds, and subject to increase if the average market price of the Company's
common stock is below $9 per share for the twenty trading days prior to August
21, 1998. The Company believes, based on its audit of Lockhart's closing date
balance sheet, that the number of shares issued to Lockhart's Stockholders may
be reduced by approximately 82,577 shares. The Company also assumed
approximately $500,000 of Lockhart's bank debt.
During fiscal 1996, the Company completed the purchase of the 20% interest
of Uni-Star owned by Uni-Star's former president in exchange for 265,000 shares
of the Company's common stock. See Note 2 to the Financial Statements. The
following table sets forth the other significant acquisitions made by the
Company since October 1993:
<TABLE>
<CAPTION>
MONTH ACQUIRED BUSINESS
- -------------------------------------- ------------------------------------------------------
<S> <C>
October 1993.......................... Thermal management operations in Wakefield and Fall
River, Massachusetts ("Wakefield")
June 1994............................. Connector and related product operations in South
Pasadena, California, Colmar, Pennsylvania and
Cincinnati, Ohio ("Uni-Star")
August 1994........................... Thermal management operations in Temecula, California
("Wakefield-Temecula")
June 1995............................. Aluminum extrusion operations in Fullerton, California
("Specialty")
</TABLE>
Wakefield is a wholly-owned subsidiary of the Company; Wakefield-Temecula
is a division of Wakefield; and Specialty and Lockhart are wholly-owned
subsidiaries of Wakefield. Uni-Star is a wholly-owned
<PAGE> 3
subsidiary of the Company and consists of three divisions: Microdot Connectors
in South Pasadena, California; Malco in Colmar, Pennsylvania; and Connector
Industries of America in Cincinnati, Ohio.
PRODUCTS
Thermal Management
Thermal management products are used to dissipate heat generated by
electronic components within electronic systems. The Company designs,
manufactures and sells thermal management products for use in a variety of
industries, including the microprocessor, computer, consumer electronics,
industrial control, medical instrumentation, laser, power supply and conversion,
telecommunication equipment, transportation, welding equipment, aerospace and
defense industries. The principal customers for the Company's thermal management
products are leading original equipment manufacturers (OEM's) of electronic
equipment. See "Description of Business -- Customers".
The Company's principal thermal management products include:
Penguin(TM) Coolers.......... Heat sinks specifically designed to solve thermal
problems for the latest high-speed versions of
microprocessors offered by major manufacturers,
which include Intel's Pentium(R) and
Pentium(R)Pro, AMD's K5 and K6, IBM's and Cyrix's
6x86, and IBM's and Motorola's PowerPC(TM)
products. Other microprocessor-specific products
include fan heat sink assemblies (heat sinks with
electric fans attached to them) and aluminum
impregnated plastic heat sinks, sold under the
Deltem(TM) name.
Extruded Heat Sinks.......... Heat sinks and heat sink assemblies designed for
high power industrial applications, including
transportation equipment and stereo amplifiers
and bonded fin heat sinks used by makers of power
supplies, transportation equipment and other
industrial equipment.
Stamped and Low Power Heat
Sinks........................ Heat sinks designed for heat dissipation in power
semiconductors, transistors, rectifiers, diodes
and other electronic components used in
electronic applications. Typically, these are
smaller components used on printed circuit
boards.
Active Cooling Components.... These products use air or liquid to dissipate
heat. Air-to-air heat exchangers use fans to
exchange heat with cooler air and are used in
high-performance telecommunications, military and
aerospace systems. These products also include
sophisticated precision formed fin/ fluxless
vacuum brazed chassis, heat exchanger and cold
plates used to cool and protect computer, radar
and laser systems for the aerospace, military and
commercial markets. Liquid cooling systems are
used in applications which require the removal of
significantly greater amounts of heat than can be
achieved by air cooling.
Precision Compression
Mounting Clamp Systems....... These products are complete mounting clamp and
heat sink assembly systems for proper
installation, compression and cooling of
high-power compression pack silicon-controlled
rectifiers. These products are used in industrial
welding, transportation and motor control
systems.
Accessory Products........... The Company's accessories include
high-performance thermal compounds, adhesives,
interface materials, and other accessories.
2
<PAGE> 4
Connectors
Connectors are electro-mechanical devices which permit electronic
subassemblies such as printed circuit boards, power supplies and input-output
wire harnesses/cable assemblies to be attached and separated. The Company
designs, manufactures and sells high-reliability sub-miniature, micro-miniature
and ultra-miniature connectors used in aerospace, military and high-performance
commercial applications. The Company's connector products are typically produced
in small volumes and are highly customized to meet specific requirements.
Connectors are used by OEM's in a diverse group of industries, including
aerospace, automotive, communications, defense, factory automation, industrial
controls, medical electronics, scientific/process instrumentation and
test/measurement. See "Description of Business -- Customers".
The Company's principal connector products include:
Sub-Miniature,
Micro-Miniature and
Ultra-Miniature Rectangular
Connectors................... Low frequency signal connectors which are
configured in one to four rows with up to 400
contacts and designed for high reliability
aerospace, military and commercial applications.
Coaxial Connectors........... Low to high frequency signal connectors which are
configured to work with 50, 70 and 93 ohm
miniature coaxial, twin-axial and tri-axial
cable. Predominantly used in communication and
test/measurement instrumentation applications.
Circular and Hermetic
Connectors................... The Company produces several families of circular
low frequency signal connectors, including
hermetic connectors. All components of hermetic
connectors are made from materials that resist
corrosion and are made to withstand pressure of
up to 20,000 psi. Hermetic connectors require an
air tight compression seal between the contacts
and its circular body. Hermetic connectors are
designed to perform in harsh environments that
cause ordinary connectors to fail. Typical
applications include: speed sensors on aircraft
engines, test/measurement pressure switches,
temperature probes and fuel flow measurement
instruments.
Backpanels and
Backplanes/Midplanes......... Backpanels are manufactured from aluminum
substrates. Backplanes/midplanes are manufactured
from rigid, multi-layer printed circuit boards.
Backpanels must be wire-wrapped to support
intended end-use. Typical applications for
backpanels include flight vehicles and related
ground support equipment. Backplanes/midplanes
are used predominantly in communications and
data-communications switching, multiplexing and
transmission systems. The Company also provides
automatic wire wrapping services, which permit
engineers to test and de-bug
prototype/preproduction backpanels and
backplanes/midplanes during initial development
and later alpha/beta testing.
Automotive Switches.......... The Company's automotive switches are used for
brake lights, door jams, cruise control, neutral
safety start, junction blocks and other
automotive uses.
3
<PAGE> 5
CUSTOMERS
The Company has over three thousand customers. Customers for thermal
management products include leading OEM's of electronic equipment. Connector
customers include major aerospace, communications, defense, medical electronics
and test/measurement equipment OEM's.
No single customer accounted for greater than 10% of the Company's revenues
during its fiscal year 1995 or 1996.
The Company's products must meet its OEM customers' exacting
specifications. A substantial portion of the Company's OEM customers require the
Company to qualify as an approved supplier. In order to qualify, the Company
must satisfy stringent quality control standards and undergo extensive in-plant
inspections of its manufacturing processes, equipment and quality control
systems.
SALES, MARKETING, AND DISTRIBUTION
The Company designs, manufactures and sells both standard and customized
products. The Company seeks to become a strategic supplier to its customers and
to differentiate itself from its competitors by offering a higher level of
service and technical sales support to its customers. The Company has a team of
applications engineers and technicians who are dedicated to providing ongoing
technical support. These engineers and technicians provide solutions to
customers for their thermal management problems, answer customers' questions on
the use and application of the Company's products and provide field support to
customers. The Company strives to establish technical relationships with certain
key microprocessor and computer manufacturers to focus on new product design and
develop new product concepts in advance of rapidly changing computer market
requirements. The Company believes the technical services provided by its
engineers and technicians are an important factor in its sales and product
development efforts.
The Company has entered into a joint marketing relationship with Flomerics,
the developer of FLOtherm, a software program used by engineers to design new
thermal management products, to make joint presentations at trade shows, to
present jointly sponsored technical seminars and for Flomerics to feature
products developed by the Company in its demonstrations.
The Company sells its products through in-house sales personnel and a
network of independent manufacturers' representatives and distributors. In North
America, thermal management products are marketed through a five-person direct
sales force, 23 manufacturer representatives and 49 distributors; and connector
products are marketed through 17 manufacturers' representatives and one
distributor supported by the Company's seven-person sales force. In
international markets, the Company uses 16 manufacturers' representatives and 6
international distributors. International sales of connector products are also
supported by Company facilities located in England and France, which also
assemble and sell micro-miniature connectors to the European market.
In general, the Company's sales representatives and distributors have
entered into agreements that allow for termination by either party upon 30 to 90
days notice. Generally, distributors are permitted to return a small portion of
products purchased by them during the term of the agreements and to return all
products (other than obsolete products) purchased by them upon termination by
the Company. The Company's distributors are generally not precluded from
marketing competitive products.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's product development strategy primarily focuses on engineering
modifications of existing products in response to customer needs. Historically,
the Company has not focused on the development of entirely new products or
materials. However, during fiscal 1996, the Company, working with Intel,
developed a new product concept to cool laptop and notebook computers. Called
APACHE, this product is the first modular system design which uses standardized
components, thus replacing the customized approaches used to date. The APACHE
system can be used in current notebook PC's and those that the Company
anticipates will enter the market during the next two years. During fiscal 1994,
1995 and 1996, the Company spent $674,000, $1,109,000, and $1,448,000,
respectively, on product research and development primarily with
4
<PAGE> 6
respect to its thermal management products. The Company believes that its
technical capabilities, in conjunction with collaborative efforts with
customers, will allow it to continue to introduce variations to products
responsively.
The Company is currently developing standard and custom heat sink
assemblies for next generation microprocessors. In addition, the Company plans
to continue expanding its product offerings for many types of stamped and low
power heat sinks and to expand its collaboration programs with manufacturers of
alternative materials to achieve cost reduction and performance improvements for
thermal management components.
The Company intends to continue developing new connector products by
modifying and extending its current products and developing new product lines.
During 1996, the Company completed the design, development, prototyping and
preproduction of a new line of ultra-miniature products for use in missile
systems, test/measurement equipment, digital signal processing systems and
medical equipment.
COMPETITION
The thermal management market is highly competitive. There are many
companies which compete directly with the Company in the thermal management
business and offer products and services similar to those offered by the
Company. Although no one competitor is dominant, there are four principal
competitors in the thermal management market, including the Company. The
Company's three major competitors are Aavid Thermal Technologies, Inc., IERC, a
division of Dynamics Corporation of America, and Thermalloy, a division of
Bowthorpe, plc. Two of the Company's thermal management competitors are
divisions of larger corporations and, as such, may have greater financial,
marketing, and technical resources than the Company. Additional competition
comes from numerous small machine shops, aluminum extruders, and other new
thermal management companies which typically focuses on a single product and do
not offer complete lines of thermal management products.
The connector industry is highly fragmented with competition drawn along
very specific product lines. The Company's principal competition in its
connector operations comes from smaller, niche-oriented companies which, like
the Company, focus on low volume customized products. Occasionally, the Company
competes with smaller divisions of larger firms. The Company's direct
competitors include HCC in the hermetic connector market, CTS's Fabritek
division and Teradyne in the aluminum backpanel and backplane/midplane market,
and Labinal's Cinch division and Microtech in the sub-miniature, micro-miniature
and ultra-miniature connector market.
BACKLOG
The Company's backlog was approximately $21.1 million on each of October
27, 1996 and October 29, 1995. Backlog typically consists of purchase orders
scheduled for shipment within 60 days following the order date for thermal
management products and 75 days for connector products. The Company's backlog at
any time is not indicative of future revenue. The Company has also entered into
supply agreements with several customers for its connector products, including
Lockheed Martin, Raytheon and Boeing North America (previously known as Rockwell
Aerospace), which generally provide that, for a term of 18 months to two years,
such customer will purchase all its requirements, if any, for a particular
product from the Company for a fixed price.
PROPRIETARY RIGHTS
The Company applies for patents with respect to its most significant
patentable developments. It owns 14 patents related to its thermal management
products which expire from 1997 to 2015, and it has five patents pending. The
Company owns 12 patents related to its connector products. Management believes
that its competitive position is not dependent on patents and that patent
expirations will not materially adversely affect the Company's competitive
position.
5
<PAGE> 7
RAW MATERIALS
The principal raw material used in thermal management products is aluminum.
The principal raw materials used in connector products are aluminum, copper,
stainless steel and steel alloy. The Company also uses gold, plating chemicals,
plastics, bar metal and wire in its production of connectors. Raw materials
represent a significant portion of the cost of the Company's products. Prices
for raw materials are based upon market prices at the time of purchase.
Historically, the price of aluminum has experienced substantial volatility.
Although thermal management products are generally shipped within 60 days, and
connectors are generally shipped within 75 days of receipt of orders, increases
in raw materials prices cannot always be reflected in product sales price. All
raw materials are readily available from multiple suppliers at competitive
prices. In addition, Specialty supplies a portion of the Company's needs for
extruded aluminum, a raw material used to manufacture heat sinks.
ENVIRONMENTAL
Several aspects of the Company's operations utilize hazardous material, the
removal of which is subject to regulation. At each location, the Company
contracts with licensed third party waste haulers to remove such toxic waste.
While the Company believes that it conducts its operations in substantial
compliance with applicable environmental laws and regulations and has all
environmental permits necessary to conduct its business, more stringent
environmental regulations may be enacted in the future, and there can be no
assurance that the Company will not incur significant costs in the future in
complying with such regulations. Local environmental agencies monitor the
Company's operations for ongoing compliance with environmental requirements, and
the Company is required to correct any violations revealed by such monitoring.
Although the Company is periodically subject to notices of violations with
respect to environmental requirements, it is not aware of any violations or
events that would require the Company to incur material cost, nor has the cost
of complying with environmental laws represented a material cost to the Company.
The Company has received a notice addressed to the predecessor of its
connector business that the California Department of Toxic Substances Control
believes it to be a Potential Responsible Party of a cleanup site. The Company
believes that it has no potential liability with respect to such site because it
purchased the predecessor's assets pursuant to a bankruptcy court order
providing that such assets were being sold free of all liabilities, including
successor and environmental liabilities.
EMPLOYEES
On October 27, 1996, the Company had 816 employees (796 of whom were full
time). Its thermal management operations had 492 employees (481 of whom were
full time), all in domestic operations, and its connector operations had 296
employees in domestic operations (290 of whom were full time) and 17 residents
outside the United States (15 of whom were full time). In addition, the Company
had 11 corporate employees (10 of whom were full time). Employees are not
represented by a labor union. Management believes that employee relations are
excellent.
6
<PAGE> 8
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has leases for manufacturing facilities at the following
locations:
<TABLE>
<CAPTION>
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PRINCIPAL FACILITY USE DATE
- -------------------------------------- ----------- ---------------------------- --------------
<S> <C> <C> <C>
South Pasadena, California............ 52,696 connectors May 2004
Temecula, California.................. 44,200 thermal management products November 2004
Fullerton, California................. 15,000 thermal management products August 1998
Cincinnati, Ohio...................... 18,000 connectors November 1999
Wakefield, Massachusetts.............. 56,500 thermal management products November 2003
Fall River, Massachusetts............. 60,000 thermal management products April 2000
Colmar, Pennsylvania.................. 37,000 connectors March 2000
Paramount, California................. 36,700 thermal management products October 1999
Paramount, California................. 25,000 thermal management products October 1999
</TABLE>
Management feels that these facilities are in good condition suitable for
the purposes for which they are used. The Company has office space for its
corporate staff in Houston, Texas, Beverly Hills, California and New York, New
York.
In addition, the Company currently has approximately 67,000 square feet of
leased space in Houston, Texas, substantially all of which is subleased under
subleases which expire concurrently with the Company's overlease in 1998. See
Note 9 to Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings against the Company and, to
the Company's knowledge, no such proceedings are threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of fiscal 1996 to a
vote of the holders of the Company's common stock, through the solicitation of
proxies or otherwise.
7
<PAGE> 9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR COMMON STOCK
The Company's common stock is traded on The Nasdaq Stock Market, National
Market System (NMS) under the symbol ATGI. Through the facilities of the
NASDAQ/NMS reporting system, actual sales prices of the Company's common stock
are available.
The following table sets forth the high and low sales prices of the
Company's common stock as reported on the NASDAQ National Market System for each
full quarterly period within the Company's two most recent fiscal years:
<TABLE>
<CAPTION>
1995 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter........................... 6 4 7/8
Second Quarter.......................... 7 1/ 4 7/8
Third Quarter........................... 12 3/8 5 1/4
Fourth Quarter.......................... 13 3/8 8 3/8
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter........................... 11 3/8 6 7/8
Second Quarter.......................... 8 5/ 6 1/4
Third Quarter........................... 8 5/ 5
Fourth Quarter.......................... 5 3/ 4 1/4
</TABLE>
HOLDERS OF RECORD
On December 31, 1996, there were approximately 232 holders of record and
approximately 2,000 beneficial owners of the Company's common stock.
DIVIDENDS
The Company has paid no cash dividends on its common stock during fiscal
years 1995 and 1996. The Board of Directors of the Company currently does not
intend to declare cash dividends on its common stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The Company entered the electronic components business in October 1993 by
acquiring a thermal management business. In September 1994, the Company sold its
software business.
8
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------------------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 29, OCTOBER 27,
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
SALES..................................... -- $ 258 $ 30,145 $ 64,116 $ 70,237
COST OF SALES............................. -- 190 20,627 46,888 55,021
--------- --------- --------- --------- ---------
Gross profit.................... -- 68 9,518 17,228 15,216
OPERATING EXPENSES
Research and development................ -- 11 674 1,109 1,448
Selling, general and administrative..... -- 48 6,572 11,941 12,823
Other................................... -- -- -- -- 406
--------- --------- --------- --------- ---------
Total operating expenses........ -- 59 7,246 13,050 14,677
--------- --------- --------- --------- ---------
OPERATING INCOME.......................... -- 9 2,272 4,178 539
INVESTMENT INCOME......................... -- -- 108 258 --
INTEREST AND OTHER INCOME (EXPENSE),
net..................................... 432 337 76 (477) (778)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE TAXES................ 432 346 2,456 3,959 (239)
PROVISION (BENEFIT) FOR INCOME TAXES:
Current................................. 147 101 500 530 60
Deferred................................ -- 17 (1,360) (671) --
--------- --------- --------- --------- ---------
Total provision (benefit) for
income taxes.................. 147 118 (860) (141) 60
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST,
DISCONTINUED OPERATIONS AND
EXTRAORDINARY CREDIT.................... 285 228 3,316 4,100 (299)
LESS: MINORITY INTEREST................... -- -- (384) (352) --
GAIN ON SALE OF DISCONTINUED OPERATIONS,
net of income tax effect................ -- -- 1,380 -- --
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, net of income tax effect.... (4,251) (22) 978 -- --
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
CREDIT.................................. (3,966) 206 5,290 3,748 (299)
EXTRAORDINARY CREDIT: TAX BENEFIT OF NET
OPERATING LOSS CARRYFORWARD............. 138 111 -- -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS)......................... $ (3,828) $ 317 $ 5,290 $ 3,748 $ (299)
========= ========= ========= ========= =========
PER COMMON AND COMMON EQUIVALENT SHARE:
Income (loss) before minority interest,
discontinued operations and
extraordinary credit................. $ 0.05 $ 0.04 $ 0.52 $ 0.62 $ (0.05)
Minority interest....................... -- -- (0.06) (0.05) --
Gain on sale of discontinued
operations........................... -- -- 0.22 -- --
Discontinued operations................. (0.74) -- 0.15 -- --
Extraordinary credit.................... 0.02 0.01 -- -- --
--------- --------- --------- --------- ---------
Net income (loss)....................... $ (0.67) $ 0.05 $ 0.83 $ 0.57 $ (0.05)
========= ========= ========= ========= =========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON EQUIVALENT SHARE............. 5,732,335 6,017,543 6,343,604 6,605,147 6,277,585
========= ========= ========= ========= =========
OTHER FINANCIAL DATA
Working capital......................... $ 10,031 $ 8,932 $ 15,924 $ 15,696 $ 6,460
Total assets............................ 13,739 16,079 31,689 42,256 47,060
Total debt.............................. -- -- 3,902 9,943 13,909
Stockholders' equity.................... 10,528 10,951 16,544 18,763 22,117
</TABLE>
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION.
OVERVIEW
The Company entered the electronic components business in October 1993 by
acquiring a thermal management business, Wakefield Engineering, Inc. The
following table sets forth the significant acquisitions made by the Company
during the last three fiscal years:
<TABLE>
<CAPTION>
MONTH
ACQUIRED BUSINESS PREDECESSOR'S NAME
- ------------- ------------------------------------------------------- --------------------------
<S> <C> <C>
June 1994 Connector and related product operations in South Interconnect Systems
Pasadena, California, Colmar, Pennsylvania and Division of Microdot Inc.
Cincinnati, Ohio ("Uni-Star")
August 1994 Thermal management operations in Temecula, California Aham Tor, Inc.
("Wakefield-Temecula")
June 1995 Aluminum extrusion operations in Fullerton, California Specialty Extrusions Ltd
("Specialty")
August 1996 Thermal management operations in Paramount, California Lockhart Industries, Inc.
("Lockhart")
</TABLE>
Since their acquisitions, Wakefield-Temecula has been operated as a
division, and Specialty and Lockhart have been operated as subsidiaries of
Wakefield. Each of the plants in the connector business operates as a division
of Uni-Star.
The results of operations of the businesses acquired are included in the
Company's consolidated results of operations only since their respective
acquisition dates. In September 1994, the Company sold the remaining assets of
its software business. The consolidated financial statements of the Company for
the fiscal year ended October 31, 1994 report separately the gain on the sale
and results of operations of such discontinued operation. Such operation is not
included in the following discussion.
RESULTS OF OPERATIONS
Fiscal Year 1996 versus Fiscal Year 1995 Comparison
Sales. Total sales increased 9.5% in fiscal 1996 compared to fiscal 1995.
Thermal management sales increased to $48,980,000, or 11.6%, in fiscal 1996 from
$43,865,000 in fiscal 1995. The 11.6% increase in thermal management sales in
fiscal 1996 was primarily attributable to the inclusion of sales by Specialty
and Lockhart, along with higher sales of Penguin Cooler heat sinks, which serve
the microprocessor and personal computer markets. Specialty was acquired in June
1995 and Lockhart in August 1996. Sales of Penguin Cooler heat sinks increased
35.5% in fiscal 1996 compared to fiscal 1995 although the increase was not as
great as anticipated due to elevated inventory levels throughout the personal
computer industry. The increase in thermal management revenues was partially
offset by lower sales of active cooling components. Without the addition of
sales from Specialty and Lockhart, thermal management sales increased 3.8% in
fiscal 1996 compared to fiscal 1995.
Connector sales were $21,257,000 in fiscal 1996 compared to $20,251,000
during fiscal 1995. The increase in fiscal 1996 compared to 1995 was primarily
due to the addition of the Company's international subsidiaries in France and
England which were established in June and July 1995. Sales from Uni-Star's
foreign subsidiaries accounted for 11.0% of total connector sales in fiscal 1996
versus 1.0% in 1995. Excluding revenues generated in 1995 from a large contract
that was completed in the 1995 fourth quarter and from a highly profitable
product line that reached its end-of-life in 1995, the revenue increases in
fiscal 1996 compared to fiscal 1995 would have been greater.
Gross Profit. The Company's gross profit as a percent of total revenues
("gross profit percentage") for fiscal 1996 was 21.7% versus 26.9% in 1995.
Gross profit percentage decreased in 1996 compared to fiscal 1995
10
<PAGE> 12
as a result of the following factors: inclusion of Specialty's sales which have
lower gross margins than the Company's other products, a change in the product
mix sold, higher manufacturing costs incurred to add capacity in anticipation of
a substantial increase in demand for Penguin Cooler heat sinks, which did not
fully materialize, a $170,000 inventory write-down related to products
specifically built for two customers, certain manufacturing inefficiencies at
Uni-Star, which the Company has taken steps to correct, and the decrease in
sales of a particular high margin connector product.
Research and Development Expense. Research and development expense includes
the cost of enhancing existing products and, to a lesser extent, the cost of
developing new products. Research and development expenses were $1,448,000 in
fiscal 1996 compared to $1,109,000 in fiscal 1995. The increase was due
primarily to an increase in engineering staff as well as increased licensing
costs for engineering software.
Selling, General and Administrative Expense. Selling, general and
administrative expenses were $12,823,000, or 18.3% of sales during fiscal 1996,
compared to $11,941,000, or 18.6% of sales during fiscal 1995. The decrease in
selling, general and administrative expenses as a percentage of sales was
primarily attributable to increased sales without a proportionate increase in
selling, general and administrative expenses.
Other Operating Expense. Other operating expenses incurred during fiscal
1996 consisted of nonrecurring charges of $406,000, which included the
settlement of a cancelled purchase commitment, costs related to an acquisition
effort that was terminated and severance payments.
Operating Income. Operating income was $539,000, or 0.8% of sales during
fiscal 1996, compared to $4,178,000, or 6.5% of sales during fiscal 1995. The
decrease in operating income was primarily attributable to the aforementioned
decrease in gross profit and increase in research and development costs and
other operating expenses.
Investment Income. In fiscal year 1995, the Company held marketable
securities for both strategic and investment purposes. Securities held for
investment purposes were reflected at fair market value, and the gain or loss
was reflected in investment income. Securities held for strategic purposes were
reflected at fair market value with the unrealized gain or loss thereon
reflected in stockholders' equity. The gain or loss on such securities was
reflected as investment income only upon sale. Investment income for fiscal 1995
included $35,000 of investment security gains and $219,000 of gains on sales of
strategic investment securities. During fiscal 1996, the Company had no material
investment in marketable securities.
Interest and Other Income (Expense), net. Interest income, which was
$213,000 for fiscal 1996 and $263,000 for fiscal 1995 was earned on excess cash.
Interest expense was $1,073,000 and $775,000 for fiscal 1996 and 1995,
respectively. The increase in interest expense in fiscal 1996 compared to fiscal
1995 was due to an increase in the average outstanding loan balance during
fiscal 1996.
Minority Interest. The Company purchased 80% of the outstanding stock of
Uni-Star in June 1994. In September 1996, the Company purchased the remaining
20% interest in exchange for 265,000 shares of its common stock. Prior to the
September 1996 transaction, the minority interest related to the Uni-Star
business was included in income before provision for income taxes on the
consolidated statement of operations and as a separate item on the consolidated
balance sheet and statement of cash flows.
Fiscal Year 1995 versus Fiscal Year 1994 Comparison
Sales. Total sales increased 112.7% to $64,116,000 in fiscal 1995 compared
to sales of $30,145,000 in fiscal 1994. Thermal management sales increased to
$43,865,000 in fiscal 1995 from $20,758,000 in fiscal 1994. The 111.3% increase
in thermal management sales was primarily attributable to internal growth of
66.1% as a result of higher sales of extruded heat sink products, primarily
Penguin Cooler heat sinks, related to the rapid growth of the high-performance
microprocessor market. In addition, Wakefield-Temecula and Specialty sales were
included in fiscal 1995 from their dates of acquisition.
Connector sales were $20,251,000 during fiscal 1995 compared to $9,387,000
during fiscal 1994. Sales in fiscal year 1994 included only five months of
connector sales following the acquisition of Uni-Star on June 1,
11
<PAGE> 13
1994; however, connector sales during the 1994 period were above average because
products were shipped under backorders existing at the time of acquisition.
Gross Profit. The Company's gross profit as a percent of total revenues
("gross profit percentage") was 26.9% for fiscal 1995 versus 31.6% for fiscal
1994. The decrease in gross profit percentage was a result of: (i) the inclusion
in the 1995 period of sales by Wakefield-Temecula and Specialty, which have
lower gross profit percentages than the Company's 1994 average, (ii) an increase
in the cost of aluminum, a portion of which could not be reflected in the sales
price of the Company's products, (iii) a significant increase in sales of
Penguin Coolers, which have a lower gross profit percentage than the Company's
1994 average, (iv) a high gross profit contribution during the 1994 period from
backorders existing at the time of the acquisition of Uni-Star and (v) a change
in the mix of products sold.
Research and Development Expense. Research and development expense includes
the cost of enhancing existing products and, to a lesser extent, the cost of
developing new products. Research and development expenses were $1,109,000 in
fiscal 1995 compared to $674,000 in fiscal 1994. The increase was due primarily
to an increase in engineering staff as well as new licensing costs for
engineering software in fiscal 1995 and the purchase of related workstations in
fiscal 1995.
Selling, General and Administrative Expense. Selling, general and
administrative expenses during fiscal 1995 were $11,941,000, or 18.6% of sales,
compared to $6,572,000, or 21.8% of sales, during the prior fiscal year. The
decrease in selling, general and administrative expenses as a percentage of
sales was primarily attributable to increased sales without a proportionate
increase in selling, general and administrative expenses.
Investment Income. In fiscal years 1994 and 1995, the Company held
marketable securities for both strategic and investment purposes. Securities
held for investment purposes were reflected at fair market value, and the gain
or loss was reflected in investment income. Securities held for strategic
purposes were reflected at fair market value with the unrealized gain or loss
thereon reflected in stockholders' equity. The gain or loss on such securities
was reflected as investment income only upon sale. Investment income for fiscal
1995 included $35,000 of investment security gains and $219,000 of gains on
sales of strategic investment securities. Fiscal 1994 investment income was
derived from securities held for investment purposes. In September 1995, the
Company adopted a policy precluding any equity investments other than for
strategic purposes.
Interest and Other Income (Expense), net. Interest income, which was
$263,000 in fiscal 1995 and $168,000 in fiscal 1994, was earned on excess cash.
Interest expense was $775,000 for fiscal 1995 and $131,000 for fiscal 1994.
Discontinued Operation. The Company sold its software product business in
September 1994 for $4 million. An expense of approximately $800,000 was accrued,
principally representing lease payments and estimated costs that the Company
expected to incur on the space used by the disposed business, less estimated
payments that it expected to receive for subleasing the space. The Company
recognized a gain on the sale of $1,380,000, net of the $800,000 accrual, income
taxes and a reserve to cover contingencies.
12
<PAGE> 14
Fiscal Year 1996 versus Fiscal Year 1995 versus Fiscal Year 1994 Comparison
Income Taxes. In fiscal 1994 and 1995, the Company's provision for income
taxes was impacted substantially by tax benefits from net operating loss
carryforwards ("NOL Carryforwards"). The Company's tax provision for the last
three fiscal years is summarized as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Income (loss) before tax................................ $ 2,456 $ 3,959 $ (239)
======= ======= ======
Tax at Federal statutory rate (34%)..................... $ 835 $ 1,346 $ (69)
State taxes, net of federal benefit..................... 305 311 0
Valuation Allowance provided (reversed)................. (2,846) (1,972) 493
Foreign income taxes.................................... -- -- 60
Effects of discontinued operations and temporary
differences........................................... 846 174 (424)
------- ------- ------
Income tax provision (benefit).......................... $ (860) $ (141) $ 60
======= ======= ======
</TABLE>
On November 1, 1993, the Company implemented Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109").
On that date, the Company had NOL Carryforwards of $23,214,000, which resulted
in a potential future tax benefit of $7,893,000 (34% of the NOL Carryforwards).
In addition to tax benefits related to NOL Carryforwards, the Company had net
tax benefits of $814,000 related to tax credits and $714,000 related to certain
temporary differences. The Company established a net deferred tax asset for the
total of the aforementioned tax benefits of $9,421,000. Due to the lack of
taxable income in several prior years and uncertainty regarding the utilization
of NOL Carryforwards, a valuation allowance equal to the net deferred tax asset
was established (the "Valuation Allowance").
During fiscal 1994, the Company reversed $2,846,000 of the Valuation
Allowance. The reversal represented (a) tax benefits of (i) $1,807,000 (34% of
the $5,314,000 of NOL Carryforwards utilized that year) and (ii) $1,360,000
resulting from Management's estimate of probable future taxable income, offset
by (b) $321,000 related to the tax effects of temporary differences. For fiscal
1995, the Company reversed $1,972,000 of the Valuation Allowance. This reversal
represented (a) tax benefits of (i) $1,232,000 (34% of the $4,647,000 of NOL
Carryforwards utilized, less the portion of the Valuation Allowance previously
allocated to these NOL Carryforwards) and (ii) $924,000 resulting from
Management's estimate of future taxable income, offset by (b) $184,000 related
to the tax effects of temporary differences. These reversals of the Valuation
Allowance are reflected as income tax benefits in the respective periods.
During fiscal 1996 the decrease in the net deferred tax asset was the
result of $369,000 related to temporary differences derived from the acquisition
of Lockhart. The increase in the valuation allowance was due to fully reserving
for the 1996 change in the tax effects of existing temporary differences. The
remaining Valuation Allowance of $5,096,000 (primarily relating to net operating
loss carryforwards of $15,384,000) will be reversed as warranted by future
profitable operations and Management's future estimates of the realization of
the deferred tax asset based on expected taxable income.
On October 27, 1996, the Company had, for tax purposes, remaining NOL
Carryforwards of approximately $15,384,000 available to offset future taxable
income, approximately $650,000 of unused investment and research and development
tax credits available to offset future Federal income taxes, and approximately
$230,000 of alternative minimum tax credits. The NOL Carryforwards will expire
from 2000 to 2011, the investment tax credit and research and development tax
credit carryforwards will expire from 1997 to 2005, and the alternative minimum
tax credit has no expiration. All carryforwards are subject to review and
possible adjustment by the Internal Revenue Service. In addition, Section 382 of
the Internal Revenue Code significantly limits the amount of NOL Carryforwards
usable by a corporation following a more than 50% change in ownership of the
corporation during a three-year period. It is possible that subsequent
transactions involving the Company's capital stock could result in such a
limitation.
13
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
On October 27, 1996, the Company had cash of approximately $3,935,000
compared to $6,058,000 on October 29, 1995. Existing cash plus advances under
the Wakefield and Uni-Star loan agreements and funds received from the issuance
of common stock upon the exercise of stock options were used for operating
activities and for purchases of capital equipment.
During fiscal 1996, $2,066,000 were used to fund operations, primarily to
increase inventories and to decrease various accrued liabilities. In addition to
operating activities, $3,860,000 were used to purchase capital equipment
including machinery to increase manufacturing capacity in the thermal management
business and to improve efficiency in the connector business as well as tooling
to expand the low power heat sink product line.
Wakefield (including Specialty and Lockhart) is party to a loan agreement
(the "Agreement") with a commercial bank which provides for revolving loans of
up to $12,500,000, and a $2,250,000 term loan and makes available a $2,500,000
equipment acquisition line, of which $1,900,000 has been borrowed against. The
Agreement expires on April 30, 1997. Wakefield's obligations under the Agreement
are secured by a lien on all of the assets of Wakefield, Specialty and Lockhart.
In October 1996, Wakefield entered into two interest rate swap transactions
with Fleet National Bank. The agreements effectively fixed the interest rate on
floating rate debt at a rate of 8.75% for a notional principal amount of
$2,250,000 through November 1, 2001, and at a rate of 8.85% for a notional
principal amount of $1,900,000 through October 29, 2003.
On August 30, 1995, Uni-Star entered into an accounts receivable loan
agreement which included a revolving credit commitment of up to $2.5 million.
Uni-Star also entered into an equipment term loan in the amount of $750,000
(from which $104,000 of preexisting debt was refinanced) and an equipment
acquisition facility of $300,000. The initial proceeds of $963,000 from the
revolving credit commitment and $646,000 net proceeds from the equipment term
loans were used to repay advances of $1,609,000 from the Company to Uni-Star.
The proceeds from the equipment acquisition facility was used only for the
purchase of capital equipment. Interest on the funds advanced under the
revolving credit commitment ($1.2 million on October 27, 1996) accrues at the
bank's prime corporate rate plus .50% (8 3/4% per annum on October 27, 1996) and
interest on the equipment term loan accrues at the bank's prime rate plus .75%
(9% per annum on October 27, 1996). The principal amount of the equipment term
loan is repayable in 48 equal monthly installments, beginning October 1, 1995.
On September 17, 1996, Uni-Star amended the loan agreement to extend its
termination date to August 31, 1997. The loan agreement includes various
covenants which the Company was in compliance with on October 27, 1996. All
Uni-Star credit facilities are secured by a first lien and assignment of
substantially all Uni-Star's assets, including its accounts receivable,
inventory, equipment and general intangibles.
Working capital on October 27, 1996 was $6,460,000 compared to $15,696,000
on October 29, 1995. The decrease is primarily due to the reclassification of
the revolving credit facilities to short-term. Management intends to renew or
refinance the revolving credit facility and the revolving credit commitment at
or prior to maturity. The Company believes that its currently available cash,
anticipated cash flow from operations and availability under credit facilities
is sufficient to fund its operations in the near-term.
"Safe Harbor" statement under the Private Securities Litigation Reform Act
of 1995:
This document contains forward looking statements that are subject to risks
and uncertainties, including, but not limited to, the impact of competitive
products and pricing, product demand and market acceptance, new product
development, reliance on key strategic alliances, availability of raw material,
the telecommunications regulatory environment, fluctuations in operating results
and other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
Product names mentioned herein are for identification purposes only and may
be trademarks or registered trademarks of their respective companies.
14
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary data required pursuant to this Item
are presented on pages F-1 through F-17 and pages S-1 through S-5 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the twenty-four month period preceding October 27, 1996, the Company
has neither changed accountants nor had disagreements with its accountants on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope and procedures.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT.
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be contained in the Company's
definitive Proxy Statement, which will be filed on or about February 24, 1997,
and is incorporated herein by reference.
15
<PAGE> 17
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
NO.
- --------------------
<C> <S>
3.1 -- Certificate of Incorporation of the Company, as amended.(1)(2)(3)
3.2 -- By-laws of the Company.(4)
10.1 -- Registrant's 1981 Incentive Stock Option Plan, together with
amendments thereto.(2)
10.2 -- Registrant's 1984 Incentive Stock Option Plan, together with
amendments thereto.(2)
10.3 -- Registrant's 1985 Stock Option Plan, together with amendments
thereto. (2)(5)(6)(7)(8)
10.4 -- Registrant's 401-K Savings/Stock Purchase Plan.(9)
10.5 -- Lease Agreement, dated October 7, 1987, between PIC Realty
Corporation and Issuer.(10)
10.6 -- Lease dated as of October 29, 1993 by and between The Equitable Life
Assurance Society of the United States and Wakefield Engineering,
Inc.(11)
10.7 -- Standard Industrial/Commercial Single-Tenant Lease dated as of June
1, 1994 by and between Pasadena Industrial Associates and Uni-Star
Industries, Inc.(11)
10.8 -- Lease dated as of November 29, 1994 by and between The Goldsmith
Properties Company and Uni-Star Industries, Inc.(11)
10.9 -- Lease Agreement dated as of January 1995 by and between Robert L.
Byers and Joyce F. Byers and Uni-Star Industries, Inc.(11)
10.10 -- Registrant's 1994 Stock Option Plan as amended and restated.(3)
10.11 -- Loan and Security Agreement dated as of June 22, 1994 entered into by
and between Shawmut Bank, N.A. and Wakefield Engineering, Inc.,
together with amendment thereto. (The exhibits and schedules to the
Loan and Security Agreement/Amendment are listed on the last page of
such documents. Such exhibits and schedules have not been filed by
the Issuer, who hereby undertakes to file such exhibits upon request
of the Commission.)(11)(12)(13)(14)
10.11(a) -- Fourth Amendment to Loan and Security Agreement dated as of October
11, 1996 entered into by and between Fleet National Bank of
Massachusetts and Wakefield Engineering, Inc. (The exhibits and
schedules to the Amendment are listed on the last page of such
Amendment. Such exhibits and schedules have not been filed by the
Registrant, who hereby undertakes to file such exhibits upon request
of the Commission.) (Filed Herewith)
10.12 -- Accounts Receivable Loan Agreement between Uni-Star Industries, Inc.
and City National Bank dated as of August 30, 1995 together with
amendment thereto.(3)(15)
10.12(a) -- Second Amendment to Accounts Receivable Loan Agreement dated as of
March 20, 1996 by and between Uni-Star Industries, Inc. and City
National Bank. (Filed Herewith)
10.12(b) -- Third Amendment to Accounts Receivable Loan Agreement dated as of
September 17, 1996 by and between Uni-Star Industries, Inc. and City
National Bank. (Filed Herewith)
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NO.
- --------------------
<C> <S>
10.13 -- Asset Purchase Agreement dated as of June 30, 1995 among Specialty
Extrusions Ltd., Walter Hastie and William Esparza, and Specialty
Acquisition Corp. (now known as Specialty Extrusion Corp.) and
Wakefield Engineering, Inc.(16)
10.14 -- Lease dated September 1, 1993 between B&K Investment Corp. and
Specialty Extrusions, Ltd., together with assignment thereof dated
June 30, 1995 from Specialty Extrusions, Ltd. to Specialty
Acquisition Corp. (now known as Specialty Extrusion Corp.)(3)
10.15 -- Employment Agreement with Lawrence Butler dated September 29,
1995.(3)
10.16 -- Indenture of Lease Agreement dated as of December 20, 1994 by and
between Richard J. Tobin, as Trustee of JLN Realty Trust, under
Declaration of Trust dated June 15, 1981 and filed with Bristol
County Fall River District Registry of Deeds Land Court Records as
Document 12977, and Wakefield Engineering, Inc.(3)
10.17 -- Industrial Space Lease dated as of September 29, 1995 by and between
Rancon Income Fund I and Wakefield Engineering, Inc.(3)
10.18 -- Employment Agreement with Ernest C. Hartland, Jr. dated April 13,
1996. (The exhibit to the Employment Agreement is listed on the last
page of such Agreement. Such exhibit has not been filed by the
registrant, who hereby undertakes to file such exhibit upon request
of the Commission.)(17)
10.19 -- Agreement and Plan of Merger dated as of August 14, 1996 by and among
Alpha Technologies Group, Inc., Lockie Acquisition Corp., Lockhart
Industries, Inc., Eldon H. Lockhart and Marjorie D. Lockhart. (The
exhibits and schedules to the Agreement and Plan of Merger are listed
on page v of the Table of Contents of such Agreement. Such exhibits
and schedules have not been filed by the Issuer, who hereby
undertakes to file such exhibits upon request of the Commission).
10.20 -- Agreement dated August 15, 1996 between the Company and Neal
Castleman.(17)
10.21 -- Lease dated October 31, 1979 by and between Landcee Investment Co.
and Lockhart Industries, Inc., together with addendum and amendments
thereto. (Filed Herewith)
10.22 -- Lease dated August 29, 1984 by and between Garfield-Pacific
Development Co. and Lockhart Industries, Inc., together with
addendums and amendments thereto. (Filed Herewith)
10.23 -- Employment Agreement with Michael A. Hoffmann dated November 4, 1996.
(Filed Herewith)
10.24 -- International Swap Dealers Association, Inc. Master Agreement dated
as of October 23, 1996 between Fleet National Bank and Wakefield
Engineering, Inc.; Lockhart Industries, Inc; Specialty Extrusion
Corp. (Filed Herewith)
11 -- Computation of net income per share. (Filed Herewith)
21 -- Subsidiaries of Registrant.(11)
23.1(a) -- Consent of Arthur Andersen LLP. (Filed Herewith)
23.1(b) -- Consent of Arthur Andersen LLP. (Filed Herewith)
27 -- Financial Data Schedule. (Filed Herewith)
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Reg. No. 33-2979), which became effective March 7, 1986.
(2) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed September 28, 1987 (Reg. No. 33-17359).
17
<PAGE> 19
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 29, 1995.
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1991.
(5) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed March 17, 1988 (Reg. No. 33-20706).
(6) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 30, 1989 (Reg. No. 33-29636).
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1990.
(8) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 23, 1992 (Reg. No. 33-48663).
(9) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed January 29, 1987 (Reg. No. 33-11627).
(10) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1987.
(11) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 31, 1994.
(12) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 30, 1995 filed on June 14, 1995.
(13) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended January 28, 1996.
(14) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 28, 1996.
(15) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended July 30, 1995 filed on September 13, 1995.
(16) Incorporated herein by reference to the Company's Form 8-K dated June 30,
1995, filed on or about July 14, 1995.
(17) Incorporated herein by reference to the Company's Form S-3, filed on August
16, 1996 (Reg. No. 333-10311).
REPORTS ON FORM 8-K
No report on Form 8-K was filed during the fourth quarter of the year ended
October 27, 1996.
18
<PAGE> 20
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.
ALPHA TECHNOLOGIES GROUP, INC.
Date: January 27, 1997 By: /s/ LAWRENCE BUTLER
------------------------------------
Lawrence Butler
President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ MARSHALL D. BUTLER Chairman of the Board
- ---------------------------------------------
(Marshall D. Butler)
/s/ LAWRENCE BUTLER Chief Executive Officer and
- --------------------------------------------- Director (Principal
(Lawrence Butler) Executive Officer)
/s/ JOHNNY J. BLANCHARD Chief Financial Officer
- --------------------------------------------- (Principal Financial and
(Johnny J. Blanchard) Accounting Officer)
/s/ DONALD K. GRIERSON Director January 27, 1997
- ---------------------------------------------
(Donald K. Grierson)
Director
- ---------------------------------------------
(Frederic A. Heim)
/s/ MICHAEL J. KONIGSBERG Director
- ---------------------------------------------
(Michael J. Konigsberg)
Director
- ---------------------------------------------
(Warren G. Lichtenstein)
/s/ KENNETH W. RIND Director
- ---------------------------------------------
(Kenneth W. Rind)
</TABLE>
<PAGE> 21
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<C> <S> <C>
Financial Statements:
Report of Independent Public Accountants......................................... F-2
Consolidated Balance Sheets -- October 29, 1995 and October 27, 1996............. F-3
Consolidated Statements of Operations -- For the Years Ended October 31, 1994,
October 29, 1995 and October 27, 1996........................................... F-4
Consolidated Statements of Stockholders' Equity -- For the Years Ended October
31, 1994, October 29, 1995 and October 27, 1996................................. F-5
Consolidated Statements of Cash Flows -- For the Years Ended October 31, 1994,
October 29, 1995 and October 27, 1996........................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
Financial Schedules:
Condensed Financial Information.................................................. S-1
Valuation and Qualifying Accounts................................................ S-5
</TABLE>
F-1
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Alpha Technologies Group, Inc.:
We have audited the accompanying consolidated balance sheets of Alpha
Technologies Group, Inc., (a Delaware corporation) and subsidiaries as of
October 29, 1995 and October 27, 1996, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended October 27, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alpha Technologies Group,
Inc. and subsidiaries as of October 29, 1995 and October 27, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended October 27, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
December 10, 1996
F-2
<PAGE> 23
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 27,
ASSETS 1995 1996
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................... $ 6,058 $ 3,935
Accounts receivable, net of reserves of $277 and $294
(Note 8).............................................. 11,982 12,564
Inventories, net (Notes 5 and 8)....................... 8,191 11,170
Prepaid expenses (Note 8).............................. 1,119 1,130
-------- --------
Total current assets.............................. 27,350 28,799
PROPERTY AND EQUIPMENT (Note 8):
Manufacturing equipment, leasehold improvements,
furniture, fixtures and other......................... 10,930 16,465
Less -- Accumulated depreciation and amortization...... 1,313 3,196
-------- --------
Property and equipment, net............................ 9,617 13,269
GOODWILL, net (Notes 2 and 8)............................... 2,813 2,964
OTHER ASSETS, net (Notes 8 and 14).......................... 2,476 2,028
-------- --------
$ 42,256 $ 47,060
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable, trade................................ 5,166 5,594
Accrued compensation and related benefits (Note 6)..... 2,329 1,643
Other accrued liabilities (Note 7)..................... 2,426 2,537
Revolving credit facilities (Note 8)................... -- 11,023
Current portion of long-term debt (Note 8)............. 850 679
Current portion of other long-term liabilities (Note
9).................................................... 883 863
-------- --------
Total current liabilities......................... 11,654 22,339
LONG-TERM DEBT (Note 8)..................................... 9,093 2,207
OTHER LONG-TERM LIABILITIES (Note 9)........................ 1,010 397
COMMITMENTS AND CONTINGENCIES (Note 15)
MINORITY INTEREST (Note 2).................................. 1,736 --
STOCKHOLDERS' EQUITY (Notes 2, 4, 10, 11 and 12):
Preferred stock, $100 par value; shares authorized
180,000............................................... -- --
Common stock, $.03 par value; shares authorized
17,000,000; issued 6,977,845 at October 29, 1995 and
7,681,733 at October 27, 1996......................... 209 230
Additional paid-in capital............................. 39,114 43,474
Retained deficit....................................... (17,459) (17,758)
Cumulative translation adjustments..................... -- (32)
Treasury stock, at cost (935,404 common shares at
October 29, 1995 and 1,017,981 common shares at
October 27, 1996)..................................... (3,101) (3,797)
-------- --------
Total stockholders' equity........................ 18,763 22,117
-------- --------
$ 42,256 $ 47,060
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 24
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
SALES (Note 2)......................................... $ 30,145 $ 64,116 $ 70,237
COST OF SALES.......................................... 20,627 46,888 55,021
---------- ---------- ----------
Gross profit................................. 9,518 17,228 15,216
OPERATING EXPENSES
Research and development............................. 674 1,109 1,448
Selling, general and administrative.................. 6,572 11,941 12,823
Other................................................ -- -- 406
---------- ---------- ----------
Total operating expenses..................... 7,246 13,050 14,677
---------- ---------- ----------
OPERATING INCOME....................................... 2,272 4,178 539
INVESTMENT INCOME (Note 4)............................. 108 258 --
INTEREST AND OTHER INCOME (EXPENSE), net (Note 8)...... 76 (477) (778)
---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES............................. 2,456 3,959 (239)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 14):
Current.............................................. 500 530 60
Deferred............................................. (1,360) (671) --
---------- ---------- ----------
Total provision (benefit) for income taxes... (860) (141) 60
---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST AND DISCONTINUED
OPERATIONS........................................... 3,316 4,100 (299)
LESS: MINORITY INTEREST (Note 2)....................... (384) (352) --
GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income
tax effect (Note 3).................................. 1,380 -- --
INCOME FROM DISCONTINUED OPERATIONS, net of income tax
effect (Note 3)...................................... 978 -- --
---------- ---------- ----------
NET INCOME (LOSS)...................................... $ 5,290 $ 3,748 $ (299)
========== ========== ==========
PER COMMON AND COMMON EQUIVALENT SHARE (Note 13):
Income (loss) before minority interest and
discontinued operations........................... $ 0.52 $ 0.62 $ (0.05)
Minority interest.................................... (0.06) (0.05) --
Gain on sale of discontinued operations.............. 0.22 -- --
Discontinued operations.............................. 0.15 -- --
---------- ---------- ----------
Net income (loss).................................... $ 0.83 $ 0.57 $ (0.05)
========== ========== ==========
SHARES USED IN COMPUTING NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE.......................... 6,343,604 6,605,147 6,277,585
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 25
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL RETAINED ON CUMULATIVE TREASURY STOCK
----------------- PAID IN EARNINGS MARKETABLE TRANSLATION -------------------
SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES ADJUSTMENT SHARES AMOUNT
--------- ------ ---------- --------- ----------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1993... 6,281,889 $188 $37,869 $(26,497) $ -- $ -- 461,249 $ (609)
Net Income................ -- -- -- 5,290 -- -- -- --
Issuance to employees
pursuant to stock
options plans (Note
12).................... 445,456 14 801 -- -- -- -- --
Unrealized loss on
marketable securities,
net of income taxes
(Note 4)............... -- -- -- -- (138) -- -- --
Stock repurchase (Note
11).................... -- -- -- -- -- -- 83,000 (374)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 31, 1994... 6,727,345 202 38,670 (21,207) (138) -- 544,249 (983)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income................ -- -- -- 3,748 -- -- -- --
Issuance to employees
pursuant to stock
options plans (Note
12).................... 250,500 7 444 -- -- -- -- --
Unrealized gain on
marketable securities,
net of income taxes
(Note 4)............... -- -- -- -- 138 -- -- --
Stock repurchase (Note
11).................... -- -- -- -- -- -- 391,155 (2,118)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 29, 1995... 6,977,845 209 39,114 (17,459) -- -- 935,404 (3,101)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income................ -- -- -- (299) -- -- -- --
Issuance to employees
pursuant to stock
options plans (Note
12).................... 158,332 5 336 -- -- -- -- --
Acquisition of Lockhart
Industries, Inc. (Note
2)..................... 280,556 8 2,355 -- -- -- 82,577 (696)
Purchase of Uni-Star
Industries, Inc.
minority interest (Note
2)..................... 265,000 8 1,669 -- -- -- -- --
Cumulative translation
adjustments............ -- -- -- -- -- (32) -- --
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 27, 1996... 7,681,733 $230 $43,474 $(17,758) $ -- $(32) 1,017,981 $(3,797)
--------- ---- ------- -------- ----- ---- --------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 26
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................. $ 5,290 $ 3,748 $ (299)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Net (income) from discontinued operations (Note 3)......... (978) -- --
Deferred income taxes (Note 14)............................ (1,360) (671) --
Gain on sale of marketable securities-available-for-sale
(Note 4)................................................. -- (199) --
Depreciation and amortization.............................. 453 1,274 2,220
Minority interest (Note 2)................................. 384 352 --
Gain on sale of discontinued operations (Note 3)........... (1,380) -- --
Cumulative translation adjustments......................... -- -- (32)
Changes in assets and liabilities net of effects from
acquisitions:
(Increase) decrease in marketable securities -- trading
securities............................................... (27) 27 --
(Increase) decrease in accounts receivable................. 829 (3,085) (21)
(Increase) decrease in notes receivable.................... (2,000) 2,000 --
(Increase) in prepaid expenses............................. (55) (377) (124)
(Increase) in inventories.................................. (34) (2,245) (2,147)
(Increase) decrease in goodwill............................ 22 (952) (176)
Increase (decrease) in accounts payable, trade............. 755 680 (62)
Increase (decrease) in accrued compensation and related
benefits................................................. 99 927 (701)
Increase (decrease) in other accrued liabilities........... 1,541 204 (153)
(Decrease) in other long-term liabilities.................. -- (921) (571)
------- ------- -------
Total adjustments........................................ (1,751) (2,986) (1,767)
------- ------- -------
Net cash provided (used) by continuing operations........ 3,539 762 (2,066)
Net cash provided by discontinued operations (Note 3).... 1,456 -- --
------- ------- -------
Net cash provided (used) by operating activities......... 4,995 762 (2,066)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and maturity of short-term investments..... 3,516 -- --
Payments and expenditures for business acquisitions (Notes 2
and 16).................................................... (6,899) (2,560) (479)
Proceeds from sale of discontinued operations................. 2,000 -- --
Purchase of marketable securities -- available-for-sale (Note
4)......................................................... (1,285) (850) --
Proceeds from sale of marketable
securities -- available-for-sale (Note 4).................. 237 2,097 --
Purchase of property and equipment, net....................... (1,427) (5,009) (3,860)
(Increase) in other assets, net............................... (6) (162) (25)
------- ------- -------
Net cash (used) by investing activities.................... (3,864) (6,484) (4,364)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock (Note 12).............. 815 451 341
Payments to repurchase common stock (Note 11)................. (374) (2,118) --
Proceeds from debt, net of payments (Note 8).................. 3,902 6,041 3,966
------- ------- -------
Net cash provided by financing activities.................. 4,343 4,374 4,307
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 5,474 (1,348) (2,123)
------- ------- -------
CASH AND CASH EQUIVALENTS, beginning of year.................... 1,932 7,406 6,058
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.......................... $ 7,406 $ 6,058 $ 3,935
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 27
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Alpha Technologies Group, Inc. ("Alpha" or the "Company") thermal
management products, principally heat sinks, which dissipate heat generated by
electronic components, serve the microprocessor, computer, consumer electronics,
transportation, power supply, aerospace and defense industries. The Company's
sub-miniature, micro-miniature and ultra-miniature connector products and its
backplane/midplane-type printed circuit board assemblies, the majority of which
are custom manufactured to meet rigid specifications, serve the aerospace,
automotive, communications, defense, factory automation, industrial controls,
medical electronics, process instrumentation and test/measurement industries.
Principles of Consolidation
The consolidated financial statements include the accounts of Alpha and its
wholly-owned subsidiaries. All material intercompany transactions and balances
have been eliminated.
Revenue Recognition
Revenue from product sales is generally recognized upon shipment to the
customer.
Use of Estimates and Other Uncertainties
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, trade payables and debt instruments. The book values of these
instruments are considered to be representative of their respective fair values.
Marketable Securities
Investments in marketable securities are accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and Equipment
The cost of property and equipment is depreciated using the straight-line
method for financial reporting purposes over the estimated useful lives of such
assets, ranging from three to ten years. Leasehold improvements are amortized on
a straight-line basis over the related lease term.
Goodwill
Goodwill represents the excess of cost over fair value of net assets
acquired and is being amortized over 15 years using the straight-line method.
The accumulated amortization on October 29, 1995 and October 27,
F-7
<PAGE> 28
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
1996 was approximately $163,000 and $371,000, respectively. Amortization expense
of approximately $6,500, $156,500 and $209,000 was recorded in fiscal 1994, 1995
and 1996, respectively.
Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
("Statement 109") on November 1, 1993. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using current enacted
tax rates. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated
into U. S. dollars at the current exchange rate in effect at the balance sheet
date, and revenues and expenses are translated at the average exchange rate for
the period in accordance with SFAS No. 52, "Foreign Currency Translation".
Resulting translation adjustments are reported as a separate component of
shareholders' equity.
Interest Rate Swap Agreement
The Company has entered into interest swap agreements as a means of
managing its interest rate exposure. These agreements have the effect of
converting two of the Company's variable rate obligations to fixed rate
obligations. Net amounts paid or received are reflected in interest expense.
New Accounting Pronouncements
SFAS No. 123, "Accounting for Stock-Based Compensation", was issued in
October 1995 and applies to the Company's fiscal 1997 financial statements.
Adopting this statement will not have a material effect.
Fiscal Year
For fiscal 1995, the Company adopted a 52/53 week fiscal calendar ending on
the last Sunday of October, therefore fiscal years 1995 and 1996 ended on
October 29, 1995 and October 27, 1996, respectively. Fiscal years 1995 and 1996
both include 52 weeks of operations.
2. ACQUISITIONS
On June 1, 1994, the Company, through Uni-Star Industries, Inc.
("Uni-Star"), a then 80% owned subsidiary, acquired substantially all of the
assets and business and assumed certain liabilities of the Interconnect Systems
Division of Microdot Inc. On September 3, 1996, the Company purchased the
remaining 20% interest of Uni-Star in exchange for 265,000 shares of its common
stock. Uni-Star is now a wholly-owned subsidiary of the Company. On August 31,
1994, Wakefield Engineering, Inc. ("Wakefield"), a wholly-owned subsidiary of
the Company, acquired substantially all of the assets and business of Aham Tor,
Inc. ("ATI"). Effective June 30, 1995, Wakefield acquired substantially all of
the assets and business of Specialty Extrusion Ltd. ("Specialty").
On August 21, 1996, the Company, through a newly-organized, wholly-owned
subsidiary Lockie Acquisition Corp. ("LAC"), purchased all of the outstanding
stock of Lockhart Industries, Inc. ("LII"), a thermal management company,
pursuant to an Agreement and Plan of Merger dated as of August 14, 1996
F-8
<PAGE> 29
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
(the "Merger Agreement"). Pursuant to the Merger Agreement, the Company issued
280,556 shares of its common stock in exchange for all of the issued and
outstanding common stock of LII. Following the merger, the Company transferred
all of LAC's shares to Wakefield and changed LAC's name to Lockhart Industries,
Inc. ("Lockhart"). In addition, Wakefield paid off an aggregate of $506,000 of
LII's debt. The purchase price is subject to reduction based upon decreases in
LII's working capital and collection of accounts receivable. In addition, the
number of shares issued is subject to increase in the event that the Company's
common stock is not trading at $9 or more two years from the date of closing.
The acquisitions have been accounted for as purchase transactions, and
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed for each acquisition. Adjustments to the purchase price may
be made during the 12 months following the date of acquisition as a result of
resolutions of uncertainties existing at the acquisition date. The operating
results of Uni-Star, ATI, Specialty and Lockhart have been included in the
Company's consolidated results of operations since their respective acquisition
dates.
The following unaudited pro forma summary is not necessarily indicative
either of results of operations that would have occurred had the purchases been
made on November 1, 1993, or of future results of operations of the combined
companies. Total revenues included in the following unaudited pro forma summary
reflect the effect of accounting for its software division as a discontinued
operation. Net income included in the following unaudited pro forma summary does
not reflect the effect of income from discontinued operations or the gain on
sale of discontinued operations. Lockhart's results of operations were not
material in relation to the Company's consolidated results of operations and are
not included in the following unaudited pro forma summary.
For the Periods Ended (Unaudited):
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29,
1994 1995
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues.............................................. $51,420 $67,732
Net income.................................................. 3,680 3,747
Net income per common and common equivalent share........... $ .58 $ .57
Number of shares used in computing earnings per share....... 6,344 6,605
</TABLE>
3. DISCONTINUED OPERATION
Effective September 21, 1994, the Company sold the assets of its software
division for $4,000,000. The sale resulted in a gain of approximately
$1,380,000, net of income tax expense of $49,000 and reserves relating to leased
premises. See Note 9 to Financial Statements.
F-9
<PAGE> 30
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DISCONTINUED OPERATION -- (CONTINUED)
Summary operating results of the discontinued operation are as follows for
the fiscal year ended October 31:
<TABLE>
<CAPTION>
1994
--------------
(IN THOUSANDS)
<S> <C>
Revenues........................................................ $8,184
Costs and expenses.............................................. 7,186
------
Income before taxes............................................. 998
Income tax provision............................................ 20
------
Net income...................................................... $ 978
======
</TABLE>
4. MARKETABLE SECURITIES
During fiscal year 1995, the Company disposed of all its marketable
securities. The Company currently has no material investments in marketable
securities. On October 31, 1994, available-for-sale securities were valued at
$910,000 and trading securities were valued at $27,000. A net unrealized holding
loss on available-for-sale securities of $138,000, which is net of income taxes,
was included in stockholders' equity on October 31, 1994. Proceeds from the sale
of available-for-sale securities totaled approximately $2,097,000 for fiscal
year 1995. A gain of $199,000 was realized on those sales and was included in
investment income for the year ended October 29, 1995.
5. INVENTORIES
Inventories consisted of the following on:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components.................................. $ 5,260 $ 6,176
Work in process............................................... 1,803 2,593
Finished goods................................................ 1,548 3,541
------- -------
8,611 12,310
Valuation reserve............................................. (420) (1,140)
------- -------
$ 8,191 $11,170
======= =======
</TABLE>
6. ACCRUED COMPENSATION AND RELATED BENEFITS
Accrued compensation and related benefits consisted of the following on:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages.................................... $ 742 $ 530
Accrued vacation pay.......................................... 499 578
Other......................................................... 1,088 535
------- -------
$ 2,329 $ 1,643
======= =======
</TABLE>
F-10
<PAGE> 31
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following on:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accrued commissions......................................... $ 849 $ 961
Other....................................................... 1,577 1,576
------ ------
$2,426 $2,537
====== ======
</TABLE>
8. DEBT AND REVOLVING CREDIT FACILITIES
Debt and revolving credit facilities consisted of the following on:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Variable-rate revolving credit facility (effective interest
rates of 7.875% and 8.75% at October 27, 1996), interest
payable monthly, principal is repaid and reborrowed based
on cash requirements...................................... $6,104 $ 9,823
Variable-rate revolving credit commitment (effective
interest rate of 8.75% at October 27, 1996), interest
payable monthly, principal is repaid and reborrowed based
on cash requirements...................................... 1,000 1,200
Variable-rate term notes (effective interest rates of 8.75%
to 9.0% at October 27, 1996), payable in monthly
installments ranging from $3,444 to $37,500, plus accrued
interest, with maturities ranging from September of 1999
through November of 2001.................................. 2,839 2,886
------ -------
9,943 13,909
Less current portion.............................. 850 11,702
------ -------
$9,093 $ 2,207
====== =======
</TABLE>
The revolving credit facility and a $2,250,000 variable term loan relate to
a Loan and Security Agreement (the "Loan Agreement") was entered into by
Wakefield in June of 1994. The Loan Agreement was amended in May 1995 to
increase the revolving credit facility from a maximum aggregate commitment of
$4,000,000 to $7,000,000 and to extend the term of such facility to April 30,
1997. The equipment credit facility was increased from a maximum aggregate
amount of $600,000 to $1,050,000. The proceeds from the equipment credit
facility may be used only for the purchase of capital equipment. In addition,
Wakefield entered into an equipment term note in the amount of $265,000. The
Second Amendment dated January 30, 1996 increased the revolving credit facility
from $7,000,000 to $9,000,000, made Specialty Extrusion Corp. ("Specialty"), a
wholly-owned subsidiary of Wakefield, a co-borrower under the Loan Agreement and
extended revolving loans to Specialty and made available to Specialty a $200,000
Equipment Facility Loan which was used to repay, in part, borrowings from Alpha.
On March 29, 1996, Wakefield entered into the Third Amendment to allow for
interest payable on the Revolving Credit Loans to be computed based on a margin
above the Prime Rate and/or a margin above the London Interbank Offered Rate
("LIBOR"). The Fourth Amendment to the Loan Agreement was entered into October
11, 1996 to make Lockhart a co-borrower under the Loan Agreement and extend
revolving loans to Lockhart, to increase the maximum amount of Revolving Loans
that may be available to Wakefield, Specialty and Lockhart from $9,000,000 to
$12,500,000, to consolidate the outstanding term loans into a $2,250,000 term
loan, to make available a $2,500,000 equipment acquisition line
F-11
<PAGE> 32
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT AND REVOLVING CREDIT FACILITIES -- (CONTINUED)
on Lockhart's equipment and to permit Wakefield to use up to $506,000 of the
Revolving Loan proceeds to repay advances to Alpha. At October 27, 1996 interest
on $6,500,000 of the revolving credit facility accrues at the relevant adjusted
LIBOR rate plus 2.25% (7.875% per annum on October 27, 1996), and the remainder
of the revolving credit facility accrues at the bank's prime rate plus .25%
(8.5% per annum on October 27, 1996). There is an unused line fee equal to .25%
per annum on the difference between $12,500,000 and the greater of (a) the
average daily outstanding principal balance of Revolving Loans during each of
the Company's fiscal quarters and (b) $10,500,000, payable quarterly in arrears
on the first day of each fiscal quarter. The $2,250,000 term note accrues
interest at the adjusted LIBOR rate plus 225 basis points (8.75% per annum on
October 27, 1996), and is payable in fifty-nine (59) equal monthly installments
of $37,500 commencing December 1, 1996 and a final installment equal to all
unpaid principal on October 11, 2001, together, in each instance, with interest
thereon to the date of payment. On October 29, 1996, $1,900,000 was borrowed
against the equipment acquisition line. This note accrues interest at 8.85%, and
is payable in eighty-three (83) equal monthly installments of $22,619 commencing
December 1, 1996 and a final installment equal to all unpaid principal on
October 29, 2003, together, in each instance, with interest thereon to the date
of payment. The obligations under the Loan Agreement are secured by a first lien
on and assignment of all of the assets of the thermal management operations
which in aggregate total $30,459,000. The terms of the Loan Agreement include
various covenants which provide for, among other things, the maintenance of a
tangible capital base at various levels throughout the commitment period. On
October 27, 1996, Wakefield was in compliance with these covenants. On October
27, 1996, $9,823,000 was drawn on the revolving credit facility.
In October 1996, Wakefield entered into two interest rate swap transactions
with Fleet National Bank. The agreements effectively fixed the interest rate on
floating rate debt at a rate of 8.75% for a notional principal amount of
$2,250,000 through November 1, 2001, and at a rate of 8.85% for a notional
principal amount of $1,900,000 through October 29, 2003.
On August 30, 1995, Uni-Star entered into an Accounts Receivable Loan
Agreement which included a revolving credit commitment in the aggregate
principal amount of $2,500,000 of which $1,200,000 was drawn on at October 27,
1996. Uni-Star also entered into an equipment term loan in the amount of
$750,000 and an equipment acquisition facility of $300,000. Interest on the
revolving credit commitment accrues at the bank's prime rate plus one half of
one percent and interest on the equipment term loan accrues at the bank's prime
rate plus three-quarters of one percent. The equipment term loan is repayable in
48 equal monthly installments of principal of $15,625 plus accrued interest,
payable on the first day of each month beginning October 1, 1995. On September
17, 1996, Uni-Star amended the loan agreement to extend its termination date to
August 31, 1997. All of the Uni-Star credit facilities are secured by a first
lien and assignment of substantially all of its assets, including without
limitation, accounts receivable, inventory, equipment and general intangibles
which in aggregate totals $9,643,000. The Accounts Receivable Loan Agreement
includes various covenants with which Uni-Star was in compliance on October 27,
1996.
Cash paid for interest on all outstanding debt amounted to approximately
$116,000 in fiscal year 1994, approximately $693,000 in fiscal year 1995 and
approximately $898,000 in fiscal year 1996.
F-12
<PAGE> 33
8. DEBT AND REVOLVING CREDIT FACILITIES -- (CONTINUED)
Aggregate payments of debt and revolving credit facilities outstanding as
of October 27, 1996 for the next five years are summarized below:
<TABLE>
<CAPTION>
FISCAL YEARS AMOUNT
------------ -----------
<S> <C>
1997........................................................ $11,702,000
1998........................................................ 679,000
1999........................................................ 629,000
2000........................................................ 450,000
2001........................................................ 450,000
-----------
$13,910,000
===========
</TABLE>
Management intends to renew or refinance the revolving credit facility and
the revolving credit commitment at or prior to maturity.
9. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following on:
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accrued lease differential.................................. $1,362 $ 789
Other....................................................... 531 471
------ ------
1,893 1,260
Less current portion........................................ (883) (863)
------ ------
$1,010 $ 397
====== ======
</TABLE>
The accrued lease differential primarily represents the lease payments and
estimated costs that the Company expects to incur related to office space in
Houston, Texas less estimated payments that it expects to receive for subleasing
this space. Approximately $800,000 of the accrued lease differential was
expensed in fiscal year 1994 as an offset to the gain on the sale of the
discontinued operation.
10. PREFERRED STOCK
On October 29, 1995 and October 27, 1996, the Company had authorized
180,000 shares of unissued, preferred stock with a par value of $100 per share.
The Board of Directors has the authority to issue such preferred stock and to
set the terms thereof, including the dividend rate, conversion rights,
redemption rights, voting rights and liquidation preferences. There are no
shares of preferred stock outstanding as of October 27, 1996.
11. REPURCHASE OF COMMON STOCK
In September of 1994, the Board of Directors of the Company approved a plan
to purchase up to $2,500,000 of the Company's common stock. Pursuant to the
stock repurchase plan, the Company purchased 83,000 shares of common stock
during fiscal year 1994 at an aggregate price of $374,137. During fiscal year
1995, 391,155 shares of common stock were purchased at an aggregate price of
$2,118,173. This repurchase program has been completed.
F-13
<PAGE> 34
12. STOCK OPTION PLANS
The Company has in effect nonqualified and incentive stock option plans
under which shares are available for exercise. As of October 27, 1996, the Board
of Directors has reserved 1,447,000 shares of common stock for issuance under
the plans. The prices at which substantially all stock options outstanding have
been granted have been equal to or in excess of the fair market value of the
Company's stock at the time of the grant. These options vest over periods up to
five years. On October 27, 1996, there were 268,666 shares available for future
grants. The following table summarizes activity under the plans:
<TABLE>
<CAPTION>
SHARES
UNDER OPTION PRICE RANGE
------------ --------------
<S> <C> <C>
Outstanding on October 31, 1993......................... 1,226,997 $1.16 - $ 7.12
Granted............................................... 363,000 2.93 - 4.53
Forfeited............................................. (48,524) 1.50 - 7.12
Exercised............................................. (445,456) 1.47 - 4.06
Expired............................................... (42,600) 4.50
--------- --------------
Outstanding on October 31, 1994......................... 1,053,417 $1.16 - $ 4.53
Granted............................................... 457,000 5.13 - 5.98
Forfeited............................................. (10,000) 2.69
Exercised............................................. (250,500) 1.16 - 4.19
Expired............................................... (2,917) 4.50
--------- --------------
Outstanding on October 29, 1995......................... 1,247,000 $1.16 - $ 5.98
Granted............................................... 373,000 4.56 - 10.09
Forfeited............................................. (283,334) 4.53 - 10.09
Exercised............................................. (158,332) 1.59 - 4.53
--------- --------------
Outstanding on October 27, 1996......................... 1,178,334 $1.16 - $10.09
========= ==============
Exercisable on October 27, 1996......................... 588,334 $1.16 - $ 5.98
========= ==============
</TABLE>
In October 1996, the Board of Directors authorized a reduction in the
exercise price of each outstanding, unvested option to purchase shares of common
stock granted in fiscal 1996, to an amount equal to the fair market value of the
common stock on such date. Options held by nonemployee directors of the Company
and options with an exercise price below the fair market value of the common
stock were not impacted. The repricing has been treated as the surrender and
cancellation of outstanding stock options in conjunction with the grant of
replacement options with an exercise price of $4.56 per share.
13. NET INCOME (LOSS) PER SHARE
Net income (loss) per common and common equivalent share was computed using
the weighted average number of shares of common stock and common equivalent
shares outstanding during each year. Common equivalent shares included the
number of shares issuable upon exercise of options, less the number of shares
that could have been purchased with the exercise proceeds. For fiscal year 1996,
common equivalent shares were not considered in the computation as their effect
would have been antidilutive.
14. INCOME TAXES
On November 1, 1993, the Company adopted Statement 109 through a cumulative
catch-up adjustment. The implementation of this statement did not have a
material effect on the Company's balance sheet or results of operations. The
Company's profitable operations during the years ended October 31, 1994 and
October 31, 1995 resulted in the utilization of net operating loss
carryforwards, the tax benefit of which was fully reserved upon implementation
of Statement 109.
F-14
<PAGE> 35
14. INCOME TAXES -- (CONTINUED)
Income (loss) before income taxes was as follows for the fiscal years
ending October 31, 1994, October 29, 1995, and October 27, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Domestic.......................................... $3,316 $4,048 $(325)
Foreign........................................... -- (89) 121
------ ------ -----
$3,316 $3,959 $(204)
====== ====== =====
</TABLE>
The provision (benefit) for income taxes were as follows for the fiscal
years ending October 31, 1994, October 29, 1995, and October 27, 1996:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax................................ $ 51 $ 1,221 $(69)
State income tax.................................. 449 458 --
Foreign income tax................................ -- -- 60
------- ------- ----
500 1,679 (9)
Valuation reserve provided (reversed)-Statement
109............................................. (1,360) (1,820) 69
------- ------- ----
$ (860) $ (141) $ 60
======= ======= ====
</TABLE>
The differences in the income taxes provided for and the amounts determined
by applying the Federal statutory rate to income before taxes of the Company are
summarized as follows:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal income statutory rate..................... 34.0% 34.0% (34.0)%
State income taxes, net of federal income tax
benefit......................................... 18.3% 7.6% --
Valuation reserve provided (reversed)............. (55.3)% (46.0)% 34.0%
Other............................................. -- .8% --
Foreign income taxes.............................. -- -- 29.4%
Benefit of net operating loss carryforwards....... (32.0)% -- --
----- ----- -----
(35.0)% (3.6)% 29.4%
===== ===== =====
</TABLE>
No provision was made in fiscal 1996 for U.S. income taxes on the
undistributed earnings of the foreign subsidiaries as it is the Company's
intention to utilize those earnings in the foreign operations for an indefinite
period of time or to repatriate such earnings only when tax effective to do so.
At October 27, 1996 undistributed earnings of the foreign subsidiaries amounted
to $79,000.
F-15
<PAGE> 36
14. INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities and their changes during the
year ended October 27, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
DEFERRED
OCTOBER 29, (PROVISION) OCTOBER 27,
1995 BENEFIT 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards................ $ 4,506 $ 725 $ 5,231
Tax credits..................................... 747 132 879
Accrued liabilities............................. 818 (273) 545
Other........................................... 1,109 (79) 1,030
------- ----- -------
Total gross deferred tax assets................. 7,180 505 7,685
Less: Valuation allowance....................... (4,603) (493) (5,096)
------- ----- -------
Deferred tax assets............................. $ 2,577 $ 12 $ 2,589
======= ===== =======
Deferred Tax Liabilities:
Amortization and depreciation................... (465) (417) (882)
Other........................................... (81) 36 (45)
------- ----- -------
Deferred tax liabilities........................ (546) (381) (927)
------- ----- -------
Net deferred tax asset.......................... $ 2,031 $(369) $ 1,662
======= ===== =======
</TABLE>
Due to the Company's historical results of operations prior to fiscal 1994,
a valuation allowance was provided for the deferred tax assets upon adoption of
Statement 109. Because the Company generated taxable income and was able to
utilize net operating loss carryforwards during fiscal 1994 and 1995 and
forecasted future profitability which increased the likelihood of the future
realization of the net deferred tax asset, the Company reversed $1,360,000 and
$1,820,000, respectively, of the valuation allowance. During fiscal 1996 the
decrease in the net deferred tax asset was the result of (a) ($369,000) related
to the acquisition of Lockhart Industries, Inc. and (b) $493,000 related to the
tax effects of temporary differences which were entirely offset by an increase
in the valuation allowance.
On October 27, 1996, the Company had, for tax purposes, net operating loss
carryforwards of approximately $15,384,000, unused investment and research and
development tax credits of approximately $650,000, and $230,000 of alternative
minimum tax credits available to offset future taxable income and Federal income
taxes. The net operating loss carryforwards will expire from 2000 to 2011; the
investment tax credit and research and development tax credit carryforwards will
expire from 1997 to 2005; and the alternative minimum tax credit has no
expiration.
All carryforwards are subject to review and possible adjustment by the
Internal Revenue Service. In compliance with the Tax Reform Act of 1986,
investment tax credits carried forward were reduced by 35%. The Company's
ability to utilize the net operating loss carryforwards to offset alternative
minimum taxable income is limited to 90% for tax years after fiscal 1987.
Additionally, Section 382 of the Internal Revenue Code limits the amounts
of net operating loss carryforwards usable by a corporation following a more
than 50 percentage point change in ownership of the corporation during a
three-year period. It is possible that subsequent transactions involving the
Company's capital stock could result in such a limitation. As of October 27,
1996, Management believes that a 50 percentage point change in ownership has not
occurred during a three-year period.
During fiscal 1994, 1995 and 1996, cash paid for income taxes amounting to
approximately $16,000, $996,000 and $194,000, respectively.
F-16
<PAGE> 37
15. COMMITMENTS AND CONTINGENCIES
The Company has operating lease commitments for certain office equipment
and manufacturing, administrative and support facilities. Minimum lease payments
under noncancellable leases on October 27, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEARS LEASES
------------ --------------
(IN THOUSANDS)
<S> <C>
1997................................................... $ 2,999
1998................................................... 2,115
1999................................................... 1,685
2000................................................... 1,180
2001................................................... 979
Thereafter............................................. 2,457
-------
Minimum lease payments................................. $11,415
=======
</TABLE>
Rent expense (exclusive of operating expenses and net of sublease rents)
for all operating leases was approximately $869,000, $1,339,000 and $1,556,000
in fiscal years 1994, 1995 and 1996, respectively. Expected sublease payments
for each fiscal year are as follows: 1997 $607,000; 1998 $152,000; and 1999 and
thereafter $0. See Note 9 to Financial Statements.
Through September 30, 1994, the Company, for its software division, had a
partially self-funded insurance program for its group health insurance plan.
Effective January 1, 1995 through December 31, 1995, Wakefield implemented the
same type of program for its group health insurance plan. Under these plans, the
Company assumed liability for payment of medical claims below a specific dollar
amount related to any one individual. The Company is also insured if claims
should exceed a specific aggregate dollar amount for all covered individuals.
Asserted and unasserted medical/health insurance claims are accrued for based on
the Company's experience and the advice of an independent claims manager. Group
health insurance plans for fiscal 1996 were not self-funded insurance programs.
16. RELATED-PARTY TRANSACTIONS
For services rendered in connection with the acquisitions made during
fiscal year 1994, further described in Note 2 -- Acquisitions, the Company paid
$57,500 each to two corporations, which are general partners of a partnership
having a greater than 5% ownership of the Company. The sole stockholder of one
of the aforementioned corporations is currently an employee director of the
Company, and the sole stockholder of the other corporation is currently a
director of the Company. In fiscal 1994, the two individuals were each granted
five-year nonincentive stock options to purchase an aggregate of 120,000 shares
of the Company's common stock. The options were granted at an exercise price
equal to the fair value of the common stock on the dates of grant. The right to
exercise these options vests in equal installments over three years.
F-17
<PAGE> 38
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS -- OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 27,
1995 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 5,192 $ 3,153
Accounts receivable, net of reserves of $71 and $0........ 133 30
Prepaid expenses.......................................... 361 199
-------- --------
Total current assets.............................. 5,686 3,382
INVESTMENT IN SUBSIDIARIES.................................. 7,173 9,754
DUE FROM SUBSIDIARIES....................................... 5,720 8,394
OTHER ASSETS, net........................................... 2,091 1,737
-------- --------
Total assets...................................... $ 20,670 $ 23,267
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade................................... $ 78 $ 108
Accrued compensation and related benefits................. 182 33
Other accrued liabilities................................. 377 367
Current Portion -- other long-term liabilities............ 554 554
-------- --------
Total current liabilities......................... 1,191 1,062
OTHER LONG-TERM LIABILITIES................................. 716 88
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $100 par value; shares authorized
180,000................................................ -- --
Common stock, $.03 par value; shares authorized
17,000,000; issued 6,977,845 at October 29, 1995 and
7,684,733 at October 27, 1996.......................... 209 230
Additional paid-in capital................................ 39,114 43,474
Retained earnings......................................... (17,459) (17,758)
Cumulative translation adjustments........................ -- (32)
Treasury stock, at cost (935,404 common shares at October
29, 1995 and 1,107,981 common shares at October 27,
1996).................................................. (3,101) (3,797)
-------- --------
Total stockholders' equity.................................. 18,763 22,117
-------- --------
$ 20,670 $ 23,267
======== ========
</TABLE>
S-1
<PAGE> 39
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
INCOME AND (EXPENSE)
Interest, investment and other income, net................ 380 782 209
Equity in earnings of subsidiaries, net of taxes.......... 2,554 3,608 783
Corporate general and administrative...................... (1,382) (1,608) (1,201)
Other operating expense................................... -- -- (256)
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES..................................................... 1,552 2,782 (465)
BENEFITS FOR INCOME TAXES................................... 1,380 966 166
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS.................... 2,932 3,748 (299)
GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income tax
effect.................................................... 1,380 -- --
INCOME FROM DISCONTINUED OPERATIONS, net of income tax
effect.................................................... 978 -- --
--------- --------- ---------
NET INCOME (LOSS)........................................... $ 5,290 $ 3,748 $ (299)
========= ========= =========
PER COMMON AND COMMON EQUIVALENT SHARE Continuing
operations................................................ $ 0.46 $ 0.57 $ (0.05)
Gain on sale of discontinued operations................... $ 0.22 $ 0.00 $ 0.00
Discontinued operations................................... $ 0.15 $ 0.00 $ 0.00
--------- --------- ---------
Net income (loss)......................................... $ 0.83 $ 0.57 $ (0.05)
--------- --------- ---------
SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE........ 6,343,604 6,605,147 6,277,585
========= ========= =========
</TABLE>
S-2
<PAGE> 40
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL RETAINED ON TREASURY STOCK
----------------- PAID IN EARNINGS MARKETABLE -------------------
SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES OTHER SHARES AMOUNT
--------- ------ ---------- --------- ----------- ----- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1993........ 6,281,889 $188 $37,869 $(26,497) $ -- $ -- 461,249 $ (609)
Net Income..................... -- -- -- 5,290 -- -- -- --
Issuance to employees pursuant
to stock options plans...... 445,456 14 801 -- -- -- -- --
Unrealized loss on marketable
securities, net of income
taxes....................... -- -- -- -- (138) -- -- --
Stock repurchase............... -- -- -- -- -- -- 83,000 (374)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 31, 1994........ 6,727,345 202 38,670 (21,207) (138) -- 544,249 (983)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income..................... -- -- -- 3,748 -- -- -- --
Issuance to employees pursuant
to stock options plans...... 250,500 7 444 -- -- -- -- --
Unrealized gain on marketable
securities, net of income
taxes....................... -- -- -- -- 138 -- -- --
Stock repurchase............... -- -- -- -- -- -- 391,155 (2,118)
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 29, 1995........ 6,977,845 209 39,114 (17,459) -- -- 935,404 (3,101)
--------- ---- ------- -------- ----- ---- --------- -------
Net Income (loss).............. -- -- -- (299) -- -- -- --
Issuance to employees pursuant
to stock options plans...... 158,332 5 336 -- -- -- -- --
Acquisition of Lockhart
Industries, Inc............. 280,556 8 2,355 -- -- -- 82,577 (696)
Purchase of Uni-Star
Industries, Inc. minority
interest.................... 265,000 8 1,669 -- -- -- -- --
Cumulative translation
adjustments................. -- -- -- -- -- (32) -- --
--------- ---- ------- -------- ----- ---- --------- -------
BALANCE, OCTOBER 27, 1996........ 7,681,733 $230 $43,474 $(17,758) $ -- $(32) 1,017,981 $(3,797)
--------- ---- ------- -------- ----- ---- --------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
S-3
<PAGE> 41
SCHEDULE I
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
ALPHA TECHNOLOGIES GROUP, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, OCTOBER 29, 1995 AND OCTOBER 27, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 29, OCTOBER 27,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES.................... $ (772) $ 506 $(1,727)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations............. 2,000 -- --
Purchase of marketable securities -- available-for-sale... (1,285) (850) --
Proceeds from sale of marketable
securities -- available-for-sale....................... 237 2,097 --
Advances to subsidiaries, net............................. 907 (1,663) (638)
(Increase) in other assets, net........................... 120 19 (15)
------- ------- -------
Net cash provided (used) by investing
activities...................................... 1,979 (397) (653)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 815 451 341
Payments to repurchase common stock....................... (374) (2,118) --
------- ------- -------
Net cash provided (used) by financing
activities...................................... 441 (1,667) 341
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,648 (1,558) (2,039)
------- ------- -------
CASH AND CASH EQUIVALENTS, beginning of year................ 5,102 6,750 5,192
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year...................... $ 6,750 $ 5,192 $ 3,153
======= ======= =======
</TABLE>
S-4
<PAGE> 42
SCHEDULE II
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reserve for doubtful accounts deducted from
accounts receivable in the balance sheet --
1996.................................. $ 277,420 $271,586 $ 254,711(1) $ 294,295
1995.................................. 110,598 191,043 24,221(1) 277,420
1994.................................. 180,477 101,777 171,656(1) 110,598
Reserve for obsolete inventory deducted from
inventories in the balance sheet --
1996.................................. $ 419,855 908,215 282,362(2) 1,045,708
1995.................................. 144,500 353,032 77,677(2) 419,855
1994.................................. 21,235 144,500 21,235(2) 144,500
Valuation allowance related to deferred tax
asset --
1996.................................. $4,602,691 492,917(3) -- 5,095,608
1995.................................. 6,575,543 -- 1,972,852(3) 4,602,691
1994.................................. $9,421,527 -- 2,845,984(3) 6,575,543
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory written off at cost, net of value recovered.
(3) Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("Statement
109"). In adopting Statement 109, the Company recorded a deferred tax asset
of $9,421,527, which was fully reserved. The deductions consist of
utilization of net operating loss carryforwards and reversals in 1994 and
1995 of $1,360,000 and $1,820,000, respectively, of the valuation allowance
based on Management's estimate of future utilization of net operating loss
carryforwards. In fiscal 1996, the valuation allowance was increased to
offset an increase in the net deferred tax asset resulting from the tax
effects of temporary differences.
S-5
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
3.1 -- Certificate of Incorporation of the Company, as
amended.(1)(2)(3)
3.2 -- By-laws of the Company.(4)
10.1 -- Registrant's 1981 Incentive Stock Option Plan, together
with amendments thereto.(2)
10.2 -- Registrant's 1984 Incentive Stock Option Plan, together
with amendments thereto.(2)
10.3 -- Registrant's 1985 Stock Option Plan, together with
amendments thereto. (2)(5)(6)(7)(8)
10.4 -- Registrant's 401-K Savings/Stock Purchase Plan.(9)
10.5 -- Lease Agreement, dated October 7, 1987, between PIC
Realty Corporation and Issuer.(10)
10.6 -- Lease dated as of October 29, 1993 by and between The
Equitable Life Assurance Society of the United States and
Wakefield Engineering, Inc.(11)
10.7 -- Standard Industrial/Commercial Single-Tenant Lease dated
as of June 1, 1994 by and between Pasadena Industrial
Associates and Uni-Star Industries, Inc.(11)
10.8 -- Lease dated as of November 29, 1994 by and between The
Goldsmith Properties Company and Uni-Star Industries,
Inc.(11)
10.9 -- Lease Agreement dated as of January 1995 by and between
Robert L. Byers and Joyce F. Byers and Uni-Star
Industries, Inc.(11)
10.10 -- Registrant's 1994 Stock Option Plan as amended and
restated.(3)
10.11 -- Loan and Security Agreement dated as of June 22, 1994
entered into by and between Shawmut Bank, N.A. and
Wakefield Engineering, Inc., together with amendment
thereto. (The exhibits and schedules to the Loan and
Security Agreement/Amendment are listed on the last page
of such documents. Such exhibits and schedules have not
been filed by the Issuer, who hereby undertakes to file
such exhibits upon request of the
Commission.)(11)(12)(13)(14)
10.11(a) -- Fourth Amendment to Loan and Security Agreement dated as
of October 11, 1996 entered into by and between Fleet
National Bank of Massachusetts and Wakefield Engineering,
Inc. (The exhibits and schedules to the Amendment are
listed on the last page of such Amendment. Such exhibits
and schedules have not been filed by the Registrant, who
hereby undertakes to file such exhibits upon request of
the Commission.) (Filed Herewith)
10.12 -- Accounts Receivable Loan Agreement between Uni-Star
Industries, Inc. and City National Bank dated as of
August 30, 1995 together with amendment thereto.(3)(15)
10.12(a) -- Second Amendment to Accounts Receivable Loan Agreement
dated as of March 20, 1996 by and between Uni-Star
Industries, Inc. and City National Bank. (Filed Herewith)
10.12(b) -- Third Amendment to Accounts Receivable Loan Agreement
dated as of September 17, 1996 by and between Uni-Star
Industries, Inc. and City National Bank. (Filed Herewith)
10.13 -- Asset Purchase Agreement dated as of June 30, 1995 among
Specialty Extrusions Ltd., Walter Hastie and William
Esparza, and Specialty Acquisition Corp. (now known as
Specialty Extrusion Corp.) and Wakefield Engineering,
Inc.(16)
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C>
10.14 -- Lease dated September 1, 1993 between B&K Investment
Corp. and Specialty Extrusions, Ltd., together with
assignment thereof dated June 30, 1995 from Specialty
Extrusions, Ltd. to Specialty Acquisition Corp. (now
known as Specialty Extrusion Corp.)(3)
10.15 -- Employment Agreement with Lawrence Butler dated September
29, 1995.(3)
10.16 -- Indenture of Lease Agreement dated as of December 20,
1994 by and between Richard J. Tobin, as Trustee of JLN
Realty Trust, under Declaration of Trust dated June 15,
1981 and filed with Bristol County Fall River District
Registry of Deeds Land Court Records as Document 12977,
and Wakefield Engineering, Inc.(3)
10.17 -- Industrial Space Lease dated as of September 29, 1995 by
and between Rancon Income Fund I and Wakefield
Engineering, Inc.(3)
10.18 -- Employment Agreement with Ernest C. Hartland, Jr. dated
April 13, 1996. (The exhibit to the Employment Agreement
is listed on the last page of such Agreement. Such
exhibit has not been filed by the registrant, who hereby
undertakes to file such exhibit upon request of the
Commission.)(17)
10.19 -- Agreement and Plan of Merger dated as of August 14, 1996
by and among Alpha Technologies Group, Inc., Lockie
Acquisition Corp., Lockhart Industries, Inc., Eldon H.
Lockhart and Marjorie D. Lockhart. (The exhibits and
schedules to the Agreement and Plan of Merger are listed
on page v of the Table of Contents of such Agreement.
Such exhibits and schedules have not been filed by the
Issuer, who hereby undertakes to file such exhibits upon
request of the Commission).
10.20 -- Agreement dated August 15, 1996 between the Company and
Neal Castleman.(17)
10.21 -- Lease dated October 31, 1979 by and between Landcee
Investment Co. and Lockhart Industries, Inc., together
with addendum and amendments thereto. (Filed Herewith)
10.22 -- Lease dated August 29, 1984 by and between
Garfield-Pacific Development Co. and Lockhart Industries,
Inc., together with addendums and amendments thereto.
(Filed Herewith)
10.23 -- Employment Agreement with Michael A. Hoffmann dated
November 4, 1996. (Filed Herewith)
10.24 -- International Swap Dealers Association, Inc. Master
Agreement dated as of October 23, 1996 between Fleet
National Bank and Wakefield Engineering, Inc.; Lockhart
Industries, Inc; Specialty Extrusion Corp. (Filed
Herewith)
11 -- Computation of net income per share. (Filed Herewith)
21 -- Subsidiaries of Registrant.(11)
23.1(a) -- Consent of Arthur Andersen LLP. (Filed Herewith)
23.1(b) -- Consent of Arthur Andersen LLP. (Filed Herewith)
27 -- Financial Data Schedule. (Filed Herewith)
</TABLE>
- ---------------
(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Reg. No. 33-2979), which became effective March 7, 1986.
(2) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed September 28, 1987 (Reg. No. 33-17359).
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 29, 1995.
<PAGE> 45
(4) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1991.
(5) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed March 17, 1988 (Reg. No. 33-20706).
(6) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 30, 1989 (Reg. No. 33-29636).
(7) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1990.
(8) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed June 23, 1992 (Reg. No. 33-48663).
(9) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-8, filed January 29, 1987 (Reg. No. 33-11627).
(10) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended October 31, 1987.
(11) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended October 31, 1994.
(12) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 30, 1995 filed on June 14, 1995.
(13) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended January 28, 1996.
(14) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended April 28, 1996.
(15) Incorporated herein by reference to the Company's Form 10-QSB for the
quarterly period ended July 30, 1995 filed on September 13, 1995.
(16) Incorporated herein by reference to the Company's Form 8-K dated June 30,
1995, filed on or about July 14, 1995.
(17) Incorporated herein by reference to the Company's Form S-3, filed on August
16, 1996 (Reg. No. 333-10311).
<PAGE> 1
EXHIBIT 10.11(a)
WAKEFIELD ENGINEERING, INC.
60 Audubon Road
Wakefield, MA 01880
As of October 11, 1996
FLEET NATIONAL BANK
One Federal Street
Boston, MA 02211
Re: Fourth Amendment to Loan Agreement
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement dated June 22,
1994, as amended by the First Amendment thereto dated May 5, 1995, a Second
Amendment thereto dated as of January 30, 1996 and a Third Amendment thereto
dated as of March 29, 1996 (together the "Loan Agreement") and all promissory
notes, agreements, documents and instruments entered into by Wakefield
Engineering, Inc. ("Wakefield") and Specialty Extrusion Corp. ("Specialty") and
any other person or obligor pursuant thereto (collectively, the "Loan
Documents") with or for the benefit of Fleet National Bank (f/k/a Fleet
National Bank of Massachusetts) ("Bank"). Except as otherwise defined herein,
capitalized terms used herein shall have the meanings given them in the Loan
Agreement. This Fourth Amendment to Loan Agreement is referred to as the
"Fourth Amendment".
Background. Lockhart Industries, Inc., a California corporation
formerly known as Lockie Acquisition Corp. ("Lockhart") has become a
wholly-owned subsidiary of Wakefield. Wakefield has requested that the Bank
(a) agree to make Lockhart a co-borrower under the Loan Agreement and extend
Revolving Loans to Lockhart, (b) increase the maximum amount of Revolving Loans
that may be available to Wakefield, Specialty and Lockhart from $9,000,000 to
$12,500,000 and to increase the inventory sublimit thereunder from $4,500,000
to $5,500,000, (c) consolidate the outstanding term loans into a $2,250,000
term loan, (d) make available a $2,500,000 equipment acquisition line of which
$_________ will be drawn on as of the date hereof as an Equipment Loan on
Lockhart's equipment, and (e) permit Wakefield to use up to $506,000 of the
Revolving Loan proceeds to repay advances made by Alpha.
Wakefield also has requested that the Bank consent to the acquisition
of Lockhart on August 21, 1996 and, subject to the terms and conditions hereof,
the Bank hereby consents to that acquisition.
<PAGE> 2
1. Subject to the satisfaction of the terms and conditions hereof, Bank
and Borrower have agreed that the Loan Agreement shall be amended as follows:
(a) Lockhart Designated as Additional Borrower. Lockhart is, and
hereby shall be, a Borrower under the Loan Agreement, jointly and severally
liable with Wakefield and Specialty for all now existing and hereafter arising
Obligations and all references in the Loan Agreement to Borrower or Borrowers
shall mean and include Wakefield and Specialty and Lockhart, jointly and
severally.
(b) Amendments to Definitions.
(1) Definition of Borrowing Base. The definition of
"Borrowing Base" in Section 1 of the Agreement is deleted and the following
definition is substituted in place thereof:
'"Borrowing Base" means the sum of the following (as shown on the
Bank's records at any time):
(a) eighty-five percent (85%) of the unpaid face value of
all Eligible Accounts, PLUS
(b) the lesser of (i) fifty-five percent (55%) of the
first-in, first-out cost or market value, whichever is lower, of all Eligible
Inventory, or (ii) $5,500,000.00, LESS
(c) the face amount of all letters of credit issued by
the Bank on behalf of a Borrower, with the maximum amount of such letters of
credit not to exceed $1,000,000.00, plus all Bank's customary fees and charges
with respect thereto;
PROVIDED that Bank at all times reserves the right, exercisable in
Bank's reasonable credit judgment, based upon circumstances then existing, to
adjust any of the percentages or the amounts set forth above upon fifteen (15)
days' notice to Borrower.'
(2) Definition of Current Liabilities. The definition of
Current Liabilities is deleted and the following definition is substituted in
place thereof:
'"Current Liabilities" means for any period all liabilities
which would, in accordance with GAAP, be classified as current liabilities plus
the outstanding amount of the Revolving Loans.'
(3) Definition of Excess Availability. The definition of
Excess Availability is amended by deleting the number "$9,000,000" and by
substituting in lieu thereof the term "Revolving Loan Limit."
<PAGE> 3
(4) Definition of "Revolving Loan Limit". An additional
defined term and definition are inserted in Section 1 in appropriate
alphabetical order as follows:
'"Revolving Loan Limit" means $12,500,000.00 in the aggregate for the
Borrowers.'
(c) Amendment to Section 2(a). The amount set forth in Section
2(a)(i)(x) of "Nine Million Dollars ($9,000,000.00)" is deleted and the term
"Revolving Loan Limit" is substituted therefore.
(d) Amendments to Section 2(b). On the date that the conditions
to this Fourth Amendment are satisfied, Lender shall make a Term Loan to
Borrowers in the original principal amount of Two Million Two Hundred Fifty
Thousand Dollars ($2,250,000). The proceeds of this Term Loan shall be used to
repay all five outstanding equipment loans and term loans and, to the extent of
any excess, Revolving Loans made to the Borrowers by the Bank and shall be
evidenced and repaid in accordance with the Term Note attached as Exhibit B to
this Fourth Amendment.
(e) Amendments to Section 2(c). Section 2(c)(i) is amended to
provide that the aggregate amount of Equipment Loans that may be made to the
Borrowers during the Commitment Period shall not exceed Two Million Five
Hundred Thousand Dollars ($2,500,000.00). Section 2(c)(ii) is amended to
provide that the minimum amount of each Equipment Loan shall be $250,000.00.
Upon the closing under this Fourth Amendment, the Lender will make an Equipment
Loan to Borrowers of an amount equal to eighty (80%) of the Hard Cost of
Capital Equipment purchased by Borrower from February 1996 to July 1996.
Borrowers shall pay to Lender a funding fee of one percent (1%) of the amount
of each Equipment Loan made hereunder, due and payable and fully earned upon
the funding of each such Equipment Loan by the Bank.
(f) Interest Rates Amendment. Subsections 2(d)(i) (A) and (B) of
the Loan Agreement are hereby deleted and the following is substituted in place
thereof:
"(A) For each Prime Rate Advance, the Prime Rate
plus one quarter of one percent (1/4%), and
(B) For each LIBOR Rate Advance, the relevant
Adjusted LIBOR Rate for the applicable Interest Period selected
by Borrower in conformity with this Agreement plus 225 basis
points."
6. Unused Line. The Borrowers shall pay to the Bank an unused line
fee equal to one quarter of one percent (1/4%) per annum on the difference
between $12,500,000 and the greater of (a) the average daily outstanding
principal balance of Revolving Loans during each of Borrowers' fiscal quarters
and (b) $10,500,000, payable quarterly in arrears on the first day of each
fiscal quarter of Borrowers.
<PAGE> 4
(g) Financial Covenants Amendments and Restatements.
(1) Section 8(a) of the Loan Agreement is amended by
deleting the Section in its entirety and by substituting in place thereof the
following:
"(a) Tangible Capital Base. Permit Borrowers' Tangible
Capital Base to be less than the following amounts at the end of the respective
periods set forth below:
<TABLE>
<CAPTION>
Period Minimum Tangible Capital Base
------ -----------------------------
<S> <C>
9 months ending July 31, 1996 $5,800,000
12 months ending October 31, 1996 $6,000,000
3 months ending January 31, 1997 $*
6 months ending April 30, 1997 $*
9 months ending July 31, 1997 $*
12 months ending October 31, 1997 $6,800,000"
</TABLE>
*These amounts will be determined by the Bank based upon financial forecasts to
be provided by Borrowers to the Bank within 30 days of the date of the Fourth
Amendment.
For purposes of calculating Tangible Capital Base, all Subordinated
Indebtedness hereafter provided to the Borrowers by Alpha and subject to the
Subordination Agreement between Alpha and Bank shall be added to the Minimum
Tangible Capital Base amounts set forth above.
(2) Section 8(b) is amended by deleting the Section in
its entirety and inserting in place thereof the following:
"8(b) Debt Service and Unfinanced Capital Expenditures Coverage
Ratio. Permit the ratio of (A) the aggregate of (i) EBITDA minus (ii)
unfinanced capital expenditures and minus (iii) permitted payments on
Subordinated Indebtedness and any permitted Dividends to (B) the sum of (i)
interest expense and (ii) CMLTD for the prior four fiscal quarters of the
Borrower to be less than 1.35 to 1.00 as measured at the end of each fiscal
quarter of Borrower."
(3) Section 8(c) is amended by deleting the Section in
its entirety and by substituting the following in place thereof:
<PAGE> 5
(c) Senior Debt to Tangible Capital Base Ratio. Permit the ratio of
Borrowers' Senior Indebtedness to Tangible Capital Base to be more than the
following amounts on the dates set forth below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
July 31, 1996 3.25 to 1.00
October 31, 1996 3.25 to 1.00
Each fiscal quarter and thereafter. 3.00 to 1.00
</TABLE>
(4) Section 8(d) of the Loan Agreement is deleted in its
entirety and the following is inserted in lieu thereof.
(d) Earnings. Permit Borrowers' Net Earnings to be less
than the amount set forth below for the respective periods set forth below:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Fiscal Year Ending October 31, 1996 $250,000
Fiscal Year Ending October 31, 1997 $800,000
</TABLE>
(5) Section 8(e) of the Loan Agreement is deleted in
its entirety and the following is substituted in lieu thereof:
(e) Current Ratio. Permit Borrowers' current ratio for its fiscal
quarter ending July 31, 1996 to be less than .95 to 1.00 and for any fiscal
quarter thereafter to be less than 1.00 to 1.00.
(6) Section 8(f) of the Loan Agreement is restated as
follows:
"(f) Interest Coverage Ratio. Permit the ratio of (i)
Borrowers' EBIT to (ii) Borrowers' interest expense to be less than 2.00 to
1.00 as determined at the end of each fiscal quarter of Borrowers for the prior
four fiscal quarters."
3. Grant of Security Interest. As security for the prompt performance,
observance and payment in full of all Obligations, Lockhart hereby grants to
Bank a continuing security interest in and lien on and assigns, transfers, sets
over and pledges to the Bank all property of Lockhart whether now owned by
Lockhart or hereafter acquired or existing, and wherever located (collectively,
the "Collateral"), including without limitation:
(a) all Accounts;
<PAGE> 6
(b) all Inventory;
(c) all Equipment;
(d) all General Intangibles;
(e) all Instruments and Documents;
(f) all Related Collateral; and
(g) all accessions to and additions to, substitutions for,
replacements, products and Proceeds to any and all of the foregoing.
The term "Collateral" shall also refer to any other property in which Bank is
granted a Lien to secure any of the Obligations pursuant to an agreement
supplemental hereto or otherwise (whether or not such agreement makes reference
to the Loan Agreement or the Obligations of Borrowers thereunder).
4. Representations and Warranties.
To induce Bank to enter into this Fourth Amendment, each
Borrower jointly and severally warrants, represents and covenants to Bank that:
(a) Organization and Qualification. Each Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Each Borrower is duly qualified
or is authorized to do business and is in good standing as a foreign
corporation in all states and jurisdictions in which the failure of such
Borrower to be so qualified would have a material adverse effect on the
financial condition, business or properties of such Borrower.
(b) Corporate Power and Authority. Each Borrower is duly
authorized and empowered to enter into, execute, deliver and perform this
Fourth Amendment, and each of the Loan Documents to which it is a party. The
execution, delivery and performance of this Fourth Amendment and each of the
other Loan Documents have been duly authorized by all necessary corporate
action and do not and will not (i) require any consent or approval of the
shareholders of any Borrower; (ii) contravene any Borrower's charter or
by-laws; (iii) violate, or cause any Borrower to be in default under, any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award in effect having applicability to such Borrower;
(iv) result in a breach of or constitute a default under any indenture or loan
or credit agreement or any other agreement, lease or instrument to which any
Borrower is a party or by which such Borrower's properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any Lien
(other than Permitted Liens) upon or with respect to any of the properties now
owned or hereafter acquired by any Borrower.
<PAGE> 7
(c) Legally Enforceable Agreement. This Fourth Amendment
and each of the other Loan Documents delivered under this Fourth Amendment will
be, a legal, valid and binding obligation of each Borrower, enforceable against
each Borrower in accordance with its respective terms subject to bankruptcy,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally.
(d) No Material Adverse Change. Since July 28, 1996, the
date of the last financial statements provided by the Borrowers to the Bank,
there has been no material adverse change in the condition, financial or
otherwise, of Borrowers as shown on the consolidated balance sheet thereof as
of such date and no change in the aggregate value of property and assets owned
by Borrowers, except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse.
(e) Continuous Nature of Representations and Warranties.
Each representation and warranty contained in the Loan Agreement and the other
Loan Documents remains accurate, complete and not misleading in any material
respect on the date of this Fourth Amendment, except for representations and
warranties that explicitly relate to an earlier date and changes in the nature
of Borrowers' business or operations that would render the information in any
exhibit attached thereto either inaccurate, incomplete or misleading, so long
as Bank has consented to such changes or such changes are expressly permitted
by the Loan Agreement.
5. Conditions Precedent.
Notwithstanding any other provision of this Fourth Amendment
or any of the other Loan Documents, and without affecting in any manner the
rights of Bank under the other sections of this Fourth Amendment, this Fourth
Amendment shall not be effective as to Bank unless and until each of the
following conditions has been and continues to be satisfied:
(a) Documentation. Bank shall have received, in form and
substance satisfactory to Bank and its counsel, a duly executed copy of this
Fourth Amendment, the Second Amended and Restated Revolving Credit Note in the
form attached on Exhibit A hereto and the Term Note, the Unlimited Guaranty of
Lockhart in the form of Exhibit B hereto, the completed Perfection Certificate
in the form of Exhibit C hereto, the UCC-1 Financing Statements of Lockhart,
together with such additional documents, instruments and certificates as Bank
and its counsel shall require in connection therewith, all in form and
substance satisfactory to Bank and its counsel.
(b) No Default. No Event of Default shall exist.
(c) No Litigation. Except as previously disclosed to and
consented to by Bank, no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative
<PAGE> 8
body to enjoin, restrain or prohibit, or to obtain damages in respect of, or
which is related to or arises out of the Loan Agreement or this Fourth
Amendment or the consummation of the transactions contemplated thereby or
hereby.
6. Repayment of Alpha Advances. Bank consents to the use of
$506,000 of the proceeds of Revolving Loans for the repayment of advances made
by Alpha in connection with the Lockhart merger transaction.
7. Acknowledgment of Obligations.
Each Borrower hereby (1) reaffirms and ratifies all of the
promises, agreements, covenants and obligations to Bank under or in respect of
the Loan Agreement and other Loan Documents as amended hereby and (2)
acknowledges that it is unconditionally liable for the punctual and full
payment of all Obligations, including, without limitation, all charges, fees,
expenses and costs (including reasonable attorneys' fees and expenses) under
the Loan Documents, as amended hereby, and that it has no defenses,
counterclaims or setoffs with respect to full, complete and timely payment and
performance of all Obligations. Wakefield and Specialty specifically
acknowledge and agree that Lockhart shall be deemed to be an Obligor under
their respective Guaranty Agreements in favor of Lender.
8. Confirmation of Liens.
Each Borrower acknowledges, confirms and agrees that the Loan
Documents, as amended hereby, are effective to grant to Bank duly perfected,
valid and enforceable first priority security interests and liens in the
Collateral described therein, except for Permitted Liens, and that the
locations for such Collateral specified in the Loan Documents have not changed
except as provided herein. Each Borrower further acknowledges and agrees that
all Obligations of Borrowers are and shall be secured by the Collateral.
9. Miscellaneous.
Except as set forth herein, the undersigned confirms and
agrees that the Loan Documents remain in full force and effect without
amendment or modification of any kind. The execution and delivery of this
Fourth Amendment by Bank shall not be construed as a waiver by Bank of any
Default or Event of Default under the Loan Documents. This Fourth Amendment,
together with the Loan Agreement and other Loan Documents, constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior dealings, correspondence, conversations or
communications between the parties with respect to the subject matter hereof.
This Fourth Amendment and the transactions hereunder shall be deemed to be
consummated in the Commonwealth of Massachusetts and shall be governed by and
interpreted in accordance with the laws of that state. Any reference in any of
the Loan Documents to Lender shall be deemed to be a reference to the Bank.
This Fourth Amendment and the
<PAGE> 9
agreements, instruments and documents entered into pursuant hereto or in
connection herewith shall be "Loan Documents" under and as defined in the Loan
Agreement.
Executed under seal on the date set forth above.
ATTEST: WAKEFIELD ENGINEERING, INC.
/s/ Anne M. Donnahue By: /s/ James J. Polakiewicz
- --------------------------------- ---------------------------------
Name: James J. Polakiewicz
------------------------
Title: Vice President - Finance
------------------------
ATTEST: SPECIALTY EXTRUSION CORP.
/s/ D. M. Despard By: /s/ Johnny J. Blanchard
- --------------------------------- ---------------------------------
Name:
--------------------------
Title:
--------------------------
ATTEST: LOCKHART INDUSTRIES, INC.
/s/ D. M. Despard By: /s/ Johnny J. Blanchard
- --------------------------------- ---------------------------------
Name:
--------------------------
Title:
--------------------------
Accepted in Boston, Massachusetts
on _____________ __, 1996
FLEET NATIONAL BANK
By: /s/ Scott E. Carpenter
-------------------------------------------------
Name: Scott E. Carpenter
-----------------------------------------
Title: Vice President
-----------------------------------------
<PAGE> 10
<TABLE>
<CAPTION>
List of Exhibits and Schedules
- ------------------------------
<S> <C>
Exhibit A Second Amended and Restated Revolving Credit Note
Exhibit B Lockhart Industries, Inc. Guarantee
Exhibit C Perfection Certificate
Schedule 1 Lockhart Industries, Inc. Ownership
</TABLE>
<PAGE> 1
EXHIBIT 10.12(a)
SECOND AMENDMENT TO ACCOUNTS RECEIVABLE
LOAN AGREEMENT
This Second Amendment to Accounts Receivable Loan Agreement
("Amendment") is entered into as of March 20, 1996, by and between UNI-STAR
INDUSTRIES, INC., a Delaware corporation ("Borrower") and CITY NATIONAL BANK, a
national banking association ("CNB").
RECITALS
A. Borrower and CNB are parties to that certain Accounts
Receivable Loan Agreement, dated as of August 30, 1995, as amended by that
certain First Amendment to Accounts Receivable Loan Agreement dated as of
October 27, 1995, (together, the Loan Agreement).
B. Borrower and CNB desire to supplement and amend the Loan
Agreement as hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment without
definition shall have the meanings set forth in the Loan Agreement.
2. AMENDMENTS. The Loan Agreement is amended as follows:
2.1 Section 1.13 is amended in its entirety to provide as follows:
"1.13 'CURRENT LIABILITIES' shall be determined on
a consolidated basis for Borrower and the Subsidiaries in
accordance with GAAP and shall include, without limitation:
(a) all payments on Subordinated Debt required to be made
within one (1) year after the date on which the determination
is made, (b) loans under the Revolving Credit Commitment, and
(c ) all indebtedness payable to stockholders, Affiliates,
Subsidiaries or officers, regardless of maturity, unless such
indebtedness shall have been subordinated, on terms
satisfactory to CNB, to the Obligations".
<PAGE> 2
2.2 Section 7.3 is amended in its entirety to provide as follows:
"7.3 'LOANS.' Make loans or advances to any
person, except (i ) Subsidiaries up to an aggregate amount not
to exceed $1,500,000.00, and to (ii ) credit extended to
employees or to customers in the ordinary course of business,
or to ATG".
3. CONDITIONS PRECEDENT. This Amendment shall become effective upon the
fulfillment of all of the following conditions to CNB's satisfaction:
3.1 CNB shall have received this Amendment duly executed by
Borrower.
4. EXISTING AGREEMENT. Except as expressly amended herein, the Loan
Agreement shall remain in full force and effect, and in all other respects is
affirmed.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
6. GOVERNING LAW. This Amendment and the rights and obligations of the
parties hereto shall be construed in accordance with, and governed by the laws
of the State of California.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
"Borrower" Uni-Star Industries, Inc., a
Delaware corporation
By: /s/ Lawrence Butler
-----------------------------------------
Lawrence Butler, Vice President
"CNB" City National Bank, a national
banking association
BY: /s/ Phillip Goessler
------------------------------------------
Phillip Goessler, Vice President
<PAGE> 1
EXHIBIT 10.12(b)
THIRD AMENDMENT TO ACCOUNTS RECEIVABLE
LOAN AGREEMENT
This Third Amendment to Accounts Receivable Loan Agreement is entered
into as of September 17, 1996, by and between UNI-STAR INDUSTRIES, INC. , a
Delaware corporation ("Borrower") and CITY NATIONAL BANK, a national banking
association ("CNB").
RECITALS
A. Borrower and CNB are parties to that certain Accounts
Receivable Loan Agreement, dated as of August 30, 1995, as amended by that
certain First Amendment to Accounts Receivable Loan Agreement dated as of
October 27, 1995, and as amended by that certain Second Amendment to Accounts
Receivable Loan Agreement dated as of March 20, 1996 (together, the Loan
Agreement).
B. Borrower and CNB desire to supplement and amend the Loan
Agreement as hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment without
definition shall have the meanings set forth in the Loan Agreement.
2. AMENDMENTS. The Loan Agreement is amended as follows:
2.1 Section 1.31 is amended in its entirety to provide as follows:
"1.31 'SUBORDINATED DEBT' shall mean Debt of Borrower or
any Subsidiary the repayment of principal and interest of
which is subordinated, on terms satisfactory to CNB, to the
Obligations. The holder of Subordinated Debt as of the date
of this Agreement is ALPHA TECHNOLOGIES GROUP, INC., a
Delaware corporation."
2.2 Section 1.36 is amended by deleting the date "August 31,
1996", and inserting in its place and stead the date "April
30, 1997".
2.3 Section 6.11 is amended in its entirety to provide as
follows:
"6.11 FINANCIAL TESTS. Borrower shall maintain:
6.11.1 Tangible New Worth plus Subordinated
Debt of not less than $5,500,000.00;
6.11.2 A ratio of Total Senior Liabilities
to Tangible Net Worth plus Subordinated Debt of not more than
1.25 to 1;
6.11.3 A ratio of Cash Flow from Operations
to Debt Service of not less than 1.50 to 1;
6.11.4 Current Assets less Current
Liabilities of not less than $3,000,000.00; and
<PAGE> 2
6.11.5 A ratio of Current Assets to Current
Liabilities of not less than 1.65 to 1."
2.4 Section 9.1.12 is amended in its entirety to provide as
follows:
"9.1.12 ATG controls at least eighty percent (80%) of the
stock of Borrower."
2.5 Section 10.5 NOTICES (Borrower) is amended by deleting
"Attention: Neal Castleman, President" and inserting in its
place and stead "Attention: Ernest Hartland, President".
3. CONDITIONS PRECEDENT. This Amendment shall become effective upon the
fulfillment of all of the following conditions to CNB's satisfaction:
3.1 CNB shall have received this Amendment duly executed by
Borrower; and
3.2 CNB shall have received a pro-rated Facility Fee for the
period August 31, 1996 through April 30, 1997 equal to
$3,330.00.
4. EXISTING AGREEMENT. Except as expressly amended herein, the Loan
Agreement shall remain in full force and effect, and in all other respects is
affirmed.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
6. GOVERNING LAW. This Amendment and the rights and obligations of the
parties hereto shall be construed in accordance with, and governed by the laws
of the State of California.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
"Borrower" UNI-STAR INDUSTRIES, INC., a
Delaware Corporation
By:/s/ Ernest Hartland
----------------------------
Ernest Hartland, President
"CNB" CITY NATIONAL BANK, a national
banking association
By:/s/ Philliip C. Goessler
----------------------------
Phillip C. Goessler,
Vice President
<PAGE> 1
EXHIBIT 10.21
STANDARD INDUSTRIAL LEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, 31 October,
1979, is made by and between LANDCEE INVESTMENT CO., a Partnership (herein
called "Lessor") and LOCKHART INDUSTRIES, INC., a California Corporation
(herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
that certain real property situated in the County of Los Angeles State of
California, commonly known as 15555 Texaco Avenue, and 15557 Texaco Avenue,
Paramount, California, and described as a total of 36,679 sq. ft. of Class "A"
concrete building, constructed with a common firewall between the front section
(15555 Texaco) containing 16,598 sq. ft. and the rear section (15557 Texaco)
containing 20,081 sq. ft. with the land areas to the East, South and West of
said buildings to the property lines. Said real property including the land
and all improvements thereon, is herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Ten Years
commencing on November 1, 1979 and ending on October 31, 1989 unless sooner
terminated pursuant to any provisions hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date, Lessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease or the obligations Lessee
hereunder or extend the term hereof, but in such case Lessee shall not be
obligated to pay rent until possession of the Premises is tendered to Lessee;
provided, however, that if Lessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the parties shall be discharged
from all obligations hereunder. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay
rent for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises equal monthly
payments of $5,318.46, in advance, on the 1st day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $5,318.46 as rent
for November, 1979. (See Addendum dated 1/27/81). Rent for any period during
the term hereof which is for less than one month shall be a pro rata portion of
the monthly installment. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$3,000.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit, Lessee shall within ten (10) days
after written demand therefor deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount hereinabove stated and
1
<PAGE> 2
Lessee's failure to do so shall be a material breach of this Lease. Lessor
shall not be required to keep said deposit separate from its general accounts.
If Lessee performs all of Lessee's obligations hereunder, said deposit, or so
much thereof as has not theretofore been applied by Lessor, shall be returned,
without payment of interest or other increment for its use, to Lessee (or, at
Lessor's option, to the last assignee, if any of Lessee's interest hereunder)
at the expiration of the term hereof, and after Lessee has vacated the
Premises. No trust relationship is created herein between Lessor and Lessee
with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the
manufacturing, warehousing, sale and distribution of products for aerospace,
motorcycle and automotive markets and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its existing
state, but without regard to the use for which Lessee will use the Premises,
does not violate any applicable building code regulation or ordinance at the
time that this Lease is executed. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor,
after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, to rectify any such violation. In the event that Lessee does not give
to Lessor written notice of the violation of this warranty within 1 year from
the commencement of the term of this Lease, it shall be conclusively deemed
that such violation did not exist and the correction of the same shall be the
obligation of the Lessee.
(b) Except as provided in paragraph 6.2 (a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Lessee of
the Premises. Lessee shall not use nor permit the use of the Premises in any
manner that will tend to create waste or a nuisance or, if there shall be more
than one tenant in the building containing the Premises, shall tend to disturb
such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2 (a)
Lessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county
and state laws, ordinances and regulations governing and regulating the use of
the Premises, and accepts this Lease subject thereto and to all matters
disclosed thereby and by any exhibits attached hereto. Lessee acknowledges
that neither Lessor nor Lessor's agent has made any representation or warranty
as to the suitability of the Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition
and repair the Premises and every part thereof, structural and non-structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including,
without limiting the generality of the foregoing, all plumbing, heating,
air-conditioning, ventilating, electrical, lighting facilities and equipment
within the Premises, fixtures, walls (interior and exterior), foundations,
ceilings, roofs (interior and exterior), floors, windows, doors, plate glass
and skylights located within the Premises, and all landscaping; driveways,
parking lots, fences and signs located on the Premises and sidewalks and
parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as when received, broom clean, ordinary wear and tear excepted.
Lessee shall repair any damage to the Premises occasioned by the removal of
Lessee's trade fixtures, furnishings and equipment pursuant to
2
<PAGE> 3
Paragraph 7.5(d), which repair shall include the patching and filling of holes
and repair of structural damage.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, Lessor may at its option (but shall not be required to)
enter upon the Premises, after ten (10) days' prior written notice to Lessee,
and put the same in good order, condition and repair, and the cost thereof
together with interest thereon at the rate of 10% per annum shall become due
and payable as additional rental to Lessor together with Lessee's next rental
installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) (relating to Lessor's warranty), Paragraph 9 (relating to
destruction of the Premises) and under Paragraph 14 (relating to condemnation
of the Premises), it is intended by the parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises nor
the building located thereon nor the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. Lessee expressly waives the benefit of any statute
now or hereinafter in effect which would otherwise afford Lessee the right to
make repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility installations in, on or
about the Premises, except for nonstructural alterations not exceeding $1,000
in cost. As used in this Paragraph 7.5 the term "Utility Installation" shall
mean bus ducting, power panels, wiring, fluorescent fixtures, space heaters,
conduits, air-conditioning equipment and plumbing. Lessor may require that
Lessee remove any or all of said alterations, improvements, additions or
Utility Installations at the expiration of the term, and restore the Premises
to their prior condition. Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such improvements, to insure
Lessor against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its consent
the consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of
all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of
any work in the Premises, and Lessor shall have the right to post notices of
non- responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself and Lessor against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien, claim or
demand indemnifying Lessor against liability for the same and holding the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
3
<PAGE> 4
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph
7.5(d), Lessee's machinery and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in the Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 16.26 hereof. Whether the insuring party is the Lessor or the
Lessee, Lessee shall, as additional rent for the Premises, pay the cost of all
insurance required hereunder. If Lessor is the insuring party Lessee shall,
within ten (10) days following demand by Lessor, reimburse Lessor for the cost
of the insurance so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage Insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of
the Premises and all areas appurtenant thereto. Such insurance shall be a
combined single limit policy in an amount not less than $500,000. The policy
shall contain cross liability endorsements and shall insure performance by
Lessee of the indemnity provisions of this Paragraph 8. The limits of said
insurance shall not , however, limit the liability of Lessee hereunder. In the
event that the Premises constitute a part of a larger property said insurance
shall have a Lessor's Protective Liability endorsement attached thereto. If
Lessee shall fail to procure and maintain said insurance Lessor may, but shall
not be required to procure and maintain the same, but at the expense of Lessee.
Not more frequently than each 5 years, if, in the reasonable opinion of
Lessor, the amount of liability insurance required hereunder is not adequate,
Lessee shall increase said insurance coverage as required by Lessor. Provided,
however that in no event shall the amount of the liability insurance increase
be more than fifty percent greater then the amount thereof during the
preceding five years of the term of this Lease. However, the failure of Lessor
to require any additional insurance coverage shall not be deemed to relieve
Lessee from any obligations under this Lease.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, in the amount of the full replacement value thereof, as the same
may exist from time to time, which replacement value is now
$_________________________________, but in no event less than the total amount
of promissory notes secured by liens on the Premises against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk) and sprinkler leakage.
Said insurance shall provide for payment of loss thereunder to Lessor or to the
holders of mortgages or deeds of trust on the Premises. The insuring party
shall, in addition, obtain and keep in force during the term of this Lease a
policy of rental income insurance covering a period of six months, with loss
payable to Lessor, which insurance shall also cover all real estate taxes and
insurance costs for said period. If the insuring party shall fail to procure
and maintain said insurance the other party may, but shall not be required to,
procure and maintain the same, but at the expense of Lessee. If such insurance
coverage has a deductible clause, Lessee shall be liable for the deductible
amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party, the Lessor will not
insure Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the
4
<PAGE> 5
Premises under paragraph 7 hereof. But if Lessee is the insuring party the
Lessee shall insure its fixtures, equipment and tenant improvements.
(d) Not more frequently than each three years, if, in the opinion
of Lessor, the amount of property insurance required hereunder is not adequate,
the insuring party shall increase said insurance coverage as required by
Lessor. However, such increase may be more frequent than each three years if
required by the insurance carrier in order to maintain insurance for the full
replacement value of the Premises.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of B plus or better as set
forth in the most current issue of "Best's Insurance Guide". The insuring party
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Lessor. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after ten (10)
days prior written notice to Lessor. If Lessee is the insuring party Lessee
shall, within ten (10) days prior to the expiration of such policies, furnish
Lessor with renewals or "binders" thereof, or Lessor may order such insurance
and charge the cost thereof to Lessee, which amount shall be payable by Lessee
upon demand. Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in Paragraph 8.3. If Lessee does
or permits to be done anything which shall increase the cost of the insurance
policies referred to Paragraph 8.3, then Lessee shall forthwith upon Lessor's
demand reimburse Lessor for any additional premiums attributable to any act or
omission or operation of Lessee causing such increase in the cost of insurance.
If Lessor is the insuring party, and if the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
deliver to Lessee a written statement setting forth the amount of any such
insurance cost increase and showing in reasonable detail the manner in which it
has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby waive any
and all rights of recovery against the other, or against the officers,
employees, agents, and representatives of the other, for loss of or damage to
such waiving party or its property or the property of others under its control
to the extent that such loss or damage is insured against under any insurance
policy in force at the time of such loss or damages. The insuring party shall,
upon obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation
is contained in this Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises, or
from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any negligence of the Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee,
as a material part of the consideration to Lessor, hereby assumes all risk of
damage to property or injury to persons, in, upon or about the Premises arising
from any cause and Lessee hereby waives all claims in respect thereof against
Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers or any other person
in or about the Premises, nor shall Lessor be liable for injury to the person
of Lessee, Lessee's employees, agents, or contractors, whether such damage or
injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the
5
<PAGE> 6
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 PARTIAL DAMAGE - INSURED. Subject to the provisions of Paragraphs
9.3 and 9.4, if the Premises are damaged and such damage was caused by a
casualty covered under an insurance policy required to be maintained pursuant
to Paragraph 8.3, Lessor shall at Lessor's expense repair such damage but not
Lessee's fixtures, equipment or tenant improvements unless the same have become
a part of the Premises pursuant to Paragraph 7.5 hereof as soon as reasonably
possible and this Lease shall continue in full force and effect.
Notwithstanding the above, if the Lessee is the insuring party, and if the
insurance proceeds received by Lessor are not sufficient to effect such repair,
Lessor shall give notice to Lessee of the amount required in addition to the
insurance proceeds to effect such repair. Lessee shall contribute the required
amount to Lessor within ten days after Lessee has received notice from Lessor
of the shortage in the insurance. When Lessee shall contribute such amount to
Lessor, Lessor shall make such repairs as soon as reasonably possible and this
Lease shall continue in full force and effect. Lessee shall in no event have
any right to reimbursement for any such amount so contributed.
9.2 PARTIAL DAMAGE - UNINSURED. Subject to the provisions of
Paragraphs 9.3 and 9.4, if at any time during the term hereof the Premises are
damaged, except by a negligent or willful act of Lessee, (in which event Lessee
shall make the repairs, at Lessee's expense) and such damage was caused by a
casualty not covered under an insurance policy required to be maintained
pursuant to Paragraph 8.3, Lessor may at Lessor's option either ( i ) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or ( ii ) give written
notice to Lessee within thirty (30) days after the date of the occurrence of
such damage of Lessor's intention to cancel and terminate this Lease as of the
date of the occurrence of such damage. In the event Lessor elects to give
written notice of Lessor's intention to cancel and terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's intention to repair such damage at
Lessee's expense, without reimbursement from Lessor, in which event this Lease
shall continue in full force and effect, and Lessee shall proceed to make such
repairs as soon as reasonably possible. If Lessee does not give such notice
within such 10-day period this Lease shall be cancelled and terminated as of
the date of the occurrence of such damage.
9.3 TOTAL DESTRUCTION. If at any time during the term hereof the
Premises are totally destroyed from any cause whether or not covered by the
insurance required to be maintained pursuant to Paragraph 8.3 (including any
total destruction required by any authorized public authority) this Lease shall
automatically terminate as of the date of such total destruction.
9.4 DAMAGE NEAR END OF TERM. If the Premises are partially destroyed
or damaged during the last six months of the term of this Lease, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) If the Premises are partially destroyed or damaged and Lessor
or Lessee repairs or restores them pursuant to the provisions of this Paragraph
9, the rent payable hereunder for the period during which such damage, repair
or restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired; provided, however, that the aggregate
amount of abatement hereunder shall not exceed the total of rent payable
6
<PAGE> 7
under Paragraph 4 for a period of six months. Except for abatement of rent, if
any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 TERMINATION - ADVANCE PAYMENT. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessee waives the provisions of California Civil Code
Sections 1932 (2) and 1933 (4) which relate to termination of leases when the
thing leased is destroyed and agrees that such event shall be governed by the
terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay all real property taxes
applicable to the Premises during the term of this Lease. All such payments
shall be made at least ten (10) days prior to the delinquency date of such
payment. Lessee shall promptly furnish Lessor with satisfactory evidence that
such taxes have been paid. If any such taxes paid by Lessee shall cover any
period of time prior to or after the expiration of the term hereof Lessee's
share of such taxes shall be equitably prorated to cover only the period of
time within the tax fiscal year during which this Lease shall be in effect, and
Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to
pay any such taxes, Lessor shall have the right to pay the same in which case
Lessee shall repay such amount to Lessor with Lessee's next rent installment
together with interest at the rate of 10% per annum.
10.2 DEFINITION OF "REAL PROPERTY" TAX. As used herein, the term "real
property tax" shall include any form of assessment, license fee, commercial
rental tax, levy, penalty, or tax (other than inheritance or estate taxes),
imposed by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof, as against any legal
or equitable interest of Lessor in the Premises or in the real property of
which the Premises are a part, as against Lessor's right to rent or other
income therefrom, or as against Lessor's business of leasing the Premises or
any tax imposed in substitution, partially or totally, of any tax previously
included within the definition of real property tax, or any additional tax the
nature of which was previously included within the definition of real property
tax.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Lessor.
7
<PAGE> 8
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES.Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease. Any such assignment shall not, in
any way, affect or limit the liability of Lessee under the terms of this Lease
even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligations or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or
their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act that Lessee proposes to
do then Lessee shall pay Lessor's reasonable attorneys fees incurred in
connection therewith, such attorneys fees not to exceed $250.00 for each such
request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a materiel default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in
8
<PAGE> 9
paragraph (b) above, where such failure shall continue for a period of 30 days
after written notice hereof from Lessor to Lessee; provided, however, that if
the nature of Lessee's default is such that more than 30 days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said 30-day period and thereafter diligently
pursues such cure to completion.
(d)(i) The making by Lessee of any general assignment, or
general arrangement for the benefit of creditors; (ii ) the filing by or
against Lessee of a petition to have Lessee adjudged a bankrupt or a petition
for reorganization or arrangement under any law relating to bankruptcy (unless
in the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii ) the appointment of a a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligations
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could
be reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession, in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall by entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the State in which the Premises are
located.
13.3 DEFAULT BY LESSOR.Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligations;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and
thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, Lessee shall pay to Lessor a late charge equal to 6% of
such overdue amount. The parties hereby agree that
9
<PAGE> 10
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder.
14. CONDEMNATION.If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
improvements on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any improvements, is taken by condemnation, Lessee
may, at Lessee's option, to be exercised in writing only within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area taken bears to the total floor
area of the building situated on the Premises. Any award for the taking of all
or any part of the Premises under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any award for loss of or
damage to Lessee's trade fixtures and removable personal property. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of severance damages received by Lessor in connection with
such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair.
15. BROKER'S FEE.Upon execution of this Lease by both parties, Lessor shall
pay to __________________ _____________a licensed real estate broker, a fee as
set forth in a separate agreement between Lessor and said broker, or in the
event there is no separate agreement the sum of $__________________ for
brokerage services rendered by said broker to Lessor in this transaction.
Lessor further agrees that if Lessee exercises any option granted herein or any
option substantially similar thereto, either to extend the term of this Lease,
to renew this Lease, to purchase said Premises or any part thereof and/or any
adjacent property which Lessor may own or in which Lessor has an interest, or
any other option granted herein, or if said broker is the procuring cause of
any other lease or sale entered into between the parties pertaining to the
Premises and/or any adjacent property in which Lessor has an interest, then as
to any of said transactions, Lessor shall pay said broker a fee in accordance
with the schedule of said broker in effect at the time of execution of this
Lease. Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, by accepting
an assignment of such interest, shall be deemed to have assumed Lessor's
obligation under this Paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this Paragraph.
16. GENERAL PROVISIONS.
16.1 ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing ( i ) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and (
ii ) acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, or
10
<PAGE> 11
specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.
(b) Lessee's failure to deliver such statement within such time
shall be conclusive upon Lessee ( i ) that this Lease is in full force and
effect, without modification except as may be represented by Lessor, ( ii )
that there are no uncured defaults in Lessor's performance, and ( iii ) that
not more than one month's rent has been paid in advance or such failure may be
considered by Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance or refinance the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender designated by
Lessor such financial statements of Lessee as may be reasonably required by
such lender. Such statements shall include the past three years' financial
statements of Lessee. All such financial statements shall be received in
confidence and shall be used only for the purposes herein set forth.
16.2 LESSOR'S LIABILITY.The term "Lessor" as used herein shall mean
only the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided in
Paragraph 15, in the event of any transfer of such title or interest. Lessor
herein named (and in case of any subsequent transfers the then grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
16.3 SEVERABILILTY.The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
16.4 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due Lessor not paid when due shall bear interest at 10%
per annum from the date due. Payment of such interest shall not excuse or cure
any default by Lessee under this Lease, provided, however, that interest shall
not be payable on late charges incurred by Lessee nor on any amounts upon which
late charges are paid by Lessee.
16.5 TIME OF ESSENCE. Time is of the essence.
16.6 CAPTIONS.Article and paragraph captions are not a part hereof.
16.7 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS.This lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in
this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employees or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of said Premises and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act or the
legal use of adaptability of the Premises and the compliance thereof to all
applicable laws and regulations enforced during the term of this Lease except
as otherwise specifically stated in this Lease.
16.8 NOTICES.Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified mail,
and if given personally or by mail, shall be deemed sufficiently given if
addressed to Lessee or to Lessor at the address noted below the signature of
the respective parties, as the case may be. Either party may by notice to
11
<PAGE> 12
the other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice purposes. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted to
such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
16.9 WAIVERS.No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to or approval of
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted,regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
16.10 RECORDING.Lessee shall not record this Lease without Lessor's
prior written consent, and such recordation shall, at the option of Lessor,
constitute a non-curable default of Lessee hereunder. Either party shall, upon
request of the other, execute, acknowledge and deliver to the other a "short
form" memorandum of this Lease for recording purposes.
16.11 HOLDING OVER. If Lessee remains in possession of the Premises or
any part thereof after the expiration of the term hereof without the express
written consent of Lessor, such occupancy shall be a tenancy from month to
month at a rental in the amount of the last monthly rental plus all other
charges payable hereunder, and upon all the terms hereof applicable to a
month-to-month tenancy.
16.12 CUMULATIVE REMEDIES.No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
16.13 COVENANTS AND CONDITIONS.Each provision of this Lease performable
by Lessee shall be deemed both a covenant and a condition.
16.14 BINDING EFFECT; CHOICE OF LAW.Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 16.2 this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State in which the Premises are located.
16.15 SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation for security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgage, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate
such subordination or to make this Lease prior to the lien of any mortgage,
deed of trust or ground lease, as the case may be, and failing to do so within
ten (10) days after written demand, does hereby make, constitute and
irrevocably appoint Lessor as Lessee's attorney in fact and in Lessee's name,
place and stead, to do so.
12
<PAGE> 13
16.16 ATTORNEY'S FEES.If either party or the broker named herein brings
an action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
16.17 LESSOR'S ACCESS.Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, or lenders, or lessees, and making
such alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
16.18 SIGNS AND AUCTIONS.Lessee shall not place any sign upon the
Premises or conduct any auction thereon without Lessor's prior written consent
except that Lessee shall have the right, without the prior permission of
Lessor, to place ordinary and usual for rent or sublet signs thereon.
16.19 MERGER.The voluntary or other surrender of this Lease by Lessee,
or a mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
16.20 CORPORATE AUTHORITY.If Lessee is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Lessee is a corporation Lessee shall, within thirty (30)
days after execution of this Lease, deliver to Lessor a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.
16.21 CONSENTS.Whenever in this Lease the consent of one party is
required to an act of the other party such consent shall not be unreasonably
withheld.
16.22 GUARANTOR.In the event that there is a guarantor of this Lease,
said guarantor shall have the same obligations as Lessee under Paragraphs 16.1
and 16.20 of this Lease.
16.23 QUIET POSSESSION.Upon Lessee paying the fixed rent reserved
hereunder and observing and performing all of the covenants, conditions, and
provisions on Lessee's part to be observed and performed hereunder, Lessee
shall have quiet possession of the Premises for the entire term hereof subject
to all of the provisions of this Lease.
16.24 OPTIONS.In the event that the Lessee, under the terms of this
Lease, has any option to extend the term of this Lease, or any option to
purchase the Premises or any right of first refusal to purchase the Premises or
other property of Lessor, then each of such options and rights are personal to
Lessee and may not be exercised or be assigned, voluntarily or involuntarily,
by or to any one other than Lessee except that it may be exercised by or
assigned to any of the entities described in Paragraph 12.2 hereof for whom
Lessee does not need the consent of Lessor to assign this Lease. In the event
that Lessee hereunder has any multiple
13
<PAGE> 14
options to extend this Lease a later option to extend the Lease cannot be
exercised unless the prior option has been so exercised.
16.25 MULTIPLE TENANT BUILDING RULES AND REGULATIONS.In the event that
the Premises are part of a larger building or group of buildings then Lessee
agrees that it will abide by, keep and observe all reasonable rules and
regulations which Lessor may make from time to time for the management, safety,
care, and cleanliness of the building and grounds, the parking of vehicles and
the preservation of good order therein as well as for the convenience of other
occupants and tenants of the building. Further, Lessee will promptly pay its
prorata share, as reasonably determined by Lessor, of any maintenance or repair
of such portion of the Premises or such portion of the property of which the
Premises are a part, which are common areas or used by Lessee and other
occupants thereof. The violations of any such rules and regulations, or the
failure to pay such prorata share of costs, shall be deemed a material breach
of this Lease by Lessee.
16.26 INSURING PARTY.The insuring party under this lease shall be the
Lessor.
16.27 ADDITIONAL PROVISIONS.If there are no additional provisions draw a
line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.
16.28 Insurance is the responsibility of Lessor, with cost to be borne
by Lessee.
16.29 Lessor hereby grants Lessee an option to extend the lease for a
period of FIVE YEARS. All terms and conditions of the lease shall apply during
the option term, except the monthly rental to be paid shall be determined as
set forth in the following paragraph. This option must be exercised in writing
by August 1, 1989.
16.30 Each five (5) years, i.e., on Nov. 1, 1984 and on Nov. 1, 1989
(provided option is exercised) the rent shall be adjusted commensurate with the
change that has taken place in the U.S. Dept. of Labor, Bureau of Labor
Statistics Consumer Price Index for Urban Wage Earners and clerical workers
(1967 equals 100) revised Los Angeles, Long Beach, Anaheim Index for the
preceding five year period. The base months in the calculation shall be
September 1979 (rental sum of $5,318.46 per month), September 1984 and
September 1989. For example, the monthly rental to be paid in the period Nov.
1, 1984 to Nov. 1, 1989 shall be that sum of money which bears the same
relationship to the Consumer Price Index described above for the month of
September 1984 as the sum of $5,318.46 bears to the above mentioned Index for
the month of September 1979.
16.31 The letter dated October 29, 1979 to Mr. Frank Zamboni/Landcee
Investment Co. from LOCKHART INDUSTRIES, INC. is appended to and becomes part
of this Lease.
16.32 The addendum dated January 27, 1981 is appended to and becomes
part of this Lease.
The parties hereto have executed this Lease at the place and on the dates
specified immediately adjacent to their respective signatures.
If this Lease has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents
14
<PAGE> 15
or employees as to the legal sufficiency, legal effect, or tax consequences of
this Lease or the transaction relating thereto.
Executed at Paramount, California LANDCEE INVESTMENT CO., a Partnership
----------------------- -------------------------------------
on By:/s/ Frank J. Zamboni
---------------------------------- ----------------------------------
Frank J. Zamboni, Partner
Address 8041 East Jackson St. By:/s/ Jean Zamboni
----------------------------- ---------------------------------
Paramount, California 90723 Jean Zamboni, Partner
----------------------------
"Lessor" (Corporate seal)
Executed at Paramount, California LOCKHART INDUSTRIES, INC.
------------------------- ------------------------------------
on By:/s/ Eldon H. Lockhart
----------------------------------- ---------------------------------
Eldon H. Lockhart,
Chief Executive Officer
Address 15707 Texaco Avenue
----------------------------
Paramount, California 90723 By:/s/ Marjorie D. Lockhart
---------------------------- --------------------------------
Marjorie D. Lockhart,
Secretary
"Lessee" (Corporate seal)
15
<PAGE> 16
ADDENDUM TO LEASE BETWEEN
LOCKHART INDUSTRIES, INC. AND LANDCEE INVESTMENT COMPANY
DATED OCTOBER 31, 1979
Section 16.30 of the above referenced lease is ammended as follows:
Each two (2) years, i.e. on November 1, 1981, 1983, 1985, 1987, and on
November 1, 1989 (provided option is exercised) the rent shall be
adjusted commensurate with the change that has taken place in the U.S.
Dept. of Labor, Bureau of Labor Statistics Consumer Price Index for
Urban Wage Earners and clerical workers (1967 equals 100) revised Los
Angeles, Long Beach, Anaheim Index for the preceding two year period.
Base months in the calculation shall be September 1979 (rental sum of
$5,318.46 per month), September 1981, 1983, 1985, 1987 and September
1989. For example, the monthly rental to be paid in the period
November 1, 1981 to November 1, 1983 shall be that sum of money which
bears the same relationship to the Consumer Price Index described
above for the month of September 1981 as the sum of $5,318.46 bears to
the above mentioned Index for the month of September 1979.
Executed at Paramount, California LANDCEE INVESTMENT CO.,
------------------------ a Partnership
Date January 27, 1981 by /s/ Frank J. Zamboni
--------------------------------- -------------------------
Frank J. Zamboni, Partner
Address 8041 East Jackson St. /s/ Jean Zamboni
------------------------------ ----------------------
Paramount, California 90723 Jean Zamboni, Partner
----------------------------
Executed at Paramount, California LOCKHART INDUSTRIES, INC.
----------------------
Date January 27, 1981 by /S/ Eldon H. Lockhart
-------------------------------- --------------------------
Eldon H. Lockhart
Chief Exec. Officer
Address 15555 Texaco Avenue /S/ Majorie D. Lockhart
--------------------------- -------------------------
Paramount, California 90723 Majorie D. Lockhart
---------------------------- Secretary
16
<PAGE> 17
February 8, 1994
LOCKHART INDUSTRIES, INC.
15555 Texaco Avenue
P.O. Box 1430
Paramount, CA 90723
ATTN: Craig Schenasi
RE: LETTER AGREEMENT-LEASE EXTENSION
Reference is hereby made to that certain Lease dated October 31, 1979 and Lease
Extension dated July 13, 1989, by and between LANDCEE INVESTMENT COMPANY
(Lessor) and LOCKHART INDUSTRIES, INC. (Lessee) for the facility located at
15555 Texaco Avenue, Paramount, California (hereinafter referred to as the
"Lease").
The parties hereby agree that the Lease shall be extended for an additional
period of five (5) years commencing on November 1, 1994 and ending October 31,
1999. All terms, provisions and conditions of the original Lease shall remain
in full force and effect during the extension period, except for the following:
1. Beginning November 1, 1994, the monthly rent shall be $10,110.00.
2. Beginning on May 1, 1997, there shall be an adjustment in the monthly
rent, calculated as follows:
(i) The monthly rent payable in November 1994, shall be
multiplied by a fraction, the numerator of which
shall be Consumer Price Index (CPI) of the Bureau of
Labor Statistics of the United States Department of
Labor for Urban Wage Earners and Clerical Workers,
Los Angeles- Anaheim-Riverside, California (1967 =
100), "All Items," for the month of September 1994
and the denominator of which shall be the CPI for the
month of March 1997. The sum so calculated shall
constitute the new monthly rental for the period of
May 1, 1997 through October 31, 1999.
<PAGE> 18
Please have two authorized officers of the corporation sign both of the
enclosed originals of this Letter Agreement indicating your approval of the
extension, and return one original to our office at 1176 Main Street, Suite
100, Irving, CA 92714.
On behalf of Jean Zamboni, we are delighted that you have decided to renew your
Lease, and look forward to a continued relationship with Lockhart Industries,
Inc. in the coming years.
Very truly yours,
LANDCEE INVESTMENT COMPANY
By: /s/ Robert D. Bendetti
-----------------------
Robert D. Bendetti
Authorized Representative
RDB:kle AGREED AND ACCEPTED
LOCKHART INDUSTRIES, INC.
Dated: February 21, 1994
By: /s/ Eldon H. Lockhart
---------------------------
Eldon H. Lockhart, CEO
By: /s/ Craig Schenasi
---------------------------
Craig Schenasi,
Chief Financial Officer
<PAGE> 19
July 13, 1989
Lockhart Industries Inc.
15555 Texaco Street
P. O. Box 1430
Paramount, CA 90723
ATTN: Wes Buckland, President
RE: LETTER AGREEMENT-LEASE EXTENSION
Reference is hereby made to that certain lease dated October 31, 1979, by and
between LANDCEE INVESTMENT COMPANY (Lessor) and LOCKHART INDUSTRIES INC.
(Lessee) for the facility located at 15555 and 15557 Texaco Street, Paramount,
CA.
In accordance with Paragraph 16.29 of said lease regarding Lessee's "option to
extend", the parties hereby agree that said lease shall be extended for an
additional period of five (5) years commencing on November 1, 1989 and ending
on October 31, 1994. All terms, provisions and conditions of the original
lease shall remain in full force and effect during the extension period, except
that the monthly rent shall be increased in accordance with the paragraph 16.30
of said lease. Furthermore, paragraph 16.30 calculates the new monthly rent
using the September 1989 Consumer Price Index which will not be published until
about October 20, 1989. Therefore, the new monthly rent will not be determined
until after that time.
Please have two authorized corporate officers sign one copy of this Letter
Agreement indicating your approval of the extension, and return same to our
office.
Very truly yours,
LANDCEE INVESTMENT COMPANY
/s/ Jean Zamboni (rb)
- ---------------------
Jean Zamboni
Partner UNDERSTOOD AND AGREED:
LOCKHART INDUSTRIES INC.
By: /s/ Raymond A. Buckland
-----------------------
President
By:
------------------------
Secretary
Date
----------------------
(Corporate Seal)
<PAGE> 1
EXHIBIT 10.22
STANDARD INDUSTRIAL LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, August 29,
1984, is made by and between GARFIELD- PACIFIC DEVELOPMENT CO. (herein called
"Lessor") and LOCKHART INDUSTRIES, INC. (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
that certain real property situated in the County of Los Angeles State of
California, commonly known as 15707 Texaco Avenue, Paramount, CA 90723 and
described as a 25,000 sq. ft. fire sprinklered concrete tilt-up manufacturing
facility. Said real property including the land and all improvements therein,
is herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for eighty-four (84)
months commencing on July 1, 1984 and ending on June 30, 1991 unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date,
if for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to
said commencement date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
1
<PAGE> 2
4. RENT. Lessee shall pay to Lessor as rent for the Premises,
monthly payments of $5,125.00, in advance, on the first day of each month for
the period July 1, 1984 through December 31, 1987. See paragraph 49 for
additional rental rate provisions.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable
in lawful money of the United States to Lessor at the address stated herein or
to such other persons or at such other places as Lessor may designate in
writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof $4,000 transferred from former lease as security for Lessee's faithful
performance of Lessee's obligations hereunder. If Lessee fails to pay rent or
other charges due hereunder, or otherwise defaults with respect to any
provision of this Lease, Lessor may use, apply or retain all or any portion of
said deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Lessor may become obligated by reason of
Lessee's default, or to compensate Lessor for any loss or damage which Lessor
may suffer thereby. If Lessor so uses or applies all or any portion of said
deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount hereinabove stated and Lessee's failure to do so shall be a
material breach of this Lease. If the monthly rent shall, from time to time,
increase during the term of this Lease, Lessee shall thereupon deposit with
Lessor additional security deposit so that the amount of security deposit held
by Lessor shall at all times bear the same proportion to current rent as the
original security deposit bears to the original monthly rent set forth in
paragraph 4 hereof. Lessor shall not be required to keep said deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not theretofore been applied
by Lessor, shall be returned, without payment of interest or other increment
for its use, to Lessee (or, at Lessor's option, to the last assignee, if any,
of Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for a
business concerned with the design and manufacture of heat exchangers and such
other activities as described in the Articles of Incorporation of Lessee, or
any other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its
state existing on the date that the Lease term commences, but without regard to
the
2
<PAGE> 3
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event
Lessee does not give to Lessor written notice of the violation of this warranty
within six months from the date that the Lease term commences, the correction
of same shall be the obligation of the Lessee at Lessee's sole cost. The
warranty contained in this paragraph 6.2 (a) shall be of no force or effect if,
prior to the date of this Lease, Lessee was the owner or occupant of the
Premises, and, in such event, Lessee shall correct any such violation at
Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall,
at Lessee's expense, comply promptly with all applicable statues, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor permit
the use of the Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant in the building containing
the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and
free of debris on Lease commencement date (unless Lessee is already in
possession) and Lessor further warrants to Lessee that the plumbing, lighting,
air conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation. Lessee's failure to give such written notice to
Lessor within thirty (30) days after the Lease commencement date shall cause
the conclusive presumption that Lessor has complied with all of Lessor's
obligations hereunder. The warranty contained in this paragraph 6.3(a) shall
be of no force or effect if prior to the date of this Lease, Lessee was the
owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee
hereby accepts the Premises in their condition existing as of the Lease
commencement date or the date that Lessee takes possession of the Premises,
whichever is earlier, subject to all applicable zoning, municipal, county and
state laws, ordinances and regulations governing and regulating the use of the
Premises, and any covenants or restrictions of record, and accepts this Lease
subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent
has made any representation or warranty as to the present or future suitability
of the Premises for the conduct of Lessee's business.
3
<PAGE> 4
7. MAINTENANCE, REPAIRS AND ALTERNATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order,
condition and repair the Premises and every part thereof, structural and non
structural, (whether or not such portion of the Premises requiring repair, or
the means of repairing the same are reasonably or readily accessible to Lessee,
and whether or not the need for such repairs occurs as a result of Lessee's
use, any prior use, the elements or the age of such portion of the Premises)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning, (Lessee shall procure and maintain, at Lessee's
expense, an air conditioning system maintenance contract) ventilating,
electrical, lighting facilities and equipment within the Premises, fixtures,
walls (interior and exterior), foundations, ceilings, roofs (interior and
exterior), floors, windows, doors, plate glass and skylights located with the
Premises, and all landscaping driveways, parking lots, fences and signs located
on the Premises and sidewalks and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any
sooner termination, Lessee shall surrender the Premises to Lessor in the same
condition as when received, ordinary wear and tear excepted, clean and free of
debris. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease,
Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the premises in good operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's
obligations under this Paragraph 7, or under any other paragraph of this Lease,
Lessor may at its option (but shall not be required to) enter upon the Premises
after ten (10) days' prior written notice to Lessee (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Lessee's behalf and put the same in good order, condition and repair, and
the cost thereof together with interest thereon at the maximum rate then
allowable by law shall become due and payable as additional rental to Lessor
together with Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor
under Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit
of any
4
<PAGE> 5
statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written
consent make any alterations, improvements, additions, or Utility Installations
in, on or about the Premises, except for nonstructural alterations not
exceeding $2,500 in cumulative costs during the term of this Lease. In any
event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make
no change or alteration to the exterior of the Premises nor the exterior of the
building(s) on the Premises without Lessor's prior written consent. As used in
this Paragraph 7.5 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises to their prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialmen's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of
all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanics'
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the commencement
of any work in the Premises, and Lessor shall have the right to post notices of
non- responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself and Lessor against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory
5
<PAGE> 6
to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorneys fees and costs in participating in such action
if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph
7.5(d), Lessee's machinery and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name
Lessee as an additional insured on such policy. Whether the insuring party is
the Lessor or the Lessee, Lessee shall, as additional rent for the Premises,
pay the cost of all insurance required hereunder, except for that portion of
the cost attributable to Lessor's liability insurance coverage in excess of
$1,000,000 per occurrence. If Lessor is the insuring party Lessee shall,
within ten (10) days following demand by Lessor, reimburse Lessor for the cost
of the insurance so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit, Bodily Injury and Property Damage insurance insuring Lessor and Lessee
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be a combined single limit policy in an amount not less than $500,000 per
occurrence. The policy shall insure performance by Lessee of the indemnity
provisions of this Paragraph 8. The limits of said insurance shall not,
however, limit the liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Premises, in the amount of the full replacement value thereof,
as the same
6
<PAGE> 7
may exist from time to time, which replacement value is now $625,000.00, but in
no event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended
perils ("all risk" as such term is used in the insurance industry). Said
insurance shall provide for payment of loss thereunder to Lessor or to the
holders of mortgages or deeds of trust on the Premises. The insuring party
shall, in addition, obtain and keep in force during the term of this Lease a
policy of rental value insurance covering a period of one year, with loss
payable to Lessor, which insurance shall also cover all real estate taxes and
insurance costs for said period. A stipulated value or agreed amount
endorsement deleting the coinsurance provision of the policy shall be procured
with said insurance as well as an automatic increase in insurance endorsement
causing the increase in annual property insurance coverage by 2% per quarter.
If the insuring party shall fail to procure and maintain said insurance the
other party may, but shall not be required to, procure and maintain the same,
but at the expense of Lessee. If such insurance coverage has a deductible
clause, the deductible amount shall not exceed $1,000 per occurrence, and
Lessee shall be liable for such deductible amount.
(b) If the Premises are part of a larger building, or if
the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, then Lessee shall pay for any increase in the
property insurance of such other building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will
not insure Lessee's fixtures, equipment or tenant improvements unless the
tenant improvements have become a part of the Premises under Paragraph 7,
hereof. But if Lessee is the insuring party the Lessee shall insure its
fixtures, equipment and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3. If Lessee does or permits to be done anything which shall
increase the cost of the
7
<PAGE> 8
insurance policies referred to in Paragraph 8.3, then Lessee shall forthwith
upon Lessor's demand reimburse Lessor for any additional premiums attributable
to any act or omission or operation of Lessee causing such increase in the cost
of insurance. If Lessor is the insuring party, and if the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall deliver to Lessee a written statement setting forth the amount of
any such insurance cost increase and showing in reasonable detail the manner in
which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release
and relieve the other, and waive their entire right of recovery against the
other for loss or damage arising out of or incident to perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in
this Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor
from and against any and all claims arising from Lessee's use of the Premises,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any negligence of the Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim, Lessee upon notice from Lessor shall
defend the same at lessee's expense by counsel satisfactory to Lessor. Lessee,
as a material part of the consideration to Lessor, hereby assumes all risk of
damage to property or injury to persons, in, upon or about the Premises arising
from any cause and Lessee hereby waives all claims in respect thereof against
Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises, nor shall Lessor be liable for injury to the
person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether the said damage or injury results
from conditions arising upon
8
<PAGE> 9
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the then replacement cost of the Premises. "Premises Building Partial
Damage" shall herein mean damage or destruction to the building of which the
Premises are a part to the extent that the cost of repair is less than 50% of
the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage
or destruction to the Premises to the extent that the cost of repair is 50% or
more of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or
destruction which was caused by an event required to be covered by the
insurance described in paragraph 8.
9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements unless the same have become a part of the Premises
pursuant to Paragraph 7.5 hereof as soon as reasonably possible and this Lease
shall continue in full force and effect. Notwithstanding the above, if the
Lessee is the insuring party, and if the insurance proceeds received by Lessor
are not sufficient to effect such repair, Lessor shall give notice to Lessee of
the amount required in addition to the insurance proceeds to effect such
repair. Lessee shall contribute the required amount to Lessor within ten days
after Lessee has received notice from Lessor of the shortage in the insurance.
When Lessee shall contribute such amount to Lessor, Lessor shall make such
repairs as soon as reasonably possible and this Lease shall continue in full
force and effect. Lessee shall in no event have any right to reimbursement for
any such amounts so contributed.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is
9
<PAGE> 10
damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused
by a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's intention to repair such damage at
Lessee's expense, without reimbursement from Lessor, in which event this Lease
shall continue in full force and effect, and Lessee shall proceed to make such
repairs as soon as reasonably possible. If Lessee does not give such notice
within such 10-day period this Lease shall be cancelled and terminated as of
the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this
Lease there is damage, whether or not an Insured Loss, (including destruction
required by an authorized public authority), which falls in the classification
of Premises Total Destruction or Premises Building Total Destruction, this
Lease shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term
of this Lease there is damage, whether or not an Insured Loss, which falls
within the classification of Premises Partial Damage, Lessor may at Lessor's
option cancel and terminate this Lease as of the date of occurrence of such
damage by giving written notice to Lessee of Lessor's election to do so within
30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that
Lessee has an option to extend or renew this Lease, and the time within which
said option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than 20 days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease. If Lessee
duly exercises such option during said 20 day period, Lessor shall, at Lessor's
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said 20 day period, then Lessor may at Lessor's option terminate and
cancel this Lease as of the expiration of said 20 day period by giving written
notice to Lessee of Lessor's election to do so within 10 days after the
expiration of said 20 day period, notwithstanding any term or provision in the
grant of option to the contrary.
10
<PAGE> 11
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or
9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the
provisions of this Paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligations shall accrue,
Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor
written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any
statutes which relate to termination of leases when leased property is
destroyed and agree that such event shall be governed by the terms of this
Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as
defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid
by Lessee shall cover any period of time prior to or after the expiration of
the term hereof, Lessee's share of such taxes shall be equitably prorated to
cover only the period of time within the tax fiscal year during which this
Lease shall be in effect, and Lessor shall reimburse Lessee to the extent
required. If Lessee shall fail to pay any such taxes, Lessor shall have the
right to pay the same, in which case Lessee shall repay such amount to Lessor
with Lessee's next rent installment together with interest at the maximum rate
then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income
11
<PAGE> 12
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax", or (ii) the nature of
which was hereinbefore included within the definition of "real property tax",
or (iii) which is imposed for a service or right not charged prior to June 1,
1978, or, if previously charged, has been increased since June 1, 1978, or (iv)
which is imposed as a result of a transfer, either partial or total, of
Lessor's interest in the Premises or which is added to a tax or charge
hereinbefore included within the definition of real property tax by reason of
such transfer, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfer hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately
assessed, Lessee's liability shall be an equitable proportion of the real
property taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in
good faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings, equipment and all
other personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within 10 days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES.Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12
<PAGE> 13
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE.Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, provided that said assignee assumes, in full,
the obligations of Lessee under this Lease. Any such assignment shall not, in
any way, affect or limit the liability of Lessee under the terms of this Lease
even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.
12.3 NO RELEASE OF LESSEE.Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or the
consent thereto and such action shall not relieve Lessee of liability under
this Lease.
12.4 ATTORNEY'S FEES.In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13
<PAGE> 14
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS.The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by
Lessee.
(b) The failure of Lessee to make any payment of rent or
any other payment required to be made by Lessee hereunder, as and when due,
where such failure shall continue for a period of three days after written
notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee
with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) The failure by Lessee to observe or perform any of
the covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in paragraph (b) above, where such
failure shall continue for a period of 30 days after written notice thereof
from Lessor to Lessee; provided, however, that if the nature of Lessee's
default is such that more than 30 days are reasonably required for its cure,
then Lessee shall not be deemed to be in default if Lessee commenced such cure
within said 30-day period and thereafter diligently prosecutes such cure to
completion.
(d) (i) The making by Lessee of any general arrangement
or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering
14
<PAGE> 15
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case
this Lease shall continue in effect whether or not Lessee shall have abandoned
the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due
at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than thirty (30) days after written notice by
Lessee to Lessor and to the holder of any first mortgage or deed of trust
covering the Premises whose name and address shall have theretofore been
furnished to Lessee in writing, specifying wherein Lessor has failed to perform
such obligation; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days are required for performance then
Lessor shall not be in default if Lessor commences performance within such
30-day period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor
from exercising any of the other rights and remedies granted hereunder. In the
15
<PAGE> 16
event that a late charge ispayable hereunder, whether or not collected, for
three (3) consecutive installments of rent, then rent shall automatically
become due and payable quarterly in advance, rather than monthly,
notwithstanding paragraph 4 or any other provision of this Lease to the
contrary.
13.5 IMPOUNDS. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) installments of rent or any
other monetary obligation of Lessee under the terms of this Lease, Lessee shall
pay to Lessor, if Lessor shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Lessor, for real property tax and
insurance expenses on the Premises which are payable by Lessee under the terms
of this Lease. Such fund shall be established to insure payment when due,
before delinquency, of any or all such real property taxes and insurance
premiums. If the amounts paid to Lessor by Lessee under the provisions of this
paragraph are insufficient to discharge the obligations of Lessee to pay such
real property taxes and insurance premiums as the same become due, Lessee shall
pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such
obligations. All moneys paid to Lessor under this paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a default in the obligations of Lessee to perform under this Lease,
then any balance remaining from funds paid to Lessor under the provisions of
this paragraph may, at the option of Lessor, be applied to the payment of any
monetary default of Lessee in lieu of being applied to the payment of real
property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than 10% of the floor
area of the building on the Premises, or more than 25% of the land area of the
Premises which is not occupied by any building, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing only within ten (10)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area of the building taken bears to
the total floor area of the building situated on the Premises. No reduction of
rent shall occur if the only area taken is that which does not have a building
located thereon. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall
16
<PAGE> 17
be the property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
award for loss of or damage to Lessee's trade fixtures and removable personal
property. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount
in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor
shall pay to N/A Licensed real estate broker(s), a fee as set forth
in a separate agreement between Lessor and said broker(s), or in the event
there is no separate agreement between Lessor and said broker(s), the sum of
$_________, for brokerage services rendered by said broker(s) to Lessor in this
transaction.
(b) Lessor further agrees that if Lessee exercises any
Option as defined in paragraph 39.1 of this Lease, which is granted to Lessee
under this Lease, or any subsequently granted option which is substantially
similar to an Option granted to lessee under this Lease, or if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or if Lessee remains in possession of the
Premises after the expiration of the term of this Lease after having failed to
exercise an Option, or if said broker(s) are the procuring cause of any other
lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, then as to any of
said transactions, Lessor shall pay said broker(s) a fee in accordance with the
schedule of said broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of
Lessor but also on behalf of any person, corporation, association, or other
entity having an ownership interest in said real property or any part thereof,
when such fee is due hereunder. Any transferee of Lessor's interest in this
Lease, whether such transfer is by agreement or by operation of law, shall be
deemed to have assumed Lessor's obligation under this Paragraph 15. Said
broker shall be a third party beneficiary of the provisions of this Paragraph
15.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10)
days' prior written notice from Lessor execute, acknowledge and deliver to
Lessor a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging
17
<PAGE> 18
that there are not, to Lessee's knowledge, any uncured defaults on the part of
Lessor hereunder, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided in
Paragraph 15, in the event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers then the grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at the
maximum rate then allowable by law from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease, provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
18
<PAGE> 19
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under
the terms of the Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in
this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employees or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of said Premises and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease except
as otherwise specifically stated in the Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified mail, and
if given personally or by mail, shall be deemed sufficiently given if addressed
to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Either party may be notice to the
other specify a different address for notice purposes except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for notice purposes. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval or, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request or the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such
19
<PAGE> 20
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, but all options and rights
of first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate
to any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the real property of which the Premises
are a part and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to
the effectuate an attornment, a subordination or to make this Lease prior to
the lien of any mortgage, deed of trust or ground lease, as the case may be.
Lessee's failure to execute such documents within 10 days after written demand
shall constitute a material default by Lessee hereunder, or at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
20
<PAGE> 21
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making
such alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without
first having obtained Lessor's prior written consent. Notwithstanding anything
to the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether or grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent.
35. MERGER. The voluntary or other surrender of the Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing the Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally
21
<PAGE> 22
capable of executing this Lease on behalf of Lessor and that such execution is
binding upon all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 PARAGRAPH OMITTED.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease
are personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(b) or 13.1(c ) and continuing until the
default alleged in said notice of default is cured, or (ii) during the period
of time commencing on the day after a monetary obligation to Lessor is due from
Lessee and unpaid (without any necessity for notice thereof to Lessee)
continuing until the obligation is paid, or (iii) at any time after an event of
default described in paragraphs 13.1 (a), 13.1(d), or 13.1(e) (without any
necessity of Lessor to give notice of such default to Lessee), or (iv) in the
event that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(b), where a late charge has become payable under paragraph 13.4
for each of such defaults, or paragraph 13.1(c ), whether or not the defaults
are cured, during the 12 month period prior to the time that Lessee intends to
exercise the subject Option.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c ) within 30 days after
the date that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give
22
<PAGE> 23
notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more
notices of default under paragraph 13.1(b), where a late charge becomes payable
under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or
not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of
a larger building or group of buildings then Lessee agrees that it will abide
by, keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants of
the building. The violations of any such rules and regulations shall be deemed
a material breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of Lessee,
its agents and invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
23
<PAGE> 24
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. INSURING PARTY. The insuring party under this Lease shall be the
Lessee.
47. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs 48 through 50 which constitutes a part of this Lease.
48. Provided that Lessee is not in default under any of the provisions of said
lease, for valuable consideration, receipt of which is hereby acknowledged,
Lessor hereby grants to lessee an irrevocable option to extend the term of this
Lease for an additional three year period. Said option period shall commence
July 1, 1991 and end June 30, 1994. All terms, provisions and conditions of
this lease shall apply during the option term, except that during the option
term the monthly rental to be paid by the Lessee to the Lessor shall be the
then prevailing fair market rate for comparable office and warehouse space, as
determined by mutual agreement between Lessor and Lessee. In the event of any
disagreement between Lessor and Lessee relative to the rental rate provisions
of this paragraph, the parties agree to submit the determination of an
applicable rental rate for the option term to the American Arbitration
Association (or comparable arbitration association) for resolution. Lessor and
Lessee shall each pay 1/2 the costs related to the arbitration process. In no
event shall the monthly rental rate during the option term be less than the
rental rate at the expiration of the prior lease term. In order to exercise
said option, Lessee must give notice in writing to the Lessor to that effect
not later than December 31, 1990.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
24
<PAGE> 25
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
25
<PAGE> 26
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at
Cerritos, California on GARFIELD-PACIFIC DEVELOPMENT CO.
- --------------------
August 29, 1984 By /s/ J. H. Barr
- -------------------- --------------------
J. H. Barr, Partner
Address 13921 Artesia Blvd. By: /s/ D. L. Bendetti
------------------- --------------------
(P.O. Box 1119) D. L. Bendetti, Partner
-------------------
Cerritos, CA 90701
-------------------
"Lessor" (Corporate Seal)
Executed at LOCKHART INDUSTRIES, INC.
-----------------------
on By:
-------------------------------- ------------------------------
President
Address By:
--------------------------- ------------------------------
Secretary
- ----------------------------------
"Lessee" (Corporate Seal)
26
<PAGE> 27
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated: August 29, 1984
By and Between: GARFIELD-PACIFIC DEVELOPMENT CO. (LESSOR),
AND: LOCKHART INDUSTRIES, INC. (LESSEE)
49. RENT ESCALATIONS
(a) On January 1, 1988 the monthly rent payable under
paragraph 4 of the attached Lease shall be adjusted by the increase, if any,
from the date this Lease commenced, in the Consumer Price Index of the Bureau
of Labor Statistics of the U.S. Department of Labor for Urban Wage Earners and
Clerical Workers, Los Angeles-Long Beach-Anaheim, California (1967=100), "All
Items", herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph
(a) of this Addendum shall be calculated as follows: the rent payable for the
first month of the term of this Lease, as set forth in paragraph 4 of the
attached Lease, shall be multiplied by a fraction the numerator of which shall
be the C.P.I. of the calendar month during which the adjustment is to take
effect, and the denominator of which shall be the C.P.I. for the calendar month
in which the original Lease term commences. The sum so calculated shall
constitute the new monthly rent hereunder, but in no event, shall such new
monthly rent be less than the rent payable for the month immediately preceding
the date for rent adjustment.
(c) Pending receipt of the required C.P.I. and
determination of the actual adjustment, Lessee shall pay an estimated adjusted
rental, as reasonably determined by Lessor by reference to the then available
C.P.I. information. Upon notification of the actual adjustment after
publication of the required C.P.I., any overpayment shall be credited against
the next installment of rent due, and any underpayment shall be immediately due
and payable by Lessee. Lessor's failure to request payment of an estimated or
actual rent adjustment shall not constitute a waiver of the right to any
adjustment provided for in the Lease or this addendum.
(d) In the event the compilation and/or publication of
the C.P.I. shall be transferred to any other governmental department or bureau
or agency or shall be discontinued, then the index most nearly the same as the
C.P.I. shall be used to make such calculation. In the event that Lessor and
Lessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in accordance
with the then rules of said association and the decision of the arbitrators
shall be binding upon the parties. The cost of said Arbitrators shall be paid
equally by Lessor and Lessee.
RENT ESCALATIONS
<PAGE> 28
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated August 29, 1984
By and Between GARFIELD-PACIFIC DEVELOPMENT CO. (LESSOR),
AND LOCKHART INDUSTRIES, INC. (LESSEE)
50. LESSOR'S OPTION TO CANCEL
--ASSIGNMENT OR SUBLEASE BY LESSEE
(a) In the event that Lessee or any sublessee or assignee
of Lessee (all hereinafter referred to as "Lessee"), shall intend to sublet all
or a portion of the Premises (which portion is more than 40% of the square
footage in the building on the Premises or more than 40% of the entire
Premises and which sublease is for more than a one year term including options)
or assign its interest under this Lease, to one other than a "Lessee
Affiliate", as defined in paragraph 12.2, then Lessee shall give to Lessor
written notice of such intent, herein referred to as "Lessee's Notice of
Intent", in strict accordance with the procedures hereinafter set forth.
(b) Lessee's Notice of Intent shall set forth the date,
herein referred to as the "Termination Date", upon which it is intended that a
proposed sublease or assignment would become effective. The Termination Date
shall not be less than 90 days nor more than 120 days from the date that Lessor
receives Lessee's Notice of Intent. Within 20 days after Lessor's receipt of
Lessee's Notice of Intent, Lessor may give written notice to Lessee that Lessor
elects to terminate this Lease effective as of the Termination Date. If Lessor
shall so elect to terminate this Lease then neither Lessor nor Lessee shall be
liable to the other for any reason having to do with this Lease from and after
the Termination Date except for matters which shall have arisen prior to
termination and except for the obligations of Lessee that exist upon
termination.
(c) In the event that Lessor does not exercise its right
to terminate this Lease and in the event that Lessee does not in fact execute a
final and binding sublease or assignment within 120 days after said Termination
Date, which Sublease or Assignment term commences within 160 days after said
Termination Date, then Lessee shall be obligated to give another Lessee's
Notice of Intent to Lessor before Lessee may assign or sublease and the terms
of this Addendum shall reapply. The failure of Lessor to exercise its right to
terminate this Lease under this paragraph shall not be deemed a waiver or the
right to subsequently terminate this Lease in accordance with the terms hereof,
as it is intended that this option to cancel shall continue to exist during the
entire term of this Lease and any extension thereof.
(d) In the event that Lessor, from time to time, declines
to exercise its option to cancel this Lease, that decision shall not be deemed
a waiver by Lessor of Lessor's right to approve or disapprove of the
assignment or subletting by Lessee as the same is otherwise provided for in
paragraph 12.1 of this Lease.
LESSOR'S OPTION TO CANCEL
<PAGE> 29
REFERENCE TO THAT CERTAIN STANDARD INDUSTRIAL LEASE DATED AUGUST 29, 1994, BY
AND BETWEEN GARFIELD-PACIFIC DEVELOPMENT COMPANY (LESSOR) AND LOCKHART
INDUSTRIES, INC., (LESSEE)
USE.
1. USE. Lessee shall use and occupy the Premises only for the
purpose set forth in Paragraph 6 of said Lease, or any other use which is
comparable thereto, and for no other purpose. Lessee shall not use or permit
the use of the Premises in a manner that creates waste or a nuisance, or that
disturbs owners and/or occupants or, or causes damage to, neighboring premises
or properties.
2. HAZARDOUS SUBSTANCES.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to be
on the Premises, is either: ( i ) potentially injurious to the public health,
safety or welfare, the environment or the Premises, ( ii ) regulated or
monitored by any governmental authority, or ( iii ) a basis for liability of
Lessor to any governmental agency or third party under any applicable statute
or common law theory. Hazardous Substance shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products
or fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 3. "Reportable Use" shall mean ( i )
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its
consent to the use or presence of any Hazardous Substance, activity or storage
tank by Lessee upon Lessee's giving Lessor such additional assurances as
Lessor, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or
injury and/or liability therefrom or therefor, including, but not limited to,
the installation (and removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit on an additional Security
Deposit under Paragraph 5 of Lease.
Initial____
Initial____
1
<PAGE> 30
(b) Duty to Inform Lessor. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance, or a condition
involving or resulting from same, has come to be located in, on, under or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor. Lessee shall also
immediately give Lessor a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action or proceeding given
to, or received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in, on,
or about the Premises, including but not limited to all such documents as may
be involved in any Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, and the Premises, harmless from and against any and all loss of rents
and/or damages, liabilities, judgments, costs, claims, liens, expenses,
penalties, permits and attorney's and consultant's fees arising out of or
involving any Hazardous Substance or storage tank brought on to the Premises by
or for Lessee or under Lessee's control. Lessee's obligations under this
paragraph shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation (including consultant's and
attorney's fees and testing), removal, remediation, restoration and/or
abatement thereof, or of any contamination therein involved, and shall survive
the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement.
3. LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "Applicable Law," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or
not reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates
evidencing Lessee's compliance with any Applicable Law specified by Lessor,
and shall immediately upon receipt, notify Lessor in writing (with copies of
any documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
Initial____
Initial____
2
<PAGE> 31
4. INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as
defined in Paragraph 8.3) (a) shall have the right to enter the Premises at
any time, in the case of any emergency, and otherwise at reasonable times, for
the purpose of inspection the condition of the Premises and for verifying
compliance by Lessee with this Lease and all Applicable Laws (as defined in
Paragraph 3), and to employ experts and/or consultants in connection therewith
and /or to advise Lessor with respect to Lessee's activities, including but
not limited to the installation, operation, use, monitoring, maintenance, or
removal of any Hazardous Substance or storage tank on or from the Premises.
The costs and expenses of any such inspections shall be paid by the party
requesting same, unless a Default or Breach of this Lease, violation of
Applicable Law, or a contamination, caused or materially contributed to by
Lessee is found to exist or be imminent, or unless the inspection is requested
or ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In any such case, Lessee shall upon
request reimburse Lessor or Lessor's Lender, as the case may be, for the costs
and expenses of such inspections.
AGREED AND ACCEPTED:
LOCKHART INDUSTRIES, INC.
Dated: February 8, 1991
---------------------
By: /S/ Eldon H. Lockhart
------------------------
Eldon H. Lockhart,
Chief Executive Officer
By: /S/ R. W. Buckland
-------------------------
R. W. Buckland,
President
(Corporate Seal)
3
<PAGE> 32
D.L. Bendetti Company
Business Park Development
February 1, 1991
Lockhart Industries, Inc.
15555 Texaco Avenue
Paramount, CA 90723
Att: R. W. Buckland, President
RE: LETTER AGREEMENT-LEASE EXTENSION
15707 TEXACO AVENUE
PARAMOUNT, CALIFORNIA
Reference is hereby made to that certain Lease dated August 29, 1984 ("Lease")
by and between GARFIELD-PACIFIC DEVELOPMENT COMPANY ("Lessor"), and LOCKHART
INDUSTRIES, INC. ("Lessee") for the facility located at 15707 Texaco Avenue,
Paramount, California, scheduled to expire June 30, 1991.
1. In accordance with Addendum paragraph 48 of said Lease, it is hereby
agreed between the parties that the Lease shall be extended for an additional
five (5) year period ("Extension"), beginning July 1, 1991 and ending June 30,
1996. All terms, provisions and conditions of the original Lease shall remain
in full force and effect during the Extension period, except as follows:
A. Notwithstanding anything to the contrary as contained in
Addendum paragraph 48 of the Lease, the Extension shall be for
a five (5) year term.
B. The monthly rental rate for the period July 1, 1991 through
December 31, 1993 shall be $8,250.00.
C. The monthly rental rate for the period January 1, 1994 through
June 30, 1996, shall be determined as follows:
The sum of $8,250.00 shall be multiplied by a fraction, the
numerator of which shall be the Consumer Price Index
("CPI") of the Bureau of Labor Statistics of the United
States Department of Labor for Urban Wage Earners and
Clerical Workers, Los Angeles-Anaheim- Riverside,
California (1967=100), "All Items", for the month of
November 1993, and the denominator of which shall be the
CPI for the month of May 1991. The sum so calculated shall
constitute the monthly rent for the ensuing period of
January 1, 1994 through June 30, 1996.
<PAGE> 33
R. W. Buckland
February 1, 1991
Page 2
2. Provided that Lessee is not in default under any of the provisions of
the Lease and Extension, for valuable consideration, receipt of which is hereby
acknowledged, Lessor hereby grants to Lessee an irrevocable option to extend
the term of the Extension for one period of three (3) years ("Option"). This
Option shall commence July 1, 1996 and end June 30, 1999. All terms,
provisions and conditions of the Lease shall apply during the Option period
except that during the Option the monthly rental rate to be paid by Lessee to
Lessor shall be determined as follows:
A. For the period July 1, 1996 through June 30, 1997 said monthly
rental rate shall be the then prevailing fair market rate for
comparable office and warehouse space in the Paramount
marketplace, as determined by mutual agreement between Lessor
and Lessee. In the event of any disagreement between Lessor
and Lessee relative to the rental rate provisions of this
paragraph, the parties agree to submit the determination of an
applicable rental rate for the Option period to the American
Arbitration Board (or comparable arbitration association) for
resolution. Lessor and Lessee shall each pay 1/2 the costs
related to the arbitration process.
B. For the period July 1, 1997 through June 30, 1998 the monthly
rent determined for the month of June 1997 shall be multiplied
by a fraction, the numerator of which shall be the CPI for the
month of April 1997, and the denominator of which shall be the
CPI for the month of April 1996. The sum so calculated shall
constitute the new monthly rent for the period July 1, 1997
through June 30, 1998.
C. For the period July 1, 1998 through June 30, 1999, the monthly
rent determined for the month of June 1998 shall be multiplied
by a fraction, the numerator of which shall be the CPI for the
month of April 1998, and the denominator of which shall be the
CPI for the month of April 1997. The sum so calculated shall
constitute the new monthly rent for the period July 1, 1998
through June 30, 1999.
D. In order to exercise the Option provision of this Letter
Agreement, Lessee must give notice in writing to Lessor to
that effect not later than six (6) months or earlier then nine
(9) months prior to the expiration of the Extension period.
<PAGE> 34
R. W. Buckland
February 1, 1991
Page 3
Please have those authorized corporate officers of Lockhart Industries, Inc.
which have been indicated below, sign one copy of this Letter Agreement, affix
the corporate seal and return same to our office.
Sincerely,
GARFIELD-PACIFIC DEVELOPMENT COMPANY
/S/ Robert D. Bendetti
- ------------------------------------
Robert D. Bendetti
RDB:mb
AGREED AND ACCEPTED:
LOCKHART INDUSTRIES, INC.
Dated: Feb. 8, 1991
---------------------
By /s/ Eldon H. Lockhart
--------------------------
Eldon H. Lockhart
Chief Executive Officer
By /s/ R.W. Buckland
-------------------------
R. W. Buckland
President
(corporate seal)
<PAGE> 35
LETTER AGREEMENT - LEASE EXTENSION
Reference is hereby made to that certain Lease dated August 24, 1984, by and
between Garfield-Pacific Development Co. (hereinafter "Lessor") and Lockhart
Industries, Inc. (hereinafter "Lessee") covering the Premises commonly known as
15707 Texaco Avenue, Paramount, California. Whereas Lessee is desirous of
extending said Lease for a period of forty (40) months, and whereas Lessor is
agreeable to giving such extension. Therefore, it is mutually agreed as
follows:
The aforementioned Lease is hereby extended for a period of forty (40) months
commencing on July 1, 1996 and expiring October 31, 1999. All terms,
provisions, and conditions of the original Lease shall remain in full force and
effect throughout the Lease extension except that the monthly Rent shall be
determined as follows:
(a) For the period of July 1, 1996 through February 28, 1998, the monthly
Rent shall be $8,844.00.
(b) For the period of March 1, 1998 through October 31, 1999 the monthly
Rent shall be determined as follows:
The monthly Rent payable at the beginning of this extension
($8,844.00) shall be multiplied by a fraction, the numerator
of which shall be the Consumer Price Index ("CPI") of the
Bureau of Labor Statistics of the United States Department of
Labor for Urban wage Earners and Clerical Workers, Los
Angeles-Anaheim-Riverside, California (1969=100), "All Items",
for the month of January 1998 and the denominator of which
shall be the CPI for the month of May 1996. The sum so
calculated shall constitute the monthly Rent for the ensuing
period, however, in no event shall the new monthly rent
established herein be less than a per-annum increase of three
percent (3%) over the rent payable at the commencement of this
extension (July 1996).
AGREED AND ACCEPTED:
GARFIELD-PACIFIC LOCKHART INDUSTRIES, INC.
DEVELOPMENT CO.
Date: June 10, 1996 Date: June 6, 1996
By: /S/ Donald L. Bendetti By: /S/ Eldon H. Lockhart
------------------------ ----------------------------
Donald L. Bendetti, Eldon H. Lockhart
General Partner Chief Executive Officer
By: /S/ John H. Barr (affix Corporate Seal)
------------------------
John H. Barr,
General Partner
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), effective as of the Commencement
Date, between WAKEFIELD ENGINEERING, INC. a Delaware corporation (the
"Company"), and MICHAEL A. HOFFMANN (the "Employee").
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:
1. Employment Duties and Acceptance.
1.1 The Company hereby employs the Employee, for the Term (as
hereinafter defined), to render exclusive full- time services to the business
of the Company as the President and Chief Executive Officer of the Company,
subject to the direction of the Board of Directors of the Company and the
Chairman of its Board of Directors, and, in connection therewith, to perform
such executive, marketing, product development, administrative and managerial
duties as he shall reasonably be directed by the Board of Directors of the
Company or the Chairman of the Board of Directors to perform.
1.2 Acceptance of Employment by the Employee. The Employee hereby
accepts such employment and agrees to render the executive and managerial
services described above on the terms and conditions set forth.
1.3 Place of Employment. The services to be performed hereunder
by the Employee shall be performed primarily at the offices of the Company in
Wakefield, Massachusetts, subject to reasonable travel requirements on behalf
of the Company, including (without limitation) to Company's existing and future
facilities.
1.4 Vacation. The Employee shall be entitled to vacation at the
rate of three weeks for each twelve months of his employment during the Term,
without compensation for any accrued and unused vacation days as of the end of
the Term.
2. Term of Employment. The term of the Employee's employment under this
Agreement (the "Term") shall commence on November 4, 1996 (the "Commencement
Date") and shall end on October 31, 1998, unless sooner terminated pursuant to
Article 4 of this Agreement. Upon termination of the Term, the Employee will
leave with the Company all memoranda, notes, records, drawings, manuals, disks,
or other documents and media pertaining to the Company's business, including
all copies thereof.
<PAGE> 2
3. Compensation.
3.1 Salary and Benefits. As full regular compensation for all
services to be rendered pursuant to this Agreement, the Company agrees to pay
the Employee, during the Term, a salary at the fixed rate of $150,000 per annum
(the "Annual Salary"). Said Annual Salary will be payable in such payroll
installments as the Company ordinarily pays its salaried employees, less such
deductions and withholdings as shall be required by applicable law and
regulations.
3.2 Moving Expense Reimbursement. As an inducement to the
Employee to enter into this Agreement, the Company shall reimburse Employee for
moving and relocation expenses in accordance with Alpha's reimbursement policy
previously delivered to Employee.
3.3 Options. As a further inducement to the Employee to enter
into this Agreement, Alpha Technologies Group, Inc. (":ATGI"), the Company's
parent, is herewith granting to the Employee an option to purchase 60,000
shares of ATGI's common stock under its 1994 Stock Option Plan (the "Plan") at
an exercise price reflecting the market price of the Common Stock on the
Commencement Date. Such Options shall vest in three equal, consecutive,
cumulative installments, shall terminate five years from the date of grant and
shall be governed, in all respects, by the Plan.
3.4 Bonus Compensation. The Company shall pay the Employee
incentive compensation in an amount to be agreed upon in writing by the Company
and the Employee, but not less than $15,000, for the period beginning with the
Commencement Date and ending October 31, 1997. All such payments shall be less
such deductions and withholdings as may be required by applicable law and
regulations.
3.5 Expenses. The Company shall reimburse the Employee for all
reasonable expenses actually incurred or paid by him during the Term in the
performance of his services under this Agreement, upon presentation of expense
statements or vouchers of such other supporting information as it may require;
provided, however that the maximum amount available for such expenses during
any period may be fixed in advance by the Chairman of the Board of Directors.
3.6 Benefits and Profit Sharing Plans. The Employee shall be
eligible to all rights and benefits under any pension, group insurance or other
so-called "fringe" benefits and profit sharing plans which the Company may, in
its sole discretion, provide for him and its senior employees generally.
2
<PAGE> 3
3.7 Limitations Imposed by Law. The provisions of this Agreement
relating to compensation to be paid to the Employee shall be subject to and
limited by any applicable provision of law, regulation or order which may from
time to time restrict or limit the compensation to be paid hereunder.
3.8 Automobile. The Company shall provide Employee with a new
automobile upon commencement of the Term for Employee's exclusive use during
the Term. The non-business use of such automobile shall be treated as
compensation to Employee in accordance with applicable Internal Revenue Service
guidelines.
4. Termination.
4.1 Termination upon Death. If the Employee shall die during the
Term, this agreement shall terminate, except that the Employee's legal
representatives shall be entitled to receive the annual Salary provided for in
Section 3.1 of the Agreement to the 60th day after the date of the Employee's
death.
4.2 Termination upon Disability. If during the Term the Employee
shall become physically or mentally disabled, whether totally or partially, so
that he is unable substantially to perform his services hereunder for (i) a
period of three consecutive months, or (ii) for shorter periods aggregating
three months during any twelve-month period, the Company may at any time after
the last day of the third consecutive month of disability or the day on which
the shorter periods of disability shall have equaled an aggregate of three
months, by written notice to the Employee (but before the Employee has
recovered from such disability), terminate the term of the Employee's
employment hereunder. Notwithstanding such disability the Company shall
continue to pay the Employee the Annual Salary herein provided for in Section
3.1 up to and including the date of such termination. Nothing in this Section
4.2 shall be deemed to extend the Term.
4.3 Termination for Cause. Nothing contained herein shall
preclude the Company from terminating this Agreement for cause without notice,
in which case the Company shall have no further obligation to the Employee.
Upon such termination no incentive compensation shall be payable for the fiscal
year in which the termination took place. As used herein the term "for cause"
shall be deemed to include, with respect to the Employee, breach of any of his
representations in this Agreement, chronic alcoholism, drug addiction, criminal
dishonesty, conviction of the Employee of any felony, or of any lesser crime of
offense involving the property of affairs of the Company or ATGI, or any of its
subsidiaries or operations, willful violation of specific and lawful directions
from the Board of Directors or the Chairman of the Board or the Company (which
directions must not be inconsistent with the provisions of this Agreement),
willful
3
<PAGE> 4
misconduct by the Employee in connection with the performance of his duties
hereunder, or any other misconduct on the part of the Employee seriously
detrimental to the best interest of the Company or that of its subsidiaries or
operations.
5. Employee's Representation.
5.1 Representations. The Employee represents and
warrants to the Company that: (a) he is subject to no contractual, fiduciary
or other obligation which may affect or limit the performance of his duties
under this Agreement, (b) he has delivered to the Company his completed and
signed Officer's Questionnaire, (C) his answers therein are true and complete,
(d) his employment with the Company will not require him to use or disclose
proprietary or confidential information of any other person or entity, and (e)
he does not own and has no interest or claim in any patent, patent application,
copyright, trade secret, trademark or other intangible interest or property.
6. Confidentiality; Non-Solicitation Agreements; Proprietary
Information.(a) The Employee realizes that his employment with the Company will
involve access to information, whether or not in tangible form, which is the
property of the Company and which is not known in the trade or generally by the
public, and to information which is identified as confidential by the Company,
or which the Employee has reason to believe is being maintained in confidence,
whether embodied in memoranda, manuals, letters or other documents, computer
disks, tapes or other information storage devices or any other media vehicle
("Proprietary Information"). Proprietary Information includes all results,
intermediate and final, of the Company's business plans and product and
marketing activities in which the Employee may participate or of which the
Employee may obtain knowledge during his employment with the Company, together
with business, manufacturing, development and research methods, including
(without limitation) product design and specifications, manufacturing
procedures and tolerances, research and development tools, test procedures,
prices and pricing formulae, cost information, customers' special materials and
product specifications and requirements, suppliers, sales records, salesmen's
reports, customers lists, customer contact reports, and customer records. The
Employee agrees to treat Proprietary Information as confidential both during
the Term and thereafter and to recognize and protect the property rights of the
Company. The Employee recognizes and further agrees (i) that the
identification of the existing employees, consultants, customers, suppliers,
buying agents and contractors of the Company, and of employees, consultants,
customers, suppliers, buying agents and contractors of the Company developed
during the Term, are and shall be the sole and exclusive property of the
Company and constitute Proprietary Information, and that the Employee neither
has nor shall have any right, title or interest therein; (ii) that such
Information is and must continue to be confidential; (iii) that such
Information is not readily
4
<PAGE> 5
accessible to competitors of the Company; and (iv) that the Company's present
and future business relationship with its employees, consultants, customers,
suppliers and contractors is and will continue to be of a type which normally
continues unless interfered with by others. The Proprietary Information is not
as a matter of corporate policy ever disclosed to the public except as
authorized in writing by an executive officer other than the disclosing party.
The Employee agrees that during the term of his employment and thereafter, he
will not use such information for himself or others, or divulge or convey such
information to others, and at all times will hold such information in strictest
confidence; provided, however, that the Employee shall not be liable for
disclosure of that information if (A) the information is in, or becomes part
of, the public domain, other than by the Employee's disclosure of the
information or (B) the information is disclosed by the Employee with the prior
written approval of another executive officer the Chairman of the Board of
Directors of the Company. All equipment, recordings, notebooks, documents,
files, samples, correspondence, lists, other written and graphic records and
the like prepared or obtained by the Company or its employees shall be and
remain the property of the Company and shall be returned promptly upon its
request.
(b) The Employee agrees that, during the Term, and for a
period of two years after its termination, but for a minimum period of three
years from the date of this Agreement, he shall not solicit for employment,
directly or indirectly solicit, advise or recommend for employment any person
(other than himself) who is employed by the Company, or by ATGI, or any
subsidiary or affiliate of ATGI as of the date of the Employee's employment
terminated.
(c) It is understood and agreed that the Company would
suffer irreparable harm for which there is no adequate remedy available at law
in the event of a breach of this Section 6 by the Employee, and, in addition to
remedies available at law, the Company shall by entitled to enforce the
provisions of this Section 6 through actions in equity, including injunctive
and similar remedies.
(d) The provisions of this Section 6 shall be
non-exclusive and shall not limit any rights the Company may have at law, and
no action taken by the Company pursuant to this Section 6 shall constitute a
waiver of any rights the Company may have at law.
(e) If for any reason any court of competent jurisdiction
shall have deemed the provisions of this Section 6 unreasonable in duration or
in geographic scope or otherwise unenforceable, the prohibitions herein
contained shall be restricted to such time and geographic area or shall
otherwise be reformed in such manner as the court determines to be reasonable.
5
<PAGE> 6
(f) The Employee recognizes that, because of the nature
of the subject matter of Section 6, it would be impractical and extremely
difficult to determine the Company's actual damages in the event of his breach
of Section 6. Accordingly, if the Employee commits a breach, or threatens to
commit a breach, of any of the provisions of Section 6, the Company shall be
entitled to have the provisions of said Section specifically enforced by
temporary, preliminary and permanent injunctive relief without the posting of
bond or other security by and court of competent jurisdiction, notwithstanding
the provisions of Section 9 hereof.
7. Ownership of Employee Developments.(a)All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed
or created by the Employee during the Term (collectively, the "Work Product")
shall belong exclusively to the Company and shall, to the extent possible, be
considered a work made by the Employee for hire for the Company within the
meaning of Title 17 of the United States Code. To the extent the Work Product
may not be considered work made by the Employee for hire for the Company, the
Employee agrees to assign, and automatically assigns to the Company at the time
of creation of the Work Product, without any requirement of further
consideration, any right, title or interest the Employee may have in such Work
Product. Upon request of the Company, the Employee shall take such further
actions, including execution and delivery of instruments of conveyance, as may
be appropriate to give full and proper effect to such assignment.
(b) The Employee assigns to the Company, will hold for
the Company's benefits exclusive benefit, and will confirm assignment thereof
in writing without additional payment, all Employee's right, title and interest
in and to discoveries, inventions and improvements conceived or made by the
Employee, whether solely or jointly with others, during his employment with the
Company (including periods prior to the effective date of this Agreement) and
which fall within the scope of the Company's ATGI's or any of its subsidiaries
or affiliates actual or anticipated business or research and development
whether made within or outside of usual work hours, and whether on or off
Company premises. The Employee will make prompt and full disclosure thereof to
the Company and maintain records of creative or inventive activities and
deliver such records to the Company at termination of employment or as
requested by the Company. The Employee will assist the Company both during and
after his employment with the Company in every proper manner and at the
Company's expense and without cost to the Employee to obtain for the Company in
any and all countries and to maintain and enforce patents, on all discoveries,
inventions, improvements, or refinements assigned by the Employee to the
Company as provided above, or which the executive is bound to assign to the
Company, and for that purpose, the Employee will sign all documents which the
Company deems necessary or desirable.
6
<PAGE> 7
8. Avoidance of Conflicts of Interest. During the Term, the Employee
shall not engage in any business activity that conflicts with the interests of
the Company or his duties under the Agreement. He shall not have any direct or
indirect financial interest in, or receive any direct or indirect benefit from,
any competitor, except for minor investments, as part of a diversified
portfolio, in the securities of a competitor whose stock is traded on a
national securities exchange.
9. Disputes; Arbitration. In the event that a dispute should arise
between the Company and the Employee, under or in connection with this
Section and such dispute shall not have been resolved within 30 days after it
arose, then such dispute, subject to the provisions of Section 6(f) hereof,
shall be submitted to arbitration. Such arbitration shall be conducted in New
York, New York under the rules of the American Arbitration Association then
obtaining. The arbitrator(s) shall award the predominantly prevailing party in
the arbitration its reasonable attorney's fees and other costs and expenses in
connection with the arbitration. Such award shall be final and binding, and
judgment upon such award may be entered in any court having jurisdiction
thereof.
10. Notices. All notices, requests, consents and other communications,
required or permitted to be given hereunder, shall be in writing and shall be
deemed to have been duly given if delivered personally, or mailed first-class,
postage prepaid by registered or certified mail (notices shall be deemed to
have been given when so delivered personally or, if mailed, two days after the
date of mailing) as follows, or to such other address as either party shall
designate by notice so given to the other in accordance herewith:
If to the Company, to:
Alpha Technologies Group, Inc.
Attention: Lawrence Butler
10880 Wilshire Boulevard, Suite 1400
Los Angeles, CA 90024
with a copy to:
Greenberger & Forman
Attention: Robert W. Forman
1370 Avenue of the Americas
New York, NY 10019
If to the Employee, to:
Kelly A. Hoffmann
7
<PAGE> 8
11. General.
11.1 This Agreement shall be governed by and construed and
enforced in accordance with the local laws of the State of Massachusetts
applicable to agreements made and to be performed entirely in Massachusetts.
11.2 The article and section headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this
Agreement, and neither party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
11.4 This Agreement, and the Employee's rights and
obligations hereunder, may not be assigned by the Employee. The Company may
assign its rights, together with its obligations, hereunder in connection with
any sale, transfer or other disposition of all or substantially all of its
business or assets; in any event the obligations of the Company hereunder shall
be binding on its successors or assigns, whether by merger, consolidation or
acquisition of all or substantially all of its business or assets.
11.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by the party to be charged therewith.
The failure of either party at any time or times to require performance of any
provision hereof shall in no matter affect the right at a later time to enforce
the same. No waiver by either party of the breach of any term or covenant
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construes, a further or continuing
waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement. The invalidity or unenforceability of
any term or provision of this Agreement shall in no way impair or affect the
balance thereof, which shall remain in full force and effect.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement on August
26, 1996 effective as of the Commencement Date.
WAKEFIELD ENGINEERING, INC.
By: /S/ Lawrence Butler
---------------------------
Lawrence Butler
/S/ Michael A. Hoffmann
---------------------------
Michael A. Hoffmann
Agreed to With Respect
to Section 3.3 only:
ALPHA TECHNOLOGIES GROUP, INC.
By: /S/ Lawrence Butler
----------------------------
Lawrence Butler, President
9
<PAGE> 1
EXHIBIT 10.24
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
OCTOBER 23, 1996
dated as of ...........................
WAKEFIELD ENGINEERING, INC.;
LOCKHART INDUSTRIES, INC.;
AND SPECIALTY EXTRUSION
FLEET NATIONAL BANK CORP.
......................................and.......................................
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) Definitions. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement
(b) Inconsistency. In the event of any inconsistency between the
provisions of the Schedule and the other provisions of this Master Agreement,
the Schedule will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Master Agreement (including the
Schedule), such Confirmation will prevail for the purpose of the relevant
Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on
the fact that this Master Agreement and all Confirmations form a single
agreement between the parties (collectively referred to as this Agreement), and
the parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) General Conditions.
(i) Each party will make each payment or delivery specified in
each Confirmation to be made by it, subject to the other provisions of
this Agreement
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments in
the required currency. Where settlement is by delivery (that is,
other than by payment), such delivery will be made for receipt on the
due date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
<PAGE> 2
(iii) Each obligation of each party under Section 2(a)(i) is subject
to (1) the condition precedent that no Event of Default or Potential
Event of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been
effectively designated and (3) each other applicable condition
precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the
other party, replaced by an obligation upon the party by whom the larger
aggregate amount would have been payable to pay to the other party the excess
of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be
made in the Schedule or a Confirmation by specifying that subparagraph (ii)
above will not apply to the Transactions identified as being subject to the
election, together with the starting date (in which case subparagraph (ii)
above will not, or will cease to, apply to such Transactions from such date).
This election may be made separately for different groups of Transactions and
will apply separately to each pairing of Offices through which the parties make
and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(I) Gross-Up. All payments under this Agreement will be made
without any deduction or withholding for or on account of any
Tax unless such deduction or withholding is required by any
applicable law, as modified by the practice of any relevant
governmental revenue authority, then in effect. If a party is
so required to deduct or withhold, then that party ("X")
will:--
(1) promptly notify the other party ("Y") of such
requirement;
(2) pay to the relevant authorities the full amount
required to be deducted
<PAGE> 3
or withheld (including the full amount required to
be deducted or withheld from any additional amount paid by X
to Y under this Section 2(d)) promptly upon the earlier of
determining that such deduction or withholding is required or
receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a
certified copy), or other documentation reasonably acceptable
to Y, evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in
addition to the payment to which Y is otherwise entitled under
this Agreement, such additional amount as is necessary to
ensure that the net amount actually received by Y (free and
clear of Indemnifiable Taxes, whether assessed against X or Y)
will equal the full amount Y would have received had no such
deduction or withholding been required. However, X will not
be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform
any agreement contained in Section 4(a)(i), 4(a)(iii)
or 4(d); or
(B) the failure of a representation made by Y
pursuant to Section 3(f) to be accurate and true
unless such failure would not have occurred but for
(I) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or
after the date on which a Transaction is entered into
(regardless of whether such action is taken or
brought with respect to a party to this Agreement) or
(II) a Change in Tax Law.
(ii) Liability. If:--
(1) X is required by any applicable law, as modified by
the practice of any relevant governmental revenue authority,
to make any deduction or withholding in respect of which X
would not be required to pay an additional amount to Y under
Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed
directly against X,
then, except to the extent Y has satisfied or then satisfies
the liability resulting from such Tax, Y will promptly pay to
X the amount of such liability (including any related
liability for interest, but including any related liability
for penalties only if Y has failed to comply with or perform
any agreement contained in Section 4(a)(i), 4(a)(iii) or
4(d)).
<PAGE> 4
(e) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment obligation
will, to the extent permitted by law and subject to Section 6(c),be required to
pay interest (before as well as after judgment) on the overdue amount to the
other party on demand in the same currency as such overdue amount, for the
period from (and including) the original due date for payment to (but
excluding) the date of actual payment, at the Default Rate. Such interest will
be calculated on the basis of daily compounding and the actual number of days
elapsed. If, prior to the occurrence or effective designation of an Early
Termination Date in respect of the relevant Transaction, a party defaults in
the performance of any obligation required to be settled by delivery, it will
compensate the other party on demand if and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into and, in the case of the representations in Section 3(f), at all times
until the termination of this Agreement) that:--
(a) Basic Representations.
(i) Status. It is duly organized and validly existing under the
laws of the jurisdiction of its organization or incorporation and, if
relevant under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any
other documentation relating to this Agreement to which it is a party,
to deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it
has under any Credit Support Document to which it is a party and has
taken all necessary action to authorize such execution, delivery and
performance;
(iii) No Violation or Conflict. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment
of any court or other agency of government applicable to it or any of
its assets or any contractual restriction binding on or affecting it
or any of its assets;
(iv) Consents. All governmental and other consents that are required
to have been obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party have been obtained and
are in full force and
<PAGE> 5
effect and all conditions offend such consents have been complied
with; and
(v) Obligations Binding. Its obligations under this Agreement and
any Credit Support Document to which it is a party constitute its
legal, valid and binding obligations, enforceable in accordance with
their respective terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding
at law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) Payer Tax Representation. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(e) is accurate
and true.
(f) Payee Tax Representations. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is accurate
and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) Furnish Specified Information. It will deliver to the other party or,
in certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
<PAGE> 6
(i) any forms, documents or certificates relating to taxation
specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any
Confirmation; and
(iii) upon reasonable demand by such other party, any form or
document that may be required or reasonably requested in writing in
order to allow such other party or its Credit Support Provider to make
a payment under this Agreement or any applicable Credit Support
Document without any deduction or withholding for or on account of any
Tax or with such deduction or withholding at a reduced rate (so long
as the completion, execution or submission of such form or document
would not materially prejudice the legal or commercial position of the
party in receipt of such demand), with any such form or document to be
accurate and completed in a manner reasonably satisfactory to such
other party and to be executed and to be delivered with any reasonably
required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) Maintain Authorizations. It will use all reasonable efforts to
maintain in full force and effect all consents of any governmental or other
authority that are required to be obtained by it with respect to this Agreement
or any Credit Support Document to which it is a party and will use all
reasonable efforts to obtain any that may become necessary in the future.
(c ) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning of
such failure.
(e) Payment of Stamp Tax. Subject to Section II, it will pay any Stamp
Tax levied or imposed upon it or in respect of its execution or performance of
this Agreement by a jurisdiction in which it is incorporated, organized,
managed and controlled, or considered to have its seat, or in which a branch or
office through which it is acting for the purpose of this Agreement is located
("Stamp Tax Jurisdiction") and will indemnify the other party against any Stamp
Tax levied or imposed upon the other party or in respect of the other party's
execution or performance of this Agreement by any such Stamp Tax Jurisdiction
which is not also a Stamp Tax Jurisdiction with respect to the other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) Events of Default. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such
<PAGE> 7
party of any of the following events constitutes an event of default (an "Event
of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when
due, any payment under this Agreement or delivery under Section
2(a)(i) or 2(e) required to be made by it if such failure is not
remedied on or before the third Local Business Day after notice of
such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) or to give notice of a Termination Event or any agreement or
obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied
with or performed by the party in accordance with this Agreement if
such failure is not remedied on or before the thirtieth day after
notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider
of such party to comply with or perform any agreement or
obligation to be complied with or performed by it in
accordance with any Credit Support Document if such failure is
continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support
Document or the failing or ceasing of such Credit Support
Document to be in full force and effect for the purpose of
this Agreement (in either case other than in accordance with
its terms) prior to the satisfaction of all obligations of
such party under each Transaction to which such Credit Support
Document relates without the written consent of the other
party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a
representation under Section 3(c) or (f) made or repeated or deemed to
have been made or repeated by the party or any Credit Support Provider
of such party in this Agreement or any Credit Support Document proves
to have been incorrect or misleading in any material respect when made
or repeated or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit
Support Provider of such party or any applicable Specified Entity of
such party (1) defaults under a Specified Transaction and, after
giving effect to any applicable notice requirement or grace period,
there occurs a liquidation of, an
<PAGE> 8
acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any
applicable notice requirement or grace period, in making any payment
or delivery due on the last payment delivery or exchange date of, or
any payment on early termination of, a Specified Transaction (or such
default continues for at least three Local Business Days if there is
no applicable notice requirement or grace period) or (3) disaffirms,
disclaims, repudiates or rejects, in whole or in part a specified
Transaction (or such action is taken by any person or entity appointed
or empowered to operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the
Schedule as applying to the party, the occurrence or existence of (1)
a default, event of default or other similar condition or event
(however described) in respect of such party, any Credit Support
Provider of such party or any applicable Specified Entity of such
party under one or more agreements or instruments relating to
Specified Indebtedness of any of them (individually or collectively)
in an aggregate amount of not less than the applicable Threshold
Amount (as specified in the Schedule) which has resulted in such
Specified Indebtedness becoming, or becoming capable at such time of
being declared, due and payable under such agreements or instruments,
before it would otherwise have been due and payable or (2) a default
by such party, such Credit Support Provider or such Specified Entity
(individually or collectively) in making one or more payments on the
due date thereof in an aggregate amount of not less than the
applicable Threshold Amount under such agreements or instruments
(after giving effect to any applicable notice requirement or grace
period);
(vii) Bankruptcy. The party, any Credit Support Provider of such
party or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors'
rights, or a petition is presented for its winding-up or
liquidation, and, in the case of any such proceeding or
petition instituted or presented against it, such proceeding
or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making
of an order for its winding-up or liquidation or (B) not
dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof; (5)
has a resolution passed for its winding-up, official
management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an
<PAGE> 9
administrator, provisional liquidator, conservator, receiver,
trustee, custodian or other similar official for it or for all
or substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured parry maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter;
(8) causes or is subject to any event with respect to it
which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (1)
to (7) (inclusive); or (9) takes any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in,
any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges
with or into, or transfers all or substantially all its assets to,
another entity and, at the time of such consolidation, amalgamation,
merger or transfer:--
(1) the resulting, surviving or transferee entity fails
to assume all the obligations of such party or such Credit
Support Provider under this Agreement or any Credit Support
Document to which it or its predecessor was a party by
operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to
extend (without the consent of the other party) to the
performance by such resulting, surviving or transferee entity
of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an Illegality if
the event is specified in (i) below, a Tax Event if the event is specified in
(ii) below or a Tax Event Upon Merger if the event is specified in (iii) below,
and, if specified to be applicable, a Credit Event Upon Merger it the event is
specified pursuant to (iv) below or an Additional Termination Event if the
event is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent
jurisdiction of any applicable law after such date, it becomes
unlawful (other than as a result of a breach by the party of Section
4(b)) for such party (which will be the Affected Party):--
(1) to perform any absolute or contingent obligation to
make a payment or delivery or to receive a payment or delivery
in respect of such Transaction or to comply with any other
material provision of this Agreement relating to
<PAGE> 10
such Transaction; or
(2) to perform, or for any Credit Support Provider of
such party to perform, any contingent or other obligation
which the party (or such Credit Support Provider) has under
any Credit Support Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority,
or brought in a court of competent jurisdiction, on or after the date
on which a Transaction is entered into (regardless of whether such
action is taken or brought with respect to a party to this Agreement)
or (y) a Change in Tax Law, the party (which will be the Affected
Party) will, or there is a substantial likelihood that it will, on the
next succeeding Scheduled Payment Date (I) be required to pay to the
other party an additional amount in respect of an Indemnifiable Tax
under Section 2(d)(i)(4) (except in respect of interest under Section
2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount
is required to be deducted or withheld for or on account of a Tax
(except in respect of interest under Section 2(e), 6(d)(ii) or 6(e))
and no additional amount is required to be paid in respect of such Tax
under Section 2(d)(i)(4) (other than by reason of Section
2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on
the next succeeding Scheduled Payment Date will either (I) be required
to pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(i") or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account of any Indemnifiable Tax
in respect of which the other party is not required to pay an
additional amount (other than by reason of Section 2(d)(i)(4)(A) or
(B)), in either case as a result of a parry consolidating or
amalgamating with, or merging with or into, or transferring all or
substantially all its assets to, another entity (which will be the
Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party);
or
<PAGE> 11
(v) Additional Termination Event. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party
or Affected Parties shall be as specified for such Additional
Termination Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also constitutes
an Illegality, it will be treated as an Illegality and will not constitute an
Event or Default.
6. EARLY TERMINATION
(a) Right to Terminate Following Event of Default. If any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as
an Early Termination Date in respect of all outstanding Transactions. If,
however, "Automatic Early Termination" is specified in the Schedule as applying
to a party, then an Early Termination Date in respect of all outstanding
Transactions will occur immediately upon the occurrence with respect to such
party of an Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6)
or, to the extent analogous thereto, (8), and as of the time immediately
preceding the institution of the relevant proceeding or the presentation of the
relevant petition upon the occurrence with respect to such party of an Event of
Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto,
(8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) Transfer to Avoid Termination Event If either an Illegality
under Section 5Cb)(i)(l) or a Tax Event occurs and there is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
Party is the Affected Party, the Affected Party will, as a condition
to its fight to designate an Early Termination Date under Section
6(b)(iv), use all reasonable efforts (which will not require such
party to incur a loss, excluding immaterial, incidental expenses) to
transfer within 20 days after it gives notice under Section 6(b)(i)
all its rights and obligations under this Agreement in respect of the
Affected Transactions to another of its Offices or Affiliates so that
such Termination Event ceases to exist.
<PAGE> 12
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's
policies in effect at such time would permit it to enter into
transactions with the transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section
5(b)(i)(l) or a Tax Event occurs and there are two Affected Parties,
each party will use all reasonable efforts to reach agreement within
30 days after notice thereof is given under Section 6(b)(i) on action
to avoid that Termination Event.
(iv) Right to Terminate. If:--
(1) a transfer under Section 6(b)(ii) or an agreement
under Section 6(b)(iii), as the case may be, has not been
effected with respect to all Affected Transactions within 30
days after an Affected Party gives notice under Section
6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit
Event Upon Merger or an Additional Termination Event occurs,
or a Tax Event Upon Merger occurs and the Burdened Party is
not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a
Tax Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of
all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the
<PAGE> 13
Terminated Transactions will be required to be made, but without
prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be
determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following
the occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and
will provide to the other party a statement (I) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is
to be paid. In the absence of written confirmation from the source of
a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of
any Early Termination Date under Section 6(e) will be payable on the
day that notice of the amount payable is effective (in the case of an
Early Termination Date which is designated or occurs as a result of an
Event of Default) and on the day which is two Local Business Days
after the day on which notice of the amount payable is effective (in
the case of an Early Termination Date which is designated as a result
of a Termination Event). Such amount will be paid together with (to
the extent permitted under applicable law) interest thereon (before as
well as after judgment) in the Termination Currency, from (and
including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will
be calculated on the basis of daily compounding and the actual number
of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs,
the following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss". and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the Schedule,
it will be deemed that "Market Quotation" or the "Second Method", as the case
may be, shall apply. The amount, if any, payable in respect of an Early
Termination Date and determined pursuant to this Section will be subject to any
Set-off.
(i) Events of Default. If the Early Termination Date results from
an Event of Default:--
(1) First Method and Market Quotation. If the First
Method and Market Quotation apply, the Defaulting Party will
pay to the Non-defaulting Party the excess, if a positive
number, of (A) the sum of the Settlement Amount
<PAGE> 14
(determined by the Non-defaulting Party) in respect of the
Terminated Transactions and the Termination Currency
Equivalent of the Unpaid Amounts owing to the Non-defaulting
Party over (B) the Termination Currency Equivalent of the
Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss
apply, the Defaulting Party will pay to the Non-defaulting
Party, if a positive number, the Non-defaulting Party's Loss
in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second
Method and Market Quotation apply, an amount will be payable
equal to (A) the sum of the Settlement Amount (determined by
the Non-defaulting Party) in respect of the Terminated
Transactions and the Termination Currency Equivalent of the
Unpaid Amounts owing to the Non-defaulting Party less (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to
the Defaulting Party. If that amount is a positive number,
the Defaulting Party will pay it to the Non-defaulting Party;
if it is a negative number, the Non-defaulting Party will pay
the absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss
apply, an amount will be payable equal to the Non-defaulting
Party's Loss in respect of this Agreement. If that amount is
a positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the Non-
defaulting Party will pay the absolute value of that amount to
the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss
applies, except that, in either case, references to the Defaulting
Party and to the Non-defaulting Party will be deemed to be references
to the Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected parties. If there are two Affected Parties:--
(A) if Marker Quotation applies, each party will
determine a Settlement Amount in respect of the Terminated
Transactions, and an amount will be payable equal to (I) the
sum of (a) one-half of the difference between the Settlement
Amount of the party with the higher Settlement Amount ("X")
and the Settlement Amount of the party with the lower
Settlement Amount ("Y") and
<PAGE> 15
(b) the Termination Currency Equivalent of the Unpaid Amounts
owing to X less (II) the Termination Currency Equivalent of
the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss
in respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable equal
to one-half of the difference between the Loss of the party
with the higher Loss ("X") and the Loss of the party with the
lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it
is a negative number, X will pay the absolute value of that amount to
Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a
party, the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments or
deliveries made by one party to the other under this Agreement (and retained by
such other party) during the period from the relevant Early Termination Date to
the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss
and not a penalty. Such amount is payable for the loss of bargain and the loss
of protection against future risks and except as otherwise provided in this
Agreement neither party will be entitled to recover any additional damages as a
consequence of such losses.
7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to
any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in
any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
<PAGE> 16
8. CONTRACTUAL CURRENCY
(a) Payment in the Contractual Currency. Each payment under this
Agreement will be made in the relevant currency specified in this Agreement for
that payment (the "Contractual Currency"). To the extent permitted by
applicable law, any obligation to make payments under this Agreement in the
Contractual Currency will not be discharged or satisfied by any tender in any
currency other than the Contractual Currency, except to the extent such tender
results in the actual receipt by the party to which payment is owed, acting in
a reasonable manner and in good faith in converting the currency so tendered
into the Contractual Currency, of the full amount in the Contractual Currency
of all amounts payable in respect of this Agreement. If for any reason the
amount in the Contractual Currency so received falls short of the amount in the
Contractual Currency payable in respect of this Agreement, the party required
to make the payment will, to the extent permitted by applicable law,
immediately pay such additional amount in the Contractual Currency as may be
necessary to compensate for the shortfall. If for any reason the amount in the
Contractual Currency so received exceeds the amount in the Contractual Currency
payable in respect of this Agreement, the party receiving the payment will
refund promptly the amount of such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment
or order expressed in a currency other than the Contractual Currency is
rendered (i) for the payment of any amount owing in respect of this Agreement,
(ii) for the payment of any amount relating to any early termination in respect
of this Agreement or (iii) in respect of a judgment or order of another court
for the payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such
party. The term "rate of exchange" includes, without limitation, any premiums
and costs of exchange payable in connection with the purchase of or conversion
into the Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the
party to which any payment is owed and will not be affected by judgment being
obtained or claim or proof being made
<PAGE> 17
for any other sums payable in respect of this Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had an
actual exchange or purchase been made.
9. MISCELLANEOUS
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by
an exchange of telexes or electronic messages on an electronic messaging
System.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the
rights, powers, remedies and privileges provided in this Agreement are
cumulative and not exclusive of any rights, powers, remedies and privileges
provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts
(including by facsimile transmission), each of which will be deemed an
original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Right. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any
<PAGE> 18
other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of booking
office or jurisdiction of incorporation or organization of such party, the
obligations of such party are the same as if it had entered into the
Transaction through its head or home office. This representation will be deemed
to be repeated by such party on each date on which a Transaction is entered
into.
(b) Neither party may change the Office through which it makes and
receives payments or deliveries for the purpose of a Transaction without the
prior written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a
Transaction will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees
and Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early termination of
any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) Effectiveness. Any notice or other Communication in respect of this
Agreement may be given in any manner set forth below (except that a
notice or other communication under Section 5 or 6 may not be given by
facsimile transmission or electronic messaging system) to the address
or number or in accordance with the electronic messaging system
details provided (see the Schedule) and will be deemed effective as
indicated:--
(i) if in writing and delivered in person or by courier, on the
date it is delivered;
<PAGE> 19
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that
transmission is received by a responsible employee of the recipient in
legible form (it being agreed that the burden of proving receipt will
be on the sender and will not be met by a transmission report
generated by the sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas)
or the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a local Business Day.
(b) Change of Addresses. Either party may by notice to the other change
the address, telex or facsimile number or electronic messaging system details
at which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings
relating to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan
in New York City, if this Agreement is expressed to be governed by the
laws of the State of New York; and
(ii) waives any objection which it may have at any time to the
laying of venue of any Proceedings brought in any such court, waives
any claim that such Proceedings have been brought in an inconvenient
forum and further waives the right to object, with respect to such
Proceedings, that such court does not have any jurisdiction over such
party.
<PAGE> 20
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(C) Service of Process. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and on
its behalf, service of process in any Proceedings. If for any reason any
party's Process Agent is unable to act as such, such party will promptly notify
the other party and within 30 days appoint a substitute process agent
acceptable to the other party. The parties irrevocably consent to service of
process given in the manner provided for notices in Section 12. Nothing in this
Agreement will affect the right of either party to serve process in any other
manner permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its revenues and
assets (irrespective of their use or intended use), all immunity on the grounds
of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person, or this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
<PAGE> 21
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after the
date on which the relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified
as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b)).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to such
recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of such
jurisdiction, or being or having been organized, present or engaged in a trade
or business in such jurisdiction, or having or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding
<PAGE> 22
a connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under, or
enforced, this Agreement or a Credit Support Document).
"Law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority)
and "lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for
performance with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its total losses and costs (or gain, in which case expressed as a negative
number) in connection with this Agreement or that Terminated Transaction or
group of Terminated Transactions as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating, liquidating.
obtaining or reestablishing any hedge or related trading position (or any gain
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before the relevant
Early Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 11. A
party will determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.
"Marker Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a
<PAGE> 23
positive number) in consideration of an agreement between such party (taking
into account any existing Credit Support Document with respect to the
obligations of such party) and the quoting Reference Market-maker to enter into
a transaction (the "Replacement Transaction") that would have the effect of
preserving for such party the economic equivalent of any payment or delivery
(whether the underlying obligation was absolute or contingent and assuming the
satisfaction of each applicable condition precedent) by tile parties under
Section 2(a)(i) in respect of such Terminated Transaction or group of
Terminated Transactions that would, but for the occurrence of the relevant
Early Termination Date, have been required after that date. For this purpose,
Unpaid Amounts in respect of the Terminated Transaction or group of Terminated
Transactions are to be excluded but, without limitation, any payment or
delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement Transaction
would be subject to such documentation as such party and the Reference
Market-maker may, in good faith, agree. The party making the determination (or
its agent) will request each Reference Market-maker to provide its quotation to
the extent reasonably practicable as of the same day and time (without regard
to different time zones) on or as soon as reasonably practicable after the
relevant Early Termination Date. The day and time as of which those quotations
are to be obtained will be selected in good faith by the party obliged to make
a determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if more
than one quotation has the same highest value or lowest value, then one of such
quotations shall be disregarded. if fewer than three quotations are provided,
it will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head or
home office.
"Potential Event of Default" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the
<PAGE> 24
highest credit standing which satisfy all the criteria that such party applies
generally at the time in deciding whether to offer or to make an extension of
credit and (b) to the extent practicable, from among such dealers having an
office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a)
in which the party is incorporated, organized, managed and controlled or
considered to have its seat, (b) where an Office through which the party is
acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.
"Scheduled-Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference
to any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety or
otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of
such party or any applicable Specified Entity of such party) and the other
party to this Agreement (or any Credit Support Provider of such other party or
any applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap transaction,
<PAGE> 25
floor transaction, collar transaction, currency swap transaction,
cross-currency rate swap transaction, currency option or any similar
transaction (including any option with respect to any of these transactions),
(b) any combination of these transactions and (c) any other transaction
identified as a Specified Transaction in this Agreement or the relevant
confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto) that
is imposed by any government or other taxing authority in respect of any
payment under this Agreement other than a stamp, registration, documentation or
similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated
in the Termination Currency, such Termination Currency amount and, in respect
of any amount denominated in a currency other than the Termination Currency
(the "Other Currency"), the amount in the Termination Currency determined by
the party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a
rate for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
<PAGE> 26
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under
Section 2(a)(i) which was (or would have been but for Section 2(a)(iii))
required to be settled by delivery to such party on or prior to such Early
Termination Date and which has not been so settled as at such Early Termination
Date, an amount equal to the fair market value of that which was (or would have
been) required to be delivered as of the originally scheduled date for
delivery, in each case together with (to the extent permitted under applicable
law) interest, in the currency of such amounts, from (and including) the date
such amounts or obligations were or would have been required to have been paid
or performed to (but excluding) such Early Termination Date, at the Applicable
Rare. Such amounts of interest will be calculated on the basis of daily
compounding and the actual number of days elapsed. The fair market value of any
obligation referred to in clause (b) above shall be reasonably determined by
the party obliged to make the determination under Section 6(e) or, if each
party is so obliged, it shall be the average of the Termination Currency
Equivalents of the fair market values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the ftrst page of
this document.
WAKEFIELD ENGINEERING, INC.,
LOCKHART INDUSTRIES,
FLEET NATIONAL BANK INC., AND SPECIALTY EXTRUSION CORP.
............................... .............................................
(Name of Party) (Name of Party)
By: /s/ Peter M. Fleisher By: /s/ Johnny J. Blanchard
--------------------- -----------------------
Name: Peter M. Fleisher Name:
Title: Vice President Title:
Date: Date:
<PAGE> 27
ISDA(R)
INTERNATIONAL SWAP AND DERIVATIVES ASSOCIATION, INC.
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of October 23, 1996
between
Fleet National Bank and Wakefield Engineering, Inc., Lockhart
Industries, Inc., and Specialty
Extrusion Corp.
("Party A") (Jointly and Severally "Party B")
PART 1. TERMINATION PROVISIONS.
In the Agreement:
(a) "SPECIFIED ENTITY" means in relation to Party A and Party B for the
purpose of:
Section 5(a)(v) None;
Section 5(a)(vi) None;
Section 5(a)(vii) None; and
Section 5(b)(iv) None.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14
of this Agreement. For purposes of clause (c) of such
definition Specified Transaction includes any transaction, now
or hereafter existing between Party A or any of its Affiliates
and Party B, any Credit Support Provider of Party B, or any
Specified Entity of Party B under which Party A is or may be
owed payment or performance of any nature whatsoever.
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to Party
A and Party B.
The following provisions apply:
(i) "SPECIFIED INDEBTEDNESS": with respect to any person, means
all obligations of that person identified as Specified
Indebtedness in Section 14, except as excluded in the proviso
to this definition, as well as all reimbursement obligations
in respect of letters of credit, financial guaranty insurance
or surety bonds issued for the account of that person and
trade debt incurred other than through borrowings; provided
<PAGE> 28
however, that indebtedness or obligations in respect of
deposits received in the ordinary course of the banking
business of such person shall not constitute Specified
Indebtedness.
(ii) "THRESHOLD AMOUNT" means: (i) with respect to Party A, 3% of
stockholders' equity of Party A, and (ii) with respect to
Party B, any Specified Indebtedness.
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will
apply to Party A and Party B.
Notwithstanding Section 5(b)(iv) of this Agreement "Credit
Event Upon Merger" means (1)(a) with respect to Party A or
Party B, such party ("X"), any Credit Support Provider of X or
any applicable Specified Entity of X consolidates or
amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, or receives all or
substantially all the assets or obligations of, another entity
and such action does not constitute an event described in
Section 5(a)(viii) or (b) with respect to Party B, (A) any
person or entity acquires directly or indirectly the
beneficial ownership of equity securities having the power to
elect a majority of the board of directors of such party
("X"), any Credit Support Provider of X, or any applicable
Specified Entity of Party X or (B) such party ("X"), any
Credit Support Provider of X, or any applicable Specified
Entity of X effects any substantial change in its capital
structure by means of the issuance, incurrence or guarantee of
debt or the issuance of preferred stock or other securities
convertible into or exchangeable for, debt or preferred stock
and (2)(a) the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such
Credit Support Provider or such Specified Entity, as the case
may be, immediately prior to such action or (b) with respect
to Party B, Party A's policies in effect at such time would
not permit Party A to enter into every Transaction then
outstanding with the resulting, surviving or transferee entity
of Party B, such Credit Support Provider or such Specified
Entity, as the case may be (and, in such event X or its
successor or transferee, as appropriate, will be the Affected
Party).
(e) The "AUTOMATIC EARLY TERMINATION" provisions of Section 6(a) will not
apply to Party A or Party B.
(f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of
this Agreement:
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
<PAGE> 29
(h) ADDITIONAL TERMINATION EVENT will not apply to Party A or to Party B.
(i) The following provision is hereby added to Section 5(a) of the
Agreement as an Event of Default:
"(ix) UNSATISFIED JUDGMENTS. With respect to Party B, the party, any
Credit Supporter Provider of such party or any Specified
Entity of such party for the purpose of Section 5(a)(vii) has
a final judgment issued against it by a court of competent
jurisdiction and such judgment is not discharged or its
execution stayed pending appeal within 90 days of such
judgment or such judgment is not discharged within 90 days of
the expiration of any such stay."
PART 2. TAX REPRESENTATIONS.
(A) PARTY A AND PARTY B PAYER TAX REPRESENTATIONS. For the purpose of
Section 3(e) of this Agreement, each of Party A and Party B
makes the following representations:
It is not required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, of
any Relevant Jurisdiction to make any deduction or withholding
for or on account of any Tax from any payment (other than
interest under Section 2(e), 6(d)(ii) or 6(e) of this
Agreement) to be made by it to the other party under this
Agreement In making this representation, it may rely on (i)
the accuracy of any representations made by the other party
pursuant to Section 3(f) of this Agreement, (ii) the
satisfaction of the agreement of the other party contained in
Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided by the
other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement and (iii) the satisfaction of the agreement of the
other party contained in Section 4(d) of this Agreement,
provided that it shall not be a breach of this representation
where reliance is placed on clause (ii) and the other party
does not deliver a form or document under Section 4(a)(iii) by
reason of material prejudice to its legal or commercial
position.
(b) PARTY A PAYEE TAX REPRESENTATIONS. For the purpose of Section 3(f) of
this Agreement, Party A makes the following representation:
Party A is a national banking association duly organized under
the laws of the United States and is not a foreign corporation
for United States tax purposes.
(c) PARTY B PAYEE TAX REPRESENTATIONS. For the purpose of Section 3(f) of
this Agreement, Party B makes the following representation:
<PAGE> 30
Party B are corporations duly organized and incorporated in
the state of Massachusetts and are not foreign corporations
for United States tax purposes.
PART 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:
(a) Tax forms, documents or certificates to be delivered are:
<TABLE>
<CAPTION>
Party required to Date by which
deliver document Form/Document Certificate to be delivered
---------------- ------------------------- ---------------
<S> <C> <C>
Party B An executed United States Internal Revenue Upon execution of
Service form W-9 (or any successor thereto) this Agreement
</TABLE>
(b) Other documents to be delivered are:
<TABLE>
<CAPTION>
Covered by
Party required to Date by which to Section 3(d)
deliver document Form/Document Certificate be delivered Representation
- ---------------- ------------------------- ------------ --------------
<S> <C> <C> <C>
Party B A certificate of an authorized Upon execution of Yes
officer for such party certifying this Agreement and
the authority, names and true as deemed necessary
signatures of the officers signing for any further
this Agreement, each Confirmation documentation.
and any Credit Support Document,
reasonably satisfactory in form
and substance to Party A.
Party B Certified copies of documents Upon execution of Yes
evidencing each action taken this Agreement.
by Party B to authorize its
execution of this Agreement,
each Confirmation, and any
Credit Support Document
referred to in Part 4 of this
Schedule, and the performance
of its obligations hereunder
as well as its bylaws and articles
of incorporation.
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
Covered by
Party required to Date by which to Section 3(d)
deliver document Form/Document Certificate be delivered Representation
- ---------------- ------------------------- ------------ --------------
<S> <C> <C> <C>
Party B A duly executed copy of the Credit Upon execution No
Support Documents specified in of this Agreement
Part 4 of this Schedule.
Party B Annual audited financial statements Promptly upon request Yes
prepared in accordance with
generally accepted accounting
principles in the country in which the
entity to which they relate is organized.
Party B Quarterly unaudited financial Promptly upon request Yes
statements prepared in accordance
with generally accepted accounting
principles in the country outstanding
entity to which they relate is organized.
Party B A written opinion of legal counsel to Upon execution No
Party B and any Credit Support of this Agreement
Provider for Party B reasonably if requested and as
satisfactory in form and deemed necessary.
substance to Party A.
Party B Such other documents as Party A Promptly upon request Yes
may reasonably request in connection
with each transaction.
</TABLE>
PART 4. MISCELLANEOUS.
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this
Agreement:
Address for notices or communications to Party A:
Fleet National Bank
75 State Street - MA BO FO3E
Treasury Division
Boston, Massachusetts 02109
Attention: Mr. Brian C. Snell, Assistant Vice President
Telex: 144203 Answerback: FLEETB1
Telephone No: (617)346-1169 Facsimile No: (617)346-1180
<PAGE> 32
Address for notices or communications to Party B:
Wakefield Engineering, Inc.; Lockhart Industries, Inc.; and
Specialty Extrusion Corp.
60 Audobon Road
Wakefield, MA 01880
Attention: Mr. James Polakiewicz
Telephone No.: (617)224-5684 Facsimile No.: (617)224-3564
(b) PROCESS AGENT. For the purpose Section 13(c) of this Agreement, Not
Applicable.
(c) OFFICES. The provisions of Section 10(a) will apply to this
Agreement.
(d) MULTIBRANCH PARTY. For The purpose of Section 10(c) of this Agreement,
Not Applicable.
(e) CALCULATION AGENT. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to a relevant
Transaction.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:
With respect to Party A, none.
With respect to Party B, a Security Agreement as of June 22,
1994 by and between Fleet Bank of Massachusetts (n/k/a Fleet
National Bank) and Wakefield Engineering, Inc.; Lockhart
Industries, Inc.; and Specialty Extrusion Corp., the terms of
which are incorporated by reference herein.
(g) CREDIT SUPPORT PROVIDER MEANS:
In relation to Party A, none.
In relation to Party B, none.
(h) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without
reference to choice of law doctrine).
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this
Agreement will apply to all Transactions. In the event of
Termination upon an Event of Default, the parties hereto agree
to utilize bi-lateral close-out netting of all payments due
under all Transactions.
(j) "AFFILIATE" will have the meaning specified in Section 14 of this
Agreement.
<PAGE> 33
PART 5. OTHER PROVISIONS.
(a) 1991 ISDA DEFINITIONS. The definitions and provisions contained in the
1991 ISDA Definitions (the "1991 Definitions") and the 1992 FX
and Currency Option Definitions (the "FX Definitions") as
published by the International Swaps and Derivatives
Association, Inc. are incorporated into this Agreement by
reference. For these purposes, all references in the 1991
Definitions to a "Swap Transaction" and all references in the
FX Definitions to a "FX Transaction" or "Currency Option"
shall be deemed to apply to each Transaction under this
Agreement. With respect to FX Transactions, in the event of
any inconsistency between the 1991 Definitions and the FX
Definitions, the FX Definitions will prevail. Any definitions
incorporated into a Confirmation shall prevail over the
provisions of this Agreement or the 1991 Definitions or the FX
Definitions.
(b) ACCURACY OF SPECIFIED INFORMATION. Section 3(d) is hereby amended by
adding in the third line thereof after the word "respect" and
before the period:
"or, in the case of audited or unaudited financial statements,
a fair presentation of the financial condition of the relevant
party"
(c) ADDITIONAL REPRESENTATIONS. For purposes of Section 3 of this
Agreement, the following shall be added, immediately following
paragraph (f) thereof:
"(g) This Agreement and each Transaction constitutes a
"swap agreement" within the meaning of Commodity Futures
Trading Commission ("CFTC") regulations Section 35.1(b)(1).
(h) It is an "eligible swap participant" within the
meaning of CFTC Regulations Section 35.1(b)(2).
(i) Neither this Agreement nor any Transaction is one of
a fungible class of agreements that are standardized as to
their material economic terms, within the meaning of CFTC
Regulations Section 35.2(b).
(j) The creditworthiness of the other party was or will
be a material consideration in entering into or determining
the terms of this Agreement and each Transaction, including
pricing, cost or credit enhancement terms of the Agreement or
Transaction, within the meaning of CFTC Regulations Section
35.2(c).
(k) It has entered into this Agreement (including each
Transaction evidenced hereby) in conjunction with its line of
business (including financial intermediation services) or the
financing of its business.
<PAGE> 34
(l) The individual(s) executing and delivering this
Agreement and any other documentation (including any Credit
Support Document) relating to this Agreement to which it is a
party or that it is required to deliver are duly empowered and
authorized to do so, and it has duly executed and delivered
this Agreement and any Credit Support Documents to which it is
a party."
(d) FORMS. For purposes of Section 4(a)(iii) of this Agreement, the
following shall be added immediately prior to the existing
text:
"upon learning that such form or document is required or"
(e) RIGHT OF SET-OFF. If any amount payable hereunder is not paid as and
when due, the party ("Party X") obligated to make that payment
hereby authorizes the other party ("Party Y") and each
Affiliate of Party Y to proceed, to the fullest extent
permitted by applicable law, without prior notice, by right of
set-off, banker's lien, counterclaim or otherwise, against any
assets of Party X in any currency that may at any time be in
the possession of Party Y or that Affiliate, at any branch or
office, to the full extent of all amounts payable to Party Y
hereunder.
In addition, if a party would, but for this provision, have an
obligation to pay the other party any amount calculated
pursuant to Section 6(e) in connection with early termination
which occurs on the ground of (i) a Termination Event in which
that other party is the only Affected Party or (ii) an Event
of Default with respect to that other party at a time when any
amount is payable (whether at such time or in the future or
upon the occurrence of a contingency) to that party or its
Affiliate by that other party under any other agreement
between them or any instrument or undertaking of that other
party (irrespective of the currency, place of payment or
booking office of the obligation) (each such amount, an "Other
Obligation"), the party that but for this provision would have
an obligation to make a payment hereunder is authorized by
that other party to set-off that obligation hereunder against
any Other Obligation, without prior notice. For purposes of
this provision, each party hereby agrees that, if necessary to
enable the other party to exercise the rights of Set-off
contemplated herein with respect to an amount payable by it
under this Agreement in a particular currency, that amount
shall be deemed converted to (and constitute an obligation
hereunder in an amount equal to) its equivalent in the
currency in which any Other Obligation is denominated, at a
rate of exchange and otherwise in a manner applicable
hereunder for conversion of any amounts to its Termination
Currency Equivalent (as if the date of Set-off were an Early
Termination Date and with the party entitled under this
provision to effect the Set-off to make the determinations
required for the conversion).
<PAGE> 35
If an obligation is unascertained, the party exercising a
right of Set-off hereunder may in good faith estimate that
obligation and set off in respect of the estimate, subject to
the relevant party accounting to the other when the obligation
is ascertained.
If the party exercises a right of Set-off hereunder, it shall
give the other party notice of the amounts of the obligations
hereunder and the Other Obligations reduced and discharged by
the Set-off, as soon as practicable after the Set-off is
effected.
Nothing in this provision, titled Right of Set-off shall be
effective to create a charge or other security interest. This
provision, titled Right of Set-off, shall be without prejudice
and in addition to any right of setoff, combination of
accounts, lien or other right to which any party is at any
time otherwise entitled (whether by operation of law or
otherwise).
(f) TAX EVENT. The following is hereby inserted in Section 5(b)(ii)
before the words "there is a substantial likelihood that":
"in the written opinion of legal counsel of recognized
standing (which may include in-house legal counsel)"
(g) CONFIRMATIONS. For each Transaction Party A and Party B agree to
enter into hereunder, Party A shall promptly send to Party B a
Confirmation setting forth the terms of such Transaction.
Party B shall execute and return the Confirmation to Party A
or request correction of any error within two Local Business
Days of trade date. Failure of Party B to respond within such
period shall not affect the validity or enforceability of such
Transaction and shall be deemed to be an affirmation of such
terms.
(h) CONSENT TO RECORDING. Each party consents to the monitoring or
recording, at any time and from time to time, by the other
party of any and all communications between officers or
employees of the parties, waives any further notice of such
monitoring or recording, and agrees to notify its officers and
employees of such monitoring or recording.
(i) NOTICE OF EVENT OF DEFAULT. Each party agrees, upon learning of the
occurrence of any event or commencement of any condition that
constitutes an Event of Default or a Potential Event of
Default with respect to itself, promptly to give the other
party notice of such event or condition. Failure to give
notice within 30 days of learning of such event or condition
shall constitute an Event of Default with respect to such
party.
(j) CHANGE OF ACCOUNT Section 2(b) of this Agreement is hereby amended by
the addition of the following after the word delivery in the
first line thereof:
"to another account in the same legal and tax jurisdiction as
the original account".
<PAGE> 36
(k) Granting of Consent by Party A. Party A is hereby notified of and
notwithstanding Section 7, gives its consent to the grant by
Party B of a security interest in all of Party B's present and
future right, title and interest in this Agreement and each
Transaction entered into hereunder to Fleet National Bank in
Connection with a loan agreement between Party B and Fleet
National Bank.
(l) WAIVER OF JURY TRIAL.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY PROCEEDINGS.
(m) NON-RELIANCE. In connection with the negotiation of, the entering
into, and the confirming of the execution of this Agreement
and Credit Support Document to which it is a party, each
Transaction, and any other documentation relating to this
Agreement to which it is a party or that it is required by
this Agreement to deliver:
(i) it is not relying (for purposes of making any
investment decision or otherwise) upon any advice, counsel, or
representations (whether written or oral) of the other party
to this Agreement, such Credit Support Document, each
Transaction or such other documentation other that the
representations expressly set forth in this Agreement, such
Credit Support Document and in any Confirmation;
(ii) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the
extent it has deemed necessary, and it has made its own
investment, hedging and trading decisions (including decisions
regarding the suitability of any Transaction pursuant to this
Agreement) based upon any advice from such advisors as it has
deemed necessary and not upon any view expressed by the other
party to this Agreement, such Credit Support Document, each
Transaction or such other documentation;
(iii) it has a full understanding of all the terms,
conditions, and risks (economic and otherwise) of the
Agreement, such Credit Support Document, each Transaction, and
such other documentation and is capable of assuming and
willing to assume (financially and otherwise) those risks;
(iv) it is entering into this Agreement, such Credit Support
Document, each Transaction, and such other documentation for
the purposes of managing its borrowings or investments,
hedging its underlying assets or liabilities or in connection
with a line of business and not for purposes of speculation;
(v) it is entering into this Agreement such Credit
Support Document, each Transaction, and such other
documentation as principal, and not as agent or in any other
capacity, fiduciary or otherwise; and
<PAGE> 37
(vi) the other party to this Agreement such Credit Support
Document each Transaction, and such other documentation (a) is
not acting as a fiduciary or financial, investment or
commodity trading advisor for it; (b) has not given to it
(directly or indirectly through any other person) any
assurance, guaranty or representation whatsoever as to the
merits (either legal, regulatory, tax, financial, accounting
or otherwise) of this Agreement, such Credit Support Document,
each Transaction, and such other documentation; and (c) has
not committed to unwind the Transactions.
(n) JOINT AND SEVERAL LIABILITY. The parties signing below as Party B
agree and acknowledge that they are jointly and severally
liable for the obligations of Party B that accrue under this
Agreement.
FLEET NATIONAL BANK WAKEFIELD ENGINEERING, INC.
------------------- ----------------------------
By: /s/ Peter M. Fleisher By: /s/ James J. Polakiewicz
----------------------- ---------------------------
Name: Peter M. Fleisher Name: James J. Polakiewicz
Title: Vice President Title: VP - Finance
Date: Date: 10-24-96
LOCKHART INDUSTRIES, INC. SPECIALTY EXTRUSION CORP.
------------------------- -------------------------
By: /s/ Johnny J Blanchard By: /s/ Johnny J. Blanchard
---------------------- -----------------------
Name: Name:
Title: Title:
Date: Date:
<PAGE> 1
EXHIBIT 11
ALPHA TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
October 31, October 29, October 27,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Shares:
Weighted average common shares
outstanding 5,914,254 5,984,584 6,277,585
Net common shares issuable on
exercise of stock options 429,350 620,563 --
---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 6,343,604 6,605,147 6,277,585
========== ========== ==========
Net income (loss) $5,290,000 $3,748,000 $ (299,000)
========== ========== ==========
Per share amount $ 0.83 $ 0.57 $ (0.05)
========== ========== ==========
</TABLE>
- ---------------
(1) See Note 13 to the consolidated financial statements for further information
regarding the calculation of weighted average common and common equivalent
shares outstanding.
<PAGE> 1
EXHIBIT 23.1(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this Form
10-K.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
December 10, 1996
<PAGE> 1
EXHIBIT 23.1(B)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into the Company's Form
S-8 Registration Statements filed on January 29, 1987 (Reg. No. 33-11627);
September 28, 1987 (Reg. No. 33-17359); March 17, 1988 (Reg. No. 33-20706); June
30, 1989 (Reg. No. 33-29636); June 23, 1992 (Reg. No. 33-48663); and April 30,
1996 (Reg. No. 333-03001); and S-3 Registration Statement filed on August 16,
1996 (Reg. No. 333-10311).
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
December 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET OCTOBER 27, 1996 AND CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR
ENDED OCTOBER 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> OCT-27-1996
<CASH> 3,935
<SECURITIES> 0
<RECEIVABLES> 12,564
<ALLOWANCES> 294
<INVENTORY> 11,170
<CURRENT-ASSETS> 28,799
<PP&E> 16,465
<DEPRECIATION> 3,196
<TOTAL-ASSETS> 47,060
<CURRENT-LIABILITIES> 22,339
<BONDS> 0
0
0
<COMMON> 230
<OTHER-SE> 21,887
<TOTAL-LIABILITY-AND-EQUITY> 47,060
<SALES> 70,237
<TOTAL-REVENUES> 70,237
<CGS> 55,021
<TOTAL-COSTS> 55,021
<OTHER-EXPENSES> 14,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (239)
<INCOME-TAX> 60
<INCOME-CONTINUING> (299)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (299)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
