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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 26, 1997 Commission File No 0-23018
PLANAR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0835396
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1400 NW Compton Drive
Beaverton, OR 97006
(Address of principle executive offices,
including zip code)
(503) 690-1100
(Registrants telephone number, including area code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 proceeding 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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K [X]
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As of December 13, 1997
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Aggregate market value of the voting stock held by
non-affiliates of the Registrant based upon the closing
bid price of such stock: $120,564,229
Number of shares of Common Stock outstanding 10,798,141
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used in connection with the Annual Meeting
of Shareholders to be held on February 12, 1998, are incorporated by reference
into Part III of this report.
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PART I
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ITEM 1.
BUSINESS
Planar Systems, Inc. (Planar) is a leading developer, manufacturer and
marketer of high performance electronic display products. The Company's products
include its proprietary electroluminscent (EL) flat panel displays, cathode ray
tubes (CRTs), active matrix liquid crystal displays (AMLCDs), backlights and its
newly acquired passive matrix liquid crystal display (PMLCD) products. These
products are used in a wide variety of medical, industrial process control,
instrumentation, military/avionics, transportation, communications and other
applications. The Company competes on a global basis with full development,
manufacturing and marketing operations in both the United States and Europe.
Major customers include Datascope, Hewlett-Packard, Protocol Systems,
SCI/Johnson & Johnson, Siemens, and Smiths Industries.
INDUSTRY BACKGROUND
The information display industry is undergoing significant changes as the
proliferation and sophistication of microprocessors is increasing the volume of
text, graphics and video information that is generated and displayed. At the
same time, electronic systems are becoming smaller and more portable. These
trends are converging to drive a growing demand for high performance flat,
lightweight, power-efficient displays that are capable of delivering high
volumes of information. Although commodity CRTs dominate the overall information
display market, they are large, heavy, fragile, and require substantial amounts
of power to operate.
There are several display technologies currently in development or
commercially available, including various forms of liquid crystal, gas plasma
and EL displays. The principal basis of competition among display suppliers are
commercial availability, long life, price, display performance, size, customer
service, design flexibility, power usage and ruggedness.
Passive Matrix LCD. PMLCDs modulate light (which is either reflected or
applied directly) by applying a voltage to a liquid crystal material placed
between two glass plates.
Active Matrix LCD. AMLCD screens incorporate the PMLCD technology plus add
a transistor at every pixel location. This allows each pixel to be turned on and
off independently which increases the image quality, response time and side-to-
side viewing angle of the display.
Gas Plasma. Gas plasma creates a visible image by ionizing a gas contained
between two glass plates. The ionized gas emits a visible light, typically red.
Gas plasma displays generally have higher power consumption requirements than
other display technologies but may provide the most cost effective solution for
large-sized displays. These displays are primarily used in industrial, point-of-
sale and military applications.
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Electroluminescent. Planar's standard monochrome EL display technology is
a solid state device with a thin film luminescent layer sandwiched between
transparent dielectric (insulator) layers and a matrix of row and column
electrodes deposited on a single glass substrate. A circuit board, with control
and drive components mounted within the same area as the viewing area on the
glass panel, is connected to the back of the glass substrate using various
interconnect technologies. The result is a flat, compact, reliable and rugged
display device. When AC voltage is applied to a column and a row electrode, the
phosphor thin film between them emits light that passes through the transparent
electrode, through the glass face, and on to the viewer. Increasing the number
of rows and columns, and thus the number of pixels, in a given space increases
the clarity of the display to the viewer.
Other. There is a wide diversity of new technologies constantly under
development with the objective of competing in this market. Some of the more
visible efforts include field emissions displays (FED), ferroelectic LCDs and
various forms of projection displays.
STRATEGY
The Company's goal is to enhance its position as a leading, independent
supplier of information displays. The Company has successfully developed a broad
product line of information displays which has resulted in large market
acceptance. In the last two fiscal years, the Company has shipped over a quarter
million units to customers with a particular emphasis on the medical,
industrial, instrumentation, transportation and military / avionics markets. The
Company is now seeking to broaden its technology base and market penetration.
Key elements of the Company's strategy to achieve this goal include:
Expand Market Presence. The Company continues to identify and pursue
growing markets that have a high correlation between the capabilities of the
Company's products and the specific needs of the target market. Within these
markets, the Company focuses on a broad range of customers whose applications
receive high value and benefit from Planar's products. Today, the Company's core
markets are industrial (medical, process control and instrumentation),
transportation and military/avionics. Additionally, Planar is focusing increased
attention on emerging markets for high information content displays including
communications and business/office.
Provide Differentiated Products. To maintain its technological advantage,
the Company is continuing to expand the capabilities and applications of its
proprietary EL, AMLCD and CRT technologies. During fiscal year 1997, Planar
introduced several new products within its ICEBrite/TM/ family. These products
are based upon Planar's Integral Contract Enhancement technology. Additionally,
the Company introduced the ColorBrite product family that includes multi-color
EL products and AMLCD products for commercial applications. The Company, also
continues its development of a militarized AMLCD in connection with its
agreement with dpiX (a Xerox company). Through business acquisitions this past
year, the Company expanded its product line to include a full line of PMLCD
products which adds low power and lower cost products to the Company's
offerings.
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Enhance Competitive Position Through Operations. The Company seeks to
manufacture and deliver products of superior quality and reliability supported
by a high level of customer service. The Company maintains a close relationship
with its customers throughout the product life cycle, from engineering
prototypes through production and sales.
The Company believes that it is the only flat panel display company with
full development, manufacturing and sales operations in both the United States
and Europe. The Company believes that separate regional facilities permit the
Company to provide: (i) direct access to key regional markets, allowing for a
faster and more complete response to customer needs; (ii) two internal sources
of manufactured products to protect the Company's customers from disruption of
supply; (iii) multiple production and processing technologies to accelerate new
product development and optimize displays for specific applications; and (iv)
reduced supplier risk as each operation tends to use different vendors.
Pursue Strategic Relationships. The Company seeks to provide customers
with the best display solution regardless of technology. Display industry
customers are constantly asking for higher product performance at competitive
prices. To meet these customer demands, the Company intends to continue to
evaluate, and actively seek to develop or acquire, promising technologies
directly, or through strategic relationships.
MARKETS
The Company is currently serving the following core market segments:
Industrial-Medical. Displays are used in patient monitors and a range
of diagnostic and therapeutic equipment, including anesthesia systems,
ventilators, infusion pumps and blood analyzers. These medical applications
typically require a wide viewing angle and clear, crisp images readable
from across the room in varying light conditions by multiple users at the
same time. The Company believes that its displays provide superior display
quality and reliability for crucial medical applications.
Industrial-Process Control. Displays are used in a wide range of
manufacturing environments, including industrial computers, operator
interfaces and machine control panels. The reliability, ruggedness, wide
operating temperature range and low susceptibility to electromagnetic
interference of Planar displays permit the Company to deliver solutions to
a range of problems in these difficult environments.
Industrial-Instrumentation. The Company's displays are used in a wide
range of test and measurement products, including digital oscilloscopes,
analyzers and telecommunications test equipment. The Company believes there
is an increasing market demand for the Company's displays in smaller, more
portable test equipment.
Military/Avionics. The Company's sales in this market consist
primarily of high performance CRTs and AMLCDs sold to systems integrators
for military cockpits. Additionally, the Company sells processed EL display
glass to military systems suppliers
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for integration into various military subsystems used in communications
applications, tactical displays, avionics and shipboard command and control
equipment. Although military spending is contracting in the U.S., the
Company believes that this will remain an important strategic market
because military customers continue to require increasing display
performance, are often willing to share development costs and have
significant influence over the distribution of research and development
funding from government sources.
Transportation. The pervasive use of microprocessors has increased
the demand for higher information content displays for space constrained
transportation applications. The Company has sold displays to customers for
use in global positioning applications, cockpit displays for trains,
forklift applications and railway car information systems.
In addition to the core markets described above, Planar is serving the following
emerging markets:
Communications. As hardware becomes increasingly portable and the
support systems allow for greater transmission of data, telecommunication
devices require displays with more information capability. The Company has
sold displays to customers for use in field communication systems and
financial trader telephone turrets.
Business/Office Equipment. The Company sells displays for a variety
of applications in the office and retail markets, including high speed
photocopiers, office control panels, point-of-sale devices, custom designed
monitors and elevators.
PRODUCTS
The Company offers a variety of displays and display systems in a wide
range of resolutions, formats, viewing areas and technologies. These displays
can be classified in three primary product lines:
Flat Panel Displays. This product line includes monochrome EL and LCD,
multi-color EL and full color AMLCD displays. This is principally an OEM
component market where the customers purchase displays to either incorporate
directly into their products or enhance the displays by integrating additional
features and reselling them to the ultimate user.
Cathode Ray Tubes. The Company offers high performance CRTs based on its
proprietary taut shadow mask technology. These displays are sold primarily to
military systems companies who integrate them into cockpit applications.
Value-added Display Solutions. To be able to better satisfy customers'
display needs, the Company has a small business activity that develops,
manufactures and sells end user products. These products incorporate displays
into systems that often include keyboards, touch input devices, local computing
capability and special packaging. An initial market for these products
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has been bedside computing applications where hospitals are increasingly
recognizing the productivity gained by such installations.
RESEARCH, DEVELOPMENT AND PRODUCT ENGINEERING
The Company believes that a significant level of investment in research,
development and product engineering is required to maintain market leadership.
Total expenses were $17.3, $16.5, and $14.1 million for the fiscal years 1997,
1996 and 1995, respectively for research, development and product engineering.
These expenses were partially offset by contract funding from both government
agencies (in the United States and Finland) and private sector companies of
$9.6, $9.4 and $9.1 million in fiscal years 1997, 1996 and 1995, respectively.
Research and development expenses of the Company are primarily related to
advanced technology programs in a new display family utilizing active matrix
electroluminscent (AMEL) technology, new drive architectures and fundamental
process improvements. Product engineering expenses are directly related to the
design, prototyping and release to production of new Company products. Research,
development and product engineering expenses consist primarily of salaries,
project materials, outside services, allocation of facility expenses and other
costs associated with the Company's ongoing efforts to develop new products,
processes and enhancements.
Recent development efforts have been focused on both short term and long
term programs designed to enhance the Company's product offerings and
capabilities. These programs include the following:
AMEL. This program is focused on the development of high resolution image
sources for miniature display applications. During fiscal 1997, the Company
announced product capabilities for monochrome AMEL VGA displays. Current
development efforts are addressing higher resolution (up to 2,000 lines per
inch), improved performance, color and lower manufacturing costs. Potential
markets include medical, industrial, military, computing and entertainment.
Small Graphics Displays (SGD). This product development effort led to the
an SGD service that provides quick turnaround designs coupled with volume
production of small graphics custom display systems. Initial targeted markets
include industrial process control, business/office equipment and
transportation.
New Technology Development. As part of the Company's strategy,
relationships are continuing to be established to explore various display
technologies and their incorporation into the product line. Some of the projects
being pursued include AMLCDs, fast PMLCDs, backlights, field emission displays
(FED), and organic light emitting diodes.
GOVERNMENT AND INDUSTRY PARTNERSHIPS
The Company believes that it is necessary for the United States and Europe
to further develop sources of supply, equipment and a base of trained personnel
to support the display industry. Additionally, as part of the Company's
technology strategy, the Company believes that it is important to be involved
with a broad range of display technologies and industry groups. As
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a result of its participation, the Company benefits from work being done which
complements (and in some cases, funds) the Company's internal development
objectives. To that end, the Company has employees who actively participate in
several government/industry partnerships, including:
Phosphor Technology Center of Excellence (PTCOE). Advance Research
Projects Agency (ARPA) has funded the creation of the PTCOE to promote the
development of appropriate materials and processes for the fabrication of
phosphors for light emissive displays. Dr. King is a member of the steering
committee of the PTCOE's Board.
United States Display Consortium (USDC). The USDC was created to develop
an infrastructure to support a U.S.-based display industry by funding equipment
and materials suppliers in this industry, establishing and maintaining
appropriate benchmarks and disseminating information to industry participants.
The USDC is funded by contracts from ARPA and member contributions.
Next Generation EL Manufacturers Consortium. This Consortium was created
in connection with an agreement with ARPA under a focused Technology
Reinvestment Project. This two-year cost share program which will provide the
Planar-led consortium with approximately $30 million, which the consortium is
required to match on a one to one basis, to further develop technologies
necessary to manufacturing AMEL miniature displays.
EUREKA. EUREKA is a European Union program targeted at supporting the
development of critical technology capacity within Europe. Planar International
qualified for participation in the EUREKA program for its project to develop
multi-color and full color EL display products and received funding under this
program in 1996 and 1997.
MANUFACTURING
The Company operates EL manufacturing facilities in both the U.S. and
Finland. These facilities are designed to produce a wide range of display sizes
and types from 1"x 4" to 12"x 14" that can be manufactured with relatively minor
changes to the basic equipment set-up.
The CRT facility is designed to produce 5" x 5" and 6" x 6" militarized
CRTs. However, the Company believes that the CRT facility and technology can be
scaled to produce displays up to 25" per side with little capital investment.
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The Company's manufacturing operations consist of the procurement and
inspection of components, manufacture of the display component, final assembly
of all components and extensive testing of finished products. The Company
currently procures all of its raw materials from outside suppliers. This
includes glass substrates, driver integrated circuits, electronic circuit
assemblies, power supplies and high density interconnects.
Quality and reliability are emphasized in the design and manufacture of the
Company's products. All of the Company's manufacturing facilities have active
operator training/certification programs and regularly use advanced statistical
process control techniques. The Company's products undergo thorough quality
inspection and testing throughout the manufacturing process.
The Company believes that worldwide quality standards are increasing and
that many customers now want manufacturers to have ISO9001 certification. This
certification requires that a company meet a set of criteria, established by an
independent, international quality organization that measures the quality of
systems, procedures and implementation in manufacturing, marketing and
development of products and services. As of September 26, 1997, all three
existing operating divisions have received and maintain their ISO9001
certification. It is anticipated that the newest division, Planar Standish will
obtain ISO9001 certification in the near future.
SALES AND MARKETING
The Company's products are distributed worldwide through a combination of
independent sales representatives, distributors and Company-employed sales
personnel. In the United States, Planar has regional sales personnel in the
Boston, Chicago, Dallas, Detroit, Milwaukee, Los Angles, Portland and Tampa
metropolitan areas. Each of these locations is staffed by a regional sales
manager who has responsibility for OEM sales in a specific region. Each region
also has a number of independent sales representatives who generally have
exclusive marketing and sales rights in their area and are managed by the
regional sales manager. International sales are conducted through a combination
of direct sales offices (Finland, Germany and the United Kingdom), independent
sales representatives and distributors.
As of September 26, 1997, the Company's backlog of domestic and
international orders aggregated approximately $31.4 million. The Company
includes in its backlog all accepted contracts or purchase orders that are
scheduled for delivery in the next six months. The Company believes that its
backlog may be of limited utility in predicting future sales, particularly since
its international sales are primarily conducted through distributors, which
typically do not place purchase orders substantially in advance of delivery
dates. Variations in the magnitude and duration of contracts received by the
Company and customer delivery requirements may result in substantial
fluctuations in backlog from period to period.
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COMPETITION
The market for information displays is highly competitive, and the Company
expects this to continue. The Company believes that over time this competition
will have the effect of reducing average selling prices of flat panel displays.
If the Company is unable to increase unit volumes or increase the performance of
its products in order to offset or reduce any decreases in selling prices, the
Company's results of operations would be adversely impacted. In addition, the
Company's ability to maintain gross margins will depend in part on its ability
to reduce cost of sales in an amount sufficient to compensate for any decreases
in selling prices.
The Company competes with other display manufacturers based upon commercial
availability, long life, price, display performance (e.g., brightness, color
capabilities, contrast and viewing angle), size, customer service, design
flexibility, power usage, durability and ruggedness. The Company believes its
total quality program, wide range of product offerings, flexibility,
responsiveness, regional production sites, technical support and customer
satisfaction programs are important to the competitive position of the Company.
The principal display competitors against which the Company competes
include Sharp, Toshiba, Optrex, Seiko-Epson and Hitachi for LCDs, Sharp for EL,
Sharp, DTI, Hitachi and NEC for AMLCDs. In addition, a significant number of
Korean companies including Samsung, Hyundai and Goldstar have also made large
investments in AMLCD technology.
The Company's CRT business, Planar Advance, has no direct competitors but
there are two companies offering military avionic displays: Sony Corp. and
Thompson CSF. Due to the products' design and performance, the Company believes
that it currently supplies 100% of the United States' market for high brightness
full color military CRTs and has a dominant share of the total military cockpit
display market worldwide. Increasingly, the Company is seeing display
manufacturers attempting to move into the military avionics markets with the
U.S. government investing significantly in the AMLCD technology for avionics
applications. The primary competitors producing militarized AMLCDs are Litton
Canada and OIS Optical Imaging Systems.
INTELLECTUAL PROPERTY
The Company relies on a combination of patents, trade secrets, trademarks,
copyrights and other intellectual property law, nondisclosure agreements and
other measures to protect its proprietary rights. The Company currently owns or
has license rights to over 50 patents and several more pending patent
applications for its technologies. The expiration dates of the Company's
existing patents range from 1999 to 2012. Features for which the Company has and
is seeking patent protection include display glass design, materials,
electronics addressing and control functions and process manufacturing.
Pursuant to the agreements under which the Company receives research and
development funding from government agencies, the funding entities retain
certain rights with respect to
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technical data developed by the Company pursuant to funded research. Generally,
these rights restrict the government's use of the specific data to governmental
purposes, performed either directly or by third parties sub-licensed by the
government. Rights under the Company's funding agreements with private sector
companies vary significantly with the Company and the third party each
retaining certain intellectual property rights.
EMPLOYEES
As of September 27, 1996, the Company had 575 full-time, regular employees
worldwide, 323 in the United States and 252 in Europe. Of these employees, 43
were engaged in marketing and sales, 83 in research, development and product
engineering, 50 in finance and administration, 168 in manufacturing support and
231 in manufacturing. Through the acquisition of Standish Industries, Inc. the
Company has added an additional 302 employees to its workforce.
The Company's future success will depend in a large part upon its ability
to continue to attract, retain and motivate highly skilled and qualified
manufacturing, technical, marketing, engineering and management personnel. The
Company's U.S. employees are not represented by any collective bargaining units
and the Company has never experienced a work stoppage in the U.S. The Company's
Finnish employees are, for the most part, covered by national union contracts.
These contracts are negotiated annually between the various unions and the
Employer's Union and stipulate benefits, wage rates, wage increases, grievance
and termination procedures and work conditions.
ITEM 2. PROPERTIES
The Company leases its three primary manufacturing facilities and various
sales offices in the United States and Europe. The two U.S. facilities, located
in Beaverton, Oregon, are Planar America and Planar Advance. Planar America
leases 45,000 square feet of custom designed space, including 5,000 square feet
of cleanroom. In addition, during fiscal 1997, Planar America leased an
additional facility which when completed will provide an additional 34,000
square feet, including 10,000 square feet of cleanroom. Planar Advance's
operation is located in a large facility in which it leases 29,000 square feet,
including approximately 7,000 square feet of cleanroom. The European facility,
located in Espoo, Finland, is a custom designed facility in which Planar leases
85,000 square feet, including approximately 15,000 square feet of cleanroom.
During 1994, the Company acquired a 21,000 square foot facility with
approximately 6,000 square feet of cleanroom located near the Planar America
facility. This facility is being used for research and development activities
and production of miniature displays. Additionally, the Company has leased
17,000 square feet of an adjacent building.
As of September 26, 1997, the Company acquired Standish Industries, Inc.
Standish is located in Lake Mills, Wisconsin and owns and occupies a 70,000
square foot facility with approximately 7,500 square feet of cleanroom.
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The Company has six field sales offices in key U.S. metropolitan areas and
two sales offices in Europe. The offices are located in Boston, Chicago, Dallas,
Detroit, Los Angles, Tampa, London and Munich metropolitan areas. Lease
commitments for these facilities are short term, typically six to twelve months.
None of these sales offices has any significant leasehold improvements nor are
any planned.
The Company believes that its current facilities are adequate for its
immediate and near term requirements and does not anticipate the need for
significant expansion in the near future.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of the
fiscal year.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Shares of the Company Common Stock commenced trading in the over-the-market
on the Nasdaq National Market System on December 16, 1993, under the symbol
PLNR. As of December 12, 1997, there were 4,956 beneficial holders of the
Company's Common Stock.
The Company has never declared nor paid any cash dividend on its capital
stock. The Company currently intends to retain its earnings to support
operations and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The following table sets forth for the fiscal periods
indicated, the range of the high and low closing prices for the Company's Common
Stock on the Nasdaq National Market System.
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High Low
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FISCAL 1996
First Quarter.............................. $20.00 $15.00
Second Quarter............................. 18.75 10.63
Third Quarter.............................. 16.50 12.00
Fourth Quarter............................. 13.00 9.50
FISCAL 1997
First Quarter.............................. 12.13 9.38
Second Quarter............................. 14.00 11.50
Third Quarter.............................. 12.81 9.75
Fourth Quarter............................. 14.81 10.25
FISCAL 1998
First Quarter (through December 4, 1997)... 13.00 10.88
</TABLE>
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During the quarter ended September 26, 1997, the Company sold securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act") upon the exercise of certain stock options granted under the
Company's stock option plans. An aggregate of 56,633 shares of Common Stock were
issued at exercises prices ranging from $2.00 to $6.50. These transactions were
effected in reliance upon the exemption from registration under the Securities
Act provided by Rule 701 promulgated by the Securities and Exchange Commission
pursuant to authority granted under Section 3 (b) of the Securities Act. On
September 26, 1997, Planar Systems, Inc. (the "Company") purchased all of the
outstanding capital stock of Standish Industries, Inc., a Wisconsin corporation,
and Standish International, Inc., a Wisconsin corporation, from Charles P. Hoke,
Elizabeth A. Hoke and William R. Steinmetz, Trustee of the Steven Hoke
Management Trust, the Catherine Hoke Management Trust, the Lauren Hoke
Management Trust and the Charles D. Hoke Management Trust (together, the
"Sellers") in exchange for approximately $13,650,000 in cash and 89,126 shares
of common stock of the Company (the "Stock"). The Stock was offered and sold to
the Sellers in reliance upon the exemption from the registration under the
Securities Act provided by Section 4(2) of the Securities Act.
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ITEM 6. SELECTED FINANCIAL DATA
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Fiscal year
(in thousands, except per share) 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
OPERATIONS
Sales............................ $ 88,850 $80,371 $78,523 $60,359 $45,799
Gross Profit..................... 28,488 27,988 28,388 20,740 14,926
Income (loss) from operations.... (1,395) 9,104 12,102 8,582 5,142
Net income....................... 274 $ 8,672 $10,537 $ 7,462 $ 6,038
Net income per share............. $ .02 $ 0.77 $ 0.98 $ 0.77 $ 0.81
BALANCE SHEET
Working capital.................. $ 52,871 $56,924 $59,078 $40,067 $20,562
Assets........................... 114,196 97,295 88,674 64,015 29,865
Long term liabilities............ 7,516 4,176 2,477 450 23
Shareholders' equity............. 77,280 79,969 72,356 49,402 19,697
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The Company is a worldwide leader in the development, manufacture and
marketing of high performance electronic display products. Planar began
shipping products in 1983 and has experienced revenue growth based upon the
expansion of its product line and market acceptance of its products for a
variety of applications.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales of certain items in the Consolidated Financial Statements of the
Company. The table and the discussion below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 29,
1997 1996 1995
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<S> <C> <C> <C>
Sales.......................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 67.9 65.2 63.8
----- ----- -----
Gross profit................................... 32.1 34.8 36.2
Operating expenses:
Research and development, net................ 8.6 8.8 6.4
Purchased research & development............. 9.3 -- --
Sales and marketing.......................... 9.1 8.8 8.5
General and administrative................... 7.1 6.5 6.5
Amortization of excess fair market value of
acquired net assets over purchase price.... (0.5) (0.6) (0.6)
----- ----- -----
Total operating expenses................. 33.6 23.5 20.8
----- ----- -----
Income (loss) from operations.................. (1.5) 11.3 15.4
Non-operating income (expense):
Interest, net................................ 1.5 1.9 1.9
Foreign exchange, net........................ 1.7 0.3 (0.9)
Other, net................................... (2.3) -- --
----- ----- -----
Net non-operating income................. 0.9 2.2 1.0
----- ----- -----
Income (loss) before income taxes.............. (0.6) 13.5 16.4
Provision (benefit) for income taxes........... (0.9) 2.7 3.0
----- ----- -----
Net income..................................... 0.3% 10.8% 13.4%
===== ===== =====
</TABLE>
Sales. The Company's sales increased by 10.5% to $88.9 million in fiscal
1997 from $80.4 million in fiscal 1996. The increase in fiscal 1997 was
attributable primarily to increases in sales to manufacturers of medical and
transportation products which offset declines in the industrial and
instrumentation markets. Fiscal 1996 sales increased by 2.4% from $78.5 million
in fiscal 1995. The increase in fiscal 1996 was attributable primarily to
increases in sales to manufacturers of medical and industrial products and sales
in the information technology market,
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specifically in the bedside point of care market which offset a decline of
nearly 30% in military sales.
International sales, net of intercompany eliminations, decreased 20% to
$23.6 million in fiscal 1997 as compared to the $29.8 million recorded in fiscal
1996 and increased 10% in fiscal 1996 from fiscal 1995. As a percentage of total
sales, international sales decreased in fiscal 1997 to 26.6%. This was
attributable to two primary factors: a decline in military sales to European
customers and weakness in the Finnish markka which results in lower sales when
translated from the Finnish markka to the US dollar. The higher percentage,
37.1%, in fiscal 1996 versus fiscal 1995, 34.5%, was primarily attributable to
an increase in military sales to Europe which offset a decline in European sales
of the component business.
Gross Profit. The Company's gross profit as a percentage of sales
decreased to 32.1% in fiscal 1997 from 34.8% in fiscal 1996 and 36.2% in fiscal
1995. The decline in gross margin in fiscal 1997 was related primarily to
changes in the product mix from higher margin CRT products to flat panels and
several one time adjustments related to the product transitions of the systems
products as well as contract adjustment on the CRT products. The decrease in
gross margin in fiscal 1996 was primarily due to the decline in the federal
business which is historically at a higher margin.
Research and Development. Total expenses related to research and
development increased 4.7% in fiscal 1997 from fiscal 1996 and 17.1% in fiscal
1996 from fiscal 1995. Net expenses (after the deduction of related contract
funding) increased 8.4% in fiscal 1997 from fiscal 1996 and increased by 41.2%
in fiscal 1996 from fiscal 1995. Increases in net expenses in both years are
related to continued work on the next generation color products, new technology
development at Planar Advance including work on AMLCDs and FEDs and the
continued development of AMEL miniature displays.
Purchased Research and Development Costs. Purchased research and
development costs were $8.3 million for fiscal 1997. These one-time, non-
recurring costs represent in-process research and development costs expensed by
the Company in connection with its acquisition of Standish Industries, Inc.
Sales and Marketing. Sales and marketing expenses increased by 14.1% to
$8.1 million in fiscal 1997 from $7.1 million in fiscal 1996 and increased 6.7%
in fiscal 1996 from $6.7 million in fiscal 1995. The increase in marketing and
sales costs was attributable to sales commissions paid on a higher level of
sales and an increased focus on marketing. As a percentage of sales, sales and
marketing expenses increased to 9.1% in 1997 from 8.8% in fiscal 1996 and
increased from 8.5% in fiscal 1995. The increase in fiscal 1997 as a percentage
of sales was attributable to development of sales and market infrastructures to
support expansion of the federal products line and the end user systems
business. The increase in fiscal 1996 was due to the additional resources added
to the North American sales force.
General and Administrative. General and administrative costs increased by
20.5% to $6.3 million in fiscal 1997 from $5.2 million in fiscal 1996 and
increased 1.9% over the $5.1 million
15
<PAGE>
spent in fiscal 1995. The increase in fiscal 1997 was primarily related to the
additional administrative costs required to build the infrastructure to support
of the growth of the Company, specifically in areas of management systems and
overall management development. The increase in fiscal 1996 was primarily due to
the increases in overall costs.
Amortization of Excess of Fair Market Value of Acquired Net Assets Over
Purchase Price. In connection with the Company's acquisition of Planar
International in January 1991, the Company exchanged Common Stock with a fair
market value (based upon an independent valuation) equivalent to the value of
the business acquired. Due to historical losses of this business and the
expectation of future losses, the value of the Common Stock paid was less than
the fair market value of the net assets acquired. This required the Company to
write fixed assets down to zero and to record negative goodwill on its balance
sheet for the remaining amount of the excess of fair market value of the net
assets acquired over the purchase price. Amortization of this negative goodwill
has created a positive offset to operating expenses in the amount of $476,000
per year. Negative goodwill is being amortized over a ten-year period.
Non-operating Income and Expense. Non-operating income and expense
includes interest income on investments, interest expense and net foreign
currency exchange gain or loss. Net interest income decreased in fiscal 1997
from fiscal 1996 due to the increased debt used to finance production expansion.
Net interest income increased in fiscal 1996 from fiscal 1995 due to increased
average cash balances.
Foreign currency exchange gains and losses are related to timing
differences in the receipt and payment of funds in various currencies and the
conversion of cash accounts denominated in foreign currencies to the applicable
functional currency. Foreign currency exchange gains and losses accounted for a
gain of $1,543,000 in fiscal 1997, and a gain of $242,000 and a loss of
approximately $690,000 in fiscal 1995. These amounts are comprised of realized
gains and losses on cash transactions involving various currencies and
unrealized gains and losses related to foreign currency denominated receivables
and payables resulting from exchange rate fluctuations between the various
currencies in which the Company operates.
From September 27, 1996 to September 26, 1997, the U.S. dollar strengthened
by almost 14% against the Finnish markka. This strengthening of the U.S. dollar
resulted in lower reported revenues and operating expenses due to translation of
the Finnish markka to U.S. dollars for consolidated financial reporting.
The Company generally realizes about one-third of its revenue outside the
United States and expects this to continue in the future. Additionally, the
functional currency of the Company's major foreign subsidiary, Planar
International, is the Finnish markka which must be translated to U.S. dollars
for consolidation. As such, the Company's business and operating results will be
impacted by the effects of future foreign currency fluctuations.
The other expense recognized for the year ended September 26, 1997 reflects
the write off of an equity investment in Virtual i-O, a privately held virtual
reality headset manufacturing
16
<PAGE>
company. The investment was accounted for under the cost method. In December
1996, as a result of delays in product developments and supplier issues, Virtual
i-O needed additional funding which it received at a price per share lower than
that paid by the Company. Based upon the lower of cost or market method, the
Company's investment was written down based on the price paid in the last round
of independent financing. This resulted in a $250,000 write-down in the quarter
ended December 1996. During the quarter ended March 28, 1997, Virtual i-O
declared bankruptcy and the remainder of the Company's investment was written
off.
Provision for Income Taxes. The Company recorded a tax benefit of $784,000
for the year ended September 26, 1997 versus effective rates of 20.0% in fiscal
1996 and 18.2% in fiscal 1995. For fiscal 1997, the change in the effective tax
rates was due to recognition of a book loss in the US compared to the book
income of the Planar International. The book loss in the US was significantly
impacted by the write off of the purchased research and development associated
with the acquisition of Standish Industries, Inc. In prior years, the change in
effective tax rates was due to the relative profitability of Planar
International compared to the US entities. As a result of the acquisition of
Planar International in January 1991, the Company recognized a change in
ownership for tax purposes that resulted in a limitation on the annual
utilization of net operating loss carryforwards for U.S. tax purposes. In fiscal
1996 and 1997, the Company is subject to the $2.1 million annual limitation.
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited consolidated financial results for
each quarter in the two year period ended September 26, 1997. The Company
believes that all necessary adjustments have been included to present fairly the
quarterly information when read in conjunction with the Consolidated Financial
Statements. The operating results for any quarter are not necessarily indicative
of the results that may be expected for any future period.
<TABLE>
<CAPTION>
Three Months Ended
------------------
(in thousands, except per share data)
-------------------------------------
Sept. 26, June 27, March 28, Dec. 27, Sept. 28, June 28, March 29, Dec. 29,
1997 1997 1997 1996 1996 1996 1996 1995
--------- -------- ---------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales........................... $21,785 $21,723 $23,190 $22,152 $20,421 $19,519 $20,114 $20,317
Gross profit.................... 5,495 7,303 8,417 7,273 6,180 7,136 7,536 7,136
Income (loss) from operations... (8,466) 2,140 2,841 2,090 1,524 2,269 2,548 2,763
Net (loss) income............... (5,396) 2,307 1,687 1,676 1,210 2,111 2,646 2,705
Net income (loss) per common
and common equivalent share... ($0.48) $0.21 $ 0.15 $ 0.15 $ 0.11 $ 0.19 $ 0.24 $ 0.24
Weighted average number of
common and common equivalent
shares outstanding............ 11,260 11,233 11,288 11,181 11,184 11,233 11,243 11,246
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $12.6 million, $1.5 million
and $9.5 million in fiscal 1997, 1996 and 1995, respectively. The increase in
1997 was primarily related to changes in the balance sheet accounts. The decline
in 1996 from 1995 was primarily due to the increase in inventory and a decline
in operating income.
Additions to plant and equipment were $2.5 million, $3.4 million and $6.9
million in fiscal 1997, 1996 and 1995, respectively. The principal acquisitions
during fiscal 1997 were
17
<PAGE>
related to the acquisition of equipment to be used in connection with the
development of the military flat panel displays and the continued development of
AMEL miniature displays. The principal acquisitions during fiscal 1996 were
related to additional capacity improvements at both Planar America and Planar
International. The principal acquisitions during fiscal 1995 were related to
upgrading the production facility and equipment at Planar International and
additional research and development equipment at Planar America and the
renovation costs associated with the acquired facility.
At September 26, 1997, the Company had a bank line of credit agreement with
a borrowing capacity available of $8 million and credit facilities for financing
equipment of $19.5 million. A similar bank line of credit was in place as of
September 27, 1996. As of September 26, 1997 and September 27, 1996, no
borrowings were outstanding under the credit line and approximately $5.4 million
and $5.2 million was outstanding under the equipment financing lines,
respectively. In addition, as part of the acquisition of Standish Industries,
Inc., the Company assumed debt of $3.2 million.
The Company believes its existing cash and investments together with cash
generated from operations and existing borrowing capabilities will be sufficient
to meet the Company's working capital requirements for the foreseeable future.
OUTLOOK: ISSUES AND UNCERTAINTIES
Planar does not provide forecasts of future financial performance. While
Planar's management is optimistic about the Company's long-term prospects, the
following issues and uncertainties, among others, should be considered in
evaluating its growth outlook.
COMPETITION
The market for information displays is highly competitive, and the Company
expects this to continue. The Company believes that over time this competition
will have the effect of reducing average selling prices of flat panel displays.
Certain of the Company's competitors have substantially greater name recognition
and financial, technical, marketing and other resources than the Company, and
competitors of the Company have made and continue to make significant
investments in the construction of manufacturing facilities for AMLCDs and other
advanced displays. There can be no assurance that the Company's competitors will
not succeed in developing or marketing products that would render the Company's
products obsolete or noncompetitive. To the extent the Company is unable to
compete effectively against its competitors, whether due to such practices or
otherwise, its financial condition and results of operations would be materially
adversely affected.
18
<PAGE>
DEVELOPMENT OF NEW PRODUCTS AND RISKS OF TECHNOLOGICAL CHANGE
The Company's future results of operations will depend upon its ability to
improve and market its existing products and to successfully develop,
manufacture and market new products. There can be no assurance that the Company
will be able to continue to improve and market its existing products or develop
and market new products, or that technological developments will not cause the
Company's products or technology to become obsolete or noncompetitive. Even
successful new product introductions typically result in pressure on gross
margins during the initial phases as costs of manufacturing start-up activities
are spread over lower initial sales volumes.
A portion of the Company's flat panel products rely on EL technology, which
currently constitutes only a small portion of the information display market.
The Company's future success with EL technology will depend in part upon
increasing acceptance of EL products in the marketplace. In that regard, the
Company's competitors are investing substantial resources in the development and
manufacture of displays using a number of alternative technologies. In the event
these efforts result in the development of products that offer significant
advantages over the Company's products, and the Company is unable to improve its
technology or develop or acquire alternative technology that is more
competitive, the Company's business and results of operations will be adversely
affected.
The Company's military product sales are principally based on CRT
technology. Military avionics contractors are increasingly focused on
incorporating displays, primarily AMLCDs, into cockpit applications that have
traditionally used CRTs. The Company's ability to transition the military
product line to flat panel displays over the next few years will be important to
the long term success of Planar's military avionics business. The Company
entered into an agreement with dpiX (a Xerox company) to jointly develop,
manufacture and market AMLCDs into military applications. However, there can be
no assurance that this business arrangement will be successful.
LEVEL OF ADVANCED RESEARCH AND DEVELOPMENT FUNDING
The Company's advanced research and development activities have
significantly been funded by outside sources, including agencies of the United
States and Finnish governments and private sector companies. The Company's
recently funded research and development activities have principally focused on
multi-color and full color displays, miniature displays, advanced packaging and
other applications. The actual funding that will be recognized in future periods
is subject to wide fluctuation due to a variety of factors including government
appropriation of the necessary funds and the level of effort spent on contracts
by the Company.
As Congress has become more serious about balancing the federal budget,
there has been significant debate on the level of funding to be made available
to programs that have historically supported the Company's research activities.
Additionally, government research and development funding has been gradually
shifting to a more commercial approach, and
19
<PAGE>
contractors are increasingly required to share in the development costs. This
trend is likely to continue, which could increase the Company's net research and
development expenses. While the Company has historically not experienced any
loss or decline of external research funding, the loss or substantial reduction
of such funding could adversely affect the Company's results of operations and
its ability to continue research and development activities at current levels.
See Note 1 in the "Notes to Consolidated Financial Statements".
RELIANCE ON MEDICAL EQUIPMENT MARKET
Over one third of the Company's sales in fiscal 1997 were made to customers
that manufacture and sell medical equipment to health care providers worldwide,
and the Company believes that sales in this market will continue to be important
to the Company. As a result, developments that adversely impact the market for
medical equipment produced by the Company's customers could, in turn, adversely
affect the Company's business and results of operations. In addition, the
Company's sales have been and may in future periods be adversely affected due to
delays in approvals by foreign or domestic government regulatory agencies which
prevent a customer of the Company from introducing, producing or marketing
products.
INTERNATIONAL OPERATIONS AND CURRENCY EXCHANGE RATE FLUCTUATIONS
Shipments to customers outside of North America accounted for approximately
26.6%, 37.1%, and 34.5% of the Company's sales in fiscal 1997, fiscal 1996 and
fiscal 1995, respectively. The Company anticipates that international shipments
will continue to account for a significant portion of its sales. As a result,
the Company is subject to risks associated with international operations,
including trade restrictions, overlapping or differing tax structures, changes
in tariffs, export license requirements and difficulties in staffing and
managing international operations (including, in Finland, relations with
national labor unions). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DECLINING MILITARY EXPENDITURES
As a result of the Company's acquisition of Planar Advance, the Company's
sales for military applications have increased. Military capital expenditure
levels have been declining for several years and depend largely on factors
outside of the Company's control. Although the Company believes that its
dependence on military sales will decrease as the Company continues to expand
its customer base, no assurance can be given that military sales will continue
at current levels. In addition, as a result of the reduction in military CRT
sales, several key CRT suppliers have threatened to halt production of critical
components. Although the Company believes it has reached agreement with each of
its critical vendors, no assurance can be given that critical material supply
will be available when needed.
EFFECTS OF QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
Results of operations have fluctuated significantly from quarter to quarter
in the past, and may continue to fluctuate in the future. Various factors,
including timing of new product
20
<PAGE>
introductions by the Company or its competitors, foreign currency exchange rate
fluctuations, disruption in the supply of components for the Company's products,
changes in product mix, capacity utilization, the timing of orders from major
customers, production delays or inefficiencies, seasonality, the timing of
expenses and other factors affect results of operations. Quarterly fluctuations
may adversely affect the market price of the Common Stock.
The Company's backlog at the beginning of each quarter does not normally
include all orders needed to achieve expected sales for the quarter.
Consequently, the Company is dependent upon obtaining orders for shipment in a
particular quarter to achieve its sales objectives for that quarter. The
Company's expense levels are based, in part, on expected future sales. If sales
levels in a particular quarter do not meet expectations, operating results may
be adversely affected.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PLANAR SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. 23
Consolidated Balance Sheets............................................... 24
Consolidated Statements of Operations..................................... 25
Consolidated Statements of Shareholders' Equity........................... 26
Consolidated Statements of Cash Flows..................................... 27
Notes to Consolidated Financial Statements................................ 28
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Planar Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Planar
Systems, Inc. and subsidiaries as of September 26, 1997 and September 27, 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three year period ended September 26,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Planar
Systems, Inc. and subsidiaries as of September 26, 1997 and September 27, 1996,
and the results of their operations, and their cash flows for each of the years
in the three-year period ended September 26, 1997 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
November 7, 1997
23
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 26, September 27,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)............................... $ 21,777 $23,089
Short-term investments (Note 1 and 2)............................ 8,170 7,111
Accounts receivable, net of allowance for doubtful
accounts of $478 at 1997 and $130 at 1996 (Note 2 and 6)......... 21,001 15,267
Inventories (Note 1 and 6)....................................... 21,517 17,134
Other current assets (Note 1 and 3).............................. 8,471 5,634
-------- -------
Total current assets........................................... 80,936 68,235
Plant and equipment, net (Note 1 and 5).......................... 16,584 12,848
Long-term investments (Note 1 and 2)............................. 2,445 12,838
Goodwill (Note 1 and 3).......................................... 5,878 --
Other............................................................ 8,353 3,374
-------- -------
$114,196 $97,295
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit................................................... $ 1,130 $ --
Accounts payable................................................. 13,011 3,900
Accrued compensation............................................. 5,261 2,979
Current portion of long term debt (Note 6)....................... 1,698 1,039
Deferred revenue................................................. 1,406 65
Other current liabilities (Note 2 and 7)......................... 5,083 2,852
Current portion of excess fair market value of acquired
net assets over purchase price (Note 1)........................ 476 476
-------- -------
Total current liabilities...................................... 28,065 11,311
Deferred taxes (Note 8).......................................... 263 291
Long term debt, less current portion (Note 6).................... 6,878 4,123
Other long-term liabilities...................................... 638 53
Long-term portion of excess fair market value of
acquired net assets over purchase price (Note 1)............... 1,072 1,548
-------- -------
Total liabilities.............................................. 36,916 17,326
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 10,000,000
shares, no shares issued at 1997 or 1996
Common stock, no par value. Authorized 30,000,000 shares;
issued 11,075,730 and 10,925,218 shares at 1997 and 1996,
respectively................................................... 73,190 71,867
Unrealized gain (loss) on marketable securities (Note 1)......... 7 (10)
Retained earnings................................................ 10,486 10,579
Foreign currency translation adjustment.......................... (6,403) (2,467)
-------- -------
Total shareholders' equity..................................... 77,280 79,969
-------- -------
$114,196 $97,295
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------
September 26, September 27, September 29,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Sales....................................... $88,850 $80,371 $78,523
Cost of sales............................... 60,362 52,383 50,135
------- ------- -------
Gross profit................................ 28,488 27,988 28,388
Operating expenses:
Research and development, net (Note 1).... 7,638 7,044 4,987
Purchased research and development
(Note 4)................................. 8,305 -- --
Sales and marketing....................... 8,095 7,097 6,652
General and administrative................ 6,293 5,219 5,123
Amortization of excess fair market value
of acquired net assets over purchase
price (Note 1)........................... (448) (476) (476)
------- ------- -------
Total operating expenses................ 29,883 18,884 16,286
------- ------- -------
Income (loss) from operations............... (1,395) 9,104 12,102
Non-operating income (expense):
Interest income........................... 1,734 1,880 1,516
Interest expense.......................... (381) (383) (48)
Foreign exchange, net..................... 1,543 242 (690)
Other, net................................ (2,011) -- --
------- ------- -------
Net non-operating income................ 885 1,739 778
------- ------- -------
Income (loss) before income taxes........... (510) 10,843 12,880
Provision (benefit) for income taxes
(Note 1 and 8)............................. (784) 2,171 2,343
------- ------- -------
Net income.............................. $ 274 $ 8,672 $10,537
======= ======= =======
Net income per share (Note 1):
Net income.............................. $ 0.02 $ 0.77 $ 0.98
======= ======= =======
Weighted average number of common and common
equivalent shares outstanding (Note 1).... 11,247 11,216 10,760
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Unrealized Foreign
Common Stock Gain (Loss) Retained Currency Total
---------------------- on Marketable Earnings Translation Shareholders'
Shares Amount Securities (Deficit) Adjustment Equity
---------- -------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994......... 10,120,191 61,768 (106) (8,630) (3,630) 49,402
Shares issued in public offering
(Note 9)........................... 446,988 8,072 8,072
Unrealized gain on long term
investments........................ 105 105
Proceeds from issuance of
common stock....................... 271,727 803 803
Tax benefit from stock option
exercises (Note 8)................. 561 561
Foreign currency translation
adjustment......................... 2,876 2,876
Net income.......................... 10,537 10,537
---------- ------- ---- ------- ------- -------
Balance, September 29, 1995......... 10,838,906 71,204 (1) 1,907 (754) 72,356
Unrealized loss on long term
investments........................ (9) (9)
Proceeds from issuance of
common stock....................... 86,312 520 520
Tax benefit from stock option
exercises (Note 8)................. 143 143
Foreign currency translation
adjustment......................... (1,713) (1,713)
Net income.......................... 8,672 8,672
---------- ------- ---- ------- ------- -------
Balance, September 27, 1996......... 10,925,218 71,867 (10) 10,579 (2,467) 79,969
Unrealized gain on long term
investments........................ 17 17
Proceeds from issuance of
common stock....................... 97,195 395 395
Issuance of common stock in
connection with acquistion......... 89,126 891 891
Tax benefit from stock option
exercises (Note 8)................. 37 37
Stock repurchase.................... (35,809) (367) (367)
Foreign currency translation
adjustment......................... (3,936) (3,936)
Net income.......................... 274 274
---------- ------- ---- ------- ------- -------
Balance, September 26, 1997......... 11,075,730 $73,190 $ 7 $10,486 (6,403) $77,280
========== ======= ==== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-------------------------------------------------
September 26, September 27, September 29,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income......................................... $ 274 $ 8,672 $ 10,537
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 3,232 2,003 1,636
Amortization of excess market value of acquired
net assets over purchase price.................. (476) (476) (476)
Goodwill......................................... 28 -- --
Gain on sale of equipment........................ (3) (20) --
Loss on investment............................... 2,011 -- --
Increase in deferred taxes....................... 4 119 69
Foreign exchange (gain) loss..................... (1,100) (263) 398
Purchased research and development............... 8,305 -- --
Tax benefit of stock option exercised............ 37 143 561
Increase in accounts receivable.................. (2,879) (1,777) (2,557)
(Increase) decrease in inventories............... (1,444) (5,870) 1,274
Increase in other current assets................. (3,225) (1,187) (2,558)
Increase (decrease) in accounts payable.......... 4,227 (983) 456
Increase (decrease) in accrued.compensation...... 1,069 (6) 465
Increase in deferred revenue..................... 1,389 -- --
Increase (decrease) in other current
liabilities..................................... 1,199 1,095 (270)
-------- ------- --------
Net cash provided by operating activities.......... 12,648 1,450 9,535
Cash flows from investing activities:
Purchase of plant and equipment.................... (2,511) (3,416) (6,911)
Purchase of a business............................. (13,897) -- --
Equipment and rent deposits........................ (6,286) (429) (392)
Payment of long term liability..................... (35) (209) (187)
Purchase of equity security........................ -- (2,011) --
Net sales (purchase) of short-term investments..... (1,059) 5,681 (7,367)
Net sales (purchase) of long-term investments..... 8,399 (5,234) (1,281)
-------- ------- --------
Net cash used by investing activities.............. (15,389) (5,618) (16,138)
Cash flows from financing activities:
Net proceeds of long term debt..................... 895 2,363 2,799
Net proceeds (repayments) of long term receivable.. 574 (2,131) --
Net proceeds from issuance of capital stock........ 395 520 8,875
Stock repurchase................................... (367) -- --
-------- ------- --------
Net cash provided by financing activities 1,497 752 11,674
Effect of exchange rate changes on cash
and cash equivalents.............................. (68) (184) 463
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... (1,312) (3,600) 5,534
Cash and cash equivalents at beginning of period... 23,089 26,689 21,155
-------- ------- --------
Cash and cash equivalents at end of period......... $ 21,777 $23,089 $ 26,689
======== ======= ========
Supplemental cash flow disclosure:
Cash paid for interest............................ $ 381 $ 383 $ 48
Cash paid for income taxes........................ $ 2,999 $ 2,171 $ 1,391
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
PLANAR SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Planar Systems, Inc. was incorporated on April 27, 1983 and commenced
operations in June 1983. Planar Systems, Inc., and its wholly-owned subsidiaries
(collectively, the "Company") are engaged in developing, manufacturing and
marketing of electronic display products. These display products primarily
include electroluminescent (EL), liquid crystal displays (LCD) and high
performance taut shadow mask cathode ray tubes (CRT) technologies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of Planar Systems, Inc. and its wholly-owned subsidiaries, Planar International
Ltd., Planar America, Inc., Planar Standish, Inc., Planar Flat Candle, Inc. and
Planar Advance, Inc. All significant intercompany accounts and transactions are
eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the last Friday in September. The last
day of fiscal 1997, 1996 and 1995 was September 26, September 27 and September
29, respectively. Due to statutory requirements, Planar International's fiscal
year-end is September 30. All references to a year in these notes are to the
Company's fiscal year ended in the period stated which includes the fiscal year
results of Planar International.
USE OF ESTIMATES
The preparation of the 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 sales and expenses during the reporting
period. Actual results could differ from those estimates.
28
<PAGE>
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency of the Company's foreign
subsidiary. Assets and liabilities of the foreign subsidiary are translated into
U.S. dollars at current rates of exchange, and revenues and expenses are
translated using weighted average rates, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation".
Adjustments from foreign currency translation are included as a separate
component of shareholders' equity. Foreign currency transaction gains and losses
are included as a component of non-operating income.
STATEMENT OF CASH FLOWS
Cash and cash equivalents consist of highly liquid instruments with
original maturities of three months or less in accordance with SFAS No. 95,
"Statement of Cash Flows".
In accordance with SFAS No. 95, cash flows from the Company's operations in
Finland are calculated based upon its functional currency. As a result, amounts
related to assets and liabilities reported on the Statement of Consolidated Cash
Flows will not necessarily agree with changes in the corresponding balances on
the Consolidated Balance Sheets. The effect of exchange rate changes on cash
balances held in foreign currencies is reported as a separate line item in the
Consolidated Statements of Cash Flows.
INVESTMENTS
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale, along with the Company's investment in equity securities.
Securities available for sale are carried at fair value, with unrealized gains
and losses, net of tax, reported in a separate component of shareholders'
equity. At September 26, 1997, the Company had no investments that qualified as
trading or held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. The cost of
securities sold is based upon specific identification.
At September 26, 1997, the Company's investments in debt and equity
securities were classified as cash and cash equivalents and short-term
investments. These investments are diversified among high credit quality
securities in accordance with the Company's investment policy. As of September
26, 1997, all debt securities are invested in federal and state and municipal
securities. These securities have been reported at their fair market value of
$14,561 compared to historical cost of $14,554. The unrealized gains of $7 are
reported as a separate component of shareholders' equity, net of deferred taxes.
29
<PAGE>
The estimated fair value of debt securities available for sale by
contractual maturities at September 26, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Due in three months or less............... $ 4,043
Due after three months through one year... 8,170
Due after one year through three years.... 2,348
-------
$14,561
=======
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost (first in, first out method) or
market, net of reserves for estimated inventory obsolescence based upon the
Company's best estimate of future product demand. Inventories consist of:
<TABLE>
<CAPTION>
September 26, September 27,
1997 1996
------------- -------------
<S> <C> <C>
Raw materials................ $12,118 $10,616
Work in process.............. 4,165 3,323
Finished goods............... 5,234 3,195
------- -------
$21,517 $17,134
======= =======
</TABLE>
PLANT AND EQUIPMENT
Depreciation of equipment is computed on a straight line basis over the
estimated useful lives of the assets, generally five years. Leasehold
improvements are amortized on a straight line basis over the lesser of the life
of the leases or the estimated useful lives of the assets. Depreciation of the
building is computed on a straight line basis over the estimated useful life of
the building, estimated to be 39 years.
INCOME TAXES
Under SFAS No. 109, deferred tax assets and liabilities are established for
the temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities at the enacted tax rates expected
to be in effect when such amounts are realized or settled. Under SFAS No. 109,
the effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. Income tax credits will be
recognized as reductions of the provision for income taxes in the year the
credits are realized (the "flow-through method").
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment.
30
<PAGE>
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. The Company
periodically enters into research and development contracts with certain
governmental agencies and private sector companies. These contracts generally
provide for reimbursement of costs. Funding from research and development
contracts is recognized as a reduction in operating expenses during the period
in which the services are performed and related direct expenses are incurred, as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
September 26, September 27, September 29,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Research and development expense....... $17,274 $16,493 $14,084
Contract funding....................... 9,636 9,449 9,097
------- ------- -------
Research and development, net.......... $ 7,638 $ 7,044 $ 4,987
======= ======= =======
</TABLE>
As of September 26, 1997 and September 27, 1996, included in other current
assets is $2,656 and $2,964, respectively, related to these research and
development contracts.
PRODUCT WARRANTY
The Company provides a warranty for its products and establishes an
allowance at the time of sale adequate to cover warranty costs during the
warranty period. The warranty period is generally between twelve and fifteen
months. This reserve is included in other current liabilities (Note 7).
GOODWILL AND EXCESS FAIR MARKET VALUE OF ACQUIRED NET ASSETS OVER PURCHASE PRICE
Goodwill and the excess of fair market value of acquired net assets over
purchase price are being amortized over a ten-year period using the straight
line method.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares assumed
to be outstanding during the period, using the treasury stock method. Common
equivalent shares consist of options to purchase common stock.
FINANCIAL INSTRUMENTS
The recorded amount of financial instruments approximates the fair market
value.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). In
fiscal 1997, the
31
<PAGE>
Company adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation".
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". This
statement specifies the standard for computing and presenting earnings per
share. Adoption of SFAS No. 128 is required for fiscal years beginning after
December 15, 1996. The Company believes that implementation of this statement
will not have a material effect on the financial position or results of
operations of the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Earnings" and and No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 130 established standards for reporting
comprehensive income and its components. SFAS No. 131 establishes the standards
for reporting information about operating segments. Adoption of both standards
is required for fiscal years beginning after December 15, 1997. The Company
believes that implementation for these standards will not have a material effect
on the financial position or results of operations of the Company.
NOTE 2 -- CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of trade receivables and investments. The
risk in trade accounts receivable is limited due to the credit worthiness of the
companies comprising the Company's customer base and their dispersion across
many different sectors of the electronics industry and geographies. The risk in
investments is limited due to the credit worthiness of investees comprising the
portfolio, the diversity of the portfolio and relative low risk of municipal
securities. At September 26, 1997, the Company does not believe it had any
significant credit risks.
NOTE 3 - BUSINESS ACQUISITIONS
On June 4, 1997, the Company acquired Flat Candle Corporation for $1,128
cash. Flat Candle Corporation's primary business is that of developing,
manufacturing and marketing of back lights. The transaction was accounted for as
a purchase. Intangibles of $803 were recorded, which are being amortized over
ten years. The financial statements include the operating results of Flat Candle
Corporation from the date of acquisition. Pro forma results of operations have
not been presented because the effect of this acquisition is not significant.
On September 26, 1997, the Company acquired all of the outstanding capital
stock of Standish Industries, Inc. for approximately $15 million in cash and
stock. Standish Industries' primary business is that of developing,
manufacturing, and marketing electronic displays. The transaction was accounted
for as a purchase. Intangibles of $5,714 were recorded, after adjusting for
purchased research and development costs (Note 4), which are being amortized
over ten years. The financial statements include the operating results of
Standish Industries, Inc. from the date of acquisition.
32
<PAGE>
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Standish Industries, Inc. had been
acquired as of the beginning of the periods presented, after including the
impact of certain adjustments, such as amortization of intangibles and the
related income tax effects.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Sales................................ $119,939 $105,216
Net income (loss).................... $ (307) $ 7,079
Net income (loss) per share.......... $ (0.03) $ 0.63
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred had the acquisition been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect synergies that might be achieved from combined
operations.
NOTE 4 - PURCHASED RESEARCH AND DEVELOPMENT EXPENSE
In connection with the acquisition of Standish Industries, Inc. at
September 26, 1997 (Note 3), the Company allocated $8,305 of the purchase price
to in-process research and development projects as determined by independent
appraisal. Accordingly, these costs were expensed as of the acquisition date.
These allocations represent the estimated fair value based on risk adjusted cash
flows (assuming a 23% discount rate) related to incomplete projects. The
development of these projects had not yet reached technological feasibility, and
the technology has no alternative future use. The technology acquired in these
acquisitions will require substantial additional development by the Company.
NOTE 5 -- PLANT AND EQUIPMENT
Plant and equipment, at cost, consists of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land................................ $ 115 $ --
Buildings and improvements.......... 3,731 1,331
Machinery and equipment............. 28,048 24,026
-------- --------
Total plant and equipment........... 31,894 25,357
Less accumulated depreciation....... (15,310) (12,509)
-------- --------
Net plant and equipment............. $ 16,584 $ 12,848
======== ========
</TABLE>
NOTE 6 -- BORROWINGS
LINE OF CREDIT
The Company has a bank line of credit which allows for borrowings up to $8
million. The line bears interest at the bank's prime rate (8.5% at September 26,
1997) and is unsecured with a negative pledge on accounts receivable and
inventories. The agreement is subject to review at
33
<PAGE>
September 30, 1998. There were no borrowings outstanding on this line at
September 26, 1997 or September 27, 1996.
LONG TERM DEBT
The Company has entered into credit facilities with several financial
institutions to borrow up to $19.5 million to finance equipment purchases. These
loans are secured by the financed equipment, mature in 2000 and bear interest at
an average rate of 7.5%. As of September 26, 1997 and September 27, 1996, the
company has $5.4 million and $5.2 million outstanding under these loans. As a
result of the acquisition discussed at note 3, the Company assumed additional
debt with of $3,157, maturing over the next several years at an average rate of
9.6%. Aggregate maturities over the next five years are $1,698, $2,270, $2,017,
$1,022, $279 and $1,290 thereafter. Covenants under these agreements are not
considered restrictive to normal operations.
NOTE 7 -- OTHER CURRENT LIABILITIES
Other current liabilities consist of:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Warranty reserve........................ $ 930 $ 643
Income taxes payable.................... 2,415 542
Deferred income taxes................... 262 448
Royalty payable......................... 297 --
Duty payable............................ 308 --
Current portion of long term
contingent payable..................... 32 176
Other................................... 839 1,043
-------- -------
Total............. ................ $ 5,083 $ 2,852
======== =======
</TABLE>
NOTE 8 -- INCOME TAXES
The components of income(loss) before income taxes and extraordinary item
consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Domestic................................ $ (8,803) $ 5,484 $ 7,778
Foreign................................. 8,293 5,359 5,102
-------- ------- -------
Total.............................. $ (510) $10,843 $12,880
======== ======= =======
</TABLE>
The following table summarizes the provision for US federal, state and
foreign taxes on income.
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal.............................. $ 266 $ 660 $ 1,268
State................................ 242 170 455
Foreign.............................. 2,425 1,137 695
-------- ------- -------
2,933 1,967 2,418
Deferred:
Federal.............................. (3,638) (195) (200)
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C>
State................................... -- -- --
Foreign................................. (79) 399 125
-------- ------- -------
$ (784) $ 2,171 $ 2,343
======== ======= =======
</TABLE>
The differences between the U.S. federal statutory tax rate and the
Company's effective rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ---- -----
<S> <C> <C> <C>
Computed statutory rate................. (34.0)% 34.0% 34.0%
State income taxes, net of federal tax
benefits............................... 23.7 0.6 2.3
Effect of foreign tax rates............. (97.6) (2.7) (3.2)
Permanent differences resulting from
purchase accounting.................... 24.0 (0.8) (1.3)
Change in valuation reserve............. 37.6 (8.5) (12.2)
Benefit of tax exempt interest earned... (59.6) (3.0) (2.4)
Other, net.............................. (0.4) 0.4 1.0
------ ---- -----
Effective tax rate...................... (153.7)% 20.0% 18.2%
====== ==== =====
</TABLE>
The tax effects of temporary differences and carryforwards which gave rise
to significant portions of the deferred tax assets and liabilities as of
September 26, 1997 and September 27, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Inventory valuation reserve.............. $ 1,413 $ 449
Allowance for doubtful accounts.......... 162 62
Valuation of intangibles................. 29 29
Accrued vacation and other compensation.. 315 240
Basis difference in intangibles.......... 2,824 --
Accrued warranty reserve................. 219 194
Capital loss carryforwards............... 600 47
General business credits................. 553 --
Net operating loss carryforwards......... 2,580 3,280
------- -------
Gross deferred tax assets................ 8,695 4,301
Valuation allowance.................... (3,660) (3,468)
------- -------
Deferred tax assets.................. 5,035 833
Deferred tax liabilities:
Inventory valuation reserve.............. (305) (448)
Accumulated depreciation................. (753) (438)
Operating reserves....................... (185) (291)
------- -------
Deferred tax liabilities............. (1,243) (1,177)
------- -------
Net deferred tax asset (liability)....... $ 3,792 ($344)
======= =======
</TABLE>
During fiscal year 1997 and 1996, the Company recognized tax benefits of
$37 and $143 respectively, related to differences between financial and tax
reporting of stock option transactions. This difference was credited to common
stock.
The Company has established a valuation allowance for certain deferred tax
assets, including net operating loss and tax credit carryforwards. SFAS No. 109
requires that such a valuation allowance be recorded when it is more likely than
not that some portion of the deferred tax assets will not be realized. For
fiscal year 1997 and 1996, the valuation reserve increased by $192 and decreased
by $1,166, respectively.
35
<PAGE>
At September 26, 1997, the Company has net operating loss carryforwards of
approximately $7,590 available to reduce future federal taxable income. The
carryforwards expire at various dates through 2004. Utilization of the
carryforwards is subject to certain limitations due to the change in ownership
of the Company which occurred in conjunction with the acquisition of Planar
International. As a result of the acquisition, utilization of available net
operating loss carryforwards is limited to approximately $2,100 per year.
NOTE 9 -- SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of preferred
stock at $.01 par value. At September 26, 1997, no shares of preferred stock
have been issued; however the following series of preferred stock had been
designated and reserved - Series D Junior Participating Preferred Stock 200,000.
Additional series of preferred stock may be designated and the related rights
and preferences fixed by action of the Board of Directors.
STOCK OPTIONS
In fiscal 1994, the Company adopted the 1993 Stock Incentive Plan which
provides for the granting of options to buy shares of Common Stock. These
options are intended to either qualify as "incentive stock options" under the
Internal Revenue Code or "non-qualified stock options" not intended to qualify.
Under the 1993 plan, options generally become exercisable 25% one year after
grant and 6.25% per quarter thereafter, and expire ten years after grant. During
fiscal 1997, the Company adopted the 1996 Stock Incentive Plan with the same
provisions and guidelines as the aforementioned 1993 plan. The Company reserved
1,200,000 shares of common stock for issuance under this plan. The option price
under all plans is the fair market value as of the date of the grant. Total
shares reserved under these plans are 2,758,735 shares.
The Company also adopted a 1993 stock option plan for nonemployee directors
that provides an automatic annual grant to each outside director of the Company.
Total annual grants under this plan cannot exceed 60,000 shares per year. Terms
of this plan generally follow the 1993 Stock Incentive Plan. Information
regarding these option plans is as follows:
<TABLE>
<CAPTION>
Number of Shares Weighted Average
Shares Option Prices
---------------- ----------------
<S> <C> <C>
Options outstanding at September 30, 1994............... 863,166 $ 4.64
Granted............................................... 178,000 22.26
Exercised............................................. 261,894 2.82
Canceled.............................................. 13,967 10.56
--------- ------
Options outstanding at September 29, 1995............... 765,305 9.26
Granted............................................... 822,700 13.58
Exercised............................................. 71,942 4.97
Canceled.............................................. 344,199 19.99
--------- ------
Options outstanding at September 27, 1996............... 1,171,864 9.42
Granted............................................... 271,450 13.46
Exercised............................................. 71,916 3.28
Canceled.............................................. 10,074 13.44
--------- ------
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
Options outstanding at September 26, 1997............... 1,361,324 $10.49
========= ======
Exercisable at September 26, 1997....................... 690,079
=========
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation" which defines a fair value based
method of accounting for an employee stock option or similar equity instrument.
As is permitted under SFAS No. 123, the Company has elected to continue to
account for its stock based compensation plans under APB Opinion No. 25. The
Company has computed, for pro forma disclosure purposes, the value of all
options granted during 1997 and 1996 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 using the following weighted average
assumptions for grants:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Risk free interest rate.................... 6.0% 6.0%
Expected dividend yield.................... 0 0
Expected lives............................. 4.2 4.2
Expected volatility........................ 55.7 54.3
</TABLE>
Using the Black-Scholes methodology, the total value of options granted
during 1997 and 1996 was $1,363 and $3,567, respectively, which would be
amortized on a pro forma basis over the vesting period of the options. The
weighted average fair value of options granted during 1997 and 1996 was $13.46
per share and $13.58 per share, respectively. If the Company accounted for its
stock based compensation plans in accordance with SFAS No 123, the Company's net
income and net income per share would approximate the pro forma disclosures
below:
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
As reported Pro Forma As reported Pro Forma
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net income............. $ 274 $ (581) $8,672 $8,232
Net income per share... $0.02 $(0.05) $ 0.77 $ 0.75
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
January 1, 1995, and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding at
September 26, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------- ------------------------------------
Number Weighted Average Weighted Number of Shares
Range of Outstanding at Remaining Average Exercisable at Weighted Average
Exercises Prices 9/26/97 Contractual Life Exerice Price 9/26/97 Exercise Price
- ---------------- -------------- ---------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50 - $9.88 677,422 6.78 $ 7.13 445,246 $ 5.74
$10.25 - $13.13 153,200 8.86 $11.95 60,000 $11.46
$14.13 - $23.38 530,702 8.60 $14.34 184,833 $14.74
- --------------- --------- ---- ------ ------- ------
$2.25 - $23.38 1,361,324 7.72 $10.49 690,079 $ 8.65
=============== ========= ==== ====== ======= ======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In fiscal 1995, the Company adopted the 1994 Employee Stock Purchase Plan
which provides that eligible employees may contribute, through payroll
deductions, up to 10% of their
37
<PAGE>
earnings toward the purchase of the Company's Common Stock at 85 percent of the
fair market value at specific dates. At September 26, 1997, 224,914 shares
remain available for purchase through the plan and there were 492 employees
eligible to participate in the plan, of which 121, or 24.5 percent, were
participants. Employees purchased 36,283 shares, at an average price of $8.58
per share during the year. Total receipts to the company were $311. Since the
plan is noncompensatory, no charges to operations have been recorded.
SHAREHOLDERS RIGHTS PLAN
In February 1996, the Board of Directors approved a shareholder rights plan
and declared a dividend of one preferred share purchase right for each
outstanding common share. Each right represents the right to purchase one
hundredth of a share of Preferred Stock, at an exercise price of $60.00, subject
to adjustment. The rights are only exercisable ten days after a person or group
acquires, or commences a tender or exchange offer to acquire, beneficial
ownership of 15% or more of the Company's outstanding common stock. Subject to
the terms of the shareholder rights plan and the discretion of the Board of
Directors, each right would entitle the holder to purchase one share of Common
Stock of the Company for each right at one-half of the then-current price. The
rights expire in February 2006, but may be redeemed by action of the Board of
Directors prior to that time at $.01 per right.
NOTE 10 - COMMITMENTS
OPERATING LEASES
Most of Company's office and manufacturing facilities are subject to long-
term operating leases. In addition, regional sales offices and automobiles are
subject to leases with terms ranging from one to twelve months.
At September 26, 1997, the approximate minimum annual operating lease
payments are:
<TABLE>
<CAPTION>
Fiscal year ending in September:
--------------------------------
<S> <C>
1998............................. $2,021
1999............................. 2,027
2000............................. 1,764
2001............................. 1,769
2002............................. 1,776
------
$9,357
======
</TABLE>
Total rent expense was $1,920, $1,921 and $1,880 for the years ended
September 26, 1997, September 27, 1996 and September 29, 1995, respectively.
NOTE 11 -- GEOGRAPHIC INFORMATION
The Company operates in one industry. Operations include developing,
manufacturing, and marketing EL displays, LCD and high performance CRTs.
38
<PAGE>
Information concerning geographic area for fiscal year 1995, 1996 and 1997
is summarized below:
<TABLE>
<CAPTION>
North America Rest of World Eliminations Consolidated
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
1995:
Sales................ $ 57,062 $40,244 $(18,783) $ 78,523
Net income........... 6,299 3,801 437 10,537
Identifiable assets.. 78,589 31,393 (21,308) 88,674
1996:
Sales................ $ 60,351 $39,516 $(19,496) $ 80,371
Net income........... 4,715 3,492 465 8,672
Identifiable assets.. 90,115 31,727 (24,547) 97,295
1997:
Sales................ $ 71,558 $38,280 $(20,988) $ 88,850
Net income........... (4,747) 5,947 (926) 274
Identifiable assets.. 101,898 36,050 (23,752) 114,196
</TABLE>
North American sales include all sales made in Canada, the United States
and Mexico. Rest of the World sales includes all sales made in countries outside
of North America, which in fiscal years 1997, 1996 and 1995 principally
consisted of sales made in Europe and Japan.
No customer accounted for 10 percent or more of revenue in fiscal years
1997, 1996 or 1995.
NOTE 12 -- 401(k) AND PROFIT SHARING
All employees in North America over 21 years of age who have completed at
least three months of service are eligible to participate in the 401(k) savings
and profit sharing plan. Employees can contribute between 0% and 15% of their
gross pay subject to statutory maximums. The Company matches 50% of the first
10% of each participating employee's contributions, also subject to statutory
maximums. Employer contributions vest over four years. The 401(k) plan expense
amounted to $466, $438 and $332 for the years ended September 26, 1997,
September 27, 1996 and September 29, 1995, respectively.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLANAR SYSTEMS, INC.
The information set forth under the captions "Election of Directors" and
"Management" appearing on pages 2 through 5 of the Proxy Statement to be used in
connection with the Annual Meeting of Shareholders on February 12, 1998, is
incorporated by reference into this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation"
appearing on pages 5 through 8 of the Proxy Statement to be used in connection
with the Annual Meeting of Shareholders on February 12, 1998, is incorporated by
reference into this Report.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Stock Owned by Management and
Principal Shareholders" appearing on page 10 of the Proxy Statement to be used
in connection with the Annual Meeting of Shareholders on February 12, 1998, is
incorporated by reference into this Report.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
- -------
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON 8-K
(a) Financial Statements and Schedules
The financial statements of Planar Systems, Inc. as set forth under Item 8
are filed as part of this report.
Financial statement schedules have been omitted since the information
called for is not present in amounts sufficient to require submission of the
schedules.
The independent auditors' report with respect to the above-listed financial
statements appears on page 19 of this report.
40
<PAGE>
(b) Reports on 8-K
8-K report filed on October 10, 1997
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title
- ------- -----
<S> <C>
3.1 Second Restated Articles of Incorporation of Planar Systems, Inc./(1)/
3.2 First Restated Bylaws of Planar Systems, Inc./(1)/
3.3 Amendment to Second Restated Articles of Incorporation of Planar
Systems, Inc./(2)/
4.1 Specimen stock certificate/(1)/
4.4 Rights Agreement dated as of February 1, 1996 between Planar Systems,
Inc. and First Interstate Bank of Oregon, N.A. (Incorporated by
reference to the Company's Form 8-K filed as of February 21, 1996)
/(3)/
10.1 Form of Indemnity Agreement between Planar Systems, Inc. and each of
its executive officers and directors/(1)/
10.2 Amended and Restated 1983 Incentive Stock Option Plan/(1)/
10.3 1993 Stock Option Plan for Nonemployee Directors/(1)/
10.4 1993 Incentive Stock Option Plan/(1)/
10.5 1994 Employee Stock Purchase Plan/(4)/
10.6 Registration Rights Agreement dated December 30, 1990/(1)/
10.7 Lease agreement dated as of September 30, 1993 between Science Park
Limited Partnership I and Planar Systems, Inc./(1)/
10.8 Lease agreement between Metra Corporation and Planar International,
Ltd (English translation)/(1)/
10.9 Lease agreement dated as of August 26, 1994 between Tektronix, Inc.
and Planar Systems, Inc./(5)/
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
10.10 Asset Purchase Agreement dated August 26, 1994 between Tektronix, Inc.
and Tektronix Federal Systems, Inc. and Planar Systems, Inc and Planar
Advance /(5)/
10.11 Stock Purchase Agreement dated August 25, 1997 by and among Planar
Systems, Inc., Standish Industries, Inc., Standish International,
Inc., Charles P. Hoke, Elizabeth A. Hoke and William R. Steinmetz,
Trustee of the Steven Hoke Management Trust, the Catherine Hoke
Management Trust, the Lauren Hoke Management Trust and the Charles D.
Hoke Management Trust ("the Agreement") (certain schedules to the
Agreement and its exhibits are omitted). /(6)/
10.12 Amendment to Stock Purchase Agreement dated August 26, 1997 /(6)/
10.13 1996 Stock Incentive Plan
10.14 Lease agreement dated as of May 30, 1997 between Pacific Realty
Associates, L.P., and Planar America, Inc.
21 Subsidiaries of Planar Systems, Inc.
23 Consent of KPMG Peat Marwick LLP dated December 19, 1997
24 Power of Attorney (included on Signature Page)
27 Financial Data Schedule
</TABLE>
/(1)/ Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 33-71020), declared effective on December 15, 1993.
/(2)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended September 27, 1996.
/(3)/ Incorporated by reference to the Company's Current Report on Form 8-K
files on February 21, 1996.
/(4)/ Incorporated by reference to the Company's Annual Report on Form 10-K
filed as of for the year ended September 30, 1994.
/(5)/ Incorporated by reference to the Company's Current Report on Form 8-K
filed as of September 12, 1994.
/(6)/ Incorporated by reference to the Company's Current Report on Form 8-K
files on October 10, 1997.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PLANAR SYSTEMS, INC.
December 22, 1997 By: /s/ JACK RAITON
---------------
Jack Raiton
Vice President
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jack Raiton and James M. Hurd, and each of them
singly, as his true and lawful attorneys-in-fact, with full power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
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 date indicated.
<TABLE>
<S> <C> <C>
/s/ JAMES M. HURD President, Chief Executive Officer, December 22, 1997
- ------------------------- Director (Principal Executive Officer)
James M. Hurd
/s/ JACK RAITON Vice President, Chief Financial Officer, December 22, 1997
- ------------------------- (Principal Financial and Accounting Officer)
Jack Raiton
/s/ WILLIAM D. WALKER Chairman of the Board December 22, 1997
- -------------------------
William D. Walker
/s/ STEVEN E. WYNNE Director December 22, 1997
- -------------------------
Steven E. Wynne
/s/ HEIKKI T. HORSTIA Director December 22, 1997
- -------------------------
Heikki T. Horstia
/s/ GREGORY H. TURNBULL Director December 22, 1997
- -------------------------
Gregory H. Turnbull
/s/ HEINRICH STENGER Director December 22, 1997
- -------------------------
Heinrich Stenger
</TABLE>
<PAGE>
EXHIBIT 10.13
PLANAR SYSTEMS, INC.
1996 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
--------------------
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement. In addition, shares of the Company's
Common Stock may be Sold hereunder independent of any Option grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" shall mean the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4.(a) of the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" shall mean a committee appointed by the Board in
---------
accordance with Section 0 of the Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
------------
(f) "Company" shall mean Planar Systems, Inc., an Oregon corporation.
-------
(g) "Consultant" shall mean any person who is engaged by the Company
----------
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services and any Director of the Company whether compensated for
such services or not.
(h) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) any sick leave, military leave, or
any other leave of absence approved by the Company ; provided, however, that for
purposes of Incentive Stock Options, any such leave is for a period of not more
than ninety days or reemployment upon the expiration of such leave is guaranteed
by contract or statute, provided, further, that on the ninety-first day of such
leave (where re-employment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall automatically convert to a Nonqualified
Stock Option; or (ii)
1 - 1996 STOCK INCENTIVE PLAN
<PAGE>
transfers between locations of the Company or between the Company, its Parent,
its Subsidiaries or its successor.
(i) "Director" shall mean a member of the Board.
--------
(j) "Disability" shall mean total and permanent disability as defined
----------
in Section 22(e)(3) of the Code.
(k) "Employee" shall mean any person, including Officers and
--------
Directors, employed by the Company or any Parent or Subsidiary. Neither the
payment of a director's fee by the Company nor service as a Director shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(m) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonqualified Stock Option" shall mean an Option not intended to
-------------------------
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(o) "Notice of Grant" shall mean a written notice evidencing certain
---------------
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
(p) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" shall mean a stock option granted pursuant to the Plan.
------
(r) "Option Agreement" shall mean a written agreement between the
----------------
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(s) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(t) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(u) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" shall mean this 1996 Stock Incentive Plan.
----
2 - 1996 STOCK INCENTIVE PLAN
<PAGE>
(w) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(x) "Sale" or "Sold" shall include, with respect to the sale of Shares
---- ----
under the Plan, the sale of Shares for consideration in the form of cash or
notes, as well as a grant of Shares for consideration in the form of past or
future services.
(y) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 0 of the Plan.
(z) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 0
-------------------------
of the Plan, the maximum aggregate number of Shares which may be optioned and/or
Sold under the Plan is 1,200,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan; provided, however, that Shares that
have actually been issued under the Plan shall not be returned to the Plan and
shall not become available for future distribution under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
------------------------------
Plan may be administered by different bodies with respect to Directors, Officers
who are not Directors, and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers Subject to
----------------------------------------------------------------
Section 16(b). With respect to Option grants made to Employees who are also
- -------------
Officers or Directors subject to Section 16(b) of the Exchange Act, the Plan
shall be administered by (A) the Board, if the Board may administer the Plan in
compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a Committee designated by the Board
to administer the Plan, which Committee shall be constituted to comply with the
rules, if any, governing a plan intended to qualify as a discretionary plan
under Rule 16b-3. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members,
remove members (with or
3 - 1996 STOCK INCENTIVE PLAN
<PAGE>
without cause) and substitute new members, fill vacancies (however caused),
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules governing a plan intended to
qualify as a discretionary plan under Rule 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3. To the extent
any provision of the Plan or action by the Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Administrator.
(iii) Administration With Respect to Other Persons. With respect to
--------------------------------------------
Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted to
satisfy the legal requirements relating to the administration of stock option
plans under applicable corporate and securities laws and the Code. Once
appointed, such Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the legal requirements relating to the administration of stock
option plans under state corporate and securities laws and the Code.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to grant Incentive Stock Options in accordance with Section
422 of the Code, or Nonqualified Stock Options;
(ii) to authorize Sales of Shares of Common Stock hereunder;
(iii) to determine, upon review of relevant information and in
accordance with Section 0 of the Plan, the fair market value of the Common
Stock;
(iv) to determine the exercise/purchase price per Share of
Options to be granted or Shares to be Sold, which exercise/purchase price shall
be determined in accordance with Section 0 of the Plan;
(v) to determine the Employees or Consultants to whom, and the
time or times at which, Options shall be granted and the number of Shares to be
represented by each Option;
(vi) to determine the Employees or Consultants to whom, and the
time or times at which, Shares shall be Sold and the number of Shares to be
Sold;
4 - 1996 STOCK INCENTIVE PLAN
<PAGE>
(vii) to interpret the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(ix) to determine the terms and provisions of each Option granted
(which need not be identical) and, with the consent of the holder thereof,
modify or amend each Option;
(x) to determine the terms and provisions of each Sale of Shares
(which need not be identical) and, with the consent of the purchaser thereof,
modify or amend each Sale;
(xi) to accelerate or defer (with the consent of the Optionee)
the exercise date of any Option;
(xii) to accelerate or defer (with the consent of the Optionee or
purchaser of Shares) the vesting restrictions applicable to Shares Sold under
the Plan or pursuant to Options granted under the Plan;
(xiii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option or Sale of
Shares previously granted or authorized by the Board;
(xiv) to determine the restrictions on transfer, vesting
restrictions, repurchase rights, or other restrictions applicable to Shares
issued under the Plan;
(xv) to effect, at any time and from time to time, with the
consent of the affected Optionees, the cancellation of any or all outstanding
Options under the Plan and to grant in substitution therefor new Options under
the Plan covering the same or different numbers of Shares, but having an Option
price per Share consistent with the provisions of Section 0 of this Plan as of
the date of the new Option grant;
(xvi) to establish, on a case-by-case basis, different terms and
conditions pertaining to exercise or vesting rights upon termination of
employment, whether at the time of an Option grant or Sale of Shares, or
thereafter;
(xvii) to approve forms of agreement for use under the Plan;
(xviii) to reduce the exercise price of any Option to the then
current fair market value if the fair market value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(xix) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock; and
5 - 1996 STOCK INCENTIVE PLAN
<PAGE>
(xx) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan or Shares
Sold under the Plan.
5. Eligibility.
-----------
(a) Persons Eligible. Options may be granted and/or Shares Sold only
----------------
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Sold
Shares may, if he or she is otherwise eligible, be granted an additional Option
or Options or Sold additional Shares.
(b) ISO Limitation. To the extent that the aggregate fair market
--------------
value: (i) of Shares subject to an Optionee's Incentive Stock Options granted by
the Company, any Parent or Subsidiary, which (ii) become exercisable for the
first time during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonqualified Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the fair market value of the Shares shall be determined as of the time of grant.
(c) Section 0 Limitations. Section 0 of the Plan shall apply only
----------------------
to an Incentive Stock Option evidenced by an Option Agreement which sets forth
the intention of the Company and the Optionee that such Option shall qualify as
an Incentive Stock Option. Section 0 of the Plan shall not apply to any Option
evidenced by a Option Agreement which sets forth the intention of the Company
and the Optionee that such Option shall be a Nonqualified Stock Option.
(d) No Right to Continued Employment. The Plan shall not confer upon
--------------------------------
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his employment or consulting
relationship at any time, with or without cause.
(e) Other Limitations. The following limitations shall apply to
-----------------
grants of Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 200,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 200,000 Shares
which shall not count
6 - 1996 STOCK INCENTIVE PLAN
<PAGE>
against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is canceled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 11, the canceled Option shall be counted against the limits set forth
in subsections (i) and (ii)) above. For this purpose, if the exercise price of
an Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 0 of the Plan. It shall continue in effect
for a term of ten (10) years, unless sooner terminated under Section 0 of the
Plan.
7. Term of Option. The term of each Option shall be stated in the Notice
--------------
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Notice of Grant.
8. Exercise/Purchase Price and Consideration.
-----------------------------------------
(a) Exercise/Purchase Price. The per-Share exercise/purchase price
-----------------------
for the Shares to be issued pursuant to exercise of an Option or a Sale shall be
such price as is determined by the Administrator, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the fair market value per Share on the date of the grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than one hundred percent (100%) of the fair market value
per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option or Sale, the per
Share exercise/purchase price shall be determined by the Administrator.
7 - 1996 STOCK INCENTIVE PLAN
<PAGE>
(iii) Any determination to establish an Option exercise price or
effect a Sale of Common Stock at less than fair market value on the date of the
Option grant or authorization of Sale shall be accompanied by an express finding
by the Administrator specifying that the sale is in the best interest of the
Company, and specifying both the fair market value and the Option exercise price
or Sale price of the Common Stock.
(b) Fair Market Value. The fair market value per Share shall be
-----------------
determined by the Administrator in its discretion; provided, however, that where
there is a public market for the Common Stock, the fair market value per Share
shall be the closing price of the Common Stock (or the closing bid if no sales
were reported) for the last market trading day prior to the date of grant of the
Option or authorization of Sale or other determination, as reported in The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by the National
- --------------
Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in
the event the Common Stock is listed on a stock exchange, the fair market value
per Share shall be the closing price on such exchange for the last market
trading day prior to the date of grant of the Option or authorization of Sale or
other determination, as reported in The Wall Street Journal.
-----------------------
(c) Consideration. The consideration to be paid for the Shares to be
-------------
issued upon exercise of an Option or pursuant to a Sale, including the method of
payment, shall be determined by the Administrator. In the case of an Incentive
Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist of:
(i) cash;
(ii) check;
(iii) transfer to the Company of Shares which
(A) in the case of Shares acquired upon exercise of an
Option, have been owned by the Optionee for more than six months on the date of
surrender, and
(B) have a fair market value on the date of surrender equal
to the aggregate exercise price of the Shares to be acquired;
(iv) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price;
(v) delivery of instructions to the Company to withhold from the
Shares that would otherwise be issued on the exercise that number of Shares
having a fair market value at the time of such exercise equal to the Option
exercise price;
8 - 1996 STOCK INCENTIVE PLAN
<PAGE>
(vi) such other consideration and method of payment for the issuance
of Shares to the extent permitted by legal requirements relating to the
administration of stock option plans and issuances of capital stock under
applicable corporate and securities laws and the Code; or
(vii) any combination of the foregoing methods of payment.
If the fair market value of the number of whole Shares transferred or the
number of whole Shares surrendered is less than the total exercise price of the
Option, the shortfall must be made up in cash or by check. Notwithstanding the
foregoing provisions of this Section 8.(c), the consideration for Shares to be
issued pursuant to a Sale may not include, in whole or in part, the
consideration set forth in subsections (iii), (iv) or (v) above.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under the Option Agreement and
Section 0 of the Plan. Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with delivery
of the certificate representing the Shares, pay to the Company amounts necessary
to satisfy applicable federal, state and local tax withholding requirements. An
Optionee must also provide a duly executed copy of any stock transfer agreement
then in effect and determined to be applicable by the Administrator. Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock
represented by such stock certificate, notwithstanding the exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 0 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
9 - 1996 STOCK INCENTIVE PLAN
<PAGE>
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option, but only within such period of time as is
determined by the Administrator, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant).
In the case of an Incentive Stock Option, the Administrator shall determine such
period of time (in no event to exceed three (3) months from the date of
termination) when the Option is granted. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option with the
time specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's
----------------------
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time
10 - 1996 STOCK INCENTIVE PLAN
<PAGE>
that such offer is made.
10. Nontransferability of Options. Except as otherwise specifically
-----------------------------
provided in the Option Agreement, an Option may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will, or by
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee only by the Optionee or, if incapacitated, by his or her legal
guardian or legal representative.
11. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization: Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or Sales made or which have been returned to the Plan upon cancellation
or expiration of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator. The Administrator may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a Parent
or Subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Administrator makes an Option
fully exercisable in lieu of assumption or substitution in the event of a merger
or sale of assets, the Administrator shall
11 - 1996 STOCK INCENTIVE PLAN
<PAGE>
notify the Optionee that the Option shall be fully exercisable for a period of
thirty (30) days from the date of such notice or such shorter period as the
Administrator may specify in the notice, and the Option will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase, for each Share of Optioned Stock subject to the
Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation and
the Optionee, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option. Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable.
(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such stockholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or a Sale unless the exercise of such
Option or consummation of the Sale and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as
12 - 1996 STOCK INCENTIVE PLAN
<PAGE>
amended, applicable state securities laws, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
(including NASDAQ) upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Liability of Company.
--------------------
(a) Inability to Obtain Authority. Inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
As a condition to the exercise of an Option or a Sale, the Company may
require the person exercising such Option or to whom Shares are being Sold to
represent and warrant at the time of any such exercise or Sale that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
--------------------------------
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional stockholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless stockholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 13 of the Plan.
17. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
13 - 1996 STOCK INCENTIVE PLAN
<PAGE>
EXHIBIT 10.14
LEASE
DATED: MAY 30, 1997
BETWEEN: PACIFIC REALTY ASSOCIATES, L.P.,
A DELAWARE LIMITED PARTNERSHIP LANDLORD
AND: PLANAR AMERICA, INC.,
AN OREGON CORPORATION TENANT
Tenant wishes to lease from Landlord the following described property,
hereinafter referred to as "the Premises":
Approximately 33,828 square feet of warehouse, production and office
space located in Building E, Evergreen Business Park, 7205 N.E. Evergreen
Parkway, Hillsboro, Oregon 97124 and as further described on the attached
Exhibits A and B.
If the Premises consist of a portion but not all of a building, the
building housing the Premises is hereinafter referred to as "the Building."
Landlord leases the Premises to Tenant for a term of 92 months commencing
August 1, 1997 and continuing through March 31, 2005. Neither rent, nor the
charges, taxes and expenses to be paid to Landlord specified in Paragraphs 3
and 4 of this Lease, shall be due for the first four months of the lease term.
Base rent shall be according to the following schedule:
<TABLE>
<CAPTION>
BASE RENT PER MONTH
-----------------------------------------------
FIRST SECOND
AMORTIZED AMORTIZED
PERIOD PREMISES AMOUNT* AMOUNT** TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
August 1, 1997 through November 30, 1997 $ 0.00 $ 0.00 $ 0.00 $ 0.00
December 1, 1997 through October 31, 2000 $11,502.00 $3,015.00 $4,305.00 $18,822.00
November 1, 2000 through October 31, 2003 $12,516.00 $3,015.00 $4,305.00 $19,836.00
November 1, 2003 through March 31, 2005 $13,531.00 $3,015.00 $4,305.00 $20,851.00
- ------------------------------------------------------------------------------------------
</TABLE>
* As specified in Paragraph 25.1.1, and shown on Exhibit D.
** As specified in Paragraph 25.1.2, and shown on Exhibit E.
Rent for the fifth month of the Lease term shall be paid upon execution
of this Lease. All rent, including base rent together with the charges, taxes
and expenses to be paid to Landlord specified in Paragraphs 3 and 4 of this
Lease, is payable in advance on the first day of each calendar month. If
Landlord consents, Tenant may occupy the Premises prior to such commencement
date on a rent free basis and compliance with all terms of this Lease.
Delivery of possession shall occur when Tenant's contractors,
subcontractors, agents and workmen commence construction of the tenant
improvements, as referenced in Paragraph 24 below within the Premises or when
the Premises are ready for Tenant's contractors, subcontractors, agents and
workmen to commence construction of the tenant improvements, as referenced in
Paragraph 24 below within the Premises. No notice shall be required from
Landlord if the Premises are ready on the date set for commencement of the term
or on the first business day thereafter. If Landlord is unable to deliver
possession of the Premises to Tenant because of strikes, acts of God, or any
other cause beyond Landlord's control, then Tenant may take possession when
Landlord notifies Tenant that the Premises are ready for possession, and the
term of this Lease shall commence on the first day of the first month following
such date and continue for the specified number of months thereafter,
notwithstanding the commencement and termination dates stated above. Tenant
shall owe no rent until December 1, 1997. Landlord shall have no liability for
such delays in delivery of possession, and neither party shall have the right to
terminate except that Tenant may, at any time prior to August 1, 1997, cancel
this Lease without liability if permission to construct, use, or furnish
necessary utilities to the Premises is denied or revoked by any governmental
agency or public utility with such authority.
Page 1 of 13
<PAGE>
This Lease is subject to the following additional terms to which the
parties agree:
1. USE OF THE PREMISES.
1.1. Tenant shall use the Premises only for the purpose of conducting the
following business:
Administrative, production and warehouse space for a manufacturer or
assembler of electronic equipment and related office, equipment and warehouse
areas, including a clean room.
If such use is prevented by any law or governmental regulation,
Tenant may use the Premises for other reasonable uses.
1.2. In connection with its use, Tenant shall at its expense comply with
all applicable laws, ordinances, and regulations of any public authority,
including those requiring alteration of the Premises because of Tenant's
specific use; shall create no nuisance nor allow any objectionable liquid, odor,
or noise to be emitted from the Premises; shall store no gasoline or other
highly combustible materials on the Premises which would violate any applicable
fire code or regulation nor conduct any operation that will increase Landlord's
fire insurance rates for the Premises; and shall not overload the floors or
electrical circuits of the Premises. Landlord shall have the right to approve
the installation of any power-driven machinery by Tenant and may select a
qualified electrician whose opinion will control regarding electrical circuits
and a qualified engineer or architect whose opinion will control regarding floor
loads. Allowable ground floor load shall be 500 pounds per square foot. Tenant
shall have the right to, at Tenant's own cost and expense, make modifications to
the floor to accommodate Tenant's equipment and machinery. Tenant shall submit
plans and specifications pertaining to the equipment and modifications required
to the floor for review and approval by Landlord prior to installing such
equipment and making such modifications.
1.3. Tenant may erect a sign stating its name, business, and product
after first securing Landlord's written approval of the size, color, design,
wording, and location, and all necessary governmental approvals. No signs shall
be painted on the Building or exceed the height of the Building. All signs
installed by Tenant shall be removed upon termination of this Lease with the
sign location restored to its former state.
1.4. Tenant shall make no alterations, additions, or improvements to the
Premises or change the color of the exterior without Landlord's prior written
consent and without a valid building permit issued by the appropriate
governmental agency. Upon termination of this Lease, any such alterations,
additions, or improvements (including without limitation all electrical,
lighting, plumbing, heating and air-conditioning equipment, doors, windows,
partitions, drapery, carpeting, shelving, counters, and physically attached
fixtures) shall at once become part of the realty and belong to Landlord unless
the terms of the applicable consent provide otherwise, or Landlord requests that
part or all of the additions, alterations, or improvements be removed. Tenant
may make non-structural modifications to its manufacturing process area at a
cost not to exceed $75,000.00 without receiving Landlord's prior written
consent. The original tenant improvements constructed at the commencement of
the lease term shall be approved by Landlord and Landlord may not condition its
acceptance of the improvements with removal at the end of the term.
2. SECURITY DEPOSIT. NONE REQUIRED.
3. UTILITY CHARGES; MAINTENANCE.
3.1. Tenant shall pay when due all charges for electricity, natural gas,
water, garbage collection, janitorial service, sewer, and all other utilities of
any kind furnished to the Premises during the lease term. If charges are not
separately metered or stated, Landlord shall apportion the utility charges on an
equitable basis. Landlord shall have no liability resulting from any
interruption of utility services caused by fire or other casualty, strike, riot,
vandalism, the making of necessary repairs or improvements, or any other cause
beyond Landlord's reasonable control. Tenant shall control the temperature in
the Premises to prevent freezing of any sprinkler system.
Page 2 of 13
<PAGE>
3.2. Landlord shall repair and maintain the roof, gutters, downspouts,
exterior walls, building structure, foundation, exterior paved areas, and curbs
of the Premises in good condition. Except for such obligations of Landlord,
Tenant shall keep the Premises neatly maintained and in good order and repair.
Tenant's responsibility shall include maintenance and repair of the electrical
system, plumbing, drainpipes to sewers, air-conditioning and heating systems,
overhead and personnel doors, and the replacement of all broken or cracked glass
with glass of the same quality. Tenant shall refrain from any discharge that
will damage the septic tank or sewers serving the Premises.
3.3. If the Premises have a separate entrance, Tenant shall keep the
sidewalks abutting the Premises or the separate entrance free and clear of snow,
ice, debris, and obstructions of every kind.
4. TAXES, ASSESSMENTS, AND OPERATING EXPENSES.
4.1. In conjunction with monthly rent payments, Tenant shall each month
pay a sum representing Tenant's proportionate share of real property taxes and
operating expenses for the Premises. Such amount shall annually be estimated by
Landlord in good faith to reflect actual or anticipated costs. Upon termination
of this Lease or at periodic intervals during the term hereof, Landlord shall
compute its actual costs for such expenses during such period. Any overpayment
by Tenant shall be credited to Tenant, and any deficiency shall be paid by
Tenant within fifteen (15) days after receipt of Landlord's statement.
Landlord's records of expenses for taxes and operating expenses may be inspected
by Tenant at reasonable times and intervals. Landlord shall, at a minimum,
provide Tenant with annual estimates ninety (90) days after the end of the
preceding calendar year.
4.2. Tenant's proportionate share of real property taxes shall mean that
percentage of the total assessment affecting the Premises which is the same as
the percentage which the rentable area of the Premises bears to the total
rentable area of all buildings covered by the tax statement. Tenant's
proportionate share of operating expenses for the Building shall be computed by
dividing the rentable area of the Premises by the total rentable area of the
Building. If in Landlord's reasonable judgment either of these methods of
allocation results in an inappropriate allocation to Tenant, Landlord shall
select some other reasonable method of determining Tenant's proportionate share.
4.3. Real property taxes charged to Tenant hereunder shall include all
general real property taxes assessed against the Premises or payable during the
lease term, installment payments on Bancrofted special assessments, and any rent
tax, tax on Landlord's interest under this Lease, or any tax in lieu of the
foregoing, whether or not any such tax is now in effect. Tenant shall not,
however, be obligated to pay any tax based upon Landlord's net income.
4.4. Operating expenses charged to Tenant hereunder shall include all
usual and necessary costs of operating and maintaining the Premises, Building,
and any surrounding common areas including, but not limited to, the cost of all
utilities or services not paid directly by Tenant, property insurance, property
management, maintenance and repair of landscaping, parking areas, and any other
common facilities. Operating expenses shall not include roof replacement or
correction of structural deficiencies of the Building. Notwithstanding the
above, Tenant's proportionate share of property taxes and operating expenses
shall not exceed $.09 per square foot per month for calendar year 1997 and $.11
per square foot per month for calendar year 1998. The increase in Tenant's
proportionate share of operating expenses shall not exceed four percent (4%)
annually, on a cumulative basis, for the remaining term of this Lease, exclusive
of real estate taxes.
5. PARKING AND STORAGE AREAS.
5.1. Tenant, its employees, and customers shall have the non-exclusive
right to use any private parking spaces immediately adjacent to the Premises as
shown on the attached Exhibit B. Tenant shall control the use of such parking
spaces so that there will be no unreasonable interference with the normal
traffic flow, and shall permit no parking on any landscaped or unpaved surface.
Under no circumstances shall trucks serving the Premises be permitted to block
streets.
Page 3 of 13
<PAGE>
5.2. Tenant shall not store any materials, supplies, or equipment
outside in any unapproved or unscreened area. If Tenant erects any visual
barriers for storage areas, Landlord shall have the right to approve the design
and location. Trash and garbage receptacles shall be kept covered at all times.
6. TENANT'S INDEMNIFICATION; LIABILITY INSURANCE.
6.1. Tenant shall not allow any liens to attach to the Premises as a
result of its activities. Tenant shall indemnify and defend Landlord from any
claim, liability, damage, or loss arising out of any activity on the Premises by
Tenant, its agents, or invitees or resulting from Tenant's failure to comply
with any term of this Lease.
6.2. Tenant shall carry general liability insurance on an occurrence
basis with combined single limits of not less than $1,000,000. Such insurance
shall be provided by an insurance carrier reasonably acceptable to Landlord and
shall be evidenced by a certificate delivered to Landlord stating that the
coverage will not be canceled or materially altered without ten (10) days'
advance written notice to Landlord. Landlord shall be named as an additional
insured on such policy.
7. PROPERTY DAMAGE; SUBROGATION WAIVER.
7.1. If fire or other casualty causes damage to the Building or the
Premises in an amount exceeding thirty percent (30%) of the full construction-
replacement cost of the Building or Premises, respectively, Landlord may elect
to terminate this Lease as of the date of the damage by notice in writing to
Tenant within thirty (30) days after such date. Otherwise, Landlord shall
promptly repair the damage and restore the Premises to their former condition as
soon as practicable. Should Landlord be unable to repair the Building or the
Premises within 180-days of the date that the fire or other casualty occurs,
Landlord shall notify Tenant in writing of its inability to do so and Tenant
shall have the option to terminate this Lease by giving Landlord thirty (30)
days notice of its intent to do so. Rent shall be reduced during the period to
the extent the Premises are not reasonably usable for the use permitted by this
Lease because of such damage and required repairs.
7.2. Landlord shall be responsible for insuring the Building, and Tenant
shall be responsible for insuring its personal property and trade fixtures
located on the Premises.
7.3. Neither party shall be liable to the other for any loss or damage
caused by water damage, sprinkler leakage, or any of the risks covered by a
standard fire insurance policy with extended coverage and sprinkler leakage
endorsements, and there shall be no subrogated claim by one party's insurance
carrier against the other party arising out of any such loss.
8. CONDEMNATION.
If a condemning authority takes the entire Premises or a portion
sufficient to render the remainder unsuitable for Tenant's use, then either
party may elect to terminate this Lease effective on the date that title passes
to the condemning authority. Otherwise, Landlord shall proceed as soon as
practicable to restore the remaining Premises to a condition comparable to that
existing at the time of the taking. Rent shall be abated during the period of
restoration to the extent the Premises are not reasonably usable by Tenant, and
rent shall be reduced for the remainder of the term in an amount equal to the
reduction in rental value of the Premises caused by the taking. All
condemnation proceeds shall belong to Landlord, except for any such proceeds
awarded by the condemning authority for the value of the leasehold, Tenant's
improvements, moving expenses, and any other items of the award specifically
associated with Tenant's occupancy or leasehold interest.
9. ASSIGNMENT AND SUBLETTING.
9.1. Tenant shall not assign its interest under this Lease nor sublet the
Premises without first obtaining Landlord's consent in writing, which consent
shall not be unreasonably withheld or delayed. This provision shall apply to
all transfers by operation of law or through mergers and changes in control of
Tenant. Landlord's prior consent shall not be required for any assignment,
sublease or other transfer of Tenant's interest in the Premises or the lease to
any
Page 4 of 13
<PAGE>
corporation with which Tenant may merge or consolidate or become affiliated
as a parent, subsidiary, holding company otherwise, or to an entity in which
Tenant has a controlling interest. A subsequent public offering and
Page 5 of 13
<PAGE>
sale of stock in Tenant's business, or a transfer of any amount of Tenant's
stock shall not constitute a change in ownership of Tenant or an assignment of
this Lease. No assignment shall relieve Tenant of its obligation to pay rent or
perform other obligations required by this Lease and no one assignment or
subletting shall be a consent to any further assignment or subletting. If Tenant
assigns this Lease or sublets the Premises for an amount in excess of the rent
called for by this Lease, one-half of such excess shall be paid to Landlord
promptly as it is received by Tenant.
9.2. Subject to the above limitations on transfer of Tenant's interest,
this Lease shall bind and inure to the benefit of the parties, their respective
heirs, successors, and assigns.
10. DEFAULT.
Any of the following shall constitute a default by Tenant under this
Lease:
10.1. Tenant's failure to pay rent or any other charge under this Lease
within ten (10) days after Landlord's written notice that a payment is due and
unpaid, or failure to comply with any other term or condition within twenty (20)
days following written notice from Landlord specifying the noncompliance. If
such noncompliance cannot be cured within the thirty (30) day period, this
provision shall be satisfied if Tenant commences correction within such period
and thereafter proceeds in good faith and with reasonable diligence to effect
compliance as soon as possible.
10.2. Tenant's insolvency; assignment for the benefit of its creditors;
Tenant's voluntary petition in bankruptcy or adjudication as bankrupt, or the
appointment of a receiver for Tenant's properties.
11. REMEDIES FOR DEFAULT.
11.1. In case of default as described in Paragraph 10 above, Landlord
shall have the right to the following remedies which are intended to be
cumulative and in addition to any other remedies provided under applicable law:
11.1.1. Terminate this Lease without relieving Tenant from its
obligation to pay damages.
11.1.2. Retake possession of the Premises by summary proceedings or
otherwise, in which case Tenant's liability to Landlord for damages shall
survive the tenancy. Landlord may, after such retaking of possession, relet the
Premises upon any reasonable terms.
11.1.3. Recover damages caused by Tenant's default which shall
include reasonable attorneys' fees at trial and on any appeal therefrom.
Landlord may sue periodically to recover damages as they occur throughout the
lease term, and no action for accrued damages shall bar a later action for
damages subsequently accruing. Landlord may elect in any one action to recover
accrued damages plus damages attributable to the remaining term of the Lease
equal to the difference between the rent under this Lease and the reasonable
rental value of the Premises for the remainder of the term, discounted to the
time of judgment at the rate of ten (10%) percent per annum.
11.1.4. Make any payment or perform any obligation required of
Tenant so as to cure Tenant's default, in which case Landlord shall be entitled
to recover all amounts so expended from Tenant, plus interest at the rate of ten
percent (10%) per annum from the date of the expenditure.
11.2. Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord under this Lease within twenty (20) calendar
days after Landlord's receipt of written notice by Tenant specifying wherein
Landlord has failed to perform such obligations; provided, however, that if the
nature of Landlord's obligation is such that more than twenty (20) calendar days
are required for performance, then Landlord shall not be in default if Landlord
commences performance within such twenty (20) calendar day period and thereafter
diligently prosecutes that same to completion. If Landlord fails to correct a
default following such notice, Tenant may make the correction and any amounts so
expended, plus interest at the default rate stated
Page 6 of 13
<PAGE>
in Paragraph 11.1.4, shall be recoverable from Landlord, but Tenant may not have
any right to offset such amounts against rent due under this Lease. This
paragraph shall also apply to Landlord's failure to repair as stated in
Paragraph 3.2.
12. SURRENDER ON TERMINATION.
12.1. On expiration or early termination of this Lease, Tenant shall
deliver all keys to Landlord, have final utility readings made on the date of
move out, and surrender the Premises clean and free of debris inside and out,
with all mechanical, electrical, and plumbing systems in good operating
condition, all signing removed and defacement corrected, and all repairs called
for under this Lease completed. The Premises shall be delivered in the same
condition as at the commencement of the term, including all original tenant
improvements approved by Landlord, subject only to depreciation and wear from
ordinary use. Tenant shall remove all of its furnishings and trade fixtures
that remain its property and restore all damage resulting from such removal.
Failure to remove said property shall be an abandonment of same, and Landlord
may dispose of it in any manner without liability.
If Tenant fails to vacate the Premises when required, Landlord may elect either
to treat Tenant as a tenant from month to month, subject to all provisions of
this Lease except the provision for term, or to eject Tenant from the Premises
and recover damages caused by wrongful holdover. Notwithstanding the foregoing,
Tenant may hold over in the Premises for a period of up to nine (9) months
following the expiration of the lease term by giving Landlord written notice of
intent to hold over at least 150 days prior to expiration of the lease term.
All provisions of this Lease shall apply during the hold over term, except that
rent for the renewal period shall be an amount agreed upon by parties at least
90 days prior to expiration of the lease term, but in no case less than that of
the last month of the lease term and no more than 115% of the rent for the last
month of the lease term.
13. LANDLORD'S LIABILITY.
13.1. Landlord warrants that so long as Tenant complies with all terms
of this Lease it shall be entitled to peaceable and undisturbed possession of
the Premises free from any eviction or disturbance by Landlord or persons
claiming through Landlord.
13.2. All persons dealing with Pacific Realty Associates, L.P.
("Partnership") must look solely to the property and assets of Partnership for
the payment of any claim against Partnership or for the performance of any
obligation of Partnership as neither the general partner, limited partners,
employees, nor agents of Partnership assume any personal liability for
obligations entered into on behalf of Partnership (or its predecessors in
interest) and their respective properties shall not be subject to the claims of
any person in respect of any such liability or obligation. As used herein, the
words "property and assets of partnership" exclude any rights of Partnership for
the payment of capital contributions or other obligations to it by the general
partner or any limited partner in such capacity.
14. MORTGAGE OR SALE BY LANDLORD; ESTOPPEL CERTIFICATES.
14.1. This Lease is and shall be prior to any mortgage or deed of trust
("Encumbrance") recorded after the date of this Lease and affecting the Building
and the land upon which the Building is located. However, if any lender holding
an Encumbrance secured by the Building and the land underlying the Building
requires that this Lease be subordinate to the Encumbrance, then Tenant agrees
that this Lease shall be subordinate to the Encumbrance if the holder thereof
agrees in writing with Tenant that so long as Tenant performs its obligations
under this Lease no foreclosure, deed given in lieu of the foreclosure, or sale
pursuant to the terms of the Encumbrance, or other steps or procedures taken
under the Encumbrance shall affect Tenant's rights under this Lease. If the
foregoing condition is met, Tenant shall execute the written agreement and any
other documents required by the holder of the Encumbrance to accomplish the
purposes of this paragraph.
14.2. If the Building is sold as a result of foreclosure of any
Encumbrance thereon or otherwise transferred by Landlord or any successor,
Tenant shall attorn to the purchaser or transferee.
Page 7 of 13
<PAGE>
14.3. Either party shall within twenty (20) days after notice from the
other execute and deliver to the other party a certificate stating whether or
not this Lease has been modified and is in full force and effect and specifying
any modifications or alleged breaches by the other party. The certificate shall
also state the amount of monthly base rent, the dates to which rent has been
paid in advance, and the amount of any security deposit or prepaid rent. Failure
to deliver the certificate within the specified time shall be conclusive upon
the party of whom the certificate was requested that the Lease is in full force
and effect and has not been modified except as may be represented by the party
requesting the certificate.
15. DISPUTES - ATTORNEYS' FEES.
In the event of any litigation arising out of this Lease, the prevailing
party shall be entitled to recover from the other party, in addition to all
other relief provided by law or judgement, its reasonable costs and attorneys'
fees incurred both at and in preparation for trial and any appeal or review,
such amount to be as determined by the court(s) before which the matter is
heard. Disputes between the parties which are to be litigated shall be tried
before a judge without a jury.
16. SEVERABILITY.
If any provision of this Lease is held to be invalid, unenforceable or
illegal the remaining provisions shall not be affected and shall be enforced to
the fullest extent permitted by law.
17. INTEREST AND LATE CHARGES.
Rent not paid within ten (10) business days of when due shall bear
interest from the date due until paid at the rate of ten percent (10%) per
annum. Landlord may at its option impose a late charge of $.05 for each $1.00
of rent for rent payments made more than ten (10) days late in addition to
interest and other remedies available for default.
18. GENERAL PROVISIONS.
18.1. Waiver by either party of strict performance of any provision of
this Lease shall not be a waiver of nor prejudice the party's right otherwise to
require performance of the same provision or any other provision.
18.2. Subject to the limitations on transfer of Tenant's interest, this
Lease shall bind and inure to the benefit of the parties, their respective
heirs, successors, and assigns.
18.3. Landlord shall have the right to enter upon the Premises after
giving Tenant twenty-four (24) hour verbal notice, excepting that Landlord shall
not be required to give such notice in times of emergency, to determine Tenant's
compliance with this Lease, to make necessary repairs to the Building or the
Premises, or, when accompanied by Tenant, to show the Premises to any
prospective tenant or purchasers. During the last two months of the term,
Landlord may place and maintain upon the Premises notices for leasing or sale of
the Premises.
18.4. If this Lease commences or terminates at a time other than the
beginning or end of one of the specified rental periods, then the rent
(including Tenant's share of real property taxes, if any) shall be prorated as
of such date, and in the event of termination for reasons other than default all
prepaid rent shall be refunded to Tenant or paid on its account.
18.5. Tenant shall within ten (10) days following Landlord's written
request deliver to Landlord a written statement specifying the dates to which
the rent and other charges have been paid, whether the Lease is unmodified and
in full force and effect, and any other matters that may reasonably be requested
by Landlord.
18.6. Notices between the parties relating to this Lease shall be in
writing, effective when delivered, or if mailed, effective on the second day
following mailing, postage prepaid, to the address for the party stated in this
Lease or to such other address as either party may specify by notice to the
other. Rent shall be payable to Landlord at the same address and in the same
manner.
Page 8 of 13
<PAGE>
19. ENVIRONMENTAL.
19.1. Definitions. The term "Environmental Law" shall mean any federal,
-----------
state or local statute, regulation or ordinance or any judicial or other
governmental order pertaining to the protection of health, safety or the
environment. The term "Hazardous Substance" shall mean any hazardous, toxic,
infectious or radioactive substance, waste and material as defined or listed by
any Environmental Law and shall include, without limitation, petroleum oil and
its fractions.
19.2. Use of Hazardous Substances. Tenant shall not cause or permit any
---------------------------
Hazardous Substance to be spilled, leaked, disposed of or otherwise released on
or under the Premises. Tenant may use and sell on the Premises only those
Hazardous Substances typically used and sold in the prudent and safe operation
of the business permitted by Paragraph 1 of this Lease. Tenant may store such
Hazardous Substances on the Premises, but only in quantities necessary to
satisfy Tenant's reasonably anticipated needs. Tenant shall comply with all
Environmental Laws and exercise the highest degree of care in the use, handling
and storage of Hazardous Substances and shall take all practicable measures to
minimize the quantity and toxicity of Hazardous Substances used, handled or
stored on the Premises.
19.3. Notices. Tenant shall immediately notify Landlord upon becoming
-------
aware of the following: (a) any spill, leak, disposal or other release of a
Hazardous Substance on, under or adjacent to the Premises; (b) any notice or
communication from a governmental agency or any other person relating to any
Hazardous Substance on, under or adjacent to the Premises; or (c) any violation
of any Environmental Law with respect to the Premises or Tenant's activities on
or in connection with the Premises.
19.4. Spills and Releases. In the event of a spill, leak, disposal or
-------------------
other release of a Hazardous Substance on or under the Premises caused by Tenant
or any of its contractors, agents or employees or invitees, or the suspicion or
threat of the same, Tenant shall (i) immediately undertake all emergency
response necessary to contain, cleanup and remove the released Hazardous
Substance, (ii) promptly undertake all investigatory, remedial, removal and
other response action necessary or appropriate to ensure that any Hazardous
Substances contamination is eliminated to Landlord's reasonable satisfaction,
and (iii) provide Landlord copies of all correspondence with any governmental
agency regarding the release (or threatened or suspected release) or the
response action, a detailed report documenting all such response action, and a
certification that any contamination has been eliminated. All such response
action shall be performed, all such reports shall be prepared and all such
certifications shall be made by an environmental consultant reasonably
acceptable to Landlord.
19.5. Condition Upon Termination. Upon expiration of this Lease or
--------------------------
sooner termination of this Lease for any reason, Tenant shall remove all
Hazardous Substances and facilities used for the storage or handling of
Hazardous Substances from the Premises and restore the affected areas by
repairing any damage caused by the installation or removal of the facilities.
Following such removal, Tenant shall certify in writing to Landlord that all
such removal is complete.
19.6. Assignment and Subletting. Notwithstanding the provisions of
-------------------------
Paragraph 9 of this Lease, it shall not be unreasonable for Landlord to
withhold its consent to any assignment, sublease or other transfer of the
Tenant's interest in this Lease if a proposed transferee's anticipated use of
the Premises involves the generation, storage, use, sale, treatment, release or
disposal of any Hazardous Substance.
19.7. Indemnity.
19.7.1. By Tenant. Tenant shall indemnify, defend and hold harmless
---------
Landlord, its employees and agents, any persons holding a security interest in
the Premises, and the respective successors and assigns of each of them from and
against any and all claims, demands, liabilities, damages, fines, losses, costs
(including without limitation the cost of any investigation, remedial, removal
or other response action required by Environmental Law) and expenses (including
without limitation attorneys' fees and expert fees in connection with any trial,
appeal, petition for review or administrative proceeding) arising out of or in
any way relating to the use, treatment, storage, generation, transport, release,
leak, spill, disposal or other handling of Hazardous Substances on the
Page 9 of 13
<PAGE>
Premises by Tenant or any of its contractors, agents or employees or invitees.
Tenant's obligations under this paragraph shall survive the expiration or
termination of this Lease for any reason. Landlord's rights under this paragraph
are in addition to and not in lieu of any other rights or remedies to which
Landlord may be entitled under this agreement or otherwise.
19.7.3. By Landlord. Landlord shall indemnify, defend and hold
-----------
harmless Tenant and its employees and agents and the respective successors and
assigns of each of them from and against any and all claims, demands,
liabilities, damages, fines, losses, costs (including without limitation the
cost of any investigation, remedial, removal or other response action required
by Environmental Law) and expenses (including without limitation attorneys' fees
and expert fees in connection with any trial, appeal, petition for review or
administrative proceeding) arising out of or in any way relating to the actual
or alleged use, treatment, storage, generation, transport, release, leak, spill,
disposal or other handling of Hazardous Substances on the Premises by Landlord,
or any of its contractors, agents or employees or by Landlord's previous tenants
of the Premises. Landlord's obligations under this paragraph shall survive the
expiration or termination of this Lease for any reason. Tenant's rights under
this paragraph are in addition to and not in lieu of any other rights or
remedies to which Tenant may be entitled under this Agreement or otherwise.
20. OPTION TO RENEW.
20.1. If not then in default, Tenant shall have the option to renew this
lease for two additional 5-year terms by giving Landlord written notice of
intent to extend at least 180 days prior to expiration of the preceding term.
All provisions of this lease shall apply during the extended term, except that
rent for the renewal period shall be an amount determined on a fair market value
basis and agreed upon by parties at least 90 days prior to commencement of the
renewal period. If Tenant elects not to exercise the first 5-year renewal
period, then the second 5-year renewal period shall be null and void.
20.2. For the purposes of this Paragraph 20, the term "fair market
value" shall mean the Base Rent, expressed as an annual rent per square foot of
floor area, which Landlord would have received from leasing the Premises (which
shall be valued for purposes of this determination as warehouse shell space with
power, light and heat and with a quantity of office space equal to that within
the Premises at the end of the original lease term) for the renewal term to an
unaffiliated person which is not then a tenant in the Park, assuming that such
space were to be delivered in "as-is" condition, and taking into account the
rental which such other tenant would most likely have paid for such premises,
including market escalations, provided that Fair Market Value shall not in any
event be less than the Base Rent for the Premises as of the expiration of the
lease term.
21. OPTION TO CANCEL.
Tenant shall have a right to cancel this Lease at the end of the 57th,
69th and 81st months of the lease term by giving Landlord 180 days' advance
written notice of its intent to do so and by paying Landlord a termination
penalty equal to all unamortized tenant improvements and leasing commissions as
further described on the attached Exhibits D, E and F within ninety (90) days of
Tenant's notice of intent to cancel to Landlord.
22. RIGHTS OF NOTICE.
22.1. Tenant shall have the First Right of Notice for any available
space within Building G, Evergreen Business Park, which is adjacent to and
immediately east of the Premises. In addition, provided that the existing
tenants do not require expansion space, Tenant shall have the First Right of
Notice for any available space within Building F, Evergreen Business Park.
Landlord shall notify Tenant of the availability of such spaces, and Tenant
shall have five (5) business days to enter into good faith negotiations for the
First Right of Notice spaces in the event Landlord begins negotiations with a
third party for any of the First Right of Notice spaces. Landlord agrees to
negotiate in good faith with Tenant for the lease of such First Right of Notice
space.
Page 10 of 13
<PAGE>
22.2. Tenant shall have the Second Right of Notice for the approximately
7,354 square feet of space adjacent and immediately west of the Premises.
Landlord shall notify Tenant of the availability of such space, and Tenant shall
have five (5) business days to enter into good faith negotiations for the Second
Right of Notice space in the event Landlord begins negotiations with a third
party for the Second Right of Notice space. Landlord agrees to negotiate in good
faith with Tenant for the lease of such Second Right of Notice space.
22.2.1. The monthly base rent for the Second Right of Notice shell
space shall be the same rate as called for in this Lease. Subject to Landlord's
prior review and approval of the scope of improvements proposed by Tenant,
Landlord shall provide a tenant improvement allowance not to exceed $15.00 per
square foot, amortized at the same interest rate formula as this Lease and with
a termination penalty consistent with the termination dates calculated on the
unamortized tenant improvements and leasing commissions.
23. ACCEPTANCE UPON TERMINATION.
Notwithstanding the provisions of Paragraphs 1.4 and 12.1, in the event
that Tenant exercises its right to cancel this Lease as described in Paragraph
21 above, Landlord shall attempt to market the Premises to a party desirous of
retaining all or a portion of the special tenant improvements constructed by
Tenant within the Premises. Notwithstanding the foregoing, Landlord shall
reserve the right to require that Tenant remove the special tenant improvements,
excluding the office portion of the Premises, prior to Tenant's vacation of the
Premises. The special tenant improvements to be removed shall include, but not
be limited to: (i) a mezzanine; (ii) clean rooms; (iii) electrical distribution
below the production area ceiling; (iv) heating, ventilating and air
conditioning distribution below the production area ceiling; (v) a waste
treatment system including a recycle system; (vi) a DI water system; (vii) an N2
Generator including compressors; and (viii) a CDA system including compressors..
24. USE OF CHEMICALS.
Subject to the provisions of Paragraph 19, Tenant shall be entitled to
use and store those chemicals listed on the attached Exhibit G. Tenant shall
not store chemicals in amounts in excess of those listed on Exhibit G without
first obtaining Landlord's approval and the approval of any governmental agency
with such authority.
25. TENANT IMPROVEMENTS.
25.1. Landlord agrees to provide a tenant improvement allowance of
$507,420.00 ($15.00 per square foot) (hereinafter referred to as "the
Allowance") for construction of certain tenant improvements within the Premises
(the "Tenant Improvements"). Landlord shall deliver the funds for the Allowance
to Tenant upon completion of the Tenant Improvements and upon Landlord's receipt
of a Certificate of Occupancy for the Premises.
25.1.1. Landlord agrees to amortize one-half of the Allowance over
180 months at twelve percent (12%) interest, resulting in a rental increase of
$3,015.00 per month (the "First Amortized Amount") commencing December 1, 1997,
as shown on Exhibit D.
25.1.2. Landlord agrees to amortize one-half of the Allowance over 88
months at twelve percent (12%) interest, resulting in a rental increase of
$4,305.00 per month (the "Second Amortized Amount") commencing December 1, 1997,
as shown on Exhibit E.
25.1.3. The Allowance shall include one-half of the cost of the
demising wall separating the Premises from the adjacent space.
25.2. Tenant shall, using the Allowance, cause construction of tenant
improvements within the Premises in accordance with Plans and Specifications
called for in this paragraph and subject to Landlord's prior consent, which
consent shall not be unreasonably withheld or delayed. All improvements shall
be constructed using Evergreen Business Park, Tenant Improvements Standards in
accordance with Exhibit C. The Tenant Improvements shall be installed using
industry standard materials installed in a good and workmanlike manner by
qualified craftsmen. The Tenant
Page 11 of 13
<PAGE>
Improvements shall be constructed from Plans and Specifications, subject to
Landlord's prior consent,
Page 12 of 13
<PAGE>
which consent shall not be unreasonably withheld or delayed, prepared by
Tenant's architect subject to applicable building codes as interpreted by the
City of Hillsboro, Oregon and shall be made a part of this Lease by Lease
Amendment upon completion.
25.3. Tenant shall, at its sole cost and expense, obtain any permits,
inspections and certificates required to construct the Tenant Improvements and
to occupy the Premises.
25.4. Landlord agrees to allow Tenant to utilize its preferred vendors
for the construction of the Tenant Improvements subject to Landlord's prior
consent, which consent shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the respective dates set opposite their signatures below, but this Agreement on
behalf of such party shall be deemed to have been dated as of the date first
above written.
LANDLORD:
PACIFIC REALTY ASSOCIATES, L.P.,
a Delaware limited partnership
By: PacTrust Realty, Inc.,
a Delaware corporation,
its General Partner
Date: _____________June 5, 1997 By: /s/ Sam K. Briggs
Sam K. Briggs
Marketing Director
Address for Notices/Rent Payments to Landlord:
15350 S.W. Sequoia Parkway, #300-WMPC
Portland, OR 97224
TENANT:
PLANAR AMERICA, INC.,
an Oregon corporation
Date: __________June 4, 1997 By: /s/ Jack Raiton
---------------------------------------
Name: Jack Raiton
---------------------------------------
Title: Chief Financial Officer
---------------------------------------
Date: __________June 4, 1997 By: /s/ Curtis M. Stevens
---------------------------------------
Name: Curtis M. Stevens
---------------------------------------
Title: Executive Vice President
---------------------------------------
Address for Legal Notices to Tenant:
Planar America
----------------------------------------------
1400 NW Compton Drive
----------------------------------------------
Beaverton, OR 97006
----------------------------------------------
Address for Invoices to Tenant:
Planar America
----------------------------------------------
1400 NW Compton Drive
----------------------------------------------
Beaverton, OR 97006
----------------------------------------------
Tenant Employer Identification Number:
93-1156745
----------------------------------------------
Page 13 of 13
<PAGE>
Exhibit 21
Subsidiaries of Planar Systems, Inc.
Planar America, Inc.
Planar International Oy
Planar Flat Candle
Planar Advance
Planar Standish Inc.
<PAGE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
---------------------------------------------------
The Board of Directors and Shareholders
Planar Systems, Inc. and Subsidiaries
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-82696 and 33-82688 and 33-90258) on Form S-8 of Planar Systems, Inc.
and subsidiaries of our report dated November 7, 1997, relating to the
consolidated balance sheets of Planar Systems, Inc. and subsidiaries as of
September 26, 1997 and September 27, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended September 26, 1997, which report appears in
the Annual Report on Form 10-K of Planar Systems, Inc. and subsidiaries for the
year ended September 26, 1997.
KPMG Peat Marwick LLP
Portland, Oregon
December 19, 1997
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