<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 25, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-13914
TRIO-TECH INTERNATIONAL
(Exact name of Registrant as specified in its Charter)
California 95-2086631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
355 Parkside Drive
San Fernando, California 91340
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: 818-365-9200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class On which registered
Common Stock, no par value AMEX
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No
Based on the closing sales price on September 16, 1999, the aggregate
market value of the voting stock held by nonaffiliates of the registrant was
$6,535,764. Number of shares of common stock outstanding as of September 16,
1999 is 2,751,635.
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K. [_]
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<PAGE>
TRIO-TECH INTERNATIONAL
INDEX TO CONSOLIDATED FINANCIAL INFORMATION, OTHER INFORMATION AND SIGNATURE
<TABLE>
<CAPTION>
Page
------
<S> <C>
FORM 10-K COVER 1
INDEX 2
Part I. 3
Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 10
Item 4 Submission of matters to a vote of security holders 10
Part II 11
Item 5 Market for registrant's common equity and related stockholder matters 11
Item 6 Selected financial data 12
Item 7 Management's discussion and analysis of financial condition and results of operations 13
Item 7A Quantitative and qualitative disclosures about market risk 15
Item 8 Financial statements and supplementary data 15
Item 9 Changes in and disagreements with accountants on accounting and financial disclosure 15
Part III 15
Part IV 15
Item 14 Exhibits, financial statement schedules and reports on Form 8-K 15
Signature 17
Exhibits
Independent Auditors' Report 18
Consolidated Balance Sheets as of June 25, 1999 and June 26, 1998 19
Consolidated Statements of Income and Comprehensive Income (Loss) for the Years Ended
June 25, 1999, June 26, 1998 and June 27, 1997 20
Consolidated Statements of Shareholders' Equity for the Years Ended June 25, 1999, June
26, 1998 and June 27, 1997 21
Consolidated Statements of Cash Flows for the Years Ended June 25, 1999, June 26, 1998
and June 27, 1997 22
Notes to Consolidated Financial Statements 24
</TABLE>
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NOTE CONCERNING FORWARD-LOOKING STATEMENTS
The discussions of the Company's business and activities set forth in this 10-K
and in other past and future reports and announcements by the Company may
contain forward-looking statements and assumptions regarding future activities
and results of operations of the Company. In light of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
hereby identifies the following factors which could cause actual results to
differ materially from those reflected in any forward-looking statement made by
or on behalf of the Company: market acceptance of Company products and services;
changing business conditions or technologies in the semiconductor industry,
which could affect demand for the Company's products and services; the impact of
competition; problems with technology; product development schedules; delivery
schedules; changes in military or commercial testing specifications which could
affect the market for the Company's products and services; difficulties in
profitability integrating acquired businesses, if any, into the Company; risks
associated with conducting business internationally and especially in Southeast
Asia, including currency fluctuations and devaluation, currency restrictions,
local laws and restrictions and possible social, political and economic
instability; general and economic conditions; and other economic, financial and
regulatory factors beyond the Company's control.
PART I
ITEM 1 - BUSINESS
- -----------------
General
- -------
Trio-Tech International designs, manufactures and sells equipment and systems
used in the manufacture and testing of semiconductor devices and electronic
components. In addition, the Company operates test facilities in the United
States, Europe and Southeast Asia that provide semiconductor testing services to
component manufacturers and users.
The Company's wet process equipment and temperature controlled chucks are used
to manufacture and test semiconductor wafers and other microelectronic
substrates in the "front-end" of the manufacturing process. The Company's
centrifuges, leak detectors, HAST systems, burn-in systems and rate of turn
tables are used primarily at the "back-end" of the semiconductor manufacturing
process to test finished semiconductor devices and electronic components.
Trio-Tech operates seven test facilities, one in the United States, one in
Europe and five in Southeast Asia. These provide customers a comprehensive range
of testing services, such as burn-in and life testing, for finished or packaged
components. Many manufacturers of semiconductors find it cost effective to sub-
contract these services to third parties.
Trio-Tech operations in Europe and Southeast Asia have active distribution
operations. These provide sales and support for Trio-Tech's equipment in these
regions and also distribute and support additional products from other
manufacturers. These products are complementary with the Company's products and
are used by the semiconductor and electronics industries.
Trio-Tech is actively pursuing a strategic plan for growth which is designed to
increase the Company's addressable market by expanding its product offerings
with equipment and services for the front-end of the manufacturing process to
complement its traditional niche in the back-end. The Company plans to achieve
this goal through a combination of new product development and acquisitions of
complementary products and companies. The acquisition of Universal Systems, a
leader in the design and manufacture of wet process equipment, in November 1997,
was an important step in this direction. Another is the continuing development
of Trio-Tech's temperature controlled chucks and the development of its COBIS-II
burn-in systems.
The terms "Trio-Tech" and "the Company" refer to Trio-Tech International and/or
its subsidiaries.
Company History
- ---------------
<TABLE>
<S> <C>
1958 Incorporated in California
1976 The Company formed Trio-Tech International Pte Ltd (TTIPte) in Singapore.
1984 The Company formed the European Electronic Test Center (EETC), a Cayman Islands subsidiary, to operate a test
facility in Dublin, Ireland.
1985 The Company's Singapore subsidiary entered into a joint-venture agreement, Trio-Tech Malaysia, to operate a test
facility in Penang.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
1986 Trio-Tech International listed on the NASDAQ Small Cap market under the symbol TRTC.
1988 The Company acquired the Rotating Test Equipment Product Line of Genisco Technology Corporation.
1990 Trio-Tech International acquired Express Test Corporation in California.
Trio-Tech Malaysia opened a new facility in Kuala Lumpur.
1992 Trio-Tech Singapore opened Trio-Tech Bangkok, Thailand
1994 Trio-Tech Malaysia started a new testing operation in Batang Kali.
1997 In November 1997, the Company acquired Universal Systems of Campbell, California.
1998 In September 1998, the Company listed on AMEX under the symbol TRT.
</TABLE>
Analysis of Sales
- -----------------
The following table sets forth the percentage of revenues derived from product
sales, testing services and industry segments during the last three fiscal years
and the breakdown of revenues derived from customers in the United States,
Southeast Asia and Europe. The amounts represented in product sales and service
include revenues derived from the test equipment distribution business in
Singapore. Approximately 71% of the Company's revenues are earned in Singapore,
Malaysia and Thailand. These countries have been significantly affected and
will continue to be affected by currency volatility in the Southeast Asia
region. See Note 12 to Consolidated Financial Statements, Business Segments,
for a more detailed description.
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------------------------------------------
June 25, 1999 June 26, 1998 June 27, 1997
--------------- --------------- ---------------
(Dollar amounts in thousands)
Product and service sales by
region:
<S> <C> <C> <C> <C> <C> <C>
United States $ 4,690 22% $ 4,095 19% $ 2,409 11%
Southeast Asia 8,615 41 8,309 38 6,694 31
Europe 637 3 1,011 5 441 2
------------- ------- -------------- ------ ------------- ------
Total $ 13,942 66% $ 13,415 62% $ 9,544 44%
============= ======= ============== ====== ============= ======
Testing services sales by
region:
United States $ 249 1% $ 312 1% $ 215 1%
Southeast Asia 6,430 30 7,586 35 11,305 53
Europe 560 3 539 2 484 2
------------- ------- -------------- ------ ------------- ------
Total $ 7,239 34% $ 8,437 38% $ 12,004 56%
============= ======= ============== ====== ============= ======
Net sales:
Manufacturing $ 6,853 32% $ 6,335 29% $ 6,334 29%
Testing 7,239 34 8,437 39 12,004 56
Distribution 7,089 34 7,080 32 3,210 15
------------- ------- -------------- ------ ------------- ------
Total net sales $ 21,181 100% $ 21,852 100% $ 21,548 100%
============= ======= ============== ====== ============= ======
</TABLE>
Background Technology
- ---------------------
Semiconductor devices are fundamental building blocks used in electronic
equipment and systems. Each semiconductor device consists of an integrated
circuit that performs electronic functions. Integrated circuits are manufactured
through a series of complex steps on a wafer substrate, which is usually made of
silicon and measures three to eight inches in diameter. A finished
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wafer consists of many integrated circuits; each referred to as a "device" or
"die", the number depending on the area of the circuits and the size of the
wafer. Manufacturers have increasingly utilized larger diameter wafers, and the
transition to 300mm (12 inch) wafers is currently underway throughout the
industry.
Wafers are typically sent through a series of 100 to 300 process steps. At many
of the process steps the wafer is washed and dried using wet process stations.
The finished wafer is put through a series of tests where each device on the
wafer is tested for functionality. After testing, the wafer is diced and each
die is encapsulated in packaging material, usually plastic or ceramic, with lead
wires that allow mounting onto printed circuit boards. Finished devices are put
through a series of screening processes, such as burn-in and electrical testing,
to ensure they meet necessary performance and quality standards, before shipment
to the customer. In 1997, the worldwide market for semiconductor devices was
estimated at $140 billion.
In addition to the growing demand for semiconductors, integrated circuits are
continually becoming more complex, with greater capacity, versatility and
smaller size. In order to fabricate these semiconductors, manufacturers must
continually improve their fabrication, packaging and test facilities. In 1997,
the world market for semiconductor manufacturing equipment was estimated at $30
billion.
The market for semiconductor manufacturing equipment can be divided into wafer
fabrication (front-end) and assembly, packaging and test (back-end). The front-
end equipment market is estimated to be approximately 70% of the total market
with back-end 20% and facilities 10% of the total market.
Trio-Tech's products and services are applicable at several stages of the
manufacturing and test processes. Its wet process benches are used at many wafer
fabrication stages. Its Artic temperature chucks are used to test semiconductor
wafers at accurately controlled temperatures. Its component centrifuges, leak
detectors, HAST equipment and burn-in systems are all used to test and screen
finished semiconductor devices to ensure they meet the specifications required
by the manufacturers and customers.
Trio-Tech's test services are concentrated on the back-end screening and test of
semiconductor devices. With the high concentration of semiconductor assembly and
packaging facilities in Southeast Asia, a large demand exists for third party
test services in this region. Customers use third party test services especially
to accommodate fluctuations in output or to benefit from economies that can be
offered by third party service providers.
Products
- --------
The Company designs and manufactures equipment for the manufacture and test of
semiconductor wafers, devices and other electronic components.
Wet Process Stations
Wet Process benches are used for cleaning, rinsing and drying semiconductor
wafers, magnetic disks, flat panel displays and other microelectronic
substrates. This product line, which is manufactured by the Company's subsidiary
Universal Systems, includes manual and automated wet process stations, and
features radial and linear robots, state-of-the-art PC touch-screen controllers
and sophisticated scheduling and control software.
Temperature Controlled Wafer Chucks
The Artic Temperature Controlled Chucks are used for test, characterization and
failure analysis of semiconductor wafers and other components at accurately
controlled hot and cold temperatures. Several models are available with
temperature ranges from -65C to +400C and in diameters from 4 to 12 inch. These
systems provide excellent performance to meet the most demanding customer
applications. Several unique mechanical design features, for which patents are
pending, provide excellent mechanical stability under high probing forces and
across the temperature ranges.
Autoclaves and HAST (Highly Accelerated Stress Test) Equipment
Trio-Tech manufactures a range of autoclaves and HAST systems and specialized
test fixtures. Autoclaves provide pressurized, saturated vapor (100% relative
humidity) test environments for fast and easy monitoring of integrated circuit
manufacturing processes. HAST equipment, which provides a pressurized high
temperature environment with variable humidity, is used to determine the
moisture resistance of plastic encapsulated devices. HAST provides a fast and
cost-effective alternative to conventional non-pressurized temperature and
humidity testing.
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Burn-in Equipment and Boards
Trio-Tech manufactures burn-in systems, burn-in boards and burn-in board test
systems. Burn-in equipment is used to subject semiconductor devices to
elevated temperatures while testing them electrically to identify early product
failures ("infant mortalities") as well as to assure long-term reliability.
Burn-in testing approximates, in a compressed time frame, the electrical and
thermal conditions to which the device would be subjected during its normal
life.
During 1998, the Company developed and launched its new COBIS-II burn-in system
that offers state-of-the-art dynamic burn-in capabilities and a Windows-based
operating system with full data logging and networking features. The Company
also offers burn-in boards for its COBIS burn-in systems and other brands of
burn-in systems. Burn-in boards are used to mount devices during high
temperature environmental stressing.
Component Centrifuges and Leak Detection Equipment
Component centrifuges and leak detection equipment are used to test the
mechanical integrity of ceramic and other hermetically sealed semiconductor
devices and electronic parts for high reliability and aerospace applications.
The Company's centrifuges are used to identify mechanical weaknesses of devices
by spinning them at a specified acceleration, creating a pressure of up to
30,000 g's (900,000 pounds per square inch). The Company's leak detection
equipment is designed to detect leaks in hermetic packaging by first
pressurizing the devices in a tracer gas or fluid and then visually scanning for
bubble trails emanating from defective devices.
Rate of Turn Tables
The Company manufactures a range of rate-of turn tables which are used to
subject test parts to accurately controlled angular velocities and g-forces. The
systems are typically used to test accelerometers, gyroscopes, turn and bank
indicators, inertial platforms and other motion sensors. Applications include
automotive and aerospace markets.
Product Development
- -------------------
The Company incurred research and development costs of $347,000 in fiscal 1999,
$158,000 in fiscal 1998 and $18,000 in fiscal 1997.
Artic Temperature Controlled Chucks
Trio-Tech is continuing to develop its range of Artic temperature controlled
chucks. During 1999, the Company introduced a new range of chucks for
production wafer probing applications. These new chucks offer high levels of
mechanical stability under high probing loads. A triaxial guarding option is
available which enables very precise electrical measurements on the wafer.
Initial units have been installed and are currently operating in production
probing systems at one of the world's leading manufacturers of semiconductors
and computers.
Wet Process Stations
The Company's subsidiary, Universal Systems, is actively developing its line of
wet process equipment. During the year Universal launched its new model VLF-2002
Automated Wafer Processing Station. The first system was installed in one of
Silicon Valleys leading fabs, an experimental copper plating process for eight
inch diameter wafers. Universal also completed its first chemical dispense
system, model CD-2001, designed for automated delivery of process chemicals to
wet process equipment. Customer interest in these and other products is strong.
Testing Services
- ----------------
Trio-Tech owns and operates facilities that provide testing services for
semiconductor devices and other electronic components to meet the requirements
of military, aerospace, industrial and commercial applications.
The Company uses its own proprietary equipment for certain burn-in, centrifugal
and leak tests, and commercially available equipment for various other
environmental tests. The Company conducts the majority of its testing
operations in Southeast Asia with facilities in Singapore, Malaysia and
Thailand. Several of these facilities have ISO 9002 certification. The Company
also operates test facilities in San Fernando, California and Dublin, Ireland.
The testing services are used by manufacturers and purchasers of semiconductors
and other components who either do not have testing capabilities or whose in-
house screening facilities are not sufficient to test devices to military or
certain commercial
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<PAGE>
specifications. In addition, Trio-Tech provides overflow testing and independent
verification for companies with in-house capabilities.
Trio-Tech's laboratories perform a variety of tests, including stabilization
bake, thermal shock, temperature cycling, mechanical shock, constant
acceleration, gross and fine leak tests, electrical testing, static and dynamic
burn-in tests, and vibration testing. The laboratories also perform
qualification testing, consisting of intense tests conducted on small samples of
output from manufacturers who require qualification of their processes and
devices.
Distribution Activities
- -----------------------
The Company's Singapore subsidiary continues to develop its international
distribution division. The distribution operation markets, sells and supports
Trio-Tech's products in Southeast Asia. In addition to Trio-Tech's own
products, this operation also distributes other complementary products from
other manufacturers in the United States, Europe and Japan, including
environmental chambers, shakers and vibration systems, solderability testers
and other manufacturing and test products.
Marketing, Distribution and Services
- ------------------------------------
The Company markets its products and services worldwide, both directly and
through independent sales representatives. There are approximately 12 of these
representatives that operate within the United States and 7 in various foreign
countries. The Company's marketing efforts in the United States are coordinated
from its headquarters in San Fernando, and its Far East and European marketing
efforts are assigned to its subsidiaries in Singapore and Ireland, respectively.
The Company advertises in trade journals and participates in trade shows.
The Company's products and services are purchased by independent testing
laboratories and by users and manufacturers of semiconductor devices, including,
IBM, AMD, Motorola, National Semiconductor, SGS Thomson. During the year ended
June 25, 1999, the Company had sales of $3,115,000 and $2,973,000 to Catalyst
Semiconductor and AMD, respectively.
Backlog
- -------
The following table sets forth the Company's backlog at the dates indicated
(amounts in thousands):
<TABLE>
<CAPTION>
June 25, 1999 June 26, 1998
------------------------ -----------------------
<S> <C> <C>
Manufacturing backlog $ 2,333 $ 2,702
Testing service backlog 2,979 2,202
Distribution backlog 1,858 1,732
------------------------ -----------------------
$ 7,170 $ 6,636
======================== =======================
</TABLE>
Based upon past experience, the Company does not anticipate any significant
cancellations. The purchase orders for equipment call for delivery within the
next 12 months. Testing services backlog is scheduled to be performed within the
next year. The Company does not anticipate any difficulties in meeting delivery
schedules.
Manufacturing and Supply
- ------------------------
The Company's products are designed by its engineers and are assembled and
tested at its facilities in San Fernando and San Jose, California, Singapore and
Ireland. All parts and certain components are purchased from outside sources
for assembly by the Company.
Trio-Tech uses Fluorinert, a special indicator fluid sold by the 3M Company, in
its gross leak equipment. The Company has not experienced any difficulty in
obtaining Fluorinert to date. There can be no assurance that the Trio-Tech will
not experience difficulties or delays in obtaining Fluorinert in the future. In
December 1998, the Company discontinued its Tracer-Flo product line and has no
future requirement for Krypton 85 gas.
Competition
- -----------
The semiconductor equipment industry is highly competitive. The principal
competitive factors in the industry are product performance, reliability,
service and technical support, product improvements, price, established
relationships with customers
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and product familiarity. The Company has competitors for its various products.
However, the Company believes its products compete favorably with respect to
each of these factors in the markets in which it operates. There can be no
assurance that competition will not increase or that the Company's technological
advantages may not be reduced or lost as a result of technological advances by
competitors or changes in semiconductor processing technology.
There are numerous testing laboratories in the areas in which the Company
operates that perform a range of testing services similar to those offered by
the Company. Since the Company has sold and will continue to sell its products
to competing laboratories and other test products are available from other
manufacturers, the Company's competitors can offer the same testing
capabilities. This equipment is also available to semiconductor manufacturers
and users who might otherwise use outside testing laboratories, including the
Company, to perform environmental testing. The existence of competing
laboratories and the purchase of testing equipment by semiconductor
manufacturers and users are potential threats to the Company's future revenues
and earnings from testing.
Patents
- -------
Trio-Tech holds a United States Patent granted in 1987 in relation to its
pressurization humidity testing equipment. The Company also holds a United
States Patent granted in 1994 on certain aspects of its Artic temperature test
systems. In 1999, the Company filed a new United States patent application for
several aspects of its new range of Artic temperature chucks.
Government Regulation
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Up until December 1998 the Company supported the Tracer-Flo product line. The
Tracer-Flo process uses Krypton 85, an inert radioactive gas, the supply and
handling of which are subject to regulation by the United States Nuclear
Regulatory Commission (NRC) and the California Department of Health Physics.
The Company was obliged, therefore, to train the Tracer-Flo operators, which are
licensed by the State of California, and maintain records and control its
supplies of Krypton 85. The California agency conducts periodic site
inspections, and the NRC monitors interstate shipments and can inspect the
Company's shipping records. No security clearance is required to handle the
gas, which has a low level of radioactivity. This product line experienced
declining sales for several years. The Company discontinued manufacture and
support of this product line in December 1998.
Employees
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As of June 25, 1999, the Company had 49 employees in the United States, 256 in
Singapore, 200 in Malaysia, 34 in Bangkok, and 20 in Ireland for a total of 559.
None of the Company's employees is represented by a labor union.
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ITEM 2 - PROPERTIES
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The following table sets forth information as to the location and general
character of the principal manufacturing and testing facilities of the
Registrant:
<TABLE>
<CAPTION>
Owned (O)
Approx. or Leased (L)
Sq. Ft. Expiration
Location Principal Use Occupied Date
- ------------------------------------ ---------------------- -------------- -------------------
<S> <C> <C> <C>
355 Parkside Dr. Headquarters/ 21,000 (L) Jan. 2000
San Fernando, CA 9l340 Manufacturing/
Testing
6951-A Via Del Oro Manufacturing 15,000 (L) Feb. 2004
San Jose, CA 95119
Abbey Road Testing/Manufac- 18,400 (O) *1
Deansgrange Co. turing
Dublin, Ireland
No. 5, Kian Teck Road Manufacturing 30,000 (L) *2
Jurong Town, Singapore
1004, Toa Payoh North, Testing 6,833 (L) November 2000
HEX 07-01/07, July 2002
Singapore
Plot 1A, Phase 1 Testing 49,924 (L) Aug. 2071
Bayan Lepas Free
Trade Zone
11900 Penang
Lot No. 6. Lorong Testing 23,000 (L) May 2000
Enggang 37 Ulu Kelang
Ampang Industrial Area.
Ulu Kelang, Selangor,
Kuala Lumpur
327, Chalongkrung Road, Testing 11,300 (O) *3
Lamplathew, Lat Krabang,
Bangkok 10520, Thailand
Lot No. B7, Kawasan MIEL Manufacturing 24,142 (O)*4
Batang Kali, Phase II,
43300 Batang Kali
Selangor Darul Ehsan,
Malaysia
</TABLE>
*1 Purchased for 270,000 Irish Pounds, equivalent to approximately U.S.
$261,000 based on the exchange rate as of June 28, 1985, of which
approximately 30% was recovered by the Company as part of the grant monies
received from the Industrial Development Authority of the Republic of
Ireland.
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<PAGE>
*2 Purchased for S$1 million, equivalent to approximately U.S.$ 447,000 based
on the exchange rate as of June 28,1985. This amount was completely repaid
in fiscal year 1991. However, under Singapore law, this land may not be
purchased outright. Accordingly, the term for this land lease will expire
in December 2030. The Company has acquired the fullest ownership rights
possible under Singapore law that includes an option to renew the lease at
that time.
*3 Purchased for Thai Baht 13,500,000, equivalent to approximately U.S.
$533,000 based on the exchange rate as of June 25, 1993.
*4 Purchased for Malaysia Ringgit 1,000,000, equivalent to U.S. $387,000 based
on the exchange rate as at June 24, 1994. Accordingly, the term for this
land lease will expire in October 2052.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
On August 24, 1995, the Company was served in a civil action brought by HM
Holdings, Inc. (HM) against 106 defendants, including the Company. HM has paid
$3,750,000 to the Federal Environmental Protection Agency to settle a proceeding
alleging that HM's predecessor company caused soil and groundwater contamination
of the North Hollywood (California) Superfund Site and may have additional
liabilities. HM alleges that the 106 defendants caused or contributed to the
contamination. An additional legal matter may arise in part out of a related
suit by Lockheed Martin Corporation against HM and other defendants, possibly
including the Company (which has not been served in this related suit),
involving the nearby Burbank Superfund Site, which HM is seeking to settle and
to assign its claim against the 106 defendants to Lockheed Martin. The Company
vacated its Burbank location in 1987. The Company and its counsel have not yet
had the opportunity to investigate the allegations. The Company believes its
liability insurance should cover this claim, but its insurers have not yet made
a decision regarding this matter. Management, based on its present information,
believes that the outcome of this litigation will not materially affect the
Company's consolidated financial position or results of operations.
The Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business operations.
In the opinion of management, resolution of these matters will not have a
material adverse effect on the Company's financial statements.
There are no material proceedings to which any director, officer or affiliate of
the Registrant, any beneficial owner of more than five percent of the
Registrant's common stock or any associate of such person is a party that is
adverse to the Registrant or its properties.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK
- ---------------------------------------------
The Registrant's common stock is traded on the American Stock Exchange under the
symbol "TRT". The following table sets forth, for the periods indicated, the
range of high and low sales prices of Trio-Tech International's Common Stock as
quoted by AMEX. These prices do not include retail mark-ups, markdowns or
commissions:
<TABLE>
<CAPTION>
Quarter Ended High Low
---------------------------- ------------ ------------
<S> <C> <C>
Fiscal 1998
----------------------------
September 26, 1997 8.83 4.92
December 26, 1997 11.67 4.13
March 27, 1998 6.50 4.41
June 26, 1998 5.25 4.00
Fiscal 1999
----------------------------
September 25, 1998 4.75 2.63
December 25, 1998 3.25 2.13
March 26, 1999 3.69 2.63
June 25, 1999 3.67 2.75
----------------------------
Fiscal 2000
----------------------------
June 26, 1999 to 4.88 2.88
September 16, 1999
</TABLE>
The Registrant's common stock is held by approximately 625 shareholders of
record as of September 16, 1999. Approximately 1,658,254 shares are held by Cede
and Co., a clearinghouse that holds stock certificates in "street" name for an
unknown number of shareholders.
The Company has not declared any cash dividends on its common stock. Any future
determinations as to cash dividends will depend upon the earnings and financial
position of the Company at that time and such other factors as the Board of
Directors may deem appropriate. It is anticipated that no dividends will be paid
to holders of common stock in the foreseeable future.
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<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
(In thousands except share and per share data)
<TABLE>
<CAPTION>
June 25, June 26, June 27, June 28, June 30,
1999 1998 1997 1996 1995
------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Net sales $ 21,181 $ 21,852 $ 21,548 $ 23,185 $ 19,488
Income (loss) from Operations (207) 969 3,057 2,712 1,547
Net Income 195 831 1,002 806 570
Net income per share :
Basic 0.07 0.34 0.54 0.45 0.31
Net income per share $ 0.07 $ 0.34 $ 0.54 $ 0.45 $ 0.33
Weighted average common
shares outstanding:
Basic 2,745,000 2,413,000 1,850,000 1,793,000 1,743,000
Diluted 2,757,000 2,484,000 1,961,000 1,926,000 1,871,000
Balance Sheet
Current assets $ 12,723 $ 14,036 $ 13,843 $ 11,760 $ 6,848
Current liabilities 5,934 7,439 7,039 8,169 5,159
Working capital 6,789 6,597 6,804 3,591 1,689
Total assets 18,932 19,331 18,528 17,416 12,646
Long-term debt and
capitalized leases 962 426 723 688 597
Shareholders' equity $ 9,051 $ 8,763 $ 6,463 $ 5,207 $ 4,419
</TABLE>
-12-
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
The following discussion should be read in conjunction with the Company's
Financial Statements, including the related notes thereto, and other financial
information included herein. The information in this 10-K includes forward-
looking statements. In addition, past operating results are not necessarily
indicative of the results to be expected in future periods. See "Note Concerning
Forward-Looking Statements" prior to "Part I - Item 1 - Business" on page 3.
Year Ended June 25, 1999 ("1999") Compared to Year Ended June 26, 1998 ("1998")
- -------------------------------------------------------------------------------
Net sales decreased by $671,000 or 3.1% from $21,852,000 in 1998 to $21,181,000
in 1999 due to the general slowdown in the semiconductor industry and the poor
economic conditions in Southeast Asia. Net sales for the Far East operations
decreased $850,000 or 5.3% from $15,895,000 in 1998 to $15,045,000 in 1999 due
mainly to lower testing volume in Malaysia and Singapore.
Cost of sales increased $1,484,000 or 10.6% from $14,020,000 in 1998 to
$15,504,000 in 1999. As a percentage of sales, it increased 9.0% from 64.2% in
1998 to 73.2% in 1999. This increase is primarily due to a shift in relative
sales from high margin test services to lower margin distribution sales.
Operating expenses decreased by $979,000 or 14.3% from $6,863,000 in 1998 to
$5,884,000 in 1999 as a result of a series of implemented cost controls.
Research and development expenses increased by $189,000 to $347,000 in 1999 from
$158,000 in 1998 due to the Company's commitment to the development of a range
of Artic Temperature Controlled Chucks.
Interest expense decreased in 1999 by $60,000 or 35.7%, from $168,000 in 1998 to
$108,000 in 1999, due to decreases in lines of credit.
Other income has increased by $293,000 or 58.1% from $504,000 in 1998 to
$797,000 in 1999 primarily due to disposal of marketable securities in Malaysia,
interest income earned on certificates of deposit, and service income earned by
providing installation services to a customer in Thailand.
Year Ended June 26, 1998 ("1998") Compared to Year Ended June 27, 1997 ("1997")
- -------------------------------------------------------------------------------
Net sales increased by $304,000 or 1.4% from $21,548,000 in 1997 to $21,852,000
in 1998 despite the general slowdown in the semiconductor industry and the poor
economic conditions in Southeast Asia. Net sales for the Far East operations
decreased $2,105,000 or 11.7% from $17,999,000 in 1997 to $15,895,000 in 1998
due mainly to lower testing volume in Malaysia and Singapore.
Cost of sales increased $1,320,000 or 10.4% from $12,700,000 in 1997 to
$14,020,000 in 1998. As a percentage of sales, it increased 5.3% from 58.9% in
1997 to 64.2% in 1998. This decline is primarily due to a shift in relative
sales from high margin test services to lower margin equipment sales.
Operating expenses increased by $1,072,000 or 18.5% partially due to the
addition of Universal Systems and the increase in research and development costs
with the remainder being from realized exchange losses due to the currency
crisis in Southeast Asia.
Interest expense increased in 1998 by $58,000 or 52.7%, from $110,000 in 1997 to
$168,000 in 1998. This is a result of increased interest rates.
Other income has increased significantly from $460,000 in 1997 to $504,000 in
1998 primarily due to interest income earned on certificates of deposit and
service income earned by providing administrative services to a customer in
Thailand.
Net income decreased by $171,000 or 17.1% from $1,002,000 in 1997 to $831,000 in
1998 due mainly to lower testing volume in Malaysia. Minority interest profit
allocation was significantly less in 1998 versus 1997 due to a decrease in
profits of the 55% owned Trio-Tech Malaysia.
-13-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Net cash generated by operating activities during the year ended June 25, 1999
was $49,000 compared to $222,000 generated by operating activities during the
year ended June 26, 1998. The negative cash flow from operating activities in
1999 was comprised of a decrease in accounts payable and accrued expenses of
$1,555,000 and an increase in accounts receivable of $336,000. These amounts
were partially offset by positive cash flow comprised of $195,000 from net
income, $1,222,000 of non-cash depreciation and amortization, a decrease in
inventories of $257,000 and a decrease in prepaid and other current assets of
$215,000.
Net cash used by investing activities during 1999 was $1,209,000 compared to
$687,000 generated by investing activities in the 1998 year. The net cash used
by investing activities was a result of capital expenditures of $1,863,000,
$1,161,000 of which was financed by capital leases, and an increase in
certificates of deposits of $552,000.
Net cash used by financing activities during 1999 was $629,000 compared to
$3,807,000 provided by financing activities in the 1998 year. The significant
cash outflows from financing activities include $789,000 of payments on lines of
credit, long term obligations and capitalized leases, this was partially offset
by a cash inflow of $214,000 from additional borrowing under lines of credit.
The Company's subsidiary, TTI Pte, has a secured credit agreement with a bank
that provides for a total line of credit of $3,125,000. The agreement contains
certain debt covenants including maintaining a minimum net worth of $2,400,000
at TTI Pte. Borrowings under the line were $214,000 and $481,000 at the end of
fiscal 1999 and 1998, respectively. The interest rate on borrowings is at the
bank's prime rate (6.25% at June 25, 1999) plus 1.25%. Borrowings under this
agreement are collateralized by substantially all of TTI Pte's assets. This line
of credit expires March 2000.
The Company's subsidiary, TTM, has a secured credit agreement with a bank that
provides for a total line of credit of $132,000. At June 25, 1999, there were no
borrowings outstanding. The line of credit bears interest at the bank's
reference rate (7.25% at June 25, 1999) plus 2.5%. This line of credit expires
May 2000.
The Company's subsidiary, TTBk, has a line of credit that provides for
borrowings of approximately $141,000. Interest on the line is at the bank's
reference rate (10.25% at June 25, 1999) plus 2.2%. There were no borrowings
against this line as of June 25, 1999. This line of credit does not have an
expiration date.
The Company's subsidiary, TT Ireland, has a credit agreement that provides for a
mortgage loan of $400,000. Borrowings under the mortgage loan amounted to
$263,000 as of June 25, 1999. Interest is at the bank's prime rate (2.65% at
June 25, 1999) plus 3.5%.
The Company obtained a revolving line of credit of $150,000 from a bank bearing
interest at 1.25% above the bank's reference rate (7.75% at June 25, 1999).
Borrowings under the line amounted to $150,000 as of June 25, 1999. This line of
credit expires February 2000.
Year 2000 Compliance Issue
- --------------------------
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2-
digit year is commonly referred to as the "Year 2000 Compliance" issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information. The Company has reviewed all significant internal
applications and believes it has implemented modifications necessary to ensure
Year 2000 compliance, other than with respect to 55% owned Malaysia. The Company
anticipates that 55% owned Malaysia will be compliant by December 1999.
In addition, the Company is in the on-going process of communicating with others
with whom it does significant business, to determine their Year 2000 Compliance
readiness and the extent to which the Company is vulnerable to any third party
Year 2000 Compliance. However, there can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has not
been and is not anticipated to be material to its financial position or to its
results of operations. These costs and the date on which the Company plans to
complete the Year 2000 Compliance modification and testing processes are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
Economic conditions in Southeast Asia
- --------------------------------------
The Company's operations, balance sheet and cash flows have been affected by
recent economic instability in portions of Southeast Asia, which accounted for
approximately 71% of the Company's net sales in the year ended June 1999, 73% in
the year ended 1998 and 83% for year ended 1997. A recent currency devaluation
in Thailand and continuing currency weaknesses in Thailand, Malaysia and
Singapore have required downward accounting adjustments in the U.S. dollar value
of net assets located in those countries. Unsettled economic conditions in those
countries and elsewhere have had some effect on orders by semiconductor
companies for Trio-Tech's testing services. Although the Company has continued
to manage its operations profitably, extended economic instability could
adversely affect the Company's financial condition, results of operations or
cash flows. On September 1,
-14-
<PAGE>
1998, the government of Malaysia announced its intention to limit the movement
of certain cash balances denominated in Malaysian currency.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Not applicable.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The information called for by this item is included in the Company's
consolidated financial statements beginning on page 18 of this Annual Report on
Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None
PART III
The information required by Part III is hereby incorporated by reference from
the Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the end of fiscal 1999.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES:
The following financial statements, including notes thereto and the
independent auditors' report with respect thereto, are filed as
part of this Annual Report on Form 10-K, starting on page 18
hereof:
1. Independent Auditors' Report
2. Consolidated Balance Sheets
3. Consolidated Statements of Income and Comprehensive Income
(Loss)
4. Consolidated Statements of Shareholders' Equity
5. Consolidated Statements of Cash Flows
6. Notes to Consolidated Financial Statements
(b) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the
quarter ended June 25, 1999.
(c) EXHIBITS:
Number Description Page Number
- ------ ----------- -----------
3.1 Articles of Incorporation, as currently in effect.
[Previously filed as Exhibit 3.1 to the Annual
Report on Form 10-K for June 24, 1988.] _______
3.2 Bylaws, as currently in effect. [Previously filed
as Exhibit 3.2 to the Annual Report on Form 10-K
for June 24, 1988.] _______
10.2 Real Estate Lease, dated September 29, 1987,
between Stierlin Industrial Center and Registrant.
[Previously filed as Exhibit 10.5 to the
-15-
<PAGE>
Registration Statement on Form S-1 (No. 2-87606).] _______
10.3 Tenancy of Flatted Factory Unit, dated December 2,
1982, between Jurong Town Corporation and
Registrant. [Previously filed as Exhibit 10.8
to the Registration Statement on Form S-1
(No. 2-87606).] _______
10.4 Tenancy of Flatted Factory Unit, dated September 10,
1982, between Jurong Town Corporation and
Registrant. [Previously filed as Exhibit 10.9
to the Registration Statement on Form S-1
(No. 2-8766).] _______
10.5 Real Estate Lease, dated December 15, 1986,
between San Fernando Associates and Registrant.
[Previously filed as Exhibit 10.17 to the Annual
Report on Form 10-K for June 28, 1987.] _______
10.9 Credit Facility Letter dated November 2, 1993, between
Trio-Tech International Pte. Ltd. and Standard
Chartered Bank. [Previously filed as Exhibit 10.9 to the
Annual Report on Form 10-K for June 26, 1994.] _______
10.10 1998 Stock Option Plan. [Previously filed
as Exhibit 1 to the Company's proxy statement filed under
regulation 14A on October 27, 1997]. _______
10.11 Directors Stock Option Plan. [Previously filed
as Exhibit 2 to the Company's proxy statement filed under
regulation 14A on October 27, 1997].
10.12 Real Estate Lease dated February 1, 1999 between Martinvale
Development Company and Universal Systems.
22.1 Subsidiaries of the Registrant (100% owned by the
Registrant except as otherwise stated):
Trio-Tech International Pte. Ltd., a Singapore Corporation
Trio-Tech Test Services Pte. Ltd., a Singapore Corporation
Trio-Tech Reliability Services, a California Corporation
Express Test Corporation, A California Corporation
European Electronic Test Center, Ltd., A Cayman Islands
Corporation
Trio-Tech Malaysia, a Malaysia Corporation
(55% owned by the Registrant)
Trio-Tech Kuala Lumpur, a Malaysia Corporation
(100% owned by Trio-Tech Malaysia)
Trio-Tech Bangkok, a Thailand Corporation
Prestal Enterprise Sdn Bhd, a Malaysia Corporation
(73% owned by the Registrant)
KTS Incorporated, doing business as Universal Systems, a California
Corporation
27.1 Financial Data Schedule
-16-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRIO-TECH INTERNATIONAL
By: /s/ Victor H.M. Ting
----------------------------
VICTOR H.M. TING
Vice President and
Chief Financial Officer
Date: October 4, 1999
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ A. Charles Wilson October 4, 1999
---------------------------------
A. Charles Wilson, Director
Chairman of the Board
/s/ S. W. Yong October 4, 1999
---------------------------------
S. W. Yong, Director
President and Chief Executive
Officer
/s/ Victor H.M. Ting October 4, 1999
---------------------------------
Victor H.M. Ting
Vice President, Chief Financial
Officer and Principal Accounting
Officer
/s/ Jason T. Adelman October 4, 1999
---------------------------------
Jason T. Adelman, Director
/s/ Frank S. Gavin October 4, 1999
---------------------------------
Frank S. Gavin, Director
/s/ Richard M. Horowitz October 4, 1999
---------------------------------
Richard M. Horowitz, Director
/s/ F.D. (Chuck) Rogers October 4, 1999
---------------------------------
F.D. (Chuck) Rogers, Director
/s/ William L. Slover October 4, 1999
---------------------------------
William L. Slover, Director
-17-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Trio-Tech International
San Fernando, California:
We have audited the accompanying consolidated balance sheets of Trio-Tech
International and subsidiaries (the "Company") as of June 25, 1999 and June 26,
1998, and the related consolidated statements of income and comprehensive income
(loss), shareholders' equity, and cash flows for each of the three years in the
period ended June 25, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Trio-Tech International and
subsidiaries as of June 25, 1999 and June 26, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 25, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
September 17, 1999
-18-
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS Notes 1999 1998
--------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1,593,000 $ 3,305,000
Cash deposits 4,499,000 3,947,000
Trade accounts receivable, less
allowance for doubtful
accounts of $219,000 in
1999 and $468,000 in 1998 4,460,000 4,124,000
Other receivables 282,000 299,000
Inventories 2 1,799,000 2,056,000
Prepaid expenses and other
current assets 90,000 305,000
------------- -------------
Total current assets 5 12,723,000 14,036,000
PROPERTY AND EQUIPMENT, Net 3,5,7 5,538,000 4,669,000
OTHER ASSETS, Net 4 671,000 626,000
------------- -------------
TOTAL ASSETS $ 18,932,000 $ 19,331,000
============= =============
CURRENT LIABILITIES:
Lines of credit 5 $ 364,000 $ 631,000
Accounts payable 1,989,000 2,126,000
Accrued expenses 6 3,005,000 3,804,000
Income taxes payable 71,000 690,000
Current portion of long-term
debt and capitalized leases 7,9 505,000 188,000
------------- -------------
Total current liabilities 5,934,000 7,439,000
------------- -------------
LONG-TERM DEBT AND
CAPITALIZED LEASES,
Net of current portion 7,9 962,000 426,000
------------- -------------
DEFERRED INCOME TAXES 8 582,000 581,000
------------- -------------
MINORITY INTEREST 2,403,000 2,122,000
------------- -------------
COMMITMENTS AND CONTINGENCIES 9
SHAREHOLDERS' EQUITY: 10,11
Common stock; authorized,
15,000,000 shares; issued and
outstanding, 2,741,334 shares
(1999) and 2,747,586 shares
(1998) stated at 8,654,000 8,708,000
Retained earnings 692,000 497,000
Accumulated other comprehensive loss (295,000) (442,000)
------------- -------------
Total shareholders' equity 9,051,000 8,763,000
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 18,932,000 $ 19,331,000
============= =============
</TABLE>
See notes to consolidated financial statements.
-19-
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
June 25, June 26, June 27,
Notes 1999 1998 1997
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES 12 $21,181,000 $21,852,000 $21,548,000
COST OF SALES 15,504,000 14,020,000 12,700,000
----------- ----------- -----------
GROSS PROFIT 5,677,000 7,832,000 8,848,000
OPERATING EXPENSES:
General and administrative 3,877,000 4,853,000 3,780,000
Selling 1,660,000 1,852,000 1,993,000
Research and development costs 347,000 158,000 18,000
----------- ----------- -----------
Total 5,884,000 6,863,000 5,791,000
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 12 (207,000) 969,000 3,057,000
OTHER INCOME (EXPENSES)
Interest expense 5,7 (108,000) (168,000) (110,000)
Other income 797,000 504,000 460,000
----------- ----------- -----------
Total 689,000 336,000 350,000
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 482,000 1,305,000 3,407,000
INCOME TAXES 8 45,000 455,000 1,264,000
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 437,000 850,000 2,143,000
MINORITY INTEREST (242,000) (19,000) (1,141,000)
----------- ----------- -----------
NET INCOME 195,000 831,000 1,002,000
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment 147,000 (2,164,000) 57,000
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 342,000 $(1,333,000) $ 1,059,000
=========== =========== ===========
EARNINGS PER SHARE:
Basic $ 0.07 $ 0.34 $ 0.51
=========== =========== ===========
Diluted $ 0.07 $ 0.33 $ 0.51
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON POTENTIAL SHARES OUTSTANDING
Basic 2,745,000 2,413,000 1,850,000
Diluted 2,757,000 2,484,000 1,961,000
</TABLE>
See notes to consolidated financial statements.
-20-
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
<TABLE>
<CAPTION>
Common Stock
-------------------------------
Accumulated
Other
Number of Accumulated Comprehensive
Shares Amount Deficit Income (loss) Total
------------ --------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, June 28, 1996 1,808,706 $ 4,878,000 $ (1,336,000) $ 1,665,000 $ 5,207,000
Net income 1,002,000 1,002,000
Repurchase of common stock (360) -
Exercise of stock options (Note
10) 128,250 197,000 197,000
Foreign currency translation
adjustment 57,000 57,000
------------ --------------- ----------------- ---------------- ---------------
Balance, June 27, 1997 1,936,596 5,075,000 (334,000) 1,722,000 $ 6,463,000
Net income 831,000 831,000
Issuance of common stock 721,153 3,488,000 3,488,000
Exercise of stock options (Note
10) 89,837 145,000 145,000
Foreign currency translation
adjustment (2,164,000) (2,164,000)
------------ --------------- ----------------- ---------------- ---------------
Balance, June 26, 1998 2,747,586 8,708,000 497,000 (442,000) $ 8,763,000
Net income 195,000 195,000
Exercise of stock options (Note
10) 7,500 12,000 12,000
Repurchase of common stock (13,752) (66,000) (66,000)
Foreign currency translation
adjustment 147,000 147,000
------------ --------------- ----------------- ---------------- ---------------
Balance, June 25, 1999 2,741,334 $ 8,654,000 $ 692,000 $ (295,000) $ 9,051,000
============ =============== ================= ================ ===============
</TABLE>
-21-
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
June 25, June 26, June 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 195,000 $ 831,000 $ 1,002,000
Adjustments to reconcile net income to
net cash (used in) provided by operations:
Depreciation and amortization 1,222,000 944,000 1,359,000
(Gain)/loss on sale of property and equipment 7,000 (10,000) 67,000
Deferred income taxes 1,000 (195,000) 5,000
Minority interest 149,000 (109,000) 991,000
Changes in assets and liabilities:
Accounts receivable (336,000) (394,000) 1,106,000
Other receivables 17,000 (114,000) 18,000
Inventories 257,000 (224,000) (363,000)
Prepaid expenses and other current assets 215,000 (21,000) (144,000)
Other assets (123,000) (428,000) 14,000
Accounts payable and accrued expenses (1,555,000) (58,000) (772,000)
------------ ------------ ------------
Net cash (used in) provided by operating activities 49,000 222,000 3,283,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Certificates of deposit (552,000) 3,157,000 (3,990,000)
Capital expenditures (703,000) (2,574,000) (926,000)
Proceeds from sale of property and equipment 46,000 104,000 131,000
------------ ------------ ------------
Net cash (used in) provided by investing activities (1,209,000) 687,000 (4,785,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on lines of credit (481,000) (120,000)
Borrowings under lines of credit 214,000 501,000 25,000
Principal payments of long-term obligations (308,000) (327,000) (461,000)
Proceeds from long-term obligations 213,000
Issuance of common stock 3,669,000 197,000
Repurchase of common stock (54,000) (36,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities (629,000) 3,807,000 (146,000)
------------ ------------ ------------
EFFECT OF EXCHANGE RATE ON CASH 77,000 (2,279,000) 402,000
NET INCREASE/(DECREASE) IN CASH (1,712,000) 2,437,000 (1,246,000)
CASH, BEGINNING OF PERIOD 3,305,000 868,000 2,114,000
------------ ------------ ------------
CASH, END OF PERIOD $ 1,593,000 $ 3,305,000 $ 868,000
============ ============ ============
</TABLE>
Continued
See notes to consolidated financial statements.
-22-
<PAGE>
<TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
<S> <C> <C> <C>
Interest $ 104,000 $ 254,000 $ 117,000
Income taxes $ 786,000 $ 1,190,000 $ 845,000
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended June 25, 1999, the Company financed acquisitions of
equipment amounting to $1,161,000 under capital lease arrangements.
The fair value of the net assets acquired in connection with the purchase of
Universal Systems (see Note 1) is summarized as follows:
<TABLE>
<S> <C>
Net assets $ 500,000
Acquisition costs 24,000
-------------
Purchase price $ 524,000
=============
</TABLE>
Concluded
See notes to consolidated financial statements.
-23-
<PAGE>
TRIO-TECH INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 25, 1999, JUNE 26, 1998, AND JUNE 27, 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - Trio-Tech International and subsidiaries (the
"Company" or "TTI") is a designer and manufacturer of equipment used to test
the structural integrity of semiconductor devices that must meet high-
reliability specifications. The Company also owns and operates testing
facilities that perform structural and electronic testing of semiconductor
devices and acts as a distributor of electronic testing equipment in
Singapore and other Southeast Asian countries. The consolidated financial
statements include the accounts of the Company and its principal
subsidiaries: Trio-Tech International Pte Ltd (TTI Pte), Trio-Tech Test
Services Pte Ltd (TTTS Pte), Express Test, European Electronic Test Centre
(EETC), Trio-Tech Bangkok (TTBk), Trio-Tech Malaysia (TTM) (a 55%-owned
subsidiary of TTI Pte), Prestal Enterprise Sdn Bhd (PESB) (a 73% owned
subsidiary of TTI Pte) and Universal Systems. All material intercompany
transactions, profits and balances have been eliminated.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Accounting Period - The Company's fiscal reporting period coincides with the
52-53 week period ending on the last Friday in June.
Cash and Cash Deposits - Cash and cash deposits consists of bank balances
and amounts invested in interest earning instruments having a maturity of 12
months or less. Approximately $3,000,000 of cash is held in the Company's
55% owned Malaysian subsidiary. Approximately $1,300,000 of this cash is
denominated in the currency of Malaysia. On September 1, 1998, the
government of Malaysia announced its intention to limit the movement of
certain cash balances denominated in Malaysian currency.
Inventories- Inventories are stated at the lower of cost, using the first-
in, first-out (FIFO) method, or market.
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization
are for provided over the estimated useful lives of the assets or the terms
of the leases, whichever are shorter, using the straight-line method.
Estimated useful lives range from 3 to 45 years. Capital grants from the
Industrial Development Authority in Ireland are accounted for when claimed
by reducing the cost of the related assets. The grants are amortized over
the depreciable lives of those assets.
Foreign Currency Translation - All assets and liabilities of operations
outside the United States have been translated at the foreign exchange rates
in effect at year-end. Revenues and expenses for the year are translated at
average exchange rates in effect during the year. Unrealized translation
gains and losses are not included in determining net income but are
accumulated and reported as a separate component of shareholders' equity
entitled accumulated other comprehensive loss. Net realized gains and
losses resulting from foreign currency transactions are credited or charged
to income.
In the current year 71% of the Company's revenues are earned in Singapore,
Malaysia and Thailand. These countries have been significantly affected, and
will continue to be affected, by currency volatility in the Southeast Asia
Region.
Other Assets - The excess of cost over net assets acquired is included in
other assets and is being amortized over 5-10 years. The Company reviews
the carrying value of all intangible assets on a regular basis, and if
future cash flows are believed insufficient to recover the remaining
carrying value of an intangible asset, the carrying value is written down in
the period the impairment is identified to its estimated fair value.
Taxes on Income - Deferred income taxes are computed annually for
differences between the financial statement basis and income tax basis of
assets and liabilities. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred income tax assets to the
amount expected to be realized.
-24-
<PAGE>
Retained earnings - It is the intention of the Company to reinvest earnings
of its foreign subsidiaries in the operations of those subsidiaries.
Accordingly, no provision has been made for U.S. income and foreign
withholding taxes that would result if such earnings were repatriated. The
amount of earnings retained in foreign subsidiaries is $7,123,000 at June
25, 1999.
Revenue recognition - The Company recognizes revenue when products are
shipped to customers or upon the completion of services.
Research and Development Costs - The Company incurred research and
development costs of $347,000 in 1999, $158,000 in 1998 and $18,000 in 1997
that were charged to cost of sales as incurred.
Purchase of Universal Systems - In November 1997, The Company purchased
Universal Systems, a manufacturer of wet-process stations in Campbell,
California. Universal was purchased for $524,000 that consisted of cash of
$250,000, common stock of $250,000 and acquisition costs of $24,000.
Stock Based Compensation - In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation. The Company has
determined that it will not change to the fair value method and will
continue to use Accounting Principles Board Opinion No. 25 for measurement
and recognition of employee stock-based transactions.
Earnings per Share - The Company adopted SFAS No. 128, "Earnings per Share."
SFAS 128 replaces the presentation of primary and fully diluted earnings per
share ("EPS") with a presentation of basic EPS based upon the weighted-
average number of common shares and also requires dual presentation of basic
and diluted EPS for companies with "complex capital structures." EPS for
the current and prior periods has been presented in conformity with the
provisions of SFAS 128. The following table is a reconciliation of the
weighted-average shares used in the computation of basic and diluted EPS for
the years presented herein:
<TABLE>
<CAPTION>
June 25, June 26, June 27,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income used to compute basic
and diluted earnings per share $ 195,000 $ 831,000 $ 1,002,000
--------------- --------------- ---------------
Weighted average number of common
shares outstanding - basic 2,745,000 2,413,000 1,850,000
Dilutive effect of stock options and warrants 12,000 71,000 111,000
Number of shares used to compute
--------------- --------------- ---------------
diluted earnings per share 2,757,000 2,484,000 1,961,000
=============== =============== ===============
</TABLE>
Stock options and warrants that are antidilutive amounted to approximately,
697,105 and 571,980 for the years ended June 25, 1999 and June 26, 1998.
New Accounting Pronouncements - In June 1997, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Company
anticipates adopting this standard for fiscal 2001. The Company is unable to
determine whether the adoption will have a material impact on the financial
position or results of operations of the Company.
Reclassification - Certain reclassifications have been made to the previous
year's financial statements to conform to current year presentation.
Fair Values of Financial Instruments - The carrying value of trade accounts
receivable, cash, cash deposits and accounts payable approximate the fair
value due to their short-term maturities. The carrying values of the
Company's lines of credit are considered to approximate their fair value
because the interest rates are based on variable reference rates. The amount
of long-term debt is not significant.
Concentration of credit risk - Financial instruments that subject the
Company to credit risk consists primarily of accounts receivable.
Concentration of credit risk with respect to accounts receivable is
generally diversified due to the number of entities composing the Company's
customer base and their geographic dispersion. The Company had two major
customers who accounted for 15% and 14% of the Company's net sales during
fiscal year 1999; these customers represented 19% and 8% of accounts
receivable at June 25, 1999. One major customer who accounted for 16% of the
Company's net sales
-25-
<PAGE>
during fiscal year 1998 represented 9% of accounts receivable at June
26, 1998. Two customers accounted for 13% and 22% of net sales during fiscal
year 1997. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for potential credit losses. The allowance for
doubtful accounts is composed of:
<TABLE>
<CAPTION>
June 25, June 26, June 27,
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Beginning $ 468,000 $ 404,000 $ 177,000
Additions charged to
cost and expenses 55,000 90,000 376,000
Recovered (229,000)
Actual write-offs (75,000) ( 26,000) (149,000)
---------------- ---------------- ----------------
Ending $ 219,000 $ 468,000 $ 404,000
================ ================ ================
</TABLE>
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
---------------- ----------------
<S> <C> <C>
Raw materials $ 839,000 $ 905,000
Work in progress 383,000 696,000
Finished goods 577,000 455,000
---------------- ----------------
$ 1,799,000 $ 2,056,000
================ ================
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
---------------- ----------------
<S> <C> <C>
Building and improvements $ 1,634,000 $ 1,806,000
Leasehold improvements 1,040,000 928,000
Machinery and equipment 5,351,000 9,525,000
Furniture and fixtures 753,000 1,713,000
Equipment under capital leases 1,736,000 797,000
---------------- ----------------
10,514,000 14,769,000
Less:
Accumulated depreciation and
amortization 4,135,000 9,427,000
Accumulated amortization on
equipment under capital leases 841,000 673,000
---------------- ----------------
Net property and equipment $ 5,538,000 $ 4,669,000
================ ================
</TABLE>
During the year ended June 25, 1999, the Company wrote-off approximately
$6,000,000 in property and equipment that had been fully depreciated in
prior years.
-26-
<PAGE>
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------------- ------------
<S> <C> <C>
Cost in excess of net assets
acquired, net of accumulated
amortization of $603,000 (1999)
and $526,000 (1998) $ 606,000 $ 611,000
Other 65,000 15,000
-------------- ------------
Total $ 671,000 $ 626,000
============== ============
</TABLE>
5. LINES OF CREDIT
The Company's subsidiary, TTI Pte, has a secured credit agreement with a
bank that provides for a total line of credit of $3,125,000. The agreement
contains certain debt covenants including maintaining a minimum net worth
of $2,400,000 at TTI Pte. Borrowings under the line were $214,000 and
$481,000 at the end of fiscal 1999 and 1998, respectively. The interest
rate on borrowings is at the bank's prime rate (6.25% at June 25, 1999)
plus 1.25%. Borrowings under this agreement are collateralized by
substantially all of TTI Pte's assets. This line of credit expires in
March 2000.
The Company's subsidiary, TTM has a secured credit agreement with a bank
that provides for a total line of credit of $132,000. At June 25, 1999 and
June 26, 1998, there were no borrowings outstanding. The line of credit
bears interest at the bank's reference rate (7.25% at June 25, 1999) plus
2.5%. This line of credit expires in May 2000.
The Company's subsidiary, TTBk, has a line of credit that provides for
borrowings of approximately $141,000. Interest on the line is at the
bank's reference rate (10.25% at June 25, 1999) plus 2.2%. There were no
borrowings against this line as of June 25, 1999. This line of credit does
not have an expiration date.
The Company obtained a revolving line of credit of $150,000 from a bank
bearing interest at 1.25% above the bank's reference rate (7.75% at June
25, 1999). Borrowings under the line amounted to $150,000 as of June 25,
1999 and June 26, 1998. This line of credit expires in February 2000.
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
------------- -------------
<S> <C> <C>
Payroll and related $ 1,236,000 $ 1,280,000
Other 1,769,000 2,524,000
------------- ------------
Total $ 3,005,000 $ 3,804,000
============= =============
</TABLE>
-27-
<PAGE>
7. LONG-TERM DEBT AND CAPITALIZED LEASES
Long-term debt and capitalized leases consist of the following:
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
---------------- ----------------
<S> <C> <C>
Capitalized lease obligations, due in
various installments through 2004 bearing
interest at rates ranging from 3.5% to 9.00%,
collateralized by leased assets (see Note 9) $ 1,204,000 $ 197,000
Mortgage loan, due in monthly
installments through 2002, bearing
interest at 6.15% 263,000 294,000
Mortgage loan, due in monthly
installments through 1998, bearing interest
at 1.0% above bank reference rate (15.75% at
June 26, 1998), collateralized by land and
building in TTBk. - 123,000
---------------- ----------------
1,467,000 614,000
Less current portion 505,000 188,000
---------------- ----------------
$ 962,000 $ 426,000
================ ================
</TABLE>
Maturities of long-term debt as of June 25, 1999 are as follows (exclusive
of capitalized lease obligations):
<TABLE>
<CAPTION>
Fiscal
Year
------
<S> <C>
2000 $ 98,000
2001 74,000
2002 91,000
---------------
$ 263,000
===============
</TABLE>
-28-
<PAGE>
8. TAXES ON INCOME
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------
June 25, June 26, June 27,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Domestic $ - $ 24,000 $ (157,000)
Foreign 44,000 235,000 1,426,000
--------------- --------------- ---------------
44,000 259,000 1,269,000
--------------- --------------- ---------------
Deferred:
Foreign 1,000 196,000 (5,000)
--------------- --------------- ---------------
$ 45,000 $ 455,000 $ 1,264,000
=============== =============== ===============
</TABLE>
The pre-tax income (loss) before minority interest related to domestic and
foreign operations is as follows:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------
June 25, June 26, June 27,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Domestic $ (500,000) $ (18,000) $ (137,000)
Foreign 982,000 1,323,000 3,544,000
--------------- --------------- ---------------
$ 482,000 $ 1,305,000 $ 3,407,000
=============== =============== ===============
</TABLE>
The reconciliation between the U.S. federal statutory tax rate and the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------
June 25, June 26, June 27,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Statutory federal tax rate 35 % 35 % 35 %
Foreign income taxed at lower rates (56)% (11)% (24)%
Deferred income tax asset valuation
allowance 36 % 8 % 26 %
Other (6)% 3 %
------------- ------------- -------------
Effective rate 9 % 35 % 37 %
============= ============= =============
</TABLE>
The Company files income tax returns in several countries. Income in one country
is not offset by losses in another country. Accordingly, no benefit is provided
for losses in countries except where the loss can be carried back against income
recognized in previous years. Income taxes are provided in those countries where
income is earned. The effect of providing tax against profits while not
providing benefit for losses results in an effective tax rate that differs from
the federal statutory rate.
-29-
<PAGE>
Total rental expense on all operating leases, both cancelable and noncancelable,
amounted to $415,000 in 1999, $407,000 in 1998 and $371,000 in 1997. Total
rental income under sublease was $59,000 in 1999, $70,000 in 1998 and $138,000
in 1997.
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
June 25, June 26,
1999 1998
-------------- -------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carry forward $ 1,515,000 $ 1,245,000
Provision for local tax 173,000 189,000
Provision for bad debts 170,000 181,000
Reserve for obsolescence 78,000 42,000
Other 38,000 28,000
-------------- -------------
Total deferred income tax assets 1,974,000 1,685,000
Deferred income tax liabilities:
Depreciation 289,000 (315,000)
Other 293,000 (266,000)
-------------- -------------
Total deferred income tax liabilities 582,000 (581,000)
-------------- -------------
Subtotal 2,556,000 1,105,000
Valuation allowance (1,974,000) (1,685,000)
-------------- -------------
Net deferred income tax liability $ (582,000) $ (581,000)
============== =============
</TABLE>
At June 25, 1999 the Company has net operating loss carryforwards of
approximately $3,497,000 available to offset future U.S. federal income
taxes, which expire as follows: $2,394,000 in 2004, $151,000 in 2005,
$170,000 in 2006 and $782,000 in 2019.
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities and equipment under long-term
agreements expiring at various dates through 2071. Certain of these leases
require the Company to pay real estate taxes and insurance and provide for
escalation of lease costs based on certain indices. Future minimum payments
under capital leases and noncancellable operating leases as of June 25, 1999
are as follows:
<TABLE>
<CAPTION>
Capital Rental
Fiscal Year Leases Commitment
------------------ ------------------ -----------------
<S> <C> <C>
2000 $ 470,000 $ 488,000
2001 395,000 307,000
2002 351,000 269,000
2003 90,000 258,000
2004 73,000 75,000
Thereafter 2,073,000
------------------ -----------------
Total future minimum lease payments 1,379,000 $ 3,470,000
=================
Less amount representing interest (175,000)
------------------
Present value of net minimum lease payments 1,204,000
Less current portion of capitalized lease obligations (424,000)
------------------
Long-term obligations under capital leases $ 781,000
===================
</TABLE>
-30-
<PAGE>
On August 24, 1995, the Company was named in a civil action brought against
106 defendants alleging that they may have caused or contributed to soil and
groundwater contamination that required the plaintiff to pay $3,750,000 to
the Federal Environmental Protection Agency to settle. The Company has not
yet had the opportunity to investigate the allegations. In the opinion of
management, based on its present information, this matter should not have a
material impact on the Company's financial statements.
The Company is, from time to time, the subject of litigation claims and
assessments arising out of matters occurring in its normal business
operations. In the opinion of management, resolution of these matters will
not have a material adverse effect on the Company's financial statements.
10. STOCK OPTIONS
The Company has three stock option plans under which officers, directors and
employees are eligible to receive options to purchase shares of the
Company's common stock. One of these plans, adopted in 1988, has been
terminated except for outstanding options, which are still exercisable, to
purchase an aggregate of 188,000 shares. Additionally, the Board of
Directors issues non-qualified options at their discretion at a price not
less than fair market value at the date of grant.
On December 8, 1997, the Company's shareholders approved the Company's 1998
Stock Option Plan (the "1998 Plan") under which employees, officers,
directors and consultants receive options to purchase the Company's common
stock at a price that is not less than 100 percent of the fair market value
at the date of grant. There are 300,000 shares authorized for grant under
the 1998 Plan.
On December 8, 1997, the Company's shareholders approved the Directors Stock
Option Plan (the "Directors Plan") under which duly elected non-employee
Directors and the President (if he or she is a director of the Company) of
the Company (currently seven individuals) receive options to purchase the
Company's common stock at a price of 85% of the fair market value of the
underlying shares on the date of grant. The shares are nonqualified and
there are 150,000 shares authorized for grant under the Directors Plan.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its Plan. Accordingly, no compensation expense has been recognized. Had
compensation cost for the Company's Plan been determined based upon the fair
value at the grant date for awards under this Plan consistent with the
methodology prescribed under SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 25, 1999 June 26, 1998 June 27, 1997
--------------- --------------- -------------
<S> <C> <C> <C>
Net Income:
As Reported $ 195,000 $ 831,000 $ 1,002,000
Pro forma $ (204,000) $ (25,000) $ 440,000
Basic Earnings per Shares:
As Reported $ .07 $ 0.34 $ 0.51
Pro forma $ (.07) $ (0.01) $ 0.23
</TABLE>
The fair value of the options granted during fiscal 1999, 1998 and 1997 was
$3.85, $7.19 and $5.50, respectively, on the date of grant using the Black
Scholes option-pricing model with the assumptions listed below:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
June 25, 1999 June 26, 1998 June 27, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Volatility 42.1% 49.3% 41.7%
Risk free interest rate 5.91% 5.69% 6.1%
Expected life (years) 2.65 3.9 2.1%
</TABLE>
-31-
<PAGE>
The following tables summarize information concerning outstanding and
exercisable options at June 25, 1999:
<TABLE>
<CAPTION>
Year Ended June 25, 1999
-------------------------------------------------------------------------------------------------------
Options and Warrants Outstanding Options and Warrants Exercisable
----------------------------------------------------------- --------------------------------------
Number Weighted Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
June 25, 1999 Contractual Life Exercise Price June 25, 1999 Exercise Price
--------------- ------------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
20,625 0.45 $ 2.17 20,625 $ 2.17
36,375 1.32 3.00 36,375 3.00
22,500 1.32 3.67 11,250 3.67
1,313 1.32 3.00 1,313 3.00
5,625 2.47 3.67 4,219 3.67
30,000 2.58 4.67 30,000 4.67
22,500 2.58 5.67 22,500 5.67
15,000 3.27 5.34 15,000 5.34
45,000 3.27 7.70 45,000 7.70
349,600 3.36 7.00 349,600 7.00
69,920 3.36 5.43 69,920 5.43
34,960 3.36 7.00 34,960 7.00
37,500 3.36 6.67 37,500 6.67
5,000 3.45 7.00 2,500 7.00
45,000 4.04 3.69 45,000 3.69
14,500 4.04 4.34 3,625 4.34
--------------- ------------------- ------------------- ---------------- -------------------
755,418 3.14 $ 6.17 729,387 $ 6.07
=============== =================== =================== ================ ===================
</TABLE>
Included in the total options and warrants outstanding at June 25, 1999 were
518,230 warrants issued in fiscal 1997, and 1998, that permit purchase of
common stock of the Company at an average price of $7.15.
The following table summarizes the stock option activity for the three
years ended June 25, 1999:
<TABLE>
<CAPTION>
Number of
Stock Options Shares
------------------------------------------------------------------------------ -----------
<S> <C>
Balance at June 28, 1996 (weighted average price of $1.78 per share) 301,796
Granted at a weighted average price of $5.50 per share 28,500
Exercised at a weighted average price of $2.30 per share (128,250)
Canceled at a weighted average price of $1.52 per share (9,084)
-----------
Balance at June 27, 1997 (weighted average price of $2.06 per share) 192,962
Granted at a weighted average price of $7.19 per share 87,500
Exercised at a weighted average price of $1.66 per share (87,774)
-----------
Balance at June 26, 1998 (weighted average price of $4.77 per share) 192,688
Granted at a weighted average price of $3.85 per share 59,500
Exercised at a weighted average price of $1.60 per share (7,500)
Canceled at a weighted average price of $1.60 per share (7,500)
-----------
Balance at June 25, 1999 (weighted average price of $4.77 per share) 237,188
===========
-----------
Options exercisable at June 25, 1999 173,178
===========
</TABLE>
11. SHAREHOLDERS' EQUITY
In July 1997, the Board of Directors approved a three-for-two stock
split. The date of distribution was October 7, 1997. All figures
presented in these financial statements give effect to this stock split.
-32-
<PAGE>
12. BUSINESS SEGMENTS
The Company operates principally in three industry segments, the
designing and manufacturing of equipment (that tests the structural
integrity of integrated circuits and other products), the testing
service industry (that performs structural and electronic tests of
semiconductor devices)and the distribution of various products from
other manufacturers in Singapore and Southeast Asia.
The allocation of the cost of equipment, the current year investment in
new equipment and depreciation expense have been made on the basis of
the primary purpose for which the equipment was acquired.
The Company's wholly owned subsidiary, TTI Pte. in Singapore (including
TTI Pte.'s wholly owned subsidiaries TTTS Pte and 55% owned joint
venture of TTM) operates in the manufacturing, the testing service and
the distribution industry segments.
All intersegment sales are sales from the manufacturing segments to the
testing and distribution segment. Corporate assets mainly consist of
cash and prepaid expenses. Corporate expenses mainly consist of
salaries, insurance, professional expenses and directors' fees.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Manufacturing $ 7,923,000 $ 7,669,000 $ 7,316,000
Testing 7,239,000 8,437,000 12,004,000
Distribution 7,111,000 6,661,000 3,216,000
----------------- ----------------- -----------------
Total revenues from reportable segments 22,273,000 22,767,000 22,536,000
Elimination of intersegment revenue (1,092,000) (915,000) (988,000)
----------------- ----------------- -----------------
$ 21,181,000 21,852,000 21,548,000
================= ================= =================
</TABLE>
-33-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Operating profit:
Manufacturing $ (1,007,000) $ (443,000) $ (881,000)
Testing 1,059,000 712,000 3,772,000
Distribution 325,000 643,000 20,000
----------------- ----------------- -----------------
Total operating profit 377,000 912,000 2,911,000
----------------- ----------------- -----------------
Corporate income (expenses) (584,000) 57,000 146,000
----------------- ----------------- -----------------
Total operating profit $ (207,000) $ 969,000 $ 3,057,000
================= ================= =================
Depreciation and amortization:
Manufacturing $ 425,000 $ 301,000 $ 263,000
Testing 731,000 585,000 1,074,000
Distribution 66,000 58,000 22,000
----------------- ----------------- -----------------
Total depreciation and amortization $ 1,222,000 $ 944,000 $ 1,359,000
================= ================= =================
Capital expenditures:
Manufacturing $ 657,000 $ 804,000 $ 469,000
Testing 1,052,000 1 741,000 452,000
Distribution 154,000 29,000 5,000
----------------- ----------------- -----------------
Total capital expenditures $ 1,863,000 $ 2,574,000 $ 926,000
================= ================= =================
Identifiable assets:
Manufacturing $ 6,835,000 $ 7,345,000 $ 4,027,000
Testing 9,131,000 6,589,000 10,667,000
Distribution 2,605,000 5,171,000 3,818,000
Corporate 361,000 226,000 16,000
----------------- ----------------- -----------------
Total assets $ 18,932,000 $ 19,331,000 $ 18,528,000
================= ================= =================
Net sales into countries:
United States $ 7,482,000 $ 5,143,000 $ 2,952,000
Singapore 6,934,000 6,955,000 6,483,000
Malaysia 2,412,000 3,909,000 7,582,000
Thailand 2,156,000 3,280,000 2,780,000
Other foreign countries 2,197,000 2,565,000 1,751,000
----------------- ----------------- -----------------
Total net sales into countries $ 21,181,000 $ 21,852,000 $ 21,548,000
================= ================= =================
Long-lived assets:
United States $ 1,437,000 $ 1,127,000 $ 385,000
Singapore 2,826,000 2,473,000 1,697,000
Malaysia 688,000 380,000 1,116,000
Thailand 959,000 995,000 1,130,000
Ireland 299,000 320,000 357,000
----------------- ----------------- -----------------
Total long-lived assets $ 6,209,000 $ 5,295,000 $ 4,685,000
================= ================= =================
</TABLE>
-34-
<PAGE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's summarized quarterly financial data are as follows:
<TABLE>
<CAPTION>
Year ended June 26, 1998 SEP. 26, DEC. 26, MAR. 27, JUN. 26,
---------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 5,095,000 $ 4,811,000 $ 5,558,000 $ 6,388,000
Expenses 4,674,000 4,572,000 5,330,000 5,970,000
---------------- --------------- ---------------- ------------------
Income before income taxes and
minority interest 421,000 239,000 228,000 418,000
Income taxes 162,000 95,000 149,000 49,000
---------------- --------------- ---------------- ------------------
Income before minority interest 259,000 144,000 79,000 369,000
Minority interest (48,000) 37,000 127,000 (136,000)
---------------- --------------- ---------------- ------------------
Net income $ 211,000 $ 181,000 $ 206,000 $ 233,000
================ =============== ================ ==================
Net income per share:
Basic $ 0.11 $ 0.08 $ 0.08 $ 0.08
Diluted $ 0.10 $ 0.08 $ 0.08 $ 0.08
================ =============== ================ ==================
</TABLE>
<TABLE>
<CAPTION>
Year ended June 25, 1999 SEP. 25, DEC. 25, MAR. 26, JUN. 25,
---------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 5,186,000 $ 4,983,000 $ 4,950,000 $ 6,062,000
Expenses 5,015,000 4,814,000 4,848,000 6,022,000
---------------- --------------- ---------------- ------------------
Income before income taxes and
minority interest 171,000 169,000 102,000 40,000
Income taxes (80,000) (104,000) (83,000) 222,000
---------------- --------------- ---------------- ------------------
Income before minority interest 91,000 65,000 19,000 262,000
Minority interest 10,000 (36,000) 0 (216,000)
---------------- --------------- ---------------- ------------------
Net income $ 101,000 $ 29,000 $ 19,000 $ 46,000
================ =============== ================ ==================
Net income per share:
Basic $ 0.04 $ 0.01 $ 0.01 $ 0.02
================ =============== ================ ==================
Diluted $ 0.04 $ 0.01 $ 0.01 $ 0.02
================ =============== ================ ==================
</TABLE>
-35-
<PAGE>
EXHIBIT 10.12
MARTINVALE DEVELOPMENT COMPANY
INDUSTRIAL NET LEASE - MULTI-TENANT
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 Parties: This Lease, dated for reference purposes only, February 1,
1999, is made by and between Martinvale Development Company (herein called
"Lessor") and Universal Systems, a wholly owned subsidiary of Trio-Tech
International, a corporation (herein called "Leasee").
1.2 Premises: Consisting of approximately 15,000 square feet, more or less,
as defined in paragraph 2 and as shown as Exhibit 'A' hereto (the "Premises").
1.3 Building: Commonly described as being located at 6951 Via Del Oro in
the City of San Jose, County of Santa Clara, State of California, as more
particularly described in Exhibit 'A; hereto, and as defined in paragraph 2.
1.4 Use: General office, engineering, manufacturing and related legal uses,
subject to paragraph 6.
1.5 Term: Five years commencing on February 1, 1999 ("Commencement Date")
and ending January 31, 2004 as defined in paragraph 3.
1.6 Base Rent: Base Rent shall be payable on the first day of each month,
in accordance with paragraph 4.1 herein, as follows:
-Months 1-24 (2/1/99 to 1/31/01) $15,450.00 NNN
-Months 25-36 (2/1/01 to 1/31/02) $15,914.00 NNN
-Months 37-48 (2/1/02 to 1/31/03) $16,391.00 NNN
-Months 49-60 (2/1/03 to 1/31/04) $16,885.00 NNN
1.7 Base Rent Increase: Per paragraph 1.6 above.
1.8 Rent Paid Upon Execution: $15,450.00 for first month rent for the term.
1.9 Security Deposit: $16,885.00 in accordance with paragraph 5 herein.
1.10 Lessee's Share of Operating Expenses: 50% as defined in paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS:
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the Industrial
Center. Lessor hereby leases to Lessee and Lessee leases from Lessor for the
term, at the rental, and upon all of the conditions set forth herein, the real
property referred to in the Basic Lease Provisions, paragraph 1.2, as the
"Premises", including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: Lessee shall be entitled to a reasonable number of
vehicle parking spaces, unreserved and unassigned, on those portions of the
Common Areas designated by Lessor for parking. Said parking spaces shall be used
only for parking by vehicles no larger than full size passenger automobiles or
pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than
Permitted Size Vehicles are herein referred to as "Oversized Vehicles".
2.2(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
2.2(b) If Lessee commits, permits or allows any of the prohibited activities
described in the Lease or the rules then in effect, then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by Lessor from time to
time for the general non-exclusive use of Lessor, Lessee and of other lessee's
of the Industrial Center and their respective employees, suppliers, shippers,
customers and invitees, including, but not limited to common entrances, lobbies,
corridors, stairways and stairwells public restrooms, elevators, escalators,
parking areas to the extent not otherwise prohibited by this Lease, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways, ramps,
driveways, landscaped areas and decorative walls.
2.4 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 Common Areas-Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable rules and regulations with respect thereto. Lessee agrees
to abide by and conform to all such rules and regulations, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and conform.
Lessor shall not be responsible to Lessee for the non-compliance with said rules
and regulations by other lessees of the Industrial Center.
2.6 Common Areas-Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a)(i) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways: (ii) To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (iii) To designate other
land outside the boundaries of the Industrial Center to be a part of the Common
Areas; (iv) To add additional buildings and improvements
Initials
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to the Common Areas; (v) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Industrial Center, or
any portion thereof; (vi) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
2.6(b) Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.
2.7 Lessor agrees that it use its best efforts to maintain the common areas
and in the event other tenants of said areas act unreasonably in their use of
their premises or cause nuisance, lessor shall promptly use every effort to
enforce lessor's rights under their lease so that they will desist from these
actions.
3. TERM.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay In Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.(b), Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option by notice in writing to
Lessor, within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder, provided however
that as to Lessee's obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard improvements and as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any effects due
Lessor for Non-Standard improvements); and provided further that if such written
notice by Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lessee hereunder shall terminate and be of no
further force and effect.
3.2(a) Possession Tendered - Defined. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2(a).
3.2(b) Delays Caused by Lessee. There shall be no abatement of rent, and the
sixty (60) day period following the Commencement Date before which Lessee's
right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2(a).) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT
4.1 Base Rent. Lessee shall pay to Lessor the Base Rent for the Premises
set forth in paragraph 1.6 of the Basic Lease Provisions, without offset or
deduction. Lessee shall pay Lessor upon execution hereof the advance Base Rent
described in paragraph 1.6 of the Basic Lease provisions. Rent for any period
during the term hereof which is for less than one month shall be prorated based
upon the actual number of days of the calendar month involved. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may designate
in writing.
4.2 Operating Expenses. Lessee shall pay to Lessor during the term hereof,
in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all
Operating Expenses, as hereinafter defined, during each calender year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, at the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage Lessor and Lessee agree is reasonable and shall not be subject to
revision.
(b) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion for the operation, repair, maintenance, or replacement in neat,
clean, good order and condition, of the following:
(1) The Common Areas, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways,
landscaped areas, striping, bumpers, irrigation systems. Common Area lighting
facilities and fences and gates;
(2) Trash disposal services;
(3) Tenant directories;
(4) Fire detection systems including sprinkler system maintenance and
repair;
(5) Security services;
(6) Any other service to be provided by Lessor that is elsewhere in
this Lease stated to be an "Operating Expense."
(7) The cost of water, gas and electricity to service the Common
Areas.
(8) Operating Expenses shall also include an amount necessary to
amortize the cost of improvements installed to reduce Operating Expenses;
(9) Liability insurance (pursuant to paragraph 8.4).
(c) The inclusion of the Improvements, facilities and services set
forth in paragraph 4.2(b) of the definition of Operating Expenses shall not be
deemed to impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the industrial Center already has
the same. Lessor already provides the services, or Lessor has agreed elsewhere
in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating
Initials
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Expenses as aforesaid, Lessor shall deliver to Lessee within sixty (60) days
after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the actual Operating Expenses incurred during the
preceding year. If Lessee's payments under this paragraph 4.2(d) during said
preceding year exceed Lessee's Share as indicated on said statement, Lessee
shall be entitled to credit the amount of such overpayment against Lessee's
Share of Operating Expenses next falling due. If Lessee's payments under this
paragraph during said preceding year were less than Lessee's Share as indicated
on said statement, Lessee shall pay to Lessor the amount of the deficiency
within ten (10) days after delivery by Lessor to Lessee of said statement.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life in excess of five (5) years
unless it is of the type described in paragraph 4.2(d)(8). In which case their
cost shall be included as above provided.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charges in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessor shall not be required to
keep said security deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much thereof
as has not heretofore been applied by Lessor, shall be returned, without payment
of interest hereof, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
Security Deposit. Lessee understands and agrees that the Security Deposit is not
prepaid rent and, specifically, that such Security Deposit may not be applied by
Lessee as rent for the last month of the term of this Lease Agreement.
6. USE.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance With Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date, that the Lease term commences, but without regard to alterations or
improvements made by Lessor or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record in effect on
such Lease term Commencement Date, in the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole cost and expense,
rectify any such violation. In the event Lessee does not give to Lessor written
notice of the violation of this warranty within six (6) months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was an owner or occupant of the Premises and, in such event, Lessee shall
correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Area in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Industrial Center.
6.3 Condition of Premises.
(a) Lessee shall accept the Premises in the "AS-IS" condition on the
Lease Commencement Date except that Lessor warrants to Lessee that the plumbing,
lighting, air conditioning, and heating system in the Premises shall be in good
operating condition on the Commencement Date.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Industrial Center in their condition existing as of the
Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas or Industrial Center for the conduct of Lessee's
business.
6.4 Waste; nuisance. Lessee shall not use the premises in any manner that
will constitute waste, nuisance, or unreasonable annoyance (including, without
limitation, unreasonable noise, the use of loudspeakers or sound or light
apparatus that can be heard or seen outside the premises) to other tenants in
the building or occupants of adjacent properties. Lessee shall not use the
premises for sleeping, washing clothes, cooking, or the preparation,
manufacturing or mixing of anything that might emit any odor or objectionable
noises or lights into the building or onto adjacent properties.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 Lessor's Obligations. Subject to the provisions of paragraph 4.2
(Operating Expenses, 6 (Use), 7.2 (Lessee's Obligations) and 8 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, shall keep in good condition and repair the foundations, exterior walls
and roof of the Premises. Lessor, at Lessee's expense pursuant to paragraph 4.2,
shall keep in good condition and repair the parking lots, walkways, driveways,
landscaping, fences, signs and utility installation of the Common Areas and all
parts thereof, as well as providing the services for which there is an Operating
Expense pursuant to paragraph 4.2. Lessor shall not, however, be obligated to
paint the exterior or interior surface of exterior walls, nor shall Lessor be
required to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessor shall have no obligation to make repairs under this paragraph
7.1 until a reasonable time after receipt of written notice from Lessee of the
need for such repairs. Lessee expressly waives the benefits of any statute now
or hereafter in affect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair. Lessor shall
not be liable for damages or loss of any kind or nature by reason of Lessor's
failure to furnish any Common Area Services when such failure is caused by
accident, breakage, repairs, strikes, lockout,
Initials
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or other labor disturbances or disputes of any character, or by any cause beyond
the reasonable control of Lessor.
7.2 Lessee's Obligations.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the Premises. Lessor reserves
the right to procure and maintain the ventilating and air conditioning system
maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this paragraph
7.2 or under any other paragraph of this Lease, Lessor may enter upon the
Premises after ten (10) days' prior written notice to Lessee (except in the case
of emergency, in which no notice shall be required), perform such obligations on
Lessee's behalf and put the Premises in good order, condition and repair, and
the cost thereof together with interest thereon at the maximum rate then
allowable by law shall be due and payable as additional rent to Lessor together
with Lessee's next Base Rent Installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the premises occasioned otherwise stated in this Lease,
Lessee shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing and fencing on the
premises in good operating condition unless such equipment or systems or parts
thereof are required to be removed at lessor's election. Specifically, it is
expressly understood and agreed that the "clean room" installed prior to the
commencement of this lease shall, at Lessor's election, be either (1) removed
(with any damage occasioned thereby being repaired); or (2) remain part of the
premises upon expiration of this lease.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $2,500 in cumulative costs, during the term of this
Lease. In any event, whether or not in excess of $2,500 in cumulative cost,
Lessee shall make no change or alterations to the exterior of these premises nor
to the exterior of the Building or the Industrial Center without Lessor's prior
written consent. As used in this paragraph 7.3 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing and fencing. Lessor may require that Lessee remove any or all of said
alterations, improvements, additions or Utility Installations at the expiration
of the term, and restore the premises and the Industrial Center to their prior
condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements, to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations in
or about the Premises or the Industrial Center that Lessee shall desire to make
shall be presented to Lessor in written form, with proposed detailed plans. If
Lessor shall give its consent to Lessee's making such alteration, improvement,
addition to Utility Installation, the consent shall be deemed conditioned upon
Lessee acquiring a permit to do so from the applicable governmental agencies,
furnishing a copy thereof to Lessor prior to the commencement of the work, and
compliance by Lessee with all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialman's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten(10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgement that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial Center, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
premises, and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to Lessor's best
interest so to do.
(d) Lessee shall give Lessor not less than (10) days' notice prior to the
commencement of any work in the Premises by Lessee, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises of the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Industrial
Center, upon the condition that if Lessor shall require, Lessee shall furnish to
Lessor a surety bond satisfactory to Lessor in an amount equal to such contested
lien claim or demand indemnifying Lessor against liability for the same and
holding the Premises, the Building and the Industrial Center free from the
effect of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's reasonable attorneys' fees and costs in participating in such action if
Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, paneling, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications for
any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or additional
utility facilities throughout the Industrial Center for the benefit of Lessor or
Lessee, or any other lessee of the Industrial Center, including, but not by way
of
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limitation, such utilities as plumbing, electrical systems, communication
systems, and fire protection and detection systems, so long as such
installations do not unreasonably interfere with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 Liability Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and the Industrial Center. Such insurance shall be in an amount not
less than $2,000,000 per occurrence and shall name Lessor as an Additional
Insured. The policy shall insure performance by Lessee of the indemnity
provisions of this paragraph 8. The limits of said insurance shall not, however,
limit the liability of Lessee hereunder.
8.2 Liability Insurance-Lessor. Lessor shall, at lessee's expense pursuant
to paragraph 4.2 (b), obtain and keep in force during the term of this Lease a
policy of Combined Single Limit Bodily Injury and Property Damage Insurance,
insuring Lessor, but not Lessee, against any liability arising out of the
ownership, use, occupancy or maintenance of the Industrial Center in an amount
not less than $500,000 per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center Improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk", as such term is used in the Insurance Industry) plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
8.4 Payment of Premium
(a) Lessee shall be responsible for paying Lessee's Share (as defined
in paragraph 4.2 (a)) of any property insurance premium for the Industrial
Center.
(b) Lessee, however, shall pay the entirety of any property insurance
premium for the Industrial Center over what it was immediately prior to the
commencement of the term of this Lease if the increase is specified by Lessor's
insurance carrier as being caused by the nature of Lessee's occupancy or any act
or omission of Lessee.
(c) Lessee shall pay Lessee's Share (as defined in paragraph 4.2 (a))
of such premium to Lessor within 30 days after receipt by Lessee of a copy of
the premium statement or other satisfactory evidence of the amount due. If the
insurance policies maintained hereunder cover other improvements in addition to
the Premises, Lessor shall also deliver to Lessee a statement of the amount of
such increase attributable to the Premises and showing in reasonable detail, the
manner in which such amount was computed. If the term of this Lease shall not
expire concurrently with the expiration of the period covered by such insurance,
Lessee's liability for premium shall be prorated on an annual basis.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance
policies required under paragraph 8.1 or certificates evidencing the existence
and amounts of such insurance within seven (7) days after the commencement date
of this Lease. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relive
the other, and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against which perils
occur in, on or about the Premises, whether due to the negligence of Lessor or
Lessee or their agents, employees, contractors and/or invitees. Lessee and
Lessor shall, upon obtaining the policies of insurance required hereunder, give
notice to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the Industrial Center
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Industrial Center, nor shall Lessor be liable
for injury to the person of Lessee, Lessee's employees, agents or contractors,
whether such damage or injury is caused by or results from theft, fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects or pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether said damage
or injury results from conditions arising upon the premises or upon other
portions of the Industrial Center, or from other sources or places, or from new
construction or the repair, alteration or improvement of any part of the
Industrial Center, or the equipment, fixtures or appurtenances applicable
thereto, and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible. Lessor shall not be liable for any
damages arising from any act or neglect of any other Lessee, occupant or user of
the Industrial Center nor from the failure of Lessor to enforce the provisions
of any other lease or any other lessee of the Industrial Center.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
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(b) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less that fifty percent (50%) of the then Replacement
Cost of the Building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Industrial Center Buildings" shall mean all of the
buildings on the Industrial Center Site.
(e) "Industrial Center Buildings Total Destruction" shall mean
if the Industrial Center Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent (50%) or more of the then Replacement Cost
of the Industrial Center Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by Lessee's, other than those installed by Lessor at Lessee's expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss; Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense repair
such damage (but not Lessee's fixtures, equipment or tenant improvements
originally paid for by Lessee) to its condition existing at the time of the
damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which fall within the classification of Premises Damage
or Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 Premises Building total Destruction; Industrial Center Total
Destruction: Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classification of either (i) Premises Building Total
Destruction, or (ii) Industrial Center Total Destruction, then Lessor may at
Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its conditions
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Premises
pursuant to the provisions of this paragraph 9, the rent payable hereunder for
the period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.
9.6 Termination-Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessor so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 Payment of Real Property Tax. Lessee shall pay in addition to
rent, Lessee's Share (as defined in paragraph 4.2 (a)), of the real property
tax, as defined in paragraph 10.3, applicable to the Industrial Center. Such
payment shall be made by Lessee within thirty (30) days after receipt of
Lessor's written statement setting forth the
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amount of such real property taxes and the computation thereof. If the term of
this Lease shall not expire concurrently with the expiration of the tax fiscal
year, Lessee's liability for real property taxes for the last partial lease year
shall be prorated on an annual basis.
10.2 Additional Improvements. Lessee shall not be responsible for
paying any increase in real property tax specified in the tax assessor's records
and work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessee's or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Industrial Center any portion
thereof by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the industrial Center or in
any portion thereof, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Industrial Center.
The term "real property tax" shall also include any tax, fee, levy, assessment
or charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge herein above included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax", or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statues for property tax purposes,
of the Industrial Center or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such changes of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the Premises,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor or all charges jointly metered
with other premises in the building.
12. ASSIGNMENT AND SUBLETTING.
12.1 Lessor's Consent Required.
Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's
interest in the Lease or in the Premises, without Lessor's prior written
consent, which Lessor shall not unreasonably withhold. Lessor shall respond to
Lessee's request for consent hereunder in a timely manner and any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be void, and shall constitute a material default and breach of this Lease
without the need for notice to Lessee under paragraph 13.1 "Transfer within the
meaning of this paragraph 12 shall include the transfer or transfers
aggregating: (a) if Lessee is a corporation, more than twenty-five percent (25%)
of the voting stock of such corporation, or (b) if Lessee is a partnership, more
than twenty-five percent (25%) of the profit and loss participation in such
partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee's Affiliate",
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or
subletting shall release Lessee of Lessee's obligations hereunder or after the
primary liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 of this Lease.
(d) Lessee's obligations under this Lease have been guaranteed
by third parties, than an assignment or sublease, and Lessor,s consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days. In the event that
any provisions of this paragraph 13.1(a) is contrary to any applicable law, such
provision shall be of not force or effect.
(e) The consent by Lessor to ny assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessor or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases
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the obligations of the Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other personal or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Lessee not shall
such consent be deemed a waiver of any the existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement replied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor not by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such subleases,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
than Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects',engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Industrial Center and not in violation of any
exclusives or rights then held by other tenants, and (b) the proposed assignee
or sublessee be at least as financially responsible as Lessee was expected to be
at the time of the execution of this Lease or of such assignment or subletting,
whichever is greater.
12.7 Additional Terms and Conditions Applicable to Assignment and
Subletting: It is the intent of the parties hereto that this Lease shall confer
upon Lessee only the right to use and occupy the Premises and to exercise such
other rights as are conferred upon Lessee by this Lease. The parties agree that
this Lease is not intended to have a bonus value, nor to serve as a vehicle
whereby Lessee may profit by a future transfer of this Lease of the right to
use or occupy the Premises as a result of any favorable terms contained herein
or any future changes in the market for lease space. It is the intent of the
parties that any such bonus value that may attach to this lease shall be and
remain the exclusive property of the Lessor. In order to carry out this intent,
in the event Lessee seeks to Transfer its interest in this Lease of the
Premises, Lessor shall have the following options which may be exercised at its
sole choice without limited Lessor in the exercise of any other right or remedy
at law or equity or under this Lease which Lessor may have by reason of such
Transfer.
(a) Lessor may terminate this Lease and release Lessee from any
further liability hereunder by sending Lessee written notice of such termination
within forty-five (45) days after notice of intent to Transfer is deemed given
by Lessee, provided, however, that Lessee may withdraw its notice of intent by
written notice to Lessor at any time within ten (10) days after receipt by
Lessee of Lessor's notice of termination, in which event this Lease shall
continue in full force and effect. If Lessor elects to terminate this
Lease and if Lessee does not withdraw its notice of intent, Lessee shall
surrender the Premises, pursuant to the terms of this Lease, within sixty (60)
days after notice of intent to transfer is deemed given by Lessee and on such
date as designated by Lessor.
(b) Lessor may, within forty-five (45) days after notice of intent to
Transfer is deemed given by Lessor, acquire the interest in this Lease and the
Premises that Lessee proposed to Transfer, on the same terms and conditions as
the proposed Transfer.
(c) Lessor may consent to the proposed Transfer, provided that as a
condition to such consent, Lessor shall have the right to require that any and
all rent paid by the Transference, including but not limited to any rent in
excess of the rentals to be paid under this Lease, shall be paid directly to
Lessor at the time and place specified in this Lease. For the purposes of this
paragraph, the term "rent" shall include any consideration of any kind received,
or to be received by Lessee from Transferee, if such sums are related to
Lessee's interest in this Lease or in the Premises.
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including but not limited to, expense reimbursements or advances, the value of
services performed, key money, bonus money, and payments for Lessee's personal
property in excess of the book value thereof. The term "personal property" as
used in this subsequent shall include, without limitation, assets, fixtures,
inventory, accounts, goodwill, equipment, furniture, general intangibles, and
any capital stock or other equity ownership interest of Lessee.
12.8 Uncured Defaults. Lessor may, as a condition to its consent to
any proposed Transfer, require that either Lessee or the proposed Transferee
cure, on or before the proposed effective date of such transfer, any and all
uncured defaults hereunder, provided, however, in no event shall Lessor's
failure to condition its consent, and such condition is not satisfied by the
effective date of the Transfer, the Transfer shall be voidable at Lessor's
option.
13. DEFAULTS; REMEDIES.
13.1 Default. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions
or provisions of paragraphs 7.3(a), (b) or (d) (alterations), 8 (insurance) 12.1
(assignment or subletting), 13.1(a) (vacation or abandonment), 13.1(c)
(insolvency), 13.1(f) (false statement), 18(a) (estoppel certificate), 30(b)
(subordination), 33 (auctions), or 41.1 (casements), all of which are hereby
deemed to be material, non-curable defaults without the necessity of any notice
by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee other than those referenced in subparagraphs (b) or (c), above, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than three (3) days are reasonably required for
its cure, then Lessee shall not be deemed to be in default if Lessee commenced
such cure within said three (3) day period and thereafter diligently pursues
such cure to completion. To the extent permitted by law, such notice shall
constitute the sole and exclusive notice required to be given to Lessee under
applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or
general assignment or the benefit of creditors; (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C. & 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(a) is contrary to
any applicable law, such provision shall be of not force or affect.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of
this Lease by Lessee, Lessor may at any time thereafter, with or without notice
or demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceed the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless
Lessor fails to perform obligation required of Lessor within a reasonable time,
but in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense or other sums
due hereunder will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the industrial Center. Accordingly, if any installment of Base
Rent, Operating Expenses, or any other sum due from Lessee shall not be received
by Lessor or Lessor's designee within (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
13.5 Returned Check Charges. Lessee hereby acknowledges and agreed
that a service charge of
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$50.00 will be assessed and charged to Lessee for each check which is returned
because of insufficient funds.
14. CONDEMNATION.
If the Premises or any portion thereof or the Industrial Center are taken
under the power of eminent domain, or sold under the threat of the exercise of
said power (all of which are herein call "condemnation"), this Lease shall
terminate as to the part so taken as of the date of the condemning authority
takes title or possession, whichever first occurs; provided that if so much of
the Premises or the Industrial Center are taken by such condemnation as would
substantially and adversely affect the operation and profitability of Lessee's
business conducted from the Premises, Lessee shall have the option, to be
exercised only in writing within thirty (30) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice, within
thirty (30) days after the condemning authority shall have taken possession), to
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the rent and Lessee's Share of Operating
Expense Increase shall be reduce in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises, Common Areas taken
shall be excluded from the Common Area usable by Lessee and no reduction of rent
shall occur with respect thereto or by reason thereof. Lessor shall have the
option in its sole discretion to terminate this Lease as of the taking of
possession by the condemning authority, by giving written notice to Lessee of
such election within thirty (30) days after receipt of notice of a taking by
condemnation of any part of the Premises or the Office Building Project. Any
award for the taking of all or any part of the Premises or the Industrial Center
under the power of eminent domain or any diminution in value of the leasehold or
for the taking of the fee, or as severance damages; provided, however, that
Lessee shall be entitled to any separate award for loss of or damage to Lessee's
trade fixtures, removable personal property and unamortized tenant improvements
that have been paid for by Lessee. For that purpose the cost of such
improvements shall be amortized over the original term of this Lease excluding
any options. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by Lessor
in connection with such condemnation, repair any damage to the Premises caused
by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEES. Lessor and Lessee represent and warrant that no
broker or other person, firm or entity is entitled to any commission or finder's
fee in connection with said transaction and Lessee and Lessor do each hereby
indemnify and hold the other harmless from and against any costs, expenses,
attorneys' fees or liability for compensation or charges which may be claimed by
any such unnamed broker, find or other similar party by reason of any dealings
or actions of the indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date which
the rent and other charges are paid in advance, if any, and (ii) acknowledging
that there are not, to the responding party's knowledge, any uncured defaults on
the part of the requesting party, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by and prospective
purchaser or encumbrancer of the Industrial Center or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are not uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial
Center, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Leases.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense and any other expenses payable by Lessee hereunder shall be deemed to
be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that the Lessor or any employee
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or agents of the Lessor has not made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessee of the
Premises or the Industrial Center and Lessee acknowledges that Lessee assumes
all responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all applicable
laws and regulations in affect during the term of this Lease.
21.1 Credits to Lessee's Account. Lessor shall promptly credit Lessee's account
for all payments received from Lessee. Such payments shall be first credited to
those sums due under this Lease Agreement, including but not limited to, base
rent, operating expenses, late charges, attorney's fees, returned check fees,
which were incurred earliest in time (oldest chargeable items). Nothing in this
paragraph (including Lessor's acceptance of a partial payment on account
balance) shall be construed nor constitute a waiver by Lessor of any provision
hereof or of any subsequent breach by Lessee of the same or any other provision.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and shall be
deemed sufficiently given if delivered or addressed to Lessee or to Lessor at
the address noted below or adjacent to the signature of the respective parties,
as the case may be. Mailed notices shall be deemed given upon actual receipt at
the address required, or forty-eight hours following deposit in the mail,
postage prepaid, whichever first occurs. Either party may by notice to the other
specify a different address for notice purposes except that upon Lessee's taking
possessing of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a `short form' memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy as defined by Section 1945 of the California Civil
Code with all of the provisions of this Lease pertaining to the obligations of
Lessee, except that the rent payable shall be two hundred percent (200%) of the
rent payable immediately preceding the termination date of this Lease, and all
Options, if any, granted under the terms of this Lease shall be deemed
terminated and be of nor further effect during said tenancy.
27. LESSEE'S DATE OF VACATING; NOTICE. Lessee agrees to given written notice to
Lessor of the date Lessee will actually physically vacate the Premises. Such
written notice shall be given to Lessor at least thirty (30) days prior to
expiration of the term of this Lease Agreement.
28. CUMULATIVE DAMAGES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
29. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and condition.
30. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representative, successors
and assigns. This Lease shall be governed by the laws of the State where the
Industrial Center is located and any litigation concerning this Lease between
the parties hereto shall be initiated in the county in which the Office Building
Project is located.
31. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Industrial Center and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease and any Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall given written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options are dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee and Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 31(b).
32. ATTORNEYS' FEES.
32.1 If either party bring an action to enforce the terms hereof or
declare rights hereunder, the prevailing party in any such action, trial or
appeal thereon, shall be entitled to his resonable attorneys' fees to be paid by
the losing party as fixed by the court in the same or a separate suit, and
whether or not such action is pursued to decision or judgment.
32.2 The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
32.3 Lessee shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the
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preparation and service of notice of default and consultations in connection
therewith, whether or not a legal transaction is subsequently commenced in
connection with such default.
32.4 Jury Trial Waiver. Lessor and Lessee hereby waive their respective
right to trial by jury of any cause of action, claim, counterclaim or
cross-complaint in any action, proceeding and/or hearing brought by either
Lessor against Lessee or Lessee against Lessor on any matter whatsoever arising
out of, or in any way connected with, this lease, the relationship of Lessor and
Lessee, Lessee's use or occupancy of the premises, or any claim of injury or
damage, or the enforcement of any remedy under any law, statute, or regulation,
emergency or otherwise, now or hereafter in effect.
33. LESSOR'S ACCESS.
33.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessee's, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or the Industrial Center as Lessor may reasonably deem
necessary or desirable and the erecting, using and maintaining of utilities,
services, pipes, and conduits through the Premises and/or other premises as long
as there is no material adverse affect to Lessee's use of the Premises. Lessor
may at any time place on or about the Premises or the Building any ordinary "For
Sale" signs and Lessor may at any time during the last 120 days of the term
hereof place on or about the Premises any ordinary "For Lease" signs.
33.2 All activities of Lessor pursuant to this paragraph shall be without
abatement or rent, nor shall Lessor have any liability to Lessee for the same.
33.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of an emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
34. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, an auction upon the premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
35. SIGNS. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
36. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
37. CONSENTS. Except for paragraphs 34 (auctions) and 35 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
38. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
39. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Industrial Center.
40. OPTIONS. It is understood and agreed that Lessor has not granted any
options to extend the term of this Lease.
41. SECURITY MEASURES -LESSOR'S RESERVATIONS.
41.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Industrial Center. Lessee assumes all responsibility for
the protection of Lessee, its agents, and invitees and the property of Lessee
and of Lessee's agents and invitees from acts of third parties. Nothing therein
contained shall prevent Lessor, at Lessor's sole option, from providing security
protection for the Industrial Center or any part thereof, in which event the
cost thereof shall be included within the definition of Operating Expenses, as
set forth in paragraph 4.2(b).
41.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Industrial Center or
building in which the Premises are located upon not less than 90 days prior
written notice:
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Industrial Center or on pole signs in the Common Areas;
41.3 Lessee shall not;
(a) Use a representation (photographic or otherwise) of the Building
or the Industrial Center or their name(s) in connection with Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the building.
42. EASEMENTS
42.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary to desirable and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lesses.
Lessee shall sign any of the aforementioned documents upon request of Lessor and
failure to do so shall constitute a material default of this Lease by Lessee
without the need for further notice to Lessee.
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42.2 The obstruction of Lessee's view, air, or light by any structure erected in
the vicinity of the Building, whether by Lessor or third parties, shall in no
way affect this Lease or impose any liability upon Lessor.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted
shall have the right to make payment "under protest" and such payment shall not
be regarded as a voluntary payment, and there shall survive the right on the
part of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such or any part thereof, said party shall be entitled to recover such sum or so
much thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. HAZARDOUS SUBSTANCES.
45.1 Reportable Uses Require Consent.
(a) The term "Hazardous Substance" as used in this Lease shall mean any
product, substance, or waste whose presence, use, manufacture, disposal,
transportation, or release, either by itself or in combination with other
materials expected to be on the Premises, is either: (i) potentially injurious
to the public health, safety or welfare, the environment or the Premises, (ii)
regulated or monitored by any governmental authority, or (iii) a basis for
potential liability of Lessor to any governmental agency or third party under
any applicable statute or common law theory. Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleums, gasoline, and/or crude oil or
any products, by-products or fractions thereof. Lessee shall not engage in any
activity in or on the Premises which constitutes a Reportable Use Hazardous
Substances without the express prior written consent of Lessor and timely
compliance (at Lessee's expense) with all applicable laws, covenants, or
restrictions of record, building codes, regulations and ordinances ("Applicable
Requirements"). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority and/or (iii) the
presence at the Premises of a Hazardous Substance with respect to which any
Applicable Requirements requires that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the foregoing,
Lessee may use any ordinary and customary materials reasonably required to be
used in the normal course of the Use as specified in paragraph 1.4 as long as
such use is in compliance with all Applicable Requirements, is not a Reportable
Use, and does not expose the Premises or neighboring property to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may condition its consent to any Reportable Use upon receiving
such additional assurances as Lessor reasonably deems necessary to protect
itself, the public, the Premises and/or the environment against damage,
contamination, injury and/or liability, including, but not limited to, the
installation (and removal on or before Lease expiration or termination) of
protective modifications (such as concrete encasements) and/or increasing the
Security Deposit.
(b) Duty to inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) Lessee Remediation. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any hazardous
Substance brought onto the Premises during the term of this lease, by or for
Lessee, or any third party.
(d) Lessee Indemnification. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from adjacent properties). Lessee's obligations shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
(e) Lessor Indemnification. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
remediation, which existed as a result of Hazardous Substances on the Premises
prior to the Commencement Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Commencement Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in paragraph 7.3(a) (below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate
fully in any such activities at the request of Lessor, including allowing Lessor
and Lessor's agents to have reasonable access to the Premises at reasonable
times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) Lessor Termination Option. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to lessor's rights under paragraph
51(Defendant) and Paragraph 13), Lessor may, at Lessor's option, either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to remediate
such condition exceeds twelve
Initials
J.D.
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A.B.
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T.D.P.
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<PAGE>
(12) times the then monthly Base Rent or $100,000, whichever is greater, give
written notice to Lessee, within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the date
of such notice. In the event Lessor elects to give a termination notice, Lessee
may, within ten (10) days thereafter, give written notice to Lessor of Lessee's
commitment to pay the amount by which the cost of the remediation of such
Hazardous Substance Condition exceeds an amount equal to twelve (12) times the
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide lessor
with said funds or satisfactory assurance thereof within thirty (30) days
following such commitment. In such event, this Lease shall continue in full
force and effect, and Lessor shall proceed to make such remediation as soon as
reasonably possible after the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within the
time provided, this Lease shall terminate as of the date specified in Lessor's
notice of termination.
45.2 Lessee's Compliance with Applicable Requirements. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Commencement Date.
Lessee shall, within ten (10) days after receipt of Lessor's written request,
provide Lessor with copies of all permits and other documents, and other
information evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice citation, warning, complaint or report pertaining to or involving
the failure of Lessee or the Premises to comply with any Applicable
Requirements.
46. INSURANCE CERTIFICATE. Prior to Lessor giving Lessee possession to
these premises, Lessee shall provide Lessor with an Insurance certificate naming
Lessor as an Additional insured as outlined in paragraph 8 herein. Failure to do
so shall delay Lessee's possession of these premises, however shall not delay
commencement of the terms herein, including but not limited to the payment of
rent. Further, should Lessor grant Lessee access to these premises prior to
commencement herein, for whatever reason, then Lessee shall be liable to provide
said insurance certificate for said early occupancy in accordance with the terms
of paragraph 8.
LESSEE AND LESSOR HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PARTIES
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY SERVICE PERFORMANCE CORPORATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON
THE ADVISE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE.
IN THE EVENT OF EMERGENCY AFTER NORMAL BUSINESS HOURS, LESSOR SHOULD
CONTACT ONE OF THE THREE INDIVIDUALS LISTED BELOW INCLUDING THEIR AFTER HOURS
TELEPHONE NUMBER:
1. Name Tony DiPiero Telephone ( ) 408 867-0515
-------------------- -------------------
2. Name____________________ Telephone ( )___________________
3. Name____________________ Telephone ( )___________________
LESSOR: MARTINVALE DEVELOPMENT LESSEE: UNIVERSAL SYSTEMS, a
COMPANY wholly owned subsidiary of
Trio-Tech International
By: /s/ John DeMartini By: /s/ Tony DiPiero
--------------------------- ------------------------------
John DeMartini, Partner
Print Signature TONY DIPIERO
-----------------
Print title ITS PRESIDENT
By:/s/ Aido Bertolotti, --------------------
---------------------------
Aido Bertolotti, Partner Executed at: Universal Systems
-------------------
On: 1-20-99
-----------------------------
Address: 1190 Dell Avenue
-----------------------
Campbell, CA 95008
Initials
J.D
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A.B,
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