SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File No. 0-14059
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
REFLECTONE, INC.
(Exact name of Registrant as specified in its charter)
Florida 06-0663546
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4908 Tampa West Boulevard, Tampa, Florida 33634-2481
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 885-7481
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
(Title of Class)
<PAGE> 1<PAGE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 21, 1996: $24,880,814 (assuming, for these
purposes only, that 1,414,600 shares of common stock beneficially owned
by all executive officers and directors as a group, and by British
Aerospace, Plc. and its subsidiaries, are held by affiliates of the
Registrant).
The number of shares outstanding of the Registrant's class of common
stock, as of March 21, 1996: 2,816,336.
DOCUMENTS INCORPORATED BY REFERENCE
[X] Definitive Proxy Statement for use in connection with 1996
Annual Meeting of Shareholders (Part III of Form 10-K).
<PAGE> 2<PAGE>
Table of Contents
<TABLE>
Page No.
PART I
<S> <C> <C>
Item 1. Business .......................................... 4
Item 2. Properties .......................................... 14
Item 3. Legal Proceedings ................................... 14
Item 4. Submission of Matters to a Vote of Security Holders . 14
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters ......................... 15
Item 6. Selected Financial Data ............................ 16
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations ................ 17
Item 8. Financial Statements and Supplementary Data ......... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................. 25
PART III
Item 10. Directors and Executive Officers of the Registrant .. 25
Item 11. Executive Compensation .............................. 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management .......................................... 25
Item 13. Certain Relationships and Related Transactions ...... 25
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ................................. 26
Signatures ..................................................... 68
</TABLE>
<PAGE> 3<PAGE>
Part I
Item 1. Business
General Business Description
Reflectone, Inc. ("Reflectone" or the "Company") is a Florida
corporation whose business involves the design, manufacture and sale of
flight simulators, weapon system trainers, tactical air defense
trainers, maintenance trainers, part-task trainers, and other
sophisticated training devices for U.S. Government, commercial and
international customers, as well as simulation-based entertainment
devices for the entertainment industry. The Company also provides a
variety of simulator-related training services at customer-owned
facilities, its Tampa training center, and the British Aerospace-owned
Dulles flight training facility. As used herein, unless the context
requires otherwise, "Reflectone" or the "Company" includes Reflectone,
Inc. and its operating subsidiaries. Reflectone's business is conducted
through its three primary business segments: the Training Devices
Segment, the Training Services Segment, and the Systems Management
Segment.
The manufacture of simulators and other training and entertainment
devices is conducted through the Training Devices Segment. In recent
years the product mix of training devices designed and manufactured by
Reflectone's Training Devices Segment has evolved from one primarily
comprised of military aircraft simulators to one which additionally
includes commercial aircraft simulators and simulation devices for the
entertainment industry. Since 1987, orders in excess of $91.8 million
have been received from British Aerospace (as defined below) for
commercial aircraft simulators.
In 1993, the Company acquired British Aerospace Simulation, Ltd.
which was renamed Reflectone UK, Limited ("RUKL"). RUKL, with facilities
in Filton, England, historically designed, developed and manufactured,
through sophisticated electronic computer simulation, tactical air
defense trainers, small-arms trainers, electronic warfare training
systems and visual air traffic control simulators. During 1995, RUKL
also played a key role in the Company's flight simulator business,
securing a major subcontract with Lockheed Martin Corporation ("LMC")
worth approximately $77.0 million with training and maintenance
extending into the year 2002. Under the contract, the Company will
provide a complete training system to the U.K. Ministry of Defence in
connection with its purchase of new Lockheed C-130J transport aircraft.
The actual performance by the Company under the Lockheed C-130J
subcontract will be split between the Company's U.S. and U.K.
operations, thus expanding the design and manufacturing capabilities of
RUKL into the flight simulator market. The Operations of RUKL are
reported in the Company's Training Devices Segment.
<PAGE> 4<PAGE>
Through a wholly owned subsidiary, Reflectone Training Systems,
Inc. ("RTS"), Reflectone's Training Services Segment provides flight and
ground school instruction for pilots and aircrews which may include
development of training syllabus and courseware, as well as simulator
operation and maintenance. Currently, the Training Services Segment
provides services at 22 field sites in the United States and one field
site in Japan. In addition, Reflectone's Training Services Segment
provides C-130H training in Tampa and manages the British
Aerospace-owned Dulles flight training center located near Washington
D.C.'s Dulles International Airport.
Reflectone's third business segment, the Systems Management
Segment, manages complex training programs which require the services of
both the Training Devices and Training Services Segments.
During the years ended December 31, 1995, 1994 and 1993, revenues
from the Training Devices Segment were $48.7 million, $26.9 million, and
$33.1 million respectively, inclusive of intersegment transactions.
These revenues include revenues from the operations of RUKL of $18.6
million, $4.9 million and $7.7 million, respectively. Revenues from the
Training Services Segment during these periods were $38.7, $33.4 million
and $24.0 million, respectively, inclusive of intersegment transactions.
Revenues for the Systems Management Segment were $12.8 million, $9.2
million and $13.9 million for the years ended December 31, 1995, 1994
and 1993, respectively, inclusive of intersegment transactions. See Note
15 to the Consolidated Financial Statements, which are included in Part
IV of this Report for additional segment and geographic information.
The Company has various relationships, contracts and agreements
with British Aerospace, Plc. ("BAe") and its direct and indirect
subsidiaries (herein collectively referred to as "British Aerospace").
Approximately 50% of the common stock of the Company is owned by British
Aerospace Holdings, Inc. ("BAeHI"), a wholly owned subsidiary of British
Aerospace, Plc.
Products, Services and Recent Business Developments
Training Devices. Reflectone's flight simulators, weapon system
trainers, maintenance trainers and other training devices are full-scale
reproductions, including instrumentation and controls, of the cockpit,
mission operator station(s), or maintenance bays of specific aircraft.
Reflectone's training devices are marketed to both commercial and
military (U.S. and international) customers and are used to train flight
and ground crews in normal and emergency procedures, to develop tactics,
and to achieve a state of operational readiness in a cost-effective
manner.
<PAGE> 5<PAGE>
Reflectone's flight simulators are designed to convey to the pilot
and other crew members the sensations of actually operating a specific
aircraft through the full range of taxiing, take-off, local area
operations, in-flight maneuvering, emergencies, weather conditions
(including wind shear), landing and post-flight procedures. All of these
tasks (including emergency situation training) may be accomplished
through simulation without risk to life or damage to equipment, and
without the costly consumption of fuel which accompanies performance of
similar functions in the aircraft. The prices of flight simulators
produced by the Company currently are in the range of $4 million to $8
million without a visual system, or from $5 million to $12 million or
more with Reflectone supplying a visual system manufactured by a
third-party vendor.
Computer-based visual simulation systems can provide the pilot
with high-resolution multicolored images, including depth-of-field, to
create the illusion of a realistic out-the-window scene. The systems can
display clear and low visibility daytime, twilight and nighttime
situations, with varying weather conditions. They also provide for
horizon glow, landing light illumination strobes, air traffic, weapons
delivery effects, ground vehicle movements, and variable fog/cloud
obscuration effects, as well as lights, building surfaces, mountains and
other terrain distinctions with appropriate occulting features. While
the Company does not build computer-generated image visual systems, it
has extensive experience in integrating visual systems produced by other
companies into its simulators. The breadth of Reflectone's experience
permits it to assume full responsibility for all or any part of the
design specification, procurement and integration efforts, including
hardware up-grades and software enhancements, as well as overall
responsibility for final performance of the simulator/visual system
combination. The RUKL acquisition expanded the products of the Training
Devices Segment to include tactical air defense trainers, electronic
warfare training systems and visual air traffic control simulators. In
addition, RUKL has provided the Company with valuable international
marketing synergies, especially with respect to international government
customers, for both the Company's new and traditional product lines.
The Company's commercial simulator product development has been in
support of both British Aerospace aircraft and certain other commercial
aircraft. The Company actively pursues opportunities for commercial
training devices in both domestic and international markets. Management
believes that the production of simulators for British Aerospace has
enhanced the Company's standing in the commercial simulator market. This
work has included the design and development of international flight
simulation Acceptance Test Guides ("ATG") to meet specified performance
standards, automatic lesson plan instructional features, glass cockpit
presentations, global navigation systems, color weather radar
presentations, wind shear and Terrain Collision Avoidance Systems
("TCAS"), and dual purpose cockpit procedures simulators. Most of the
Company's commercial simulators are built to both customer
specifications and the standards of the Federal Aviation Administration
("FAA") Advanced Simulation Plan or other applicable international
governmental standards.
<PAGE> 6<PAGE>
The Company continues to apply flight simulation technology to the
entertainment and leisure industry. Its engineering and manufacturing
expertise enable it to offer motion based ride simulation products and
integration services to entertainment show producers. The Company has to
date completed 15 simulators for the entertainment and leisure industry.
The delivered devices incorporate a 59-seat passenger cabin and operate
on either a three- or six-degree-of-freedom motion system. When
integrated with high definition video or 70mm film and laser disc audio
in a "themed" environment, Reflectone's "theme machine" simulators
produce a truly realistic and sensory adventure for passengers.
The Company incurs research and development costs under both
independent Company-initiated programs and customer-funded programs.
Research and development costs incurred under independent
Company-initiated programs approximated $777,000, $1.0 million, and $3.0
million for the years ended December 31, 1995, 1994 and 1993,
respectively. In 1993 expenditures for research and development
primarily related to the Company's expansion of its training devices
products into the larger commercial airline simulation market.
Training Services. The Company's Training Services Segment is
composed of three divisions: Military Training Systems; Reflectone
Training Center-Tampa; and the Dulles Training Center. The Military
Training Systems Division was formed in response to a growing military
market for contractor provided flight training services. This Division's
business has recently been focused on contracts requiring the Company to
provide flight simulator instruction, simulator maintenance and repair
services, and courseware development at military bases. Since August
1990, the Military Training Systems Division has received in excess of
$89 million of multi-year awards to provide flight simulator manpower
services at Air Force, Navy and Marine Corps Air Stations throughout the
United States and one Marine Corps Air Station in Japan.
The Reflectone Training Center-Tampa provides a full-service
training facility which includes classroom and simulator training for
both C-130 flight and ground crews. Using state-of-the-art teaching
aids, aircrews receive initial, refresher and pilot upgrade training
courses including engine operation, crew resource management, and
maintenance practices. The Tampa Center currently operates two C-130H
flight simulators. One of the devices is leased by the Company under a
12-year operating lease, while the second device is being stored by the
Company under an agreement with a customer until the customer's facility
which will house the device is completed. To defray storage costs, the
agreement provides that the Company may sell training time on the
device. Factors affecting shipment of this simulator are being
negotiated with the customer.
<PAGE> 7<PAGE>
The Dulles Training Center is a British Aerospace-owned facility
which the Company has managed and operated since April 1, 1993 under an
agreement with British Aerospace. The Dulles Center is located near
Washington, D.C.'s Dulles International Airport and houses three
full-flight simulators used to train pilots of commercial airlines and
corporations. One of the simulators, a Jetstream 41 simulator, was owned
by the Company until December 21, 1995 when it was sold to British
Aerospace for $8.6 million. The other two simulators (a Jetstream 31/32
and a BAe 146-200/300, both of which were manufactured by the Company)
are provided by British Aerospace. Prior to January 1, 1996, the
management agreement required the Company to pay to British Aerospace a
facility fee based, in part, on the achievement of specified levels of
revenues on the British Aerospace owned simulators. Effective on January
1, 1996, under the terms of a revised management agreement, the Company
will receive a fixed fee of $500,000 annually and will be reimbursed by
British Aerospace for the Company's costs associated with the Dulles
Center.
Systems Management. The Company's Systems Management Segment was
formed to pursue opportunities to develop, operate and maintain complex
flight training systems which require the services of both the Training
Devices and Training Services Segments and sometimes major
subcontractors. Such contracts can involve the design, development and
production of hardware and software associated with flight simulators,
flight training devices and cockpit procedures trainers; formation of a
training syllabus and interactive computer-aided instructional systems
with instructors to provide full-flight crew training for specified
aircraft, and/or complete training system operation and maintenance.
Backlog
The Company's contractual backlog was $121.1 million at December
31, 1995, representing a $77.0 million increase from the $44.1 million
level at December 31, 1994. Contractual backlog for RUKL, included in
the Training Devices Segment backlog, approximated $61.9 million at
December 31, 1995, compared to $1.5 million at December 31, 1994. The
significant increase in the Company's contractual backlog at December
31, 1995 is primarily attributable to RUKL's receipt of a C-130J
subcontract from LMC during 1995. The contractual backlog at December
31, 1995, was comprised of approximately 71.3%, 15.6%, and 13.1% of
Training Devices, Training Services and Systems Management programs,
respectively, exclusive of intersegment work. In addition, 17.8% of
contractual backlog at December 31, 1995, consisted of United States
Government prime contracts and subcontracts as compared to 57.4% at
December 31, 1994. Approximately 33.5% of the contractual backlog at
December 31, 1995 is not reasonably expected to be realized as revenues
in 1996. See also Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations for further discussion of
changes in the Company's backlog.
<PAGE> 8<PAGE>
U.S. Government contracts are subject to termination at the
election of the government and contain specific procedures for equitable
settlement in the event of termination. It is not possible to predict
whether, or to what extent, the present backlog may be reduced or
postponed in the event of reductions or changes in U.S. Government
programs. Some U.S. Government contracts contain fixed price options for
future performance and are subject to exercise by the government within
specified time periods. These options are not included in the Company's
contractual backlog.
British Aerospace Relationship
As a result of transactions occurring between 1987 and 1989,
British Aerospace holds an aggregate of 1,375,000 shares at December 31,
1995, or approximately 50%, of the Company's common stock, and 50,000
shares of preferred stock which are convertible into an additional
500,000 shares of common stock. During 1995, British Aerospace was
granted warrants to purchase 78,261 shares of the Company's common stock
at any time prior to August 7, 2005. If British Aerospace were to
convert its preferred shares to common shares and to exercise its
warrants, British Aerospace would beneficially own 58.7% of the
Company's then-outstanding shares of common stock, assuming no shares
were otherwise acquired or disposed of by British Aerospace, and no
additional shares were issued or reacquired by the Company.
As the holder of approximately 50% of the outstanding shares of
the Company's common stock, British Aerospace effectively has the power
to determine the membership of the Company's Board of Directors;
however, British Aerospace is subject to restrictions contained in a
Special Security Agreement ("SSA") between the Company, British
Aerospace and the United States Department of Defense. Under the terms
of the SSA, only two of a total of seven directors may have a past or
present affiliation with British Aerospace. In addition as a result of
their significant ownership in the Company, British Aerospace
effectively has the power to decide other matters submitted for
shareholder approval.
On March 22, 1996, the Company's bylaws were amended by the Board of
Directors (subject to United States Defense Investigative Service approval as
provided for under the SSA, to increase the Board of Directors from seven to a
maximum of eight directors, of which three directors may be affiliated with
British Aerospace.
Management believes that the Company's relationship with British
Aerospace has expanded its access to international markets, as well as
provided the Company with the opportunity to assist a major airframe
manufacturer with its internal simulation requirements. This, in turn,
has strengthened Reflectone's capacity to serve its existing military
and commercial markets, and provided collaborative access to an
expanding European market for simulation and training systems.
<PAGE> 9<PAGE>
For further discussion of the Company's relationship with British
Aerospace, including discussion of financing arrangements which British
Aerospace provides or guarantees, see Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, and notes
5 and 13 to the Consolidated Financial Statements included in Item 14.
Customers
U.S. Government prime contracts and subcontracts accounted for
approximately 37.0% of the Company's consolidated revenues for the year
ended December 31, 1995. The Company's business is conducted under
complex terms and conditions involving changing technology, and is
subject to intense competition and many uncertainties, including the
risks inherent in fixed price contracts. In addition, government-related
business is affected by rapidly changing program needs and is sometimes
dependent upon levels of government spending and program funding. At
December 31, 1995, approximately $21.6 million of the Company's
contractual backlog was attributable to U.S. Government programs.
Contracts between the Company and British Aerospace accounted for
approximately 24.7% of consolidated revenues for the year ended December
31, 1995. The terms and conditions of the contracts with British
Aerospace are comparable to those with unrelated commercial customers.
At December 31, 1995, approximately $27.6 million of the Company's
contractual backlog was attributable to British Aerospace programs.
During 1995, the Company was awarded a major contract from Lockheed
Martin Corporation ("LMC"), worth approximately $77.0 million for
delivery of two dynamic mission simulators, other training devices and a
training facility in 1997 and with training and maintenance services
extending into the year 2002. At December 31, 1995, approximately $61.9
million of the Company's contractual backlog was attributable to the LMC
program.
Financial information about foreign and domestic operations and
export sales is included in Note 15 to the Consolidated Financial
Statements which are included in Part IV of this Report.
Competition
Training Devices. Competitive conditions remain keen in the flight
simulator and training device field, which is led by CAE Industries,
Ltd. of Canada, Thomson CSF of France and Hughes. Many of the Company's
competitors have substantially greater financial and other resources
than the Company. The focus of competition in the simulation training
devices industry is not only price, but also the capacity to apply a
broad range of technologies, including avionics, electronics,
hydraulics, audio and visual effects, and computer programming and
control. In addition, competition on larger programs often focus on the
capacity to provide a "total training system" approach, emphasizing
curriculum development and simulator currency in parallel with the
development of the primary weapons platform or aircraft system.
<PAGE> 10<PAGE>
Competition in the entertainment market for large capacity three-
and six-degrees-of-freedom motion-based simulation products such as
those which have been produced to date by the Company includes
traditional flight simulator companies. The Company's products in this
market are also subject to competition from lower-cost, less complex,
moving seat technology-based rides that are offered by various
competitors with backgrounds from a variety of industries.
Performance history and product quality, particularly with respect
to cost and schedule performance, have become significant competitive
discriminators for both government and commercial business. In
recognition of its commitment to Total Quality Management, the Company
has been certified to be in compliance with International Standards
Organization 9001 Quality System Standard (ISO 9001).
In addition to its individual marketing initiatives, the Company
continues to seek to exploit opportunities for the sale of its
technology and capability as a team member with other contractors for
major United States and international military contracts.
Reflectone's ability to be competitive in its Training Devices
Segment is based upon its expertise in the fields of fixed-wing and
helicopter simulation, its three- and six-degrees-of-freedom motion
systems, its ability to manage major subcontractors in engineering
disciplines outside its own capabilities, and its experience in
contractor logistics support.
Training Services. Competition for contracts requiring the
contractor to provide maintenance and/or flight simulator and ground
support instruction at both customer and company-owned training centers
is intense and involves a broad range of companies with varying levels
of capabilities. Primarily as a result of this intense competition, the
company which provides the lowest-price solution to the customer's
requirements is generally successful in receiving the award. As
evidenced by awards in the past several years, management believes that
the Company is well positioned to pursue opportunities to provide
training services in this cost competitive market.
Systems Management. Competition for large total training system
programs has traditionally been concentrated in the large aerospace
companies such as Loral Corporation, McDonnell-Douglas, and Hughes.
These large aerospace companies often team with niche suppliers to
provide comprehensive solutions in response to highly complex proposal
requests, and the Company continues to pursue opportunities to
selectively participate in such teaming arrangements.
<PAGE> 11<PAGE>
Employees
As of December 31, 1995, the Company had a total of 787 full-time
employees. Of this total, 108 (14%) were in engineering and project
management, 121 (15%) were in manufacturing and quality assurance, 92
(12%) were in administrative support, 406 (51%) were associated with RTS
training activities and 60 (8%) were employed by RUKL in the United
Kingdom.
Executive Officers of the Registrant
The following table shows the names and ages of the Company's
executive officers, and the positions and offices with the Company
currently held by each of them:
Name Age Present Position
Richard G. Snyder 63 President and Chief Executive Officer
Anthony S. Brancato 59 Executive Vice President-International
Military Marketing and Training Services
Richard W. Welshhans 49 Vice President, Chief Financial Officer
and Secretary
Frank T. Tobin, Sr. 58 Vice President-Military Products
Derek R. Alden 51 Vice President-Commercial and Entertainment
Products
Robert D. Webster 53 Vice President-Operations
Kelley L. Rexroad 38 Vice President-Human Resources
Paul G. Waring, Jr. 34 Corporate Controller and Treasurer
The following sets forth a summary of the business experience,
during at least the most recent five years, of each executive officer of
the Company:
Richard G. Snyder joined Reflectone as President and Chief
Executive Officer in February 1990. From 1985 until he joined the
Company, Mr. Snyder served as President of the Link Tactical Simulation
Division of CAE Industries, Ltd., a major producer of commercial and
military simulation and training devices. For the 30 years between 1954
and 1985, Mr. Snyder served in various capacities with the Kearfott
Division of General Precision, Inc., which was acquired by the Singer
Company, and the Link Tactical Simulation Division of The Singer Company
(which Division was acquired by CAE Industries, Inc.). His experience in
these positions included broad responsibilities for missile and space
programs, international business development, program management and
contracts.
Anthony S. Brancato was elected Executive Vice President-Training
Services of the Company in September 1990. From 1988 to 1990, Mr.
Brancato served as Executive Vice President-Operations of the Company;
from 1987 to 1988 as Senior Vice President of RTS; and from 1979 to 1987
as Vice President-Program Management of the Company.
<PAGE> 12<PAGE>
Richard W. Welshhans was elected Chief Financial Officer and
Secretary of the Company in August 1988, in addition to the position of
Vice President-Finance that he held since 1987 and the position of
Treasurer that he held until 1995. From 1984 to 1987 he served as
Treasurer and Controller of the Company.
Frank T. Tobin, Sr. was elected Vice President-Military Products
in April 1994. From 1989 to 1994 he served as the Company's Vice
President-Program Management. Previously, Mr. Tobin worked three years
with BMY, a division of Harsco Corporation, most recently as Director of
Business Management, Defense Systems. He also held the positions of
Director of Contracts and Director of Contracts and Program Management,
Combat Systems. Prior to 1986 Mr. Tobin held various management
positions with Martin Marietta. His experience included extensive
program management and contracts responsibilities.
Derek R. Alden was elected Vice President-Commercial and
Entertainment Products in April 1994. From 1990 to 1994 he served as
Vice President-Engineering. Between 1975 and his joining the Company,
Mr. Alden served in a number of marketing and engineering capacities
with various divisions of The Singer Company, at that time a major
producer of aircraft simulation and training devices. Most recently Mr.
Alden held the position of Director Marketing/Business Development.
Robert D. Webster joined the Company as Vice President-Operations
in September 1990. During the previous 15 years Mr. Webster held various
positions with Lockheed-Sanders, a Company that primarily manufactures
countermeasure equipment for the U.S. Government, last serving as
Director of Manufacturing for its Operations Division.
Kelley L. Rexroad was appointed Vice President-Human Resources in
August 1992. Since joining the Company in 1990, Ms. Rexroad has served
in various capacities within the Company's Human Resources Department,
including service as its Senior Director from March through August 1992.
Previously, she held increasingly responsible positions at Link Tactical
Simulation, a division of then, The Singer Company, in its Public
Relations and Human Resources Departments.
Paul G. Waring, Jr. was elected Treasurer in November 1995, in
addition to the position of Corporate Controller that he has held since
1993. Previously, Mr. Waring worked nine years with Coopers & Lybrand
L.L.P., most recently as Business Assurance Manager.
<PAGE> 13<PAGE>
Item 2. Properties
Reflectone leases a building in Tampa, Florida, containing
approximately 210,000 square feet of useable floor space under leases
which expire in 1999. Reflectone also leases approximately two acres of
land adjacent to its present facility, which may be used for future
expansion requirements. Both the building and land leases have
provisions for subsequent five-year renewal periods. The Company
considers its present facilities and expansion land adequate for its
immediate and foreseeable needs. The Company's main facilities are
located at 4908 Tampa West Blvd., Tampa, Florida 33634.
The Company leases from British Aerospace approximately 22,000
square feet of usable floor space at its RUKL operations in Filton,
England.
Item 3. Legal Proceedings
In January 1991, the Company filed a Notice of Appeal with the
Armed Services Board of Contract Appeals ("ASBCA") in response to a
final decision by a U.S. Government Contracting Officer denying the
Company's claim in excess of $10 million on a contract with the United
States Air Force for C-141/C-5 Aerial Refueling Parts Task Trainers. The
primary basis of the Company's claim was that performance under the
contract was commercially impracticable in that it required technology
beyond the state-of-the-art, and that the Government had superior
knowledge in this regard prior to contract award which it failed to
divulge to the Company. The case is complex and factually intensive and
thereby reliant on extensive factual and expert testimony. A formal
claim hearing was completed in March 1994 before the ASBCA judge
assigned, and a decision on entitlement continues to be delayed by the
ASBCA judge, but is expected during 1996. A portion of the claim value
has been recorded in the Company's Consolidated Financial Statements and
is classified as "Unrecovered Costs Subject to Future Negotiation."
Item 4. Submission of Matters to a Vote of Security-Holders
No matter was submitted to a vote of security-holders during the
fourth quarter of the year covered by this report.
<PAGE> 14<PAGE>
Part II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters
No cash dividends have been paid on the Company's common stock
during the last two years. The payment of future dividends, if any, on
the Company's common stock and the amount thereof will be dependent upon
the Company's earnings, financial requirements, and other factors deemed
relevant by the Company's Board of Directors. The Company's common
stock is quoted on the Nasdaq National Market under the symbol "RFTN".
The following table sets forth the quarterly high and low closing sale
prices for the last two years:
<TABLE>
<CAPTION>
1995 1994
Quarter High Low High Low
<S> <C> <C> <C> <C>
First 11-1/2 8 12 8-3/4
Second 10-3/4 9-1/2 9-5/8 7
Third 13-3/4 9-1/2 8-1/4 6-3/8
Fourth 14-5/8 13-1/8 8-3/4 6-1/2
</TABLE>
There were approximately 431 shareholders of record of the
Company's common stock as of March 21, 1996, on which date the closing
sale price for the common stock as reported on the Nasdaq National
Market was $17.75 per share.
<PAGE> 15<PAGE>
Item 6. Selected Financial Data
The following selected financial data for the five years in the
period ended December 31, 1995 have been derived from the Company's
Consolidated Financial Statements.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 93,524 $ 65,138 $ 63,118 $ 66,651 $ 67,241
Interest expense 2,412 1,193 324 549 918
Net income (loss) 4,542 (3,049) 3,093 (1,690) 313
Net income (loss)
applicable to
common shareholders 3,838 (3,753) 2,389 (2,394) (391)
Per Share Data:(1)
Net income (loss) per
common and common
equivalent shares $ 1.36 $ (1.35) $ .86 $ (.88) $ (.14)
Balance Sheet Data:
Working capital
(deficit) $ 3,156 $(13,365) $ (5,527) $ (5,866) $ 5,045
Current ratio 1.09 .74 .84 .83 1.16
Property, plant
& equipment, net $ 7,882 $ 17,428 $ 18,624 $ 11,208 $ 9,570
Total assets 50,724 63,794 47,090 40,985 47,727
Long-term debt, less
current installments - - - - 9,200
Shareholders' equity 13,976 9,562 13,247 6,253 7,761
</TABLE>
(1) Per share data is based upon the weighted average number of shares
outstanding retroactively adjusted to reflect a 25% stock dividend
issued in September 1993. The calculation for all fiscal periods
reflects the assumed exercise of outstanding stock options and warrants
using the treasury stock method if the effect would be dilutive. Fully
diluted per share data is not disclosed for any of the years shown since
the effect was antidilutive.
<PAGE> 16<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in
conjunction with the Company's Consolidated Financial Statements and
notes thereto included elsewhere herein.
The Company has various relationships, contracts and agreements
with British Aerospace, Plc. ("BAe") and its direct and indirect
subsidiaries (herein collectively referred to as "British Aerospace").
Approximately 50.0% of the common stock of the Company is owned by
British Aerospace Holdings, Inc. ("BAeHI"), a wholly owned subsidiary of
BAe.
On June 21, 1993, the Company purchased from British Aerospace,
all of the issued and outstanding shares of common stock of British
Aerospace Simulation Ltd. The acquired business was renamed Reflectone
UK Limited ("RUKL"). RUKL's products utilize technology which is
complementary to the products produced by the Company's Training Devices
Segment and are marketed worldwide, primarily to government customers.
Liquidity and Capital Resources
Management considers liquidity to be the Company's ability to
generate adequate cash to meet its short- and long-term business needs.
The principal internal source of such cash is the Company's operations,
while external sources include borrowings under the Company's credit
facilities and the issuance of equity securities.
Net cash generated from operating activities during 1995 was $16.0
million, compared to net cash used by operating activities of $10.0
million in 1994. During 1995, cash was generated primarily by net income
plus or minus noncash-expending depreciation and amortization, and
deferred income taxes; increases in advance billings, accounts payable,
and accrued employee compensation and benefits; and reductions in
inventory and affiliate receivables. Increases in non-affiliate
receivables partially offset the cash generated. Operating cash flow was
negatively impacted in 1994 by net losses less noncash-expending
depreciation and amortization, increases in non-affiliate receivables,
prepaid expenses and other current assets and reductions in due to
affiliate and advance billings. Increases in customer receivables
during 1994 include the effects of a contract to construct a Jetstream
41 simulator for an affiliate. During 1994, the increase in customer
receivables also reflected the funding of $3.6 million for long-term
financing associated with the sale of a Boeing 737-300 full flight
simulator to an unaffiliated customer.
The significant capital expenditures during 1994 primarily related
to the construction during 1993 and 1994 of two simulators used in the
Company's Tampa training center and the British Aerospace owned training
center managed by the Company. Based on current plans for capital
expenditures, management does not anticipate constructing full flight
simulators for its training centers during 1996.
<PAGE> 17<PAGE>
In December 1995, the Company sold to British Aerospace, the
Company-owned Jetstream 41 simulator used in the British Aerospace-owned
Dulles Training Center for $8.6 million. In December 1994, the Company
completed a sale and leaseback of the Company-owned C-130H full flight
simulator utilized in the Tampa training center. Under the terms of the
lease agreement, the Company was required to escrow $5.0 million of the
$10.0 million proceeds from the transaction to be held as collateral in
the event of a default under the lease agreement. A portion of the
escrowed funds are subject to future release to the Company based on the
Company's attainment of certain income and net worth levels, and a
portion of the funds are scheduled for periodic release over the initial
ten years of the lease. Rental payments under the lease approximate $1.4
million annually.
During the year ended December 31, 1995, the Company reduced its
short-term borrowings and reduced its cash by $26.2 million and $2.7
million, respectively. During the same period, gross borrowings of
$191.4 million, reductions in cash balances and cash provided by the
sale of the Company-owned Jetstream 41 simulator and funding from
operating activities were used to fund $217.6 million in scheduled
maturities of borrowings under the Company's credit facilities.
During the year ended December 31, 1994, the Company increased its
short-term borrowings and increased its cash by $17.5 million and $5.2
million, respectively. Gross borrowings of $171.3 million during 1994
were used primarily to fund $153.8 million in scheduled maturities of
borrowings under the Company's credit facilities, to complete
construction of the Company-owned and operated Jetstream 41 full flight
simulator, and to fund operating activities.
To date the Company has been unable to obtain adequate financing
on acceptable terms without recourse to British Aerospace. However,
subject to the terms and conditions contained in the Agreement for
Credit Availability dated as of August 7, 1995, British Aerospace has
agreed to continue to provide or guarantee the Company's current credit
facilities at their current levels through July 21, 1996. Renewal of the
Company's credit facilities beyond July 21, 1996 is, in large part,
dependent upon British Aerospace's willingness to continue to provide or
guarantee these facilities. By means of a letter dated February 27,
1996, British Aerospace has represented to the Company that it intends
to continue to provide or guarantee the Company's credit facilities, as
long as financing is not available to the Company without recourse to
British Aerospace and British Aerospace continues to hold, or has the
ability to hold through the exercise of preferred stock conversion
rights and warrants to purchase common stock, a majority ownership
position in the Company. Based on the foregoing representations of
British Aerospace, management anticipates that the Company's current
credit facilities will be renewed annually. Specific discussion of the
Company's credit facilities is included in Note 5 to the Consolidated
Financial Statements.
<PAGE> 18<PAGE>
As discussed in Note 3 to the Company's Consolidated Financial
Statements, the Company will not receive payments from Lockheed Martin
Corporation ("LMC") under the terms of the C-130J contract until the
achievement of certain contractual milestones, currently scheduled for
the fourth quarter of 1997. Accordingly, during the third quarter of
1995, the Company negotiated a second credit facility (the "C-130J
Facility") with British Aerospace to finance the Company's working
capital needs with respect to the C-130J contract with LMC. The C-130J
Facility currently provides for borrowings aggregating up to $40.0
million and matures on July 21, 1996. At December 31, 1995, the Company
had $6.1 million drawn under the C-130J Facility. Draws under this
facility are limited to actual costs incurred by the Company and RUKL on
the LMC C-130J program. By means of a letter dated February 27, 1996,
British Aerospace has further represented that as long as British
Aerospace continues to hold, or has the ability to hold through the
exercise of preferred stock conversion rights and warrants to purchase
common stock, a majority ownership position in the Company, it intends
to continue to provide annual financing for the C-130J program until
payment is received from LMC. Based on current schedules, the contract
is estimated to require incremental funding of $25.0 million in 1996 and
$22.0 million in 1997. While the cost of financing this program is being
recovered through the contract with LMC, an increase in interest rates
or an extension of the scheduled delivery dates could result in
financing costs in excess of that priced into the contract.
The Company's cash flows are impacted, in the normal course of
business, by the Company's ability to book new profitable business and
achieve scheduled program milestones on a timely basis. The achievement
of program milestones, in turn, provides for and enables contractually
defined amounts to be billed to the customer. Often these amounts are
significant and, as a result, failure to achieve payment milestones can
dramatically impact the Company's credit requirements.
As described in Notes 3 and 7 to the Consolidated Financial
Statements, management has anticipated recovery of certain costs
incurred arising out of customer-occasioned contract delays and amounts
for work performed but not specified in express contract provisions. The
amounts included in the Consolidated Financial Statements represent only
a portion of the total compensation sought by the Company from the
customers. Therefore, while any and all recoveries are subject to future
negotiations, actual recoveries could be less or more than those
currently anticipated. Any amounts awarded in excess of that anticipated
in the Company's Consolidated Financial Statements represent an
additional capital resource to the Company. It is anticipated that any
actual recoveries of the projected amounts may not be collected within
the next twelve months.
<PAGE> 19<PAGE>
Based upon the availability under its current credit facilities
and anticipated renewals thereof; anticipated increases in the C-130J
Facility; projected cash flows from current and future programs with
achievement of projected program milestones; anticipated reductions in
restricted investments; expected resolution and recovery of costs
subject to future negotiation as described in Notes 3 and 7 to the
Consolidated Financial Statements; and income tax benefits available for
future use, management believes that the Company's capital resources are
adequate to meet its foreseeable business needs, on both a short- and
long-term basis.
Results of Operations
Consolidated revenues increased by $28.4 million, or 43.6% during
1995 as compared to 1994, which reflected a 3.2% increase from the 1993
year. The 1995 increase was the result of increases in revenues from all
of the Company's three business segments. Revenues of the Training
Devices Segment inclusive of intersegment transactions, increased by
$21.8 million , or 81.1% during 1995 as compared to 1994, which
represented a 18.8% reduction from 1993. The 1995 increase in revenues
included approximately $15.1 million from the recent award of the LMC
C-130J program. Affiliate revenues of the Training Devices Segment were
$5.2 million higher in 1995 compared to 1994 and $4.3 million lower in
1994 compared to 1993. The 1995 increase in affiliate revenues reflects
revenues from three programs in varying stages of completion for the
construction of commercial aircraft simulators.
Revenues of the Training Services Segment inclusive of
intersegment transactions, increased by $5.3 million, or 15.9% during
1995 as compared to 1994, which represented a 38.9% increase from 1993.
The Training Services Segment provides training services on customer and
Company-owned or -leased devices to the U.S. Government and commercial
aircraft operators. The increase in revenues of the Training Services
Segment in 1995 and 1994 was primarily the result of increased revenues
on existing contracts with the U.S. Government and revenues earned on
the Jetstream 41 simulator installed during 1995 at the British
Aerospace-owned, Company-managed training center near Dulles
International Airport.
Revenues of the Systems Management Segment increased by $3.6
million, or 39.5% during 1995 as compared to 1994, which reflected a
$4.7 million, or 51.5% decrease from 1993. The Systems Management
Segment manages complex programs requiring the services of both the
Training Devices and Training Services segments. The 1995 increase in
revenues related to the third quarter award of a contract from an
affiliate for a C-130H simulator for ultimate delivery to an
international customer.
The Company's income (loss) from operations was $7.2 million,
($1.9) million and $3.1 million in 1995, 1994 and 1993, respectively.
The 1995 increase in income from operations reflects increased revenues
and profitability in each of the Company's three business segments.
<PAGE> 20<PAGE>
The income (loss) before income taxes of the Training Devices
Segment was $3.1 million, ($786,000) and $2.9 million for the years
ended December 31, 1995, 1994 and 1993, respectively. The 1995 operating
results of the Training Devices Segment reflect the favorable results
associated with the achievement of critical program milestones,
primarily on a large affiliate program and an international military
program. These favorable results were, in part, offset by a charge of
$1.6 million to operations reflecting a reduction in management's
estimate of amounts recoverable from customers for customer-occasioned
contract delays and work performed but not specified in express contract
provisions. Operating profits of the Training Devices Segment often
reflect large profit margin swings as a result of profit recognition
occurring late in the lives of programs with developmental risk
reflecting revisions to management's risk assessments based on
evaluations of each program's status at critical program milestones.
Operating results of the Training Devices Segment for the years ended
December 31, 1995, 1994 and 1993, include income (losses) from
operations of RUKL of $36,000, ($1.7 million) and ($600,000),
respectively. The losses of RUKL in 1994 and 1993 primarily resulted
from the recording of loss provisions due to escalations of costs on
three large prototype programs to develop tactical air defense trainers.
These programs were completed during 1995. The 1994 operating results of
RUKL also reflect losses resulting from insufficient business base to
fully absorb indirect costs. In addition to the losses of RUKL, the 1994
operations of the Training Devices Segment reflected underabsorption of
indirect costs of the Company's Tampa operation as a result of a
lower-than-anticipated level of operations due to delays in the receipt
of new program awards. The 1993 operating results of the Training
Devices Segment, excluding RUKL, reflected the favorable results
associated with the achievement of critical program milestones,
primarily on two large affiliate programs.
The income before income taxes of the Training Services Segment
was $5.0 million, $4.9 million and $3.4 million for the years ended
December 31, 1995, 1994 and 1993. The increased profits in each period
resulted from the increased volume in the Training Service Segment.
The income (loss) before income taxes of the Systems Management
Segment was $2.5 million, ($662,000) and $278,000 for the years ended
December 31, 1995, 1994 and 1993. The 1995 operating profit reflects
profit recognition upon the award of a contract from an affiliate for
the sale of the Company's partially completed C-130H simulator from
inventory. The 1994 operating losses reflect the recognition of program
losses on a large international program.
The income (loss) before income taxes in 1994 was also impacted by
recording a provision of $1.0 million to general and administrative
costs for future costs associated with the Company's assertion of its
rights to recovery of certain amounts claimed from customers for
customer-occasioned contract delays and work performed but not specified
in express contract provisions.
<PAGE> 21<PAGE>
Interest income approximated $734,000, $244,000, and $229,000
during 1995, 1994, and 1993, respectively. Interest income is primarily
interest earned on long-term notes receivable, restricted investments
and temporary cash investments.
Interest expense in 1995 increased by $1.2 million over 1994's
amount primarily as a result of higher borrowings outstanding during the
year and higher interest rates on those borrowings. During 1995 interest
costs of $306,000 associated with the Company's financing of the C-130J
program were charged to the C-130J program and reflected in cost of
sales rather than as interest expense. Interest expense in 1994
increased by $869,000 over 1993's amount primarily as a result of higher
borrowings outstanding during the year. During 1994 and 1993, interest
capitalized in conjunction with the construction of simulators for use
in the Company's Training Services Segment was $157,000 and 16,000,
respectively.
The increase in the provision for income taxes in 1995 as compared
to 1994 results from a higher estimate of taxable income for federal and
state income tax purposes. The provision for income taxes differs from
the amounts computed by applying the federal statutory tax rate to
income before taxes primarily as a result of the availability of net
operating loss carry-forwards to reduce taxable income and investment
tax credits to reduce the tax provision. In 1994 and 1993, alternative
minimum tax liability arising from timing differentials associated with
the depreciation of fixed assets and specific limitations on the usage
of net operating loss carryforwards also contributed to the difference
in the provision for income taxes from the federal statutory tax rate.
During 1995, the Company recorded a deferred tax asset of $1.1 million,
for which recovery in future periods is not dependent upon future
taxable income. At December 31, 1995, the Company had available
investment tax credits of $461,000, alternative minimum tax credits of
$540,000 and net operating loss carryforwards in the United Kingdom of
$4.1 million. The investment tax credits expire in varying amounts
beginning in 1999 and extending through 2001. The alternative minimum
tax credits and net operating loss carryforwards in the United Kingdom
can generally be carried forward indefinitely. Specific discussion of
the Company's income tax provision and net deferred tax assets is
included in Note 6 to the Consolidated Financial Statements.
<PAGE> 22<PAGE>
Backlog
Contractual backlog increased to $121.1 million at December 31,
1995, from $44.1 million at December 31, 1994. Of the contractual
backlog at December 31, 1995, 71.3% consisted of orders of the Training
Devices Segment, 15.6% consisted of orders of the Training Services
Segment and 13.1% consisted of orders of the Systems Management Segment.
This compares to 48.0%, 45.7% and 6.3%, respectively at December 31,
1994. Contractual backlog for RUKL, included in the Training Devices
Segment backlog, was $61.9 million at December 31, 1995 compared to $1.5
million at December 31, 1994. The increase in contractual backlog of
RUKL primarily relates to the award of the C-130J program for $77.0
million during 1995. Contractual backlog of the Systems Management
Segment includes the September 1995 award of a contract from an
affiliate to manufacture a C-130H simulator for ultimate delivery to an
international customer and to provide related maintenance support and
training services. Contract awards within the Training Services Segment
to provide training to U.S. Military personnel are generally awarded
annually and recorded during the fourth calendar quarter. This results
in a declining backlog for the Training Services Segment during the
first three calendar quarters. During the 1995 third quarter, the
Company lost in competition, reprocurements relating to four training
services contracts in which it was the incumbent contractor. These
contracts represented approximately $7.3 million of annual revenues.
Primarily as a result of intense competition for training services
contracts, the company providing the lowest-price solution to the
customer's requirements is generally successful in receiving the award.
As evidenced by awards in the past several years, management believes
that the Company is well positioned to continue to pursue opportunities
to provide training services in this cost competitive market. Not
included in contractual backlog are announced orders for which
definitive contracts have not been executed and unobligated contract
options under U.S. Government contracts.
Factors That May Affect Future Results
The Company's future operating results may be affected by a
number of factors, many of which are beyond the Company's control,
including uncertainties relative to global economic conditions;
political instability; the economic strength of governments; levels of
U.S. Government and international defense spending; military and
commercial aircraft industry trends; and the Company's ability to
successfully increase market share in its Training Devices Segment while
expanding its product base into other markets. In recent years, the
markets into which the Company sells its training device products have
been depressed, and the number of units sold into these markets has
decreased from prior periods. As a result, competition for available
training device opportunities has increased, resulting in lower margins
on devices constructed. In addition, the simulation and training
industry has been characterized by continuing industry consolidation,
rapid technological advances resulting in frequent introduction of new
products and product enhancements, and very competitive pricing
practices.
<PAGE> 23<PAGE>
The Company has responded to these market conditions by
diversifying into new markets and by seeking the formation of strategic
teaming arrangements with airframe manufacturers and prime contractors
for weapon systems. As in prior years, the Company continues its
diversification strategy of pursuing a greater number of opportunities
in the training services market. In addition, with the acquisition of
RUKL in June 1993 and the purchase of certain assets of the Microflite
product line in early 1994, the Company expanded the product lines of
the Training Devices Segment and increased the number of opportunities
available to it in the European and commercial airline simulation
markets. In November 1993, RUKL was selected by LMC as its training
systems teammate for the C-130J program. This teaming arrangement with
LMC resulted in an award worth $77.0 million during 1995.
In the pursuit of new business, the Company sometimes designs and
manufactures prototype training devices which by their nature involve
unforeseen design and development risks and exposures. The Company
attempts to price these risks in the contract value but nonetheless, the
frequency of losses historically experienced on prototype training
devices exceed those experienced on follow-on devices. The Company
attempts to recover its investment in the design and development of
prototype devices by winning subsequent programs for follow-on devices.
While the LMC program involves the development of prototype C-130J
training devices, management believes that this program has been
appropriately priced for unforeseen risks and exposures and anticipates
profits in future periods on the program. The Company is also pursuing
several other programs which, if awarded, would result in non-recurring
investment by the Company in design and development and could involve
risks associated with prototype devices.
The Company may experience transaction gains and losses from
currency fluctuations related to its international operations. In order
to minimize foreign exchange risk, the Company selectively hedges
certain of its foreign exchange exposures principally relating to
foreign currency accounts payable and accounts receivable. The Company's
hedging strategy is facilitated by its ability to borrow foreign
currencies under its revolving credit facility and the C-130J Facility
provided by British Aerospace. This strategy has reduced the Company's
vulnerability to certain of its foreign currency exposures, and the
Company expects to continue this practice in the future to the extent
appropriate. The Company does not engage in speculative hedging
activities, nor does the Company hedge nontransaction-related balance
sheet exposure. During 1995 and 1994, the Company recorded losses of
approximately $97,000 and $63,000, respectively, related to its hedging
activities.
<PAGE> 24<PAGE>
The Company has entered into contracts to buy forward British
pounds with an equivalent value of $15.1 million to reduce the Company's
exposure to foreign currency exchange risk associated with the cost of
subcontractors and other requirements of the C-130J program denominated
in British pounds. These contracts mature quarterly in varying amounts
from March 1996 to June 1997. British Aerospace is the counterparty to
these instruments. The forward contracts should not subject the Company
to risk from exchange movement because gains and losses on these
contracts offset losses and gains on the transactions being hedged.
However, the amount and timing of the program costs were estimated and
changes in these estimates could result in future gains or losses from
exchange rate movements.
Item 8. Financial Statements and Supplementary Data
The information for this Item has been filed as Item 14(a)(1) in
Part IV of this report.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information called for by this Item, with respect to
Directors, is contained in the Company's Proxy Statement pertaining to
the 1996 Annual Meeting of Shareholders, and is incorporated herein by
reference. The information called for by this Item, with respect to
Executive Officers, is set forth in Item 1 of this report under the
caption "Executive Officers of the Registrant."
Item 11. Executive Compensation
The information called for by this Item is contained in the
Company's Proxy Statement pertaining to the 1996 Annual Meeting of
Shareholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this Item is contained in the
Company's Proxy Statement pertaining to the 1996 Annual Meeting of
Shareholders, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by this Item is contained in the
Company's Proxy Statement pertaining to the 1996 Annual Meeting of
Shareholders, and is incorporated herein by reference.
<PAGE> 25<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements :
Description Sequential
Page Number
Report of Independent Certified Public Accountants 27
Consolidated Balance Sheets as of December 31, 1995 and 1994 28
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 30
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 31
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993. 33
Notes to the Consolidated Financial Statements 35
Reports of other Auditor 61
(a)(2) Financial Statement Schedules:
All schedules have been omitted inasmuch as the required information is
not present or not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the
Company's Consolidated Financial Statements, including the notes
thereto.
<PAGE> 26<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
__________
To the Board of Directors and Shareholders
Reflectone, Inc.
We have audited the consolidated financial statements of
Reflectone, Inc. and Subsidiaries listed in Item 14(a)(1)
of this Form 10-K. These financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the
financial statements of Reflectone UK, Ltd., a wholly owned
subsidiary, which statements reflect total assets constituting 33
and 7 percent of the related consolidated totals as of December 31,
1995 and 1994, respectively, and total revenues constituting 20,
8, and 12 percent of the related consolidated totals for each of
the three years in the period ended December 31, 1995. Those
statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the
amounts included for Reflectone UK, Ltd., is based solely on the
report of the other auditors.
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 and
the report of the other auditors provide a reasonable basis for
our opinion.
In our opinion, based on our audits and the report of the
other auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Reflectone, Inc. and Subsidiaries as of December 31,
1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
March 22, 1996
<PAGE> 27<PAGE>
Reflectone, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
ASSETS 1995 1994
Current assets
<S> <C> <C>
Cash and cash equivalents $ 4,582,021 $ 7,329,914
Receivables - non-affiliate 26,101,185 20,615,154
Receivables - affiliate 628,922 2,980,625
Current installments of long-term
note receivable 3,558,000 1,249,128
Inventory - 4,268,842
Net deferred tax assets 1,050,000 -
Prepaid expenses and other current assets 1,480,190 1,506,955
____________ ____________
Total current assets 37,400,318 37,950,618
Property, plant & equipment, net 7,881,699 17,427,870
Long-term note receivable - 2,843,925
Investments - restricted 5,000,000 5,000,000
Other assets 441,568 571,972
____________ ____________
$ 50,723,585 $ 63,794,385
============ ============
</TABLE>
<PAGE> 28<PAGE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
<S> <C> <C>
Accounts payable $ 9,980,857 $ 6,984,756
Due to affiliate 1,995,079 2,786,075
Borrowings on bank line of credit - 10,000,000
Borrowings on line of credit - affiliate 6,513,666 22,674,197
Advance billings 7,832,601 1,796,539
Accrued employee compensation and benefits 4,218,694 3,045,187
Federal and state taxes payable 827,263 98,717
Accrued settlement expense 1,068,415 1,068,415
Other accrued expenses and liabilities 1,807,763 2,862,198
____________ ____________
Total current liabilities 34,244,338 51,316,084
Deferred gain on sale of equipment 2,503,747 2,916,138
Commitments and contingencies (Notes 7 and 14)
Shareholders' equity
Convertible preferred stock - par value
$1.00; authorized - 50,000 shares; issued
and outstanding - 50,000 shares of 8%
cumulative convertible preferred stock
(liquidating preference $176 per share,
aggregating $8,800,000) 50,000 50,000
Common stock - par value $.10; authorized -
10,000,000 shares; issued and
outstanding - 2,750,255 and
2,681,333 shares 275,025 268,133
Additional paid-in capital 31,741,011 31,155,317
Cumulative translation adjustment 734,705 751,493
Accumulated deficit (18,825,241) (22,662,780)
____________ ____________
Total shareholders' equity 13,975,500 9,562,163
____________ ____________
$ 50,723,585 $ 63,794,385
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 29<PAGE>
Reflectone, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Revenues
Non-affiliate $ 70,442,485 $ 60,405,499 $ 54,205,981
Affiliate 23,081,754 4,732,685 8,912,060
____________ ____________ ____________
93,524,239 65,138,184 63,118,041
____________ ____________ ____________
Cost and expenses
Cost of sales
Non-affiliate 64,530,189 57,576,313 54,099,492
Affiliate 18,402,800 4,061,986 2,397,008
____________ ____________ ____________
82,932,989 61,638,299 56,496,500
General and administrative 3,396,243 5,408,289 3,515,645
____________ ____________ ____________
86,329,232 67,046,588 60,012,145
____________ ____________ ____________
Income (loss) from operations 7,195,007 (1,908,404) 3,105,896
____________ ____________ ____________
Other income (expense)
Interest income 734,397 243,679 229,427
Interest expense (2,411,978) (1,193,459) (324,125)
Foreign currency transactions
gain (loss) (97,425) (62,729) 60,784
Other (107,909) 71,612 66,344
____________ ____________ ____________
(1,882,915) (940,897) 32,430
____________ ____________ ____________
Income (loss) before income taxes 5,312,092 (2,849,301) 3,138,326
Provision for income taxes 770,553 200,000 45,000
____________ ____________ ____________
Net income (loss) 4,541,539 (3,049,301) 3,093,326
Preferred stock dividends 704,000 704,000 704,000
____________ ____________ ____________
Net income (loss) applicable to
common shareholders $ 3,837,539 $ (3,753,301) $ 2,389,326
============ ============ ============
Net income (loss) per common
and common equivalent shares $ 1.36 $ (1.35) $ .86
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 30<PAGE>
Reflectone, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,541,539 $ (3,049,301) $ 3,093,326
Depreciation and amortization 2,306,590 1,894,038 1,573,195
Deferred income taxes (1,050,000) - -
Issuance of warrants 243,323 - -
Change in assets and liabilities:
Decrease (increase) in
receivables
Non-affiliate (5,434,367) (7,519,764) (827,616)
Affiliate 2,352,096 50,518 (488,873)
Decrease (increase) in
inventory 4,268,842 141,189 (2,048,626)
Decrease (increase) in prepaid
expenses and other current
assets 24,686 (799,820) 407,543
Increase in accounts payable 2,993,026 2,028,299 288,161
Decrease in due to affiliate (784,317) (880,385) (2,635,164)
Increase (decrease) in
advance billings 6,040,108 (758,673) (5,083,870)
Increase (decrease) in accrued
employee compensation
and benefits 1,177,779 (45,167) (664,853)
Decrease in accrued
settlement expenses - (104,173) (1,613,225)
Decrease in other accrued
expenses and liabilities (1,125,970) (507,968) (1,940,874)
Other 460,981 (461,644) 16,756
____________ ____________ ____________
Net cash provided by (used in)
operating activities 16,014,316 (10,012,851) (9,924,120)
____________ ____________ ____________
Cash flows from investing activities:
Capital expenditures (1,427,178) (7,743,609) (9,001,598)
Collection of long-term notes
receivable 535,053 1,030,790 1,437,951
Proceeds from sale and leaseback
of equipment - 10,000,000 -
Proceeds from sale of equipment 8,648,963 - -
Escrow of funds as required by
lease agreement - (5,000,000) -
Business acquisition - - (404,552)
____________ ____________ ____________
Net cash provided by (used in)
investing activities 7,756,838 (1,712,819) (7,968,199)
____________ ____________ ____________
</TABLE>
<PAGE> 31<PAGE>
<TABLE>
<S> <C> <C> <C>
Cash flows from financing activities:
Paydowns under line-of-credit
agreements (217,562,984) (153,787,650) (78,905,760)
Borrowings under line-of-credit
agreements 191,402,453 171,287,050 94,080,557
Proceeds from sales of common
stock 349,263 95,054 185,798
Dividends on preferred stock (704,000) (704,000) (704,000)
____________ ____________ ____________
Net cash provided by (used in)
financing activities (26,515,268) 16,890,454 14,656,595
____________ ____________ ____________
Net increase (decrease) in cash (2,744,114) 5,164,784 (3,235,724)
Cash and cash equivalents at
beginning of period 7,329,914 2,160,241 5,455,338
Foreign currency translation
adjustment (3,779) 4,889 (59,373)
____________ ____________ ____________
Cash and cash equivalents at
end of period $ 4,582,021 $ 7,329,914 $ 2,160,241
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32<PAGE>
Reflectone, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Shares Amount Shares Amount
_____________________________________________
<S> <C> <C> <C> <C>
Balance at December 31, 1992 50,000 $50,000 2,098,224 $209,822
Shares issued
- exercise of stock options - - 38,875 3,888
- employee stock plans - - 2,788 279
Cash dividends
- preferred at $14.08 per share - - - -
Cash contribution (Note 12) - - - -
25% common stock dividend (Note 8) - - 585,221 52,522
Charge inconnection with business
acquisition - - - -
Translation adjustment - - - -
Net income - - - -
_____________________________________________
Balance at December 31, 1993 50,000 50,000 2,665,108 266,511
Shares issued
- exercise of stock options - - 9,900 900
- employee stock plans - - 6,325 632
Cash dividends
- preferred at $14.08 per share - - - -
Translation adjustment - - - -
Net (loss) - - - -
_____________________________________________
Balance at December 31, 1994 50,000 50,000 2,681,333 268,133
Shares issued
- exercise of stock options - - 65,711 6,571
- employee stock plans - - 3,211 321
Warrants issued - - - -
Cash dividends
- preferred at $14.08 per share - - - -
Translation adjustment - - - -
Net income - - - -
_____________________________________________
Balance at December 31, 1995 50,000 $50,000 2,750,255 $275,025
=============================================
</TABLE>
<PAGE> 33<PAGE>
<TABLE>
<CAPTION>
Foreign
Additional Currency
Paid-In Translation Accumulation
Capital Adjustment Deficit
_____________________________________________
<C> <C> <C>
$27,278,475 $716,874 $(22,002,200)
157,687 - -
23,944 - -
- - (704,000)
4,762,854 - -
(52,522) - (605)
(404,552) - -
- 61,319 -
- - (3,093,326)
_____________________________________________
31,765,886 778,193 (19,613,479)
49,173 - -
44,258 - -
(704,000) - -
- (26,700) -
- - (3,049,301)
_____________________________________________
31,155,317 751,493 (22,662,780)
310,214 - -
32,157 - -
243,323 - -
- - (704,000)
- (16,788) -
- - 4,541,539
_____________________________________________
$31,741,011 $734,705 $(18,825,241)
=============================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34<PAGE>
Reflectone, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Nature of Business - Reflectone, Inc. designs and manufactures high
fidelity, full-flight simulators and electronic training systems and
provides a broad range of simulator-based training and training support
services. The Company's products and services are marketed worldwide to
military, commercial, entertainment and industrial customers. The
Company's two manufacturing facilities are located in Tampa, Florida and
Filton, England.
Estimates Reflected in the Financial Statements - 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 disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
Principles of Consolidation - The consolidated financial statements
include the accounts of Reflectone, Inc. and its wholly owned
subsidiaries (the "Company"). All significant intercompany transactions
and balances have been eliminated in consolidation. The Company is
approximately 50% owned by British Aerospace Holdings, Inc., and has
various relationships, contracts and agreements with entities affiliated
with British Aerospace, Plc. which are herein singularly or collectively
referred to as "British Aerospace" (Note 13).
Foreign Currency Translation - The financial information of the
Company's foreign subsidiary in the United Kingdom is translated to U.S.
dollars in accordance with the Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." All balance sheet
accounts are translated at the current exchange rate, and statement of
operations items are translated at the average exchange rate for the
applicable period. Any resulting translation adjustments are made
directly to a separate component of shareholders' equity. Foreign
currency gains and losses resulting from transactions are included in
results of operations.
Statement of Cash Flows - Cash and cash equivalents for purposes of
reporting consolidated cash flows include cash on deposit and amounts
due from banks maturing within 90 days of purchase. Cash paid for
interest, net of amounts capitalized, was approximately $2,476,000,
$1,205,000, and $304,000 in the years ended December 31, 1995, 1994 and
1993, respectively. Cash paid for federal and state income taxes was
approximately $1,276,000 and $25,000 in the years ended December 31,
1995 and 1993, respectively. In the year ended December 31, 1994 there
was no cash paid for federal or state income taxes.
<PAGE> 35<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue Recognition - For financial reporting purposes, long-term
contract revenue is recognized using the percentage of completion method
of accounting, under which the sales value of performance is recognized
on the basis of the percentage each contract's cost to date bears to the
total estimated cost. The recognition of profit, based upon anticipated
final program costs, is made only after evaluation of the program status
at critical program milestones. Revisions in estimated program costs at
completion are reflected in the period during which facts and
circumstances necessitating such change first become known. Due to
uncertainties inherent in the estimation process, it is reasonably
possible that estimated costs at completion on programs currently in
process will be revised in the near-term. When the current contract
estimate indicates a loss, provision is made for the total anticipated
loss. Revisions in projected costs and earnings on contracts which
extend beyond one year are accounted for as changes in estimates. All
other revenue is recorded on the basis of shipments of products or
performance of services.
The Company derives a significant portion of its revenues from fixed
price, long-term government contracts on a prime contractor and
subcontractor basis. Under certain government contracts, revenues may be
increased or decreased in accordance with cost or performance incentive
provisions. Such fee awards or penalties are included in operations at
the time they can be reasonably determined. When appropriate, increased
contract values are assumed based on expected adjustments of contract
prices for increased scope ordered or caused by the customer. Costs
incurred under contracts are subject to routine audit by government
audit agencies.
Receivables - In accordance with industry practice, receivables include
amounts relating to contracts and programs having production cycles
longer than one year, and a portion thereof will not be realized within
one year.
Inventory - Inventory is stated at cost and represents costs incurred to
date associated with the production of flight simulators to be held for
future sale. At December 31, 1994, inventory included allocated general
and administrative costs approximating $925,000. At December 31, 1995,
the Company held no inventory as a result of the 1995 sale of the C-130H
simulator manufactured during 1992 and 1993 and held for sale.
Property, Plant and Equipment - Property, plant and equipment is
recorded at cost and depreciated using the straight-line method over the
estimated useful lives of the respective assets. Improvements to leased
premises are amortized over the related lease term. Cost and accumulated
depreciation on assets retired or disposed of are removed from the
accounts and any gains or losses resulting therefrom are credited or
charged to income.
<PAGE> 36<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 1 - Summary of Significant Accounting Policies (continued)
Investments - restricted - Investments - restricted, classified as a
non-current asset, represents short-term highly liquid investments held
in escrow as collateral for the Company's lease of the C-130H simulator
used in its training center in Tampa, Florida. The carrying amount of
investments - restricted approximates fair value. The terms of the lease
agreement are more fully described in Note 7.
Capitalized Interest - Interest is capitalized on the construction cost
of major capital additions during the period of construction. As a
result of the Company's long-term financing of the C-130J program with
Lockheed Martin Corporation ("LMC") as discussed in Note 5, interest
cost related to this financing is being charged to the program rather
than interest expense. For the year ended December 31, 1995, total
interest costs incurred, interest capitalized to the C-130J program, and
net interest expense were $2,718,000, $306,000, and $2,412,000,
respectively. For the year ended December 31, 1994, total interest costs
incurred, interest capitalized for major capital additions and net
interest expense were $1,350,000, $157,000, and $1,193,000,
respectively. For the year ended December 31, 1993, total interest costs
incurred, interest capitalized for major capital additions and net
interest expense were $340,000, $16,000, and $324,000, respectively.
Research and Development Costs - Research and development costs are
incurred under independent Company-initiated programs and customer
funded programs. Research and development costs incurred under
independent Company-initiated programs and charged through cost of sales
approximated $777,000, $1,031,000 and $3,021,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Income Taxes - Income taxes are provided based on the liability method
of accounting pursuant to Statement of Financial Accounting Standards
No. 109 ("Statement No. 109"), "Accounting for Income Taxes." The
adoption of Statement No. 109 did not materially impact the Company's
consolidated financial position or results of operations. Deferred
income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end. Because the Company
intends to continue to finance foreign operations by reinvestment of
undistributed earnings of its foreign subsidiary, U.S. income taxes are
not provided on such earnings and losses.
Reclassification - Certain prior year amounts have been reclassified to
conform to 1995 presentations.
<PAGE> 37<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 2 - Acquisition
On June 21, 1993, the Company purchased from British Aerospace all of
the issued and outstanding shares of common stock of British Aerospace
Simulation, Ltd. which had been a wholly owned subsidiary of British
Aerospace. The acquired entity has been renamed Reflectone UK Limited
("RUKL"). RUKL, with its facilities in Filton, England, designs,
develops and manufactures, through sophisticated electronic computer
simulation, tactical air defense trainers, electronic warfare training
systems and visual air traffic control simulators. RUKL's products are
complementary to other products produced in the Company's Training
Devices Segment and are marketed worldwide to government and commercial
customers.
The acquisition was accounted for as a reorganization of entities under
common control and the financial statements for periods prior to 1993
were restated on an "as if a pooling" basis as required by
Interpretation No. 39 of the Accounting Principles Board Opinion No. 16.
In accordance with the "as if a pooling" basis of accounting, the
aggregate costs of acquisition approximating $405,000 were charged to
shareholders' equity.
<PAGE> 38<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 3 - Receivables
Component elements of receivables consist of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Receivables
U.S. Government
Billed $ 5,363,973 $ 7,071,251
Unbilled 1,932,588 1,850,825
Unrecovered costs subject to future
negotiation -- not billed 1,400,000 3,000,000
___________ ___________
8,696,561 11,922,076
___________ ___________
Lockheed Aeronautical Systems Company
Billed - -
Unbilled 14,780,610 -
___________ ___________
14,780,610 -
___________ ___________
Commercial
Billed 2,554,538 7,846,807
Unbilled 558,023 928,851
Allowance for doubtful accounts (488,547) (82,580)
___________ ___________
2,624,014 8,693,078
___________ ___________
$26,101,185 $20,615,154
=========== ===========
Affiliates
Billed $ 545,729 $ 630,927
Unbilled 83,193 2,349,698
___________ ___________
$ 628,922 $ 2,980,625
=========== ===========
</TABLE>
Unbilled amounts represent the difference between revenue recognized for
financial reporting purposes and amounts contractually permitted to be
billed to customers. These amounts will be billed in subsequent periods
as progress billings, upon shipment of the product or completion of the
contract. Unbilled amounts are net of related progress payments in the
aggregate of approximately $33.0 million and $27.6 million as of
December 31, 1995 and 1994, respectively.
<PAGE> 39<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 3 - Receivables (continued)
Unrecovered costs subject to future negotiation include incremental
costs arising out of customer-occasioned unforeseen development work and
amounts for work performed not specified in express contract provisions.
In the fourth quarter of 1995, management revised downward its estimate
of the amounts recoverable under these actions through a charge of $1.6
million to cost of sales. The amounts recorded represent only a portion
of the total compensation sought by the Company from the customers.
Therefore, while any and all recoveries are subject to future
negotiations, the actual recoveries could be more or less than those
currently anticipated in the Company's consolidated financial
statements. Management has made provision for estimated future costs
associated with these actions as described in Note 7.
Under the terms of the Company's contract with Lockheed Martin
Corporation ("LMC") to design and manufacture two C-130J dynamic mission
simulators and other related training devices, the Company will not
receive a substantial portion of contractual payments from LMC until the
delivery and acceptance of the devices currently scheduled for the
fourth quarter of 1997.
It is anticipated that approximately $16.2 million of receivables will
not be collected within one year.
An allowance for doubtful accounts is provided based on historical
experience and after consideration of specific accounts and current
economic conditions.
Note 4 - Property, Plant and Equipment
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Machinery and equipment $ 8,819,569 $19,482,695
Furniture and office equipment 7,095,117 7,602,164
Leasehold improvements 2,355,227 2,197,120
___________ ___________
18,269,913 29,281,979
Less accumulated depreciation
and amortization 10,388,214 11,854,109
___________ ___________
$ 7,881,699 $17,427,870
=========== ===========
</TABLE>
During 1995, the Company sold its Jetstream 41 full flight simulator
having a net book value of $8.6 million and more fully described in
Note 13.
<PAGE> 40<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 5 - Credit Agreements and Borrowings
To date the Company has been unable to obtain adequate financing on
acceptable terms without recourse to British Aerospace. However,
pursuant to the terms of an Agreement for Credit Availability dated as
of August 7, 1995, British Aerospace has agreed, subject to its
continued ownership of a majority of the Company, to continue to provide
or guarantee the Company's current credit facilities at their current
levels through July 21, 1996. Renewal of the Company's credit facilities
beyond July 21, 1996 is, in large part, dependent upon British
Aerospace's willingness to continue to provide or guarantee these
facilities. By means of a letter dated February 27, 1996, British
Aerospace has represented to the Company that it intends to continue to
provide or guarantee the Company's credit facilities, as long as
financing is not available to the Company without recourse to British
Aerospace and British Aerospace continues to hold, or has the ability to
hold through the exercise of preferred stock conversion rights and
warrants to purchase common stock, a majority ownership position in the
Company. Based on the foregoing representations of British Aerospace,
management anticipates that the Company's current credit facilities will
be renewed annually. The Company's credit facilities and the Agreement
for Credit Availability with British Aerospace contain certain covenants
which, among other things, require: (i) the Company to be current with
respect to the payment of dividends on its 8% Cumulative Convertible
Preferred Stock prior to any draw under the British Aerospace provided
facilities, (ii) the Company to pay British Aerospace a facility fee of
50 basis points per annum on the maximum aggregate availability ($90.0
million) of the credit facilities provided or guaranteed by British
Aerospace, and (iii) the Company to pay British Aerospace a guarantee
fee of 3.25% per annum on amounts outstanding under the Company's $10.0
million revolving line of credit facility with Wachovia Bank of Georgia,
N.A. As required under the Company's current Agreement for Credit
Availability, the Company issued to British Aerospace warrants to
purchase 78,261 shares of the Company's common stock at any time prior
to August 7, 2005, at an exercise price equal to the lesser of (i)
$11.50 per share (the price of the common stock of the Nasdaq National
Market on August 7, 1995, the date of the execution of the Agreement for
Credit Availability), or (ii) the per share market price of the
Company's common stock on the date(s) of the exercise of the warrants.
In addition, the Company's Agreement for Credit Availability requires
that the Company obtain the prior approval by British Aerospace for all
material capital investment expenditures as defined in the Agreement for
Credit Availability.
<PAGE> 41<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 5 - Credit Agreements and Borrowings (continued)
The estimated fair value of the warrants are reflected in interest
expense as a cost of financing. Financing cost for these warrants was
approximately $243,000, of which approximately $108,000 were charged to
the C-130J contract and $135,000 were charged against income. Fair value
was estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions used: no dividend yield, expected
volatility of 85%, risk free interest rate of 6.2%, and expected lives
of 4 years.
During the second quarter of 1995, the Company renegotiated its $10.0
million revolving line of credit facility with Wachovia Bank of Georgia,
N.A. The Wachovia facility permits the Company to select loans bearing
interest at a floating prime rate or at a fixed rate of LIBOR plus .25%
and to specify, within limits, the period during which the selected
fixed interest rate will be in effect. At December 31, 1994, the
weighted average interest rate on these borrowings was 6.60%. The
weighted average interest rate on these borrowings for the years ended
December 31, 1995 and 1994 was 6.42% and 4.93%, respectively. The
agreement matures on June 28, 1996, and is supported by the corporate
guarantee of British Aerospace. At December 31, 1995, no borrowings were
outstanding under this line and therefore the full amount of this
facility was available.
During the fourth quarter of 1995, the Company renewed the Lloyds Bank
Plc (Lloyds) letter of credit facility through October 31, 1996. Under
the Lloyds facility, the Company may issue irrevocable standby letters
of credit and bank guarantees aggregating up to $20.0 million. The
Company pays a non-refundable commission on the stated amount of credits
issued for the actual number of days outstanding at 0.55% per annum. The
agreement is supported by the corporate guarantee of British Aerospace.
At December 31, 1995, there were approximately $14.9 million of credit
available under this agreement.
During the third quarter, the Company renegotiated its revolving line of
credit facility provided directly by British Aerospace Finance, Inc.
This facility provides for working capital borrowings aggregating up to
$20.0 million. An interest rate of LIBOR plus 3.50% per annum is charged
under this facility. The agreement matures on July 21, 1996 and permits
the Company to specify, within limits, the period during which the
borrowings will mature. At December 31, 1995 and 1994, the weighted
average interest rate on these borrowings was 6.125% and 8.63%,
respectively. The weighted average interest rate on these borrowings for
the years ended December 31, 1995 and 1994 was 8.70% and 4.45%,
respectively. At December 31, 1995 there were approximately $19.6
million of additional credit available under this facility.
<PAGE> 42<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 5 - Credit Agreements and Borrowings (continued)
As discussed in Note 3, the Company will not receive payments from LMC
under the terms of the C-130J contract until the fourth quarter of 1997.
Accordingly, during the third quarter, the Company negotiated a second
credit facility (the "C-130J Facility") with British Aerospace to
finance the Company's working capital needs with respect to the C-130J
contract with LMC. The financing facility currently provides for
borrowings aggregating up to $40.0 million and matures on July 21, 1996.
Draws under this facility are limited to actual costs incurred by the
Company and RUKL on the LMC C-130J program. Interest rates charged under
the C-130J facility are at LIBOR plus 1.50%. By means of a letter dated
February 27, 1996, British Aerospace has further represented that, as
long as British Aerospace continues to hold, or has the ability to hold
through the exercise of preferred stock conversion rights and warrants
to purchase common stock, a majority ownership position in the Company,
it intends to continue to provide annual financing for the C-130J
program until payment is received from LMC. At December 31, 1995, the
weighted average interest rate on these borrowings was 7.39% and there
were approximately $33.9 million of additional credit available. The
weighted average interest rate on these borrowings for the year ended
December 31, 1995 was 7.75%.
Note 6 - Income Taxes
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as
required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." The cumulative effect of adopting this
Statement as of January 1, 1993, was immaterial to net earnings.
<PAGE> 43<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 6 - Income Taxes (continued)
The consolidated income (loss) before income taxes, by domestic and
foreign source is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
United States $ 5,275,716 $(1,166,730) $ 3,738,326
United Kingdom 36,376 (1,682,571) (600,000)
___________ ___________ ___________
$ 5,312,092 $(2,849,301) $ 3,138,326
=========== =========== ===========
</TABLE>
The components of the provision for income taxes for 1993 through 1995
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current provision (benefit):
Federal $2,554,700 $ 105,000 $1,309,000
State 120,000 95,000 20,000
Foreign 118,853 - -
Benefit of net operating loss (700,000) - (1,284,000)
Benefit of investment tax credit (273,000) -
__________ __________ __________
Total current provision 1,820,553 200,000 45,000
Deferred income tax benefit 1,050,000 - -
__________ __________ __________
$ 770,553 $ 200,000 $ 45,000
========== ========== ==========
</TABLE>
The provision for income taxes differs from the amounts computed by
applying the federal statutory tax rate to income (loss) before taxes
for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory federal tax rate 34.00% (34.0%) 34.0%
Alternative minimum tax - 3.7 .8
Foreign tax differentials 2.00 20.1 6.5
Composite effective state tax rate 1.49 3.3 .6
Investment tax credits (5.13) - -
Tax benefit not currently utilizable - 12.7 -
Utilized operating losses (13.17) - (41.7)
Other (4.68) 1.2 1.2
______ ______ ______
14.51% 7.0% 1.4%
====== ====== ======
</TABLE>
<PAGE> 44<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 6 - Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The following is a summary of the tax effect of the
significant components of the Company's deferred tax assets and
liabilities as of December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Income recognition on long-term contracts $ 676,000 $ (462,000)
Depreciation (415,000) (228,000)
Accruals not deducted for tax purposes 1,460,000 1,198,000
Other 595,000 634,000
Investment tax credits 461,000 734,000
Alternative minimum tax credits 540,000 540,000
Net operating loss carryforwards - 901,000
Net operating loss carryforwards in the
United Kingdom 1,300,000 1,300,000
___________ __________
4,617,000 4,617,000
Valuation allowance for net deferred tax assets (3,567,000) (4,617,000)
___________ __________
Net deferred tax assets $ 1,050,000 $ -
=========== ==========
</TABLE>
The federal investment tax credits expire in varying amounts beginning
in 1999 and extending through 2001. The federal alternative minimum tax
credits can be carried forward indefinitely. The Company also has
approximately $4.1 million of loss carryforwards for tax purposes in the
United Kingdom, which are generally not limited by an expiration date.
The Company has recorded a valuation allowance with respect to the
future federal tax benefits, due to the uncertainty of their ultimate
realization. Reductions in the valuation allowance are based on
management's periodic evaluation of the utilization of future federal
tax benefits and result in a reduction to the Company's income tax
expense.
Note 7 - Commitments and Contingencies
The Company has asserted its rights to recovery of certain incremental
costs arising out of customer-occasioned unforeseen development work and
amounts for work performed not specified in express contract provisions
as more fully described in Note 3. Management has made provision for
future costs associated with these actions and believes the provision
established, approximating $1.1 million, is adequate for this purpose.
<PAGE> 45<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 7 - Commitments and Contingencies (continued)
During December 1994, the Company entered into an agreement for the sale
and leaseback of the Company's self constructed C-130H full flight
simulator, located at the Company's training center in Tampa, Florida.
The Company has a purchase option at fair market value at expiration of
the lease, and an early termination option which permits the Company to
purchase the simulator, contingent upon cancellation or failure to renew
an existing training contract or sale of the simulator to a third party
by the Company. The lease is classified as an operating lease in
accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases."
The book value and associated depreciation of the simulator,
approximating $7,819,000 and $735,000, respectively, were removed from
the accounts and the gain realized on the sale, approximating
$2,916,000, was deferred. The deferred gain is being credited to income
as rent expense adjustments over the 12-year lease term. Payments under
the lease approximate $1,396,000 annually.
The lease agreement requires the Company to escrow specified funds to be
held as collateral in the event of a default under the lease agreement.
The escrowed funds are held by British Aerospace Finance, Inc., as
Escrow Agent. The initial amount of funds held in escrow equals $5.0
million, of this amount $3.0 million are subject to future reduction
based on the Company's attainment of certain income and net worth
levels, and $2.0 million will be released over the initial 10 years of
the lease.
Total minimum rental payments at December 31, 1995, under agreements
classified as operating leases with noncancelable terms in excess of one
year, are as follows:
<TABLE>
<CAPTION>
Years Ending December 31 Amount
<C> <C>
1996 $ 2,264,000
1997 2,127,000
1998 2,041,000
1999 1,746,000
2000 1,396,000
Thereafter 9,575,000
___________
$19,149,000
===========
</TABLE>
The Company is obligated for payment of all operating expenses
associated with these leases. Lease expense for the years ended December
31, 1995, 1994 and 1993 was approximately $2,277,000, $1,197,000, and
$1,303,000, respectively.
<PAGE> 46<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 7 - Commitments and Contingencies (continued)
The Company is committed to future purchases, primarily for materials
for long-term contracts, of approximately $4,621,000.
Note 8 - Stock Dividend
On August 6, 1993, the Company's Board of Directors declared a 25
percent stock dividend. The stock dividend was distributed on September
1, 1993 to holders of record on August 18, 1993.
Note 9 - Earnings (Loss) Per Common Share
Primary earnings (loss) per share are based on the weighted average
number of common shares and common share equivalents outstanding and
give effect to the recognition of preferred dividend requirements.
Common share equivalents include dilutive stock options and warrants
using the treasury stock method.
Fully diluted earnings per share assumes, in addition to the above, (i)
that the Convertible Preferred Stock was converted at the beginning of
each period, (ii) that earnings were increased for preferred dividends
that would not have been incurred had conversion taken place, and, (iii)
the additional dilutive effect of stock options and warrants.
The numbers of shares used in the earnings per share computation are
detailed below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Primary
Weighted average common shares
outstanding 2,699,375 2,676,862 2,639,409
Dilutive effect of stock options
and warrants 129,124 102,688 150,034
_________ _________ _________
Average common shares outstanding 2,828,499 2,779,550 2,789,443
Fully diluted
Convertible preferred stock 500,000 500,000 500,000
Additional dilutive effect of stock
options and warrants 15,173 9,806 9,412
_________ _________ _________
Fully diluted assumed common shares
outstanding 3,343,672 3,289,356 3,298,855
========= ========= =========
</TABLE>
Fully diluted per share data is not disclosed since the effect would be
antidilutive.
<PAGE> 47<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 10 - Stock Options and Purchase Plan
The Company currently has three fixed option plans: the 1982 Incentive
Stock Option Plan ("1982 Plan"), the 1990 Stock Option Plan ("1990
Plan"), and the 1994 Stock Option Plan ("1994 Plan"). The 1982 Plan
permitted the granting of options to key employees to purchase the
Company's common stock at not less than the fair value at the time the
options were granted. The Company was authorized to grant options to
acquire up to 282,716 shares under the 1982 Plan. By its term, effective
March 31, 1992, no further options may be granted pursuant to the 1982
Plan. Both the 1990 Plan and the 1994 Plan permits the granting of
options to key employees to purchase the Company's common stock at not
less than 50% of the fair value at the time the options are granted. The
Company is authorized to grant options to acquire up to 250,000 shares
under the 1990 Plan and up to 200,000 shares under the 1994 Plan. Both
the 1990 Plan and the 1994 Plan permit the granting of incentive stock
options as defined under Section 422 of the Internal Revenue Code at an
exercise price for each option equal to the market price of the
Company's common stock on the date of grant and a maximum term of 10
years. Options not qualifying as incentive stock options under these
plans may be granted at an exercise price equal to as low as 50% of the
market price of the Company's common stock on the date of grant and with
no limit on the term of the option. Vesting of options granted under all
three plans is determined by the Company's Board of Directors, and has
generally been set at the end of three years.
A summary of the status of the Company's three fixed stock option plans
as of December 31, 1995, 1994 and 1993 and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 310,532 5.24 273,182 4.65 309,307 4.53
Granted 56,000 9.75 56,000 7.88 5,250 11.10
Exercised 65,711 4.13 9,900 2.57 38,875 4.58
Terminated - - 8,750 6.45 2,500 4.38
_______________________________________________________
Outstanding at
end of year 300,821 6.33 310,532 5.24 273,182 4.65
=======================================================
Options exercisable
at year end 183,571 174,907 124,157
=======================================================
</TABLE>
<PAGE> 48<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 10 - Stock Options and Purchase Plan (continued)
The following table summarizes information about stock options
outstanding at December 31, 1995:
<TABLE>
<CAPTION>
Weighted
Average
Range of Number Remaining Weighted
Exercise Outstanding Contractual Average
Prices at 12/31/95 Life Exercise Price
__________________________________________________________________________
<S> <C> <C> <C>
1.75 - 3.25 19,478 4 1.75
3.50 - 5.00 89,348 4 3.85
6.00 - 7.88 130,750 7 7.04
9.75 - 11.10 61,250 9 9.87
___________________________________________
300,821 7 6.33
===========================================
</TABLE>
<TABLE>
<CAPTION>
Number Weighted
Exercisable Average
at 12/31/95 Exercise Price
___________________________________________
<C> <C>
19,473 1.75
89,348 3.85
74,750 6.42
0 0.00
___________________________________________
183,571 5.42
===========================================
</TABLE>
<PAGE> 49<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 10 - Stock Options and Purchase Plan (continued)
During 1994, the Reflectone, Inc. Employee Stock Purchase Plan was
amended to reduce the maximum number of shares of the Company's common
stock that employees may acquire under this plan to 112,500 shares.
Employees are permitted to acquire shares of the Company's common stock
on a regular basis, through payroll deductions not exceeding 10% of base
wages, at a 10% discount from market price on the date of exercise.
Options under the plan are granted for an indeterminable number of
shares on the first day of each plan year, and normally will be
exercised automatically on the last day of each calendar quarter.
Transactions related to the plan are summarized as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
<S> <C> <C>
Available at December 31, 1992 162,304
Exercised (2,788) $ 8.69
Available at December 31, 1993 159,516
Plan amendment (75,000)
Exercised (6,325) $ 7.10
Available at December 31, 1994 78,191
Exercised (3,211) $10.11
_______
Available at December 31, 1995 74,980
=======
</TABLE>
The estimated fair value of options granted during 1995 was $6.42 per
share. The Company applies Accounting Principles Board Opinion No. 25
and related Interpretations in accounting for its stock option and
purchase plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans and its stock purchase plan. Had
compensation cost for the Company's stock option plans and its stock
purchase plan been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share for the
year ended December 31, 1995 would have been reduced to the pro forma
amounts indicated below:
Net income to common shareholders
As reported $3,837,539
Pro forma $3,723,918
Net income per common and common equivalent share
As reported $ 1.36
Pro forma $ 1.32
<PAGE> 50<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 10 - Stock Options and Purchase Plan (continued)
The fair value of options granted under the Company's fixed stock option
plans during 1995 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: no dividend yield, expected volatility of 85%, risk
free interest rate of 7.4%, and expected lives of 4 years. Pro forma
compensation cost of options granted under the Employee Stock Purchase
Plan is measured based on the discount from market value.
Note 11 - Employee Benefit Plans
The Company maintains an employee benefit plan covering substantially
all employees of Reflectone, Inc. and selected employees of the
Company's Training Services Segment who meet established eligibility
requirements. The plan provides for the Company to make contributions,
the amount of which are at the discretion of the Board of Directors,
which may not exceed applicable federal income tax limitations. Amounts
charged to expense were $826,000, $441,000 and $697,000, in 1995, 1994
and 1993, respectively. The plan also provides for employee savings, on
which the Company contributes an amount equal to 50% of the employee's
participation to a maximum of 3% of eligible wages. Company
contributions charged to expense were $359,000, $362,000 and $328,000 in
1995, 1994 and 1993, respectively. The Company's policy is to fund
benefit costs quarterly as accrued.
The Company maintains a contributory savings plan for substantially all
field service employees of its Training Services Segment. Through
September 1993, the Company contributed an amount equal to 3% of the
employees' eligible wages to this plan. The Company contributed $148,000
to this plan in 1993. Effective October 1, 1993, the Company no longer
contributes to this plan.
RUKL participates in the British Aerospace Pension Plan which, under
Financial Accounting Standard No. 87, "Employers' Accounting for
Pensions," is a defined benefit pension plan administered by British
Aerospace. The assets of the plan are held in trustee administered
funds. The Company incurred pension expense of approximately $176,000,
$158,000 and $124,000 for the years ended December 31, 1995, 1994 and
1993, respectively. The pension liability at December 31, 1995 and 1994
was approximately $457,000 and $528,000, respectively.
<PAGE> 51<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 12 - Financing and Investing Activities Not Affecting Cash
During June 1994, the Company received a promissory note receivable of
approximately $4,352,000 resulting from the sale of a simulator.
During 1993, prior to the Company's acquisition of RUKL, British
Aerospace increased RUKL's contributed capital by approximately
$4,763,000 by converting amounts due to British Aerospace included in
due to affiliate into capital.
Note 13 - Related Party Transactions
The Company is a majority owned subsidiary of British Aerospace and in
the course of its operations transacts business with various entities of
British Aerospace. At December 31, 1995, British Aerospace held
1,375,000 shares, or 50% of the outstanding common stock of the Company,
together with 100% of the outstanding convertible preferred stock. As
the holder of 50% of the outstanding shares of common stock, British
Aerospace has the power to determine the membership of the Company's
Board of Directors; however, British Aerospace is subject to
restrictions contained in a Special Security Agreement ("SSA") between
the Company, British Aerospace and the Department of Defense. Under the
terms of the SSA, British Aerospace is limited to the selection or
approval of two directors who may be affiliated with British Aerospace.
As the majority shareholder, British Aerospace has the power to decide
other matters submitted for shareholder approval.
On March 22, 1996, the Company's bylaws were amended by the Board of
Directors subject to United States Defense Investigative Service approval as
provided for under the SSA, to increase the Board of Directors from seven to a
maximum of eight directors, of which three directors may be affiliated with
British Aerospace.
Each share of the preferred stock has a liquidation preference of $176
plus accrued and unpaid dividends, accrues dividends at a rate of 8% on
the liquidation preference, is callable by the Company after June 1,
1998 and is convertible into ten shares of common stock. As further
discussed in Note 5, during 1995 British Aerospace was issued warrants
to purchase 78,261 shares of the Company's common stock at any time
prior to August 7, 2005. At December 31, 1995, a total of 578,261 shares
of unissued common stock were reserved for issuance upon conversion of
preferred stock and exercise of warrants. After conversion of the
preferred stock and exercise of warrants, British Aerospace would hold
approximately 58.7% of the Company's outstanding shares, assuming no
additional common shares had been issued. During the years ended
December 31, 1995, 1994 and 1993 cash dividends paid by the Company on
the preferred stock were $704,000 per year.
<PAGE> 52<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 13 - Related Party Transactions (continued)
Subject to the terms and conditions of the Agreement for Credit
Availability dated as of August 7, 1995, British Aerospace has agreed to
continue to provide or guarantee the Company's current credit facilities
through July 21, 1996. By means of a letter dated February 27, 1996,
British Aerospace has further represented to the Company that it intends
to continue to provide or guarantee the Company's credit facilities, as
long as financing is not available to the Company without recourse to
British Aerospace and British Aerospace continues to hold, or has the
ability to hold through the exercise of exercise of preferred stock
conversion rights and warrants to purchase common stock, a majority
ownership position in the Company. These credit arrangements are more
fully described in Note 5.
In the course of conducting its business, the Company enters into
contracts and agreements with British Aerospace for the sale of
simulation equipment. In the year ended December 31, 1995, revenues and
cost of sales derived from these transactions approximated $23.1 million
and $18.4 million, respectively. In the year ended December 31, 1994,
revenues and costs of sales derived from these transactions approximated
$4.7 million and $4.1 million, respectively. In the year ended December
31, 1993, revenues and costs of sales derived from these transactions
approximated $8.9 million and $2.4 million, respectively. At December
31, 1995, the Company's receivables and advance billings included
approximately $629,000 and $4.6 million, respectively, arising from
transactions with British Aerospace. At December 31, 1994, receivables
and advance billings from such transactions approximated $3.0 million
and $67,000, respectively. The Company's sales backlog from contracts or
agreements with British Aerospace approximated $27.6 million at December
31, 1995.
In connection with the acquisition of RUKL from British Aerospace (Note
2), the Company assumed payment guarantees and performance bonds which
approximated $929,000 at December 31, 1995 and are counter indemnified
by British Aerospace.
The Company leases the RUKL facilities from British Aerospace and
receives certain administrative services on a fee-for-service basis. For
the years ended December 31, 1995, 1994 and 1993, the Company paid
British Aerospace approximately $487,000, $491,000 and $484,000,
respectively, for the facilities lease and administrative services.
The Company's employees at RUKL participate in the British Aerospace
Pension Plan (Note 11).
<PAGE> 53<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 13 - Related Party Transactions (continued)
The escrow of funds required by the Company's lease of the C-130H
Simulator (Note 7) is administrated by British Aerospace Finance, Inc.,
as escrow agent, under the terms and conditions of the escrow agreement
between the Company, the lessor and British Aerospace. The amount held
in escrow at December 31, 1995 was $5.0 million.
Prior to January 1, 1996, the Company's management agreement with
British Aerospace to manage its flight training center near Washington
D.C.'s Dulles International Airport required the Company to pay a
facility fee based, in part, on the achievement of specified levels of
revenues at the training center. For the years ended December 31, 1995,
1994 and 1993, the Company paid facility fees in the amount of
approximately $2.2 million, $1.7 million and $1.2 million, respectively,
which included fees approximating $1,385,000, $966,000 and $650,000,
respectively, based on revenues. In addition, during 1995, 1994 and 1993 the
Company recognized approximately $2.9 million, $1.5 million and $1.4 million,
respectively, in revenues at the Dulles Training Center from the sale of
training services to British Aerospace.
Effective January 1, 1996 the management agreement to manage the British
Aerospace owned training center was modified. Under the terms of the
revised management agreement, the Company will receive a fixed fee of
$500,000 annually and will be reimbursed by British Aerospace for the
Company's out-of-pocket costs associated with the training center.
Concurrently with the revision of the management agreement, on December
21, 1995 the Company sold to British Aerospace, for approximately $8.6
million, its Jetstream 41 full flight simulator used at the training
center. No significant gain or loss resulted from the sale.
During 1995, 1994 and 1993, the Company incurred interest expense of
approximately $1,951,000, $784,000 and $106,000, respectively, resulting
from borrowings under the line of credit agreement with British
Aerospace Finance, Inc.
As more fully described in Note 14, the Company has entered into forward
exchange contracts to which British Aerospace is the counterparty to
these instruments.
The Company has an arrangement with British Aerospace whereby the
majority of the Company's commercial insurance coverages are provided as
an additional named insured under preexisting policies and programs
providing like coverages to British Aerospace and its subsidiaries. Some
of the coverage is underwritten by BAe Insurance, Ltd., a captive
insurer wholly owned by British Aerospace. For coverage provided during
the years ended December 31, 1995, 1994 and 1993, the Company made
premium payments totaling approximately $642,000, $570,000 and $574,000.
<PAGE> 54<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 14 - Financial Instruments with Off-Balance-Sheet Risk,
Concentrations of Credit Risk and Fair Value of Financial Instruments
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to help meet financing needs and
to reduce exposure to fluctuating foreign currency exchange rates. The
Company is exposed to credit loss in the event of nonperformance by the
other parties to the financial instruments described below. However, the
Company does not anticipate nonperformance by the other parties.
The Company's hedging strategy is facilitated by its ability to borrow
in foreign currencies under its revolving credit facility and the C-130J
credit facility provided by British Aerospace. This strategy has reduced
the Company's vulnerability to certain of its foreign currency
exposures, and the Company expects to continue this practice in the
future to the extent appropriate. The Company does not engage in
speculative hedging activities, nor does the Company hedge
nontransaction-related balance sheet exposure. The Company has entered
into forward exchange contracts to reduce the Company's exposure to
foreign currency exchange risk associated with payments for major
subcontractor elements and other requirements of the C-130J program. The
forward contracts should not subject the Company to risk from exchange
movement because gains and losses on these contracts offset losses and
gains on the transactions being hedged. However, the amount and timing
of the program costs were estimated and changes in these estimates could
result in future gains or losses from exchange rate movements. At
December 31, 1995, the Company had $15,064,000 of forward exchange
contracts outstanding to purchase British pounds. These contracts mature
quarterly in varying amounts from March 1996 to June 1997. British
Aerospace is the counterparty to these instruments. During the years
ended December 31, 1995 and 1994, the Company recorded losses of
approximately $97,000 and $63,000, respectively, related to its hedging
activities.
At December 31, 1995, the Company had outstanding standby letters of
credit of approximately $5.1 million issued under an agreement expiring
in October 1996 and maintained primarily as security against performance
and advances received on long-term contracts. The agreement provides a
maximum aggregate commitment for $20.0 million.
Pursuant to the acquisition of RUKL (Note 2), the Company assumed
certain payment guarantees and performance bonds relating to long-term
contracts expiring in 1996. These payment guarantees and performance
bonds approximated $929,000 at December 31, 1995 and are counter
indemnified by British Aerospace.
<PAGE> 55<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 14 - Financial Instruments with Off-Balance-Sheet Risk,
Concentrations of Credit Risk and Fair Value of Financial Instruments
(continued)
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash equivalents, investments -
restricted and receivables. The Company's cash equivalents and
restricted investments are high quality securities placed with financial
institutions or an affiliate. Concentrations of credit risk with respect
to receivables from customers are disclosed in Notes 3 and 12.
The following table presents the carrying value and estimated fair value
as of December 31, 1995, of the Company's financial instruments
reportable pursuant to Statement of Financial Accounting Standards No.
107, "Disclosures about Fair Value of Financial Instruments."
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
<S> <C> <C>
Assets:
Cash and cash equivalents $ 4,582,021 $ 4,582,021
Long-term note receivable 3,558,000 3,558,000
Investments - restricted 5,000,000 5,000,000
Liabilities:
Borrowings on line of credit
- affiliate $6,513,666 $6,513,666
Forward currency contracts 329,000 460,000
</TABLE>
The carrying amount of cash equivalents, investments - restricted,
borrowings on bank line of credit, and borrowing on line of credit -
affiliate approximates fair value because of the short maturity of these
instruments. The fair value of the long-term note receivable is the
amount paid by the customer in January 1996 in settlement of the
outstanding balance. The fair values of the Company's forward currency
contracts are based on quoted market prices of these or similar
instruments, adjusted for maturity differences. In management's opinion,
the cost to obtain replacement standby letters of credit for those
currently outstanding would not significantly vary from the present fee
structure.
<PAGE> 56<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 15 - Segment and Geographic Information
The Company operates in three business segments: Training Devices,
Training Services and Systems Management. The Training Devices Segment
designs and manufactures flight simulators, weapon system trainers,
tactical air defense trainers, small arms trainers, entertainment
devices, maintenance trainers and other sophisticated training devices.
The Training Services Segment provides a full range of training support,
including device maintenance, training system development and operation,
and flight and ground school instruction. The Systems Management Segment
manages complex programs requiring the services of both the Training
Device and Training Services segments. Intersegment sales are accounted
for at cost. Segment income represents sales, less related expenses, and
excludes interest and corporate expense. Identifiable assets represent
those assets used in the operation of each segment. Corporate assets are
principally cash and net property, plant and equipment.
Sales to the United States Government under prime contracts and
subcontracts approximated $34.6 million, $31.8 million and $23.4 million
for 1995, 1994 and 1993, respectively. In 1995 and 1993, sales by the
Training Devices Segment and Systems Management Segment to affiliates
exceeded 10% of total revenue, as more fully described in Note 13. In
1993 sales to a Pacific Rim government approximated $13.8 million.
United States sales to unaffiliated customers include exports to the
Asia Pacific region of $5.3 million, $8.4 million and $17.1 million in
1995, 1994 and 1993, respectively.
<PAGE> 57<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 15 - Segment and Geographic Information (continued)
The following tabulation summarizes certain information relating to the
Company's business segments:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues
Training Devices
Non-affiliate $33,735,013 $19,480,721 $17,864,240
Affiliate 8,422,355 3,245,362 7,532,562
Intersegment 6,584,837 4,183,744 7,745,503
Training Services
Non-affiliate 35,386,913 31,752,370 22,516,473
Affiliate 3,171,010 1,487,323 1,379,498
Intersegment 127,880 150,173 137,729
Systems Management
Non-affiliate 1,320,559 9,172,408 13,825,268
Affiliate 11,488,389 - -
Intersegment 5,873 13,685 88,806
Eliminations (6,718,590) (4,347,602) (7,972,038)
___________ ___________ ___________
$93,524,239 $65,138,184 $63,118,041
=========== =========== ===========
Income (loss) before income taxes
Training Devices $ 3,092,719 $ (785,917) $ 2,926,490
Training Services 5,011,535 4,947,745 3,416,787
Systems Management 2,486,996 (661,943) 278,264
Interest and corporate expenses (5,279,158) (6,349,186) (3,483,215)
___________ ___________ ___________
$ 5,312,092 $(2,849,301) $ 3,138,326
=========== =========== ===========
Identifiable assets at end of period
Training Devices $38,948,730 $39,828,376 $32,879,633
Training Services 7,640,933 12,283,457 12,721,373
Corporate and other 4,133,922 11,682,552 1,488,724
___________ ___________ ___________
$50,723,585 $63,794,385 $47,089,730
=========== =========== ===========
Depreciation and amortization
Training Devices $ 2,151,450 $ 1,412,733 $ 1,197,646
Training Services 149,292 466,566 356,581
Corporate and other 5,848 14,739 18,968
___________ ___________ ___________
$ 2,306,590 $ 1,894,038 $ 1,573,195
=========== =========== ===========
Capital expenditures
Training Devices $ 1,401,485 $ 1,690,060 $ 5,076,865
Training Services 17,623 6,050,141 3,921,279
Corporate and other 8,070 3,408 3,454
___________ ___________ ___________
$ 1,427,178 $ 7,743,609 $ 9,001,598
=========== =========== ===========
</TABLE>
<PAGE> 59<PAGE>
Notes to Consolidated Financial Statements (continued)
Note 15 - Segment and Geographic Information (continued)
Sales and transfers between geographic areas are generally priced to
recover costs plus an appropriate mark-up for profit. A summary of the
Company's operations by geographic area is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues
United States
Non-affiliate $51,844,186 $55,458,698 $48,729,650
Affiliate 23,081,754 4,732,685 6,640,147
Intraenterprise 7,930,132 405,109 2,778,360
United Kingdom
Non-affiliate 18,598,299 4,946,801 5,476,331
Affiliate - - 2,271,913
Eliminations (7,930,132) (405,109) (2,778,360)
___________ ___________ ___________
$93,524,239 $65,138,184 $63,118,041
=========== =========== ===========
Income (loss) before income taxes
United States $ 5,275,716 $(1,166,730) $ 3,738,326
United Kingdom 36,376 (1,690,643) 2,610,777
Eliminations - 8,072 (3,210,777)
___________ ___________ ___________
$ 5,312,092 $(2,849,301) $ 3,138,326
=========== =========== ===========
Identifiable assets at end of period
United States $33,963,793 $59,965,978 $41,537,952
United Kingdom 16,759,792 3,828,407 5,551,778
___________ ___________ ___________
$50,723,585 $63,794,385 $47,089,730
</TABLE>
<PAGE> 60<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the balance sheet of Reflectone UK Limited as of 31
December 1995 and 1994 and the profit and loss account and cash flow
statement for the years ended 31 December 1995 and 1994 together with
the accompanying notes, set out on pages 5 to 18 in the attached
document. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion of
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Reflectone
UK Limited as at 31 December 1995 and 1994, the results of its operations
and its cash flow statement for eachof the two years ended 31 December 1995,
in conformity with generally accepted accounting principles.
KPMG 15 March 1996
Bristol, England
<PAGE> 61<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the balance sheet of Reflectone UK Limited as of 31
December 1994 and 1993 and the profit and loss account and cash flow
statement for the years ended 31 December 1994 and 1993 together with
the accompanying notes, set out on pages 5 to 18 in the attached
document. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion of
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Reflectone
UK Limited as 31 December 1994 and 1993, the results of their operations
and their cash flow statement for each of the three years ended 31
December 1994, in conformity with generally accepted accounting
principles.
KPMG 7 February 1995
Bristol, England
<PAGE> 62<PAGE>
(a)(3) Exhibits
The following documents are filed as exhibits to this Report:
Exhibit
Number
3.1 Amended and Restated Articles of Incorporation of the Registrant, as
amended and restated through August 15, 1988 (incorporated by reference
to Exhibit 3.1 filed with Report on Form 10-K of Reflectone, Inc. for
the year ended December 31, 1993)
3.2 Designation of Relative Rights and Preferences and Other Terms of 8%
Cumulative Convertible Preferred Stock (incorporated by reference to
Exhibit 3.2 filed with Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1993)
3.3 Bylaws of the Registrant, as amended and restated through August 7,
1992 (incorporated by reference to Exhibit 3.3 filed with Report on
Form 10-K of Reflectone, Inc. for the year ended December 31, 1993)
4.1 Agreement pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K with
respect to documents evidencing certain long-term debt of the
Registrant (incorporated by reference to Exhibit 4.2 filed with the
Report on Form 10-K of Reflectone, Inc. for the year ended December 31,
1991)
10.1 1982 Incentive Stock Option Plan, as amended through April 27, 1987
(incorporated by reference to Exhibit 10.1 filed with Report on Form
10-K of Reflectone, Inc. for the year ended December 31, 1992)
10.2 Reflectone, Inc. 1990 Stock Option Plan, as amended through November 7,
1991 (incorporated by reference to Exhibit 19.4 filed with the Report
on Form 10-Q of Reflectone, Inc. for the quarter ended September 30,
1991)
10.3 Reflectone, Inc. 1994 Stock Option Plan (incorporated by reference to
Exhibit 10.3 filed with Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1994)
10.4 Stock Option Agreement with Richard G. Snyder under the Reflectone,
Inc. 1990 Stock Option Plan dated as of February 8, 1990 (incorporated
by reference to Exhibit 10.4 filed with Report on Form 10-K of
Reflectone, Inc. for the year ended December 31, 1994)
10.5 Form of Stock Option Agreement with Robert L. Kirk under the
Reflectone, Inc. 1990 Stock Option Plan (incorporated by reference to
Exhibit 10.5 filed with Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1994)
<PAGE> 63<PAGE>
Exhibit
Number
10.6 Reflectone, Inc. Variable Incentive Compensation Plan, as in effect for
the year ending December 31, 1992 (incorporated by reference to Exhibit
10.5 filed with the Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1991)
10.7 Lease to Build Agreement dated December 28, 1978, between Reflectone,
Inc. and Tampa West Industrial Park, Inc.
10.8 Amendments to Exhibit 10.6 dated March 26, 1979 (Amend. No. 1), May 10,
1979 (Amend. No. 2), February 15, 1980 (Amend. No. 3), June 4, 1980
(letter agreement), and July 10, 1980 (Amend. No. 4) (incorporated by
reference to Exhibit 5(b)(2) to the Registration Statement of
Reflectone, Inc. on Form S-7 filed with the Commission on September 9,
1980)
10.9 Amendments No. 5 and 6, dated August 11, 1982 and June 8, 1984,
respectively, to Exhibit 10.6, together with Memorandum of Building
Addition Lease dated August 11, 1982
10.10 Lease to Build Addition Agreement dated August 11, 1982 between
Reflectone, Inc. and Tampa West Industrial Park, Inc. and First
Amendment to Lease to Build Addition Agreement dated December 29, 1982
between Reflectone, Inc. and Tampa West Industrial Park, Inc.
10.11 Basic Agreement dated August 11, 1982 between Reflectone, Inc. and
Tampa West Industrial Park, Inc. and First Amendment to Basic
Agreement dated December 29, 1982
10.12 $20,000,000 Borrowing Facility Agreement between Reflectone, Inc. and
British Aerospace Finance, Inc. dated as of July 21, 1995 (incorporated
by reference to Exhibit 10.12 filed with Report on Form 10-Q of
Reflectone, Inc. for the quarter ended June 30, 1995)
10.13 Agreement for Credit Availability between Reflectone, Inc. and British
Aerospace Plc. dated August 7, 1995 (incorporated by reference to
Exhibit 10.13 filed with Report on Form 10-Q of Reflectone, Inc. for
the quarter ended June 30, 1995)
10.14 $40,000,000 Borrowing Facility Agreement C-130J Program between
Reflectone, Inc. and British Aerospace Finance, Inc. dated as of July
21, 1995 (incorporated by reference to Exhibit 10.30 filed with Report
on Form 10-Q of Reflectone, Inc. for the quarter ended June 30, 1995)
10.15 $10,000,000 Revolving Line of Credit Agreement between Reflectone, Inc.
and Wachovia Bank of Georgia, N.A. dated June 30, 1995 (incorporated by
reference to Exhibit 10.15 filed with Report on Form 10-Q of
Reflectone, Inc. for the quarter ended June 30, 1995)
<PAGE> 64<PAGE>
Exhibit
Number
10.16 $20,000,000 Letter of Credit Agreement between Lloyds Bank Plc and
Reflectone, Inc. dated November 1, 1995
10.17 Representation from British Aerospace Public Limited Company that it
intends to continue to provide or guarantee Reflectone, Inc.'s credit
facilities dated February 27, 1996
10.18 Form of Indemnification Agreement between the Registrant and its
directors
10.19 Form of Indemnification Agreement between the Registrant and certain of
its officers
10.20 Subscription Agreement between British Aerospace Holdings, Inc. and
Reflectone, Inc., dated as of May 23, 1988 (incorporated by reference
to Exhibit 10.20 filed with Report on Form 10-K of Reflectone, Inc. for
the year ended December 31, 1994)
10.21 Stock Purchase Agreement between British Aerospace Holdings, Inc. and
Reflectone, Inc. dated as of September 15, 1989 (incorporated by
reference to Exhibit 10.21 filed with Report on Form 10-K of
Reflectone, Inc. for the year ended December 31, 1994)
10.22 Summary of Special Security Agreement Among British Aerospace Public
Limited Company, British Aerospace Holdings, Inc., Reflectone, Inc.,
and the Department of Defense (incorporated by reference to Exhibit
filed with the Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1993)
10.23 Flight Training Center Management Agreement between British Aerospace,
Inc. and Reflectone Training Systems, Inc. dated as of March 17, 1993
(incorporated by reference to Exhibit 10.24 filed with the Report on
Form 10-K of Reflectone, Inc. for the year ended December 31, 1992)
10.24 Purchase Agreement between Reflectone, Inc. and British Aerospace Plc.
dated June 21, 1993 (incorporated by reference to Exhibit 2.1 filed
with the Report on Form 8-K of Reflectone as of June 21, 1993)
10.25 Employment Agreement between the Company and Richard G. Snyder dated
January 16, 1990 (incorporated by reference to Exhibit 10.22 filed with
the Report on Form 10-K of Reflectone, Inc. for the year ended December
31, 1993)
10.26 Purchase Agreement Between MDFC Equipment Leasing Corporation and
Reflectone Training Systems, Inc. dated December 29, 1994 (incorporated
by reference to Exhibit 10.26 filed with Report on Form 10-K of
Reflectone, Inc. for the year ended December 31, 1994)
<PAGE> 65<PAGE>
Exhibit
Number
10.27 Equipment Lease Agreement, Amendment No. 1, and Lease Rider No. 1,
between MDFC Equipment Leasing Corporation and Reflectone Training
Systems, Inc. dated December 29, 1994 (incorporated by reference to
Exhibit 10.27 filed with Report on Form 10-K of Reflectone, Inc. for
the year ended December 31, 1994)
10.28 Escrow Agreement between Reflectone Training Systems, Inc., MDFC
Equipment Leasing Corporation, and British Aerospace Finance, Inc.
dated December 29, 1994 (incorporated by reference to Exhibit 10.28
filed with Report on Form 10-K of Reflectone, Inc. for the year ended
December 31, 1994)
22.1 Subsidiaries of Reflectone, Inc. (incorporated by reference to Exhibit
22.1 filed with the Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1993)
24.1 Accountants' Consent to Incorporation by reference in the Registrant's
Registration Statements Nos. 2-82048, 33-3059, 33-37077, and 33-79912
on Form S-8
<PAGE> 66<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 1995.
<PAGE> 67<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REFLECTONE, INC.
(Registrant)
Date: March 22, 1996 By: /s/Richard G. Snyder
Richard G. Snyder
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Date: March 22, 1996 By: /s/Richard G. Snyder
Richard G. Snyder
President, Chief Executive Officer,
and Director
(Principal Executive Officer)
Date: March 22, 1996 By: /s/Richard W. Welshhans
Richard W. Welshhans
Vice President- Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: March 22, 1996 By: /s/Stella F. Thayer
Stella F. Thayer
Chairman of the Board
<PAGE> 68<PAGE>
Date: March 22, 1996 By: /s/Edward W. Bettke
Edward W. Bettke
Director
Date: March 22, 1996 By: /s/David R. Fish
David R. Fish
Director
Date: March 22, 1996 By: /s/Sydney Gillibrand
Sydney Gillibrand
Director
Date: March 22, 1996 By: /s/Robert F. Schoultz
Robert F. Schoultz
Director
Date: March 22, 1996 By: /s/Dale R. States
Dale R. States
Director
<PAGE> 69<PAGE>
REFLECTONE, INC.
FORM 10-K
(For the Year Ended December 31, 1995)
EXHIBIT INDEX
EXHIBIT
NUMBER
3.1 Amended and Restated Articles of Incorporation of the Registrant, as
amended and restated through August 15, 1988 (incorporated by reference
to Exhibit 3.1 filed with Report on Form 10-K of Reflectone, Inc. for
the year ended December 31, 1993)
3.2 Designation of Relative Rights and Preferences and Other Terms of 8%
Cumulative Convertible Preferred Stock (incorporated by reference to
Exhibit 3.2 filed with Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1993)
3.3 Bylaws of the Registrant, as amended and restated through August 7,
1992 (incorporated by reference to Exhibit 3.3 filed with Report on
Form 10-K of Reflectone, Inc. for the year ended December 31, 1993)
4.1 Agreement pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K with
respect to documents evidencing certain long-term debt of the
Registrant (incorporated by reference to Exhibit 4.2 filed with the
Report on Form 10-K of Reflectone, Inc. for the year ended December 31,
1991)
10.1 1982 Incentive Stock Option Plan, as amended through April 27, 1987
(incorporated by reference to Exhibit 10.1 filed with Report on Form
10-K of Reflectone, Inc. for the year ended December 31, 1992)
10.2 Reflectone, Inc. 1990 Stock Option Plan, as amended through November 7,
1991 (incorporated by reference to Exhibit 19.4 filed with the Report
on Form 10-Q of Reflectone, Inc. for the quarter ended September 30,
1991)
10.3 Reflectone, Inc. 1994 Stock Option Plan (incorporated by reference to
Exhibit 10.3 filed with Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1994)
10.4 Stock Option Agreement with Richard G. Snyder under the Reflectone,
Inc. 1990 Stock Option Plan dated as of February 8, 1990 (incorporated
by reference to Exhibit 10.4 filed with Report on Form 10-K of
Reflectone, Inc. for the year ended December 31, 1994)
<PAGE> 70<PAGE>
EXHIBIT
NUMBER
10.5 Form of Stock Option Agreement with Robert L. Kirk under the
Reflectone, Inc. 1990 Stock Option Plan (incorporated by reference to
Exhibit 10.5 filed with Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1994)
10.6 Reflectone, Inc. Variable Incentive Compensation Plan, as in effect for
the year ending December 31, 1992 (incorporated by reference to Exhibit
10.5 filed with the Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1991)
10.7 Lease to Build Agreement dated December 28, 1978, between Reflectone,
Inc. and Tampa West Industrial Park, Inc.
10.8 Amendments to Exhibit 10.6 dated March 26, 1979 (Amend. No. 1), May 10,
1979 (Amend. No. 2), February 15, 1980 (Amend. No. 3), June 4, 1980
(letter agreement), and July 10, 1980 (Amend. No. 4) (incorporated by
reference to Exhibit 5(b)(2) to the Registration Statement of
Reflectone, Inc. on Form S-7 filed with the Commission on September 9,
1980)
10.9 Amendments No. 5 and 6, dated August 11, 1982 and June 8, 1984,
respectively, to Exhibit 10.6, together with Memorandum of Building
Addition Lease dated August 11, 1982
10.10 Lease to Build Addition Agreement dated August 11, 1982 between
Reflectone, Inc. and Tampa West Industrial Park, Inc. and First
Amendment to Lease to Build Addition Agreement dated December 29, 1982
between Reflectone, Inc. and Tampa West Industrial Park, Inc.
10.11 Basic Agreement dated August 11, 1982 between Reflectone, Inc. and
Tampa West Industrial Park, Inc. and First Amendment to Basic
Agreement dated December 29, 1982
10.12 $20,000,000 Borrowing Facility Agreement between Reflectone, Inc. and
British Aerospace Finance, Inc. dated as of July 21, 1995 (incorporated
by reference to Exhibit 10.12 filed with Report on Form 10-Q of
Reflectone, Inc. for the quarter ended June 30, 1995)
10.13 Agreement for Credit Availability between Reflectone, Inc. and British
Aerospace Plc. dated August 7, 1995 (incorporated by reference to
Exhibit 10.13 filed with Report on Form 10-Q of Reflectone, Inc. for
the quarter ended June 30, 1995)
10.14 $40,000,000 Borrowing Facility Agreement C-130J Program between
Reflectone, Inc. and British Aerospace Finance, Inc. dated as of July
21, 1995 (incorporated by reference to Exhibit 10.30 filed with Report
on Form 10-Q of Reflectone, Inc. for the quarter ended June 30, 1995)
<PAGE> 71<PAGE>
EXHIBIT
NUMBER
10.15 $10,000,000 Revolving Line of Credit Agreement between Reflectone, Inc.
and Wachovia Bank of Georgia, N.A. dated June 30, 1995 (incorporated by
reference to Exhibit 10.15 filed with Report on Form 10-Q of
Reflectone, Inc. for the quarter ended June 30, 1995)
10.16 $20,000,000 Letter of Credit Agreement between Lloyds Bank Plc and
Reflectone, Inc. dated November 1, 1995
10.17 Representation from British Aerospace Public Limited Company that it
intends to continue to provide or guarantee Reflectone, Inc.'s credit
facilities dated February 27, 1996
10.18 Form of Indemnification Agreement between the Registrant and its
directors
10.19 Form of Indemnification Agreement between the Registrant and certain of
its officers
10.20 Subscription Agreement between British Aerospace Holdings, Inc. and
Reflectone, Inc., dated as of May 23, 1988 (incorporated by reference
to Exhibit 10.20 filed with Report on Form 10-K of Reflectone, Inc. for
the year ended December 31, 1994)
10.21 Stock Purchase Agreement between British Aerospace Holdings, Inc. and
Reflectone, Inc. dated as of September 15, 1989 (incorporated by
reference to Exhibit 10.21 filed with Report on Form 10-K of
Reflectone, Inc. for the year ended December 31, 1994)
10.22 Summary of Special Security Agreement Among British Aerospace Public
Limited Company, British Aerospace Holdings, Inc., Reflectone, Inc.,
and the Department of Defense (incorporated by reference to Exhibit
filed with the Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1993)
10.23 Flight Training Center Management Agreement between British Aerospace,
Inc. and Reflectone Training Systems, Inc. dated as of March 17, 1993
(incorporated by reference to Exhibit 10.24 filed with the Report on
Form 10-K of Reflectone, Inc. for the year ended December 31, 1992)
10.24 Purchase Agreement between Reflectone, Inc. and British Aerospace Plc.
dated June 21, 1993 (incorporated by reference to Exhibit 2.1 filed
with the Report on Form 8-K of Reflectone as of June 21, 1993)
10.25 Employment Agreement between the Company and Richard G. Snyder dated
January 16, 1990 (incorporated by reference to Exhibit 10.22 filed with
the Report on Form 10-K of Reflectone, Inc. for the year ended December
31, 1993)
<PAGE> 72<PAGE>
EXHIBIT
NUMBER
10.26 Purchase Agreement Between MDFC Equipment Leasing Corporation and
Reflectone Training Systems, Inc. dated December 29, 1994 (incorporated
by reference to Exhibit 10.26 filed with Report on Form 10-K of
Reflectone, Inc. for the year ended December 31, 1994)
10.27 Equipment Lease Agreement, Amendment No. 1, and Lease Rider No. 1,
between MDFC Equipment Leasing Corporation and Reflectone Training
Systems, Inc. dated December 29, 1994 (incorporated by reference to
Exhibit 10.27 filed with Report on Form 10-K of Reflectone, Inc. for
the year ended December 31, 1994)
10.28 Escrow Agreement between Reflectone Training Systems, Inc., MDFC
Equipment Leasing Corporation, and British Aerospace Finance, Inc.
dated December 29, 1994 (incorporated by reference to Exhibit 10.28
filed with Report on Form 10-K of Reflectone, Inc. for the year ended
December 31, 1994)
22.1 Subsidiaries of Reflectone, Inc. (incorporated by reference to Exhibit
22.1 filed with the Report on Form 10-K of Reflectone, Inc. for the
year ended December 31, 1993)
24.1 Accountants' Consent to Incorporation by reference in the Registrant's
Registration Statements Nos. 2-82048, 33-3059, 33-37077, and 33-79912
on Form S-8
<PAGE> 73
<PAGE>
Exhibit 10.7
LEASE TO BUILD AGREEMENT
THIS LEASE AGREEMENT made and entered into this _28th_ day of
December, _1978_, by and between TAMPA WEST INDUSTRIAL PARK, INC., a Florida
corporation, whose business address is Post Office Box 23943, Tampa, Florida
33622, (hereinafter referred to as "LANDLORD" or "LESSOR"), and REFLECTONE,
INC., a Delaware corporation, with its principal place of business at 76
Progress Drive, Stamford, Connecticut 06904, (hereinafter referred to as
"TENANT" or "LESSEE").
W I T N E S S E T H :
That LESSOR, in consideration of the rents and covenants,
hereinafter stipulated to be paid and performed by LESSEE, does hereby grant,
demise and lease unto LESSEE, and LESSEE hereby leases from LESSOR the
property described in Exhibit "A" attached hereto and made a part hereof
(hereinafter referred to as "Premises"). LESSOR and LESSEE have initialed and
approved (or shall initial and approve) plans and specifications for the
improvements to be provided by LESSOR hereunder.
l. BUILDING: The LESSOR agrees, at its sole cost and expense, to
cause to be constructed upon the real estate described in Exhibit "A"
facilities in accordance with building plans and specifications which shall be
approved and initialed by LESSOR and LESSEE and made a part hereof. The land
and building shall include an area of 8.0215 acres (531 feet by 600+ feet and
110 feet by 300 feet), more or less, with a modern, high quality building
containing 110,000 square feet as follows: (a) 30,000 square feet hi-bay (30
foot ceiling clear under the steel, 50 foot candle lighting level; painted
walls with one 16 x 16 overhead door), (b) 40,000 square feet, light
manufacturing area (24 foot ceiling; 60 foot candle lighting level; painted
walls; one 12 x 14 overhead door), (c) 40,000 square feet office area with
20,000 square feet on first floor, 20,000 square feet mezzanine, (drop
ceiling, 75 foot candle level, wall to wall carpeting, painted walls); total
air conditioning and heating throughout the building; parking for a minimum of
300 cars on lot that is paved and lined (more parking spaces will be provided
if required to meet applicable ordinances or code); the building shall contain
a twenty (20) year bondable roof (option by tenant to obtain the bond).
Landscaping in accordance with plans and specifications shall be
provided by LESSOR, but maintained from the Commencement Date by LESSEE.
<PAGE> 1
<PAGE>
The construction of the improvements herein contemplated shall be
substantially completed and ready for possession by LESSEE on or before May
15, 1979. If said building is not substantially completed by May 15, 1979, a
downward adjustment in rent from $2,475,000.00 to $2,420,000.00, for the first
ten (10) years of the lease term shall be made. If said improvements are not
substantially completed by June 15, 1979, LESSEE at its option may cancel said
lease and all sums paid on account shall be returned to LESSEE. Provided
however, the completion dates set forth herein shall be extended for any
delays caused by strikes, labor disputes, riots, acts of God, acts of civil or
military authorities, fires, floods, epidemics, war, delays in transportation,
theft or vandalism or inability to obtain, or delay in obtaining, suitable
labor, material, facilities or services required for this agreement, all
beyond the reasonable control of LESSOR. The completion date as set forth
herein is conditioned upon LESSOR submitting plans and specifications to
LESSEE within twenty-one (21) days from the date hereof, and the LESSEE
approving and redelivering said plans and specifications to LESSOR (or as same
may be modified by mutual agreement) no later than five (5) working days after
receipt of said plans and specifications from LESSOR.
2. TERM: The lease term shall be for a period of twenty (20)
years (plus the partial month, if any, immediately following the commencement
date) beginning on the date of substantial completion and either possession by
LESSEE or issuance of the Certificate of Occupancy, ("Commencement Date") and
expiring at midnight on the twentieth anniversary of the last day of the month
in which the lease commenced. LESSOR and LESSEE agree to execute a
certificate indicating the Commencement Date of the lease when same has
occurred. Thereafter, and provided the LESSEE is not then in default under
any provision hereof, the LESSEE shall have the option to renew this lease
agreement for four (4) successive five (5) year periods, provided LESSEE shall
have given written notice of his intention to LESSOR six (6) months prior to
the termination date of the original lease period and six (6) months prior to
the termination of any renewal period. Each five (5) year term shall be
renewed under the same terms and conditions as set forth herein, except as to
the rental amount set forth herein. For purposes of adjusting the rental
payment for renewal periods, the basic rental amount shall be $2.75 per square
foot per annum and same shall be increased to reflect the increase, if any, in
the cost of living by adding to the Basic Rental an amount obtained by
multiplying the Basic Rental by the percentage by which the level of the "New
CPI for all Urban Consumers" as reported for the last day of the month
preceding the first optional extension period has increased over its level as
of the tenth (10th) anniversary of this Lease. The rental as thus adjusted
shall be payable monthly in advance over the first five (5) year optional
extension period. The same terms and manner of computing the rent shall be
utilized for each successive five (5) year option extension period by
adjusting the rental for each successive five (5) year extension period by the
New CPI percentage increase between the beginning and the end of the
immediately previous five (5) year extension period. In no event shall the
adjusted rent for an option extension period be less than the immediately pre-
ceding rental set forth herein. The "New CPI for all Urban Consumer" referred
to herein is the index published by the U. S. Department of Labor Bureau of
<PAGE> 2
<PAGE>
Labor Statistics. In the event that said index is abandoned or its use
discontinued, then the parties agree to permit the rental increase to be
determined by another generally accepted standard of living index. The amount
of any rental increase above the immediately preceding rental term for any
renewal period shall be limited to no more than 30% over the rental for the
immediately preceding term.
LESSEE shall occupy the Premises only for lawful purposes.
LESSEE covenants and agrees to pay as rent for said subject
Premises the sum of $2,475,000.00 for the first ten (10) years; $1,375,000.00
for the next succeeding five (5) years of said lease agreement, and
$1,512,500.00 for the next succeeding five (5) years of said lease term, with
said rental plus the Florida State Sales Tax being payable in monthly
installments in advance. Said rental shall be payable on the first day of
each month in advance during the term, except that upon execution of the lease
agreement, LESSEE shall pay LESSOR the first two months' rental and the last
month's rental of the initial lease term, plus Florida State Sales Tax and no
additional rental shall be due for said months. Said rental shall be payable
to TAMPA WEST INDUSTRIAL PARK, INC., Post Office Box 23943, Tampa, Florida
33622, or such other place as may be designated in writing by the LESSOR.
It is the understanding and agreement of the parties hereto that
this Lease Agreement is a clear net-net lease obligation wherein the LESSEE
shall be responsible to bear all expenses and make all payments as set out
herein. Provided, however, that LESSEE shall not be responsible for the cost
of any repairs to the improvements to be constructed upon the demised Premises
resulting from damage caused by structural defects. In connection with this
paragraph, LESSEE shall have the same right as the LESSOR under all guaranties
and warranties of the building contractors or suppliers of materials and
equipment installed in the building by the LESSOR or the building contractor.
3. EARLY ENTRY: Upon reasonable notice to LESSOR, LESSEE shall
have the right from time to time to enter the premises prior to the
Commencement Date in order to equip and prepare the premises for occupancy.
This right is conditioned upon LESSEE causing no interference or delay in the
construction work or damage to the Premises.
4. NOTICE: Whenever this Lease requires that notice or demand
shall be given or served on either party to this Lease, such notice or demand
shall be in writing and shall be delivered personally or forwarded by
certified or registered mail, evidenced by a U. S. Postal mailing receipt,
addressed as follows:
LESSOR: TAMPA WEST INDUSTRIAL PARK, INC.
Post Office Box 23943
Tampa, Florida 33623
LESSEE: REFLECTONE, INC.
76 Progress Drive
Stamford, Connecticut 06904
<PAGE> 3
<PAGE>
5. REPAIRS AND MAINTENANCE: LESSEE shall, at its own expense,
keep and maintain the interior of the building, including painting the doors,
and keeping all mechanical equipment in good condition and repair, so as to
tender it to LESSOR at Lease termination, broom clean and in the same
condition as received, ordinary wear and tear, damage by fire or other
casualty and the elements or acts of God excepted.
LESSOR shall, at its own expense, keep and maintain the structural
and exterior (excluding cosmetics, painting or hairline cracks which are not
structural or cracks which are caused by LESSEE's negligence) portions of the
building except LESSOR SHALL HAVE NO RESPONSIBILITY WHATSOEVER FOR MAINTENANCE
OF ROOF DRAINS. LESSOR shall, at or before Commencement Date or as soon
thereafter as possible (LESSOR using best efforts) assign to LESSEE all
equipment warranties and guaranties received by it with respect to the
improvements. LESSOR shall cause the plumbing, heating, electric and roofing
subcontractors to guarantee their work for a minimum of one (1) year, or such
longer period as may be customary, to the extent LESSOR is able to obtain
same, after using its best efforts, from said subcontractors and shall deliver
said guaranties to LESSEE at or before the Commencement Date, or as soon
thereafter as possible (LESSOR using best efforts).
LESSOR warrants the original building, equipment and paved areas
to be free from defects in labor, material or design for a period of one year
from the Commencement Date of the Lease. During said period, LESSOR shall
repair, replace or otherwise correct any such defects or deficiencies promptly
upon receipt of written notice from LESSEE. Said written notice must be
received On or before the expiration of said one year period. If notice is
timely, LESSOR shall have the continuing responsibility to remedy said defect.
LESSEE, following said first year, shall, at its own expense, make all repairs
to and provide for the maintenance of the heating plant, air conditioning or
air cooling units, plumbing and all other fixtures on the leased Premises.
6. IMPROVEMENTS BY LESSEE: LESSEE shall have the right at his
own expense to make reasonable structural alterations or additions to the
leased Premises having first obtained LESSOR's written approval which shall
not be unreasonable withheld. However, LESSEE, without approval, may make
nonstructural and interior office alterations and improvements, if such
alterations and improvements are minor changes which do not damage, reduce the
value of, nor impair the structural strength of the building. THE LESSEE
SHALL, UNDER NO CONDITIONS, HAVE THE POWER OR AUTHORITY TO SUBJECT, AND IS
EXPRESSLY PROHIBITED FROM SUBJECTING THE PREMISES TO ANY LIEN, CHARGE OR
ENCUMBRANCES WHATSOEVER, AND SHALL indemnify, defend, and save harmless the
LESSOR against all liens, charges or encumbrances that may be asserted against
the subject premises the result of LESSEE's action.
<PAGE> 4
<PAGE>
LESSEE shall have the option for a period of thirty (30) months
from the Commencement Date of this Lease Agreement to have constructed by
LESSOR additional facilities on the property adjacent to the east boundary of
the Premises under a Lease Agreement containing the same terms and conditions
of this Lease Agreement except the rental which shall be negotiated between
the parties to reflect the additional land and improvements; said additional
property when combined with the existing 8.0215 acres, more or less, shall
aggregate 11 acres, more or less. Said option must be exercised within said
thirty (30) month time period.
Trade fixtures and office improvements placed or installed upon or
within the leased Premises by LESSEE shall remain the personal property of
LESSEE and may be removed upon termination of the Lease agreement, provided
LESSEE satisfactorily repairs any damage resulting from said removal.
Upon termination of this Lease, LESSEE shall restore the leased
Premises to LESSOR in the same condition as when LESSEE received the same,
excepting structural improvements made by LESSEE with the written approval of
LESSOR, repairs which are the responsibility of LESSOR, ordinary wear and
tear, damage by fire or other casualty covered by insurance or the elements or
acts of God excepted.
7. INSPECTION: Subject to any applicable governmental security
regulations, LESSOR shall have the right of access to the leased Premises at
reasonable times, and upon reasonable notice, for the purpose of examination
and inspection, making repairs, alterations or improvements to the extent
permitted or required herein, or exercising any of the rights of the LESSOR
under this Lease provided, however, that LESSOR shall not interfere with the
conduct of business operations by LESSEE.
8. UTILITIES: LESSEE shall pay all use charges and expenses for
electricity, water, sewerage, heat, gas, power, steam, and all other services
used or consumed by it in connection with the maintenance and operation of the
leased Premises or LESSEE's business.
9. SIGNS: LESSEE may attach to the building on the leased
Premises signs of reasonable size displaying LESSEE's name and business,
provided any said signs shall fully comply with the ordinances of Hillsborough
County, Florida.
10. PLATE GLASS: LESSEE shall, at its own cost and expense,
replace any plate glass which may be broken during the term of this Lease.
<PAGE> 5
<PAGE>
ll. FIRE OR OTHER CASUALTY: If the leased premises are damaged
by fire or otherwise to such extent so as to interfere with their use by
LESSEE, the rent payable hereunder for the period commencing on the date on
which LESSEE gives LESSOR written notice of such damage, and ending on the
date on which restoration of the leased premises is completed, shall be abated
in the proportion which the floor space made unusable bears to the floor space
usable to LESSEE prior to such damage. In the event of the total destruction
of the leased Premises or destruction such that LESSEE's ability to use the
Premises are substantially impaired, then LESSOR shall have the right to
render said Premises tenantable by repairs within ninety (90) days from the
date notice of the damage is received by LESSOR. If said Premises are not
rendered tenantable within said period, it shall be optional with either party
hereto to cancel this Lease, and in the event of such cancellation, rent shall
be paid only to the day of such fire or casualty.
12. CONDEMNATION: If the entire leased Premises are taken by
eminent domain, or so much thereof as to render the balance inadequate for the
operation of LESSEE's business, then in such event, this Lease shall
terminate.
In the event of any taking under the power of eminent domain which
does not terminate this Lease as aforesaid, the rent payable by LESSEE
hereunder shall be abated, commencing on the date on which possession is taken
by the condemning authority, in the proportion which the floor space or land
space so taken or made unusable bears to the floor space or land space, as the
case may be, usable to LESSEE prior to such taking.
If the taking is of unpaved and unimproved land only and such
taking shall not interfere substantially with the use of the balance of the
leased Premises by LESSEE, there shall be no abatement of rent.
In the event of any taking under the power of eminent domain which
does not terminate this Lease as provided herein, LESSOR shall promptly at its
own cost and expense, restore the balance of the leased Premises to as near
their former condition as circumstances shall reasonably permit.
All damages awarded for any taking of all or any part of the
improvements owned by LESSOR under the power of eminent domain shall belong to
LESSOR except LESSEE shall be entitled to any proceeds from the enforcement
and prosecution in any condemnation proceedings of any claims it may have as
provided for under the laws and statutes of the State of Florida.
13. QUIET POSSESSION: LESSOR warrants that LESSEE, on paying the
rent installments and on keeping, observing and performing all other terms,
conditions, and provisions herein contained on the part of LESSEE to be kept,
observed and performed shall, during the full lease term, peaceably and
quietly have, hold and enjoy the leased Premises for the full term of this
Lease, subject to the terms, conditions and provisions hereof.
<PAGE> 6
<PAGE>
14. DEFAULT: If one or more of the following shall occur:
(a) LESSEE shall fail to make payment of rent
or any other sum due and owing by LESSEE
to LESSOR for a period of twelve (12) days
from the date same shall become due and
LESSEE has received three (3) days'
notice.
(b) LESSEE shall make an assignment for the
benefit of creditors;
(c) LESSEE shall file a petition or answer
seeking reorganization or arrangement
under any of the laws of the United States
relating to bankruptcy or any other
applicable State;
(d) An attachment or execution shall be levied
upon LESSEE's property or interest under
this Lease, and shall not be satisfied,
bonded or released within sixty (60) days
thereafter:
(e) A petition in bankruptcy shall be filed by
or against LESSEE, or a receiver or
trustee for all or any part of the
property of LESSEE shall be appointed by
any Court, and such petition shall not be
withdrawn, dismissed, or discharged, or
such receiver or trustee removed, within
thirty (30) days from the filing or
appointment thereof;
<PAGE> 7
<PAGE>
(f) Default shall be made in the performance
or observance of any other covenant,
agreement, obligation, provision, or
condition to be kept or performed by
LESSEE under the provisions of this Lease
and such default shall continue for thirty
(30) days after written notice thereof
given by LESSOR to LESSEE:
then and in any of such events LESSOR may, at its option, enter the leased
Premises and again have, repossess and enjoy the same as if the Lease had not
been made, and thereupon this Lease. and everything herein contained on the
part of LESSOR to be done and performed shall cease, terminate and be utterly
void without prejudice, however, to the right of LESSOR to recover from LESSEE
all rent due up to the time of entry. In case of such default and entry by
LESSOR, LESSOR may relet said Premises for the remainder of said term and
shall be solely entitled to the proceeds thereof.
In the event the LESSOR refuses or neglects to do any of the
things specified to be done by LESSOR under the terms of this Lease, then
LESSEE may, but is not obligated to, upon LESSOR's failure to cure such
default within thirty (30) days after receipt of written notice from LESSEE
which specified the particular default complained of, make such payment or do
or cause to be done such things at LESSOR's expense. All money properly
advanced or expended by LESSEE in connection with the aforesaid matters shall
be charged against the rents accruing under the Lease and shall have the same
effect as though the amount thereof had been paid as rent to LESSOR.
The various rights and remedies given to or reserved to LESSOR
and/or LESSEE by this Lease, or allowed by law, shall be cumulative, and no
delay or omission to exercise any of their rights shall be constructed as a
waiver of any continuing or subsequent breach of the same provision.
15. SUBORDINATION: LESSEE shall, upon LESSOR's request, execute
any instrument or instruments permitting a mortgage to be placed on the leased
Premises or any part thereof provided; however, as a condition to any
subordination instrument being executed by LESSEE, LESSOR shall cause any
mortgagee under such a mortgage to acknowledge an agreement with LESSEE, in
recordable form, which will provide that so long as LESSEE pays the rents due
under this Lease and is not otherwise in default hereunder, the holder of such
mortgage will not disturb possession of LESSEE.
16. INDEMNIFICATION: Each party hereto shall indemnify the other
and hold it harmless from and against any direct damage suffered or liability
incurred, including reasonable attorney's fees, on account of bodily injury to
any person or persons and damage to property on or about the leased Premises
during the term of this Lease occasioned by the negligent act or omission, or
breach of any covenant contained herein by the indemnifying party, its
officers, agents, invitees or servants.
<PAGE> 8
<PAGE>
17. WAIVER OF RIGHT OF SUBROGATION: Inasmuch as such agreement is
permitted in their insurance policies covering buildings, equipment, tenant's
improvements, fixtures and stock, LESSOR and LESSEE each hereby releases and
waives the right of subrogation against the other including their officers,
directors and employees, if any, for any damage or loss to property caused by
fire, explosion or other hazard covered by an extended coverage policy.
18. PUBLIC LIABILITY INSURANCE: LESSEE shall at all times during
the term of this Lease, and at its expense, carry comprehensive general
liability insurance for the protection of LESSOR as contemplated in this
paragraph with companies reasonably satisfactory to LESSOR. Such liability
insurance shall protect LESSOR against the claims for injuries to person or
persons or property of third parties arising or growing out of the use of said
Premises by LESSEE, and the amount of liability and property damage insurance
shall not be less than the sum of $500,000.00 per person, a $1,000,000.00
umbrella aggregate, and $100,000.00 property damage coverage. LESSEE shall
cause LESSOR to be included as an additional insured under the terms of said
policies. LESSEE may comply with this paragraph under the terms of a blanket
insurance policy acceptable to LESSOR.
19. FIRE INSURANCE: LESSEE shall secure and maintain casualty
insurance upon the Premises occupied hereunder against the hazards normally
and customarily insured against, including fire and extended coverage in an
amount of 80% of the replacement value of the improvements and with a carrier
or carriers selected by LESSEE and reasonably approved by LESSOR and shall
secure the naming of LESSOR as an additional insured under said policy.
20. TAX CLAUSE: LESSEE shall pay, before delinquency, any and
all ad valorem property taxes assessed against the Premises herein leased. In
the event that tax bills or notices are mailed to LESSOR as record owner,
LESSOR shall promptly transmit said bills or notices to LESSEE and no failure
of payment by LESSEE shall be deemed a breach hereof unless and until said
bills or notices have in fact been transmitted. Penalties or interest
assessed by reason of LESSOR's failure or delay to transmit bills or notices
shall be borne by LESSOR.
21. ASSIGNMENT AND SUBLETTING: The LESSEE may assign this Lease
with the written consent of LESSOR, which consent shall not be unreasonably
withheld, provided always that rents in excess of those called for in this
Lease are divided equally between LESSEE and LESSOR after LESSEE is reimbursed
for its bona fide costs of relocating and expenses of reletting, all not to
exceed $25,000.00. The LESSEE may sublet portions of the Premises to related
or affiliated corporations without the consent of LESSOR provided LESSEE shall
remain primarily responsible for the obligations contained herein. No
business is to be pursued on the Premises which will injure the property or
detract from the rental value thereof and the LESSEE continues to be
responsible for its obligations contained herein.
22. LAWS, ORDINANCES: LESSOR represents that on the Commencement
Date of this Lease Agreement, the demised Premises shall not be in violation
of applicable laws, regulations, and ordinances of the appropriate
governmental agencies.
<PAGE> 9
<PAGE>
23. HOLDING OVER: In the event LESSEE shall, after the
termination of the Lease or any extension thereof, continue to occupy or
remain on the Premises without a written agreement having been entered into,
then any such holding over shall be deemed a month-to-month tenancy, but
otherwise subject to all of the terms of this Lease.
24. SUCCESSORS: This Lease shall bind and inure to the benefit
of the successors, assigns, heirs, executors, and administrators of the
parties hereto, subject to the provisions herein.
25. ENDORSEMENTS: No agreement, oral or written, respecting the
leased Premises shall be binding upon either party to this Lease unless in
writing and attached hereto.
26. PROTECTIVE COVENANTS: LESSOR has prepared Protective
Covenants governing the use and occupancy of the respective tracts in Tampa
West Industrial Park of which the demised Premises is a part, and a copy of
said Protective Covenants is attached hereto and made a part hereof as Exhibit
"B." LESSEE agrees that such Protective Covenants are firm and binding, and
LESSEE agrees to comply with same.
IN WITNESS WHEREOF, the parties hereto have caused these presents
to be executed in due form of law as of the day and year first above written.
Signed, sealed and delivered TAMPA WEST INDUSTRIAL PARK, INC.
in the presence of: (Corporate Seal)
/s/ Jane G. Cooke /s/ Elmer J. Krauss, President
By:
"LESSOR"
/s/ N.C. Graniere
Witnesses as to LESSOR
REFLECTONE, INC.
(Corporate Seal)
/s/ Jane G. Cooke /s/Robert W. Yates, Vice Chairman
By:
"LESSEE"
/s/N C Graniere
Witnesses as to LESSEE
<PAGE> 10
<PAGE>
GUARANTY OF PERFORMANCE
In order to induce TAMPA WEST INDUSTRIAL PARK, INC., a Florida
corporation, to enter into the aforesaid Lease with REFLECTONE, INC., a
Delaware corporation, DUNLAP & ASSOCIATES, INC., a Delaware corporation,
unconditionally and irrevocably guarantees to TAMPA WEST INDUSTRIAL PARK,
INC., its successors and assigns, the full and punctual performance and
observance by REFLECTONE, INC. of all terms, covenants, conditions and
provisions in said Lease, contained on the part of REFLECTONE, INC. to be
kept, performed and observed. DUNLAP & ASSOCIATES, INC. also agrees to be
primarily liable under this Lease to TAMPA WEST INDUSTRIAL PARK, INC. without
the necessity of any notice, demand or prior legal action against REFLECTONE,
INC.
DUNLAP & ASSOCIATES, INC.
(Corporate Seal)
/s/ Jane G. Cooke /s/Jack Wm. Dunlap
By:
/s/ N C Graniere
Witnesses as to Dunlap &
Associates, Inc.
<PAGE> 11
<PAGE>
Exhibit 10.9
FIFTH AMENDMENT TO LEASE TO BUILD AGREEMENT
THIS FIFTH AMENDMENT TO LEASE TO BUILD AGREEMENT, made and entered into
this 11th day of _August_ , 1982, by and between TAMPA WEST INDUSTRIAL
PARK, INC., a Florida corporation, whose business address is Post Office Box
23943, Tampa, Florida 33623 (hereinafter referred to as "Landlord" or
"LESSOR"), and REFLECTONE, INC , a Delaware corporation, with its principal
place of business at 5125 Tampa West Boulevard, Tampa, Florida 33614
(hereinafter referred to as "Tenant" or "LESSEE)
W I T N E S S E T H
WHEREAS, LESSOR and LESSEE desire to further amend that certain Lease to
Build Agreement between LESSOR and LESSEE dated December 28, 1978, as amended
by First Amendment to Lease to Build Agreement dated March 26, 1979, Second
Amendment to Lease to Build Agreement dated May 10, 1979, Third Amendment to
Lease to Build Agreement dated February 15, 1980, Tampa West Industrial Park,
Inc. letter dated June 4, 1980, and Fourth Amendment to Lease to Build
Agreement dated July 10, 1980, covering the premises therein set forth in
Exhibit "A".
NOW THEREFORE, for and in consideration of the sum of Ten Dollars
($10.00), each to the other in hand paid, receipt of which is hereby
acknowledged, LESSOR and LESSEE hereby amend the Lease to Build Agreement
dated December 28, 1978, as follows
1. The following described property, which is a portion of the
property described in Exhibit "A" in said Lease to Build Agreement is hereby
fully released from the terms and conditions of the Lease to Build Agreement:
PARCEL 2: A portion of Tract 3, TAMPA WEST INDUSTRIAL
PARK, PHASE 1, according to map or plat thereof
recorded in Plat Book 46, Page 29, Public Records of
Hillsborough County, Florida, being more particularly
described as follows:
<PAGE> 1
<PAGE>
From the Northwest corner of Tract 4, TAMPA WEST
INDUSTRIAL PARK, PHASE 1, as recorded in Plat Book 46,
Page 29, Public Records of Hillsborough County,
Florida; run S.89 degree -24'-17"E. along the North boundary
of said Tract 4, 500.0 feet; thence S.00 degree -35'-43"W.
along the projection of the West boundary of Tract 2
and the Easterly right-of-way line of Savarese Circle,
805.01 feet to point of intersection of the
prolongation of the North and West boundaries of Tract
3; thence S.89 degree -24'-17"E. along the projection of and
the North boundary of said Tract 3, 160.10 feet to the
Point of Beginning; thence continue S.89 degree -24'-l7"E.
along said North boundary of Tract 3, 291.00 feet;
thence S.00 degree -35'-43"W., 274.90 feet; thence
N.89 degree -24'-17"W., 51.00 feet; thence N.00 degree -35'-43"E.,
50.00 feet; thence N.89 degree -24'-17"W., 240.00 feet;
thence N.00 degree-35'-43"E., 224.90 feet to the Point of
Beginning.
2. The legal description of the Lease to Build Agreement identified
in Exhibit "A" is amended by adding the easements and party wall agreement
described and set forth in Exhibit "A" attached hereto and made a part hereof.
3. All other convenants, terms and provisions of said Lease to Build
Agreement not modified or amended herein shall remain in full force and
effect.
<PAGE> 2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed in due form of law as of the day and year first above written.
Signed, sealed and delivered TAMPA WEST INDUSTRIAL PARK, INC.
In the presence of:
/s/ Bernard W. Shiell /s/ Elmer J. Krauss, VP
By:
(Corporate Seal)
/s/ Susan M Deaton
"LESSOR"
Witnesses as to LESSOR
REFLECTONE, INC.
/s/Bernard W. Shiell /s/George Seiden, Exec. VP
By:
(Corporate Seal)
/s/Susan M. Deaton
"LESSEE"
Witnesses as to LESSEE
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowleged before me this 11th day of
August , 1982, by Elmer J. Krauss, as Vice President of Tampa West Industrial
Park, Inc., a Florida corporation, on the date aforesaid.
/s/ Beatrice (Sp?)
Notary Public
(Notarial Seal)
My Commission Expires:
Notary Public, Florida
State at Large My Commission
Expires Oct. 15, 1983
<PAGE> 3
<PAGE>
SIXTH AMENDMENT
TO LEASE TO BUILD
AGREEMENT
This Amendment is made effective as of June 8, 1984, between TAMPA WEST
INDUSTRIAL PARK ("Landlord") and REFLECTONE, INC. ("Tenant").
On December 28, 1978, Landlord and Tenant entered into a Lease to
Building Agreement (the "Lease"). The Lease was amended on March 26, 1979,
May 10, 1979, February 15, 1980, July 10, 1980, and August 11, 1982.
Tenant has requested and Landlord has agreed to construct certain
additional improvements in the building located on the Premises. The purpose
of this Amendment is to set forth the terms of that agreement.
NOW, THEREFORE, in consideration of these premises and the mutually
beneficial provisions set forth below, Landlord and Tenant agree as follows:
1. Landlord shall, at Tenant's request, construct additional
improvements consisting of approximately 30,000 square feet of mezzanine space
in the existing building located on the Premises (the "mid-bay area"), subject
to the terms and conditions of this Amendment.
2. At Tenant's direction, Landlord shall retain an architect and
an engineer to design and oversee the construction of the mid-bay area.
Tenant shall select the architect and engineer but they must be reasonablely
acceptable to Landlord. Tenant shall negotiate the terms of the employment
contracts for the approved architect and engineer, subject to Landlord's
review and approval, which approval shall not be unreasonably withheld. When
approved, Landlord shall enter into the employment contracts with the approved
architect and engineer.
3. The approved architect and engineer shall prepare plans and
specifications and a construction budget for the mid-bay area consistent with
Tenant's instructions but subject to Landlord's review and approval, which
approval shall not be unreasonably withheld, if the plans and specifications
meet or exceed all applicable governmental and casualty insurance
underwriter's requirements and comply with all applicable governmental laws,
regulations, ordinances, rules, orders, and codes, and if the construction
budget does not exceed $300,000.00. Landlord shall have 15 days to review and
approve the final plans and specifications and the final construction budget.
4. At Tenant's direction, Landlord shall retain a general
contractor to construct the mid-bay area. Tenant shall select the general
contractor but Tenant's choice must be reasonably acceptable to Landlord.
Tenant shall negotiate the terms of the construction contract with the general
contractor, subject to Landlord's review and approval which approval shall not
be unreasonably withheld. When approved, Landlord shall enter into the
construction contract with the general contractor.
<PAGE> 4
<PAGE>
5. Tenant shall administer and coordinate the construction of the
mid-bay area in the Landlord's behalf including the selection of
subcontractors and suppliers, the approval of statements and draw requests,
quality control, the daily negotiations with the general contractor, and the
authorization of change orders; provided, however, that in no event may a
change order increase the estimated cost of any item on the construction
budget by more than 10% without the Landlord's prior written approval, which
approval shall not be unreasonably withheld.
6. Tenant shall ensure that the general contractor obtains all
required building permits before commencing construction. Landlord shall join
into the execution of all applications and other documents required in
connection with obtaining the permits.
7. Tenant shall obtain and maintain all insurance policies
Landlord may reasonably require in connection with the construction, including
(but not limited to) the types of insurance set forth below. Each policy
shall be in an amount and issued by an underwriter acceptable to Landlord and
shall name Landlord as an additional insured, as its interest may appear.
(a) Hazard Insurance. Builder's risk and such other
fire and extended insurance as Landlord may require including a
loss-payable provision to the effect that, as to the interest of
the Landlord, the insurance coverage shall not be invalidated or
voided by any act of negligence of the Tenant, on the condition
that the Landlord pay on the insurer's demand any premium due un-
der the policy and not paid by the Tenant.
(b) Comprehensive General Liability and Statutory
Worker s Comprehensive Insurance. General Liability and worker's
compensation insurance for both Tenant and Tenant's contractors.
8. Tenant shall ensure that construction of the mid-bay area is
commenced promptly after the building permits are issued and subject to
matters beyond Tenant's control including, but not limited to unavailability
of labor or materials, Tenant shall cause the general contractor to diligently
pursue construction to completion on or before one year after the date
construction commences.
9. Tenant shall notify Landlord promptly of all Notices to Owner
and all Claims of Lien Tenant receives from any laborer, subcontractor, or
materialman in connection with the construction of the mid-bay area.
<PAGE> 5
<PAGE>
10. Landlord shall pay the valid, authorized costs of design and
construction of the mid-bay area up to the maximum amount of $300,000.00 in
accordance with the construction budget approved by Landlord, subject to the
procedure set forth in the architect's, engineer's, and general contractor's
Contracts. Tenant shall pay all costs of design and construction of the
mid-bay area in excess of $300,000.00. This provision shall survive the
termination of the Lease (whether through the passage of time or otherwise).
11. Upon completion of the mid-bay area, the base rent specified
ln the Lease, as amended, shall increase to reflect the value of the
additional leasable area by an amount equal to 15% per year of the amount
actually disbursed by Landlord to pay for the valid costs of design and
construction of the mid-bay area (the "Improvement Cost"), together with
applicable Florida sales tax, payable in equal monthly installments beginning
on the first day of the first month following the issuance of the certificate
of occupancy for the mid-bay area and continuing until the base rent increases
as described ln paragraph 2 of the Lease. On the date of the first increase
ln the base rent as set forth in paragraph 2 of the Lease, the additional base
rent payable under this paragraph shall increase from 15% per year of the
Improvement Cost to 16.66% per year of the Improvement Cost. Similarly, on
the date of the second increase ln the base rent as set forth ln paragraph 2
of the Lease, the additional base rent payable under this paragraph shall
increase from 16.66%. per year of the Improvement Cost to l8.33% per year of
the Improvement Cost.
12. In addition to the increase in the base rent over the
remainder of the initial term of the Lease, upon the completion of the
mid-bay area and upon Landlord's request, Tenant shall pay Landlord a one time
payment of additional rent in an amount equal to 15% per year times the
amounts disbursed from time to time by Landlord to pay the valid design and
construction costs of the mid-bay area, calculated from the date of each dis-
bursement until the first day of the first month following the issuance of the
certificate of occupancy for the mid-bay area, together with applicable sales
tax.
13. Tenant is solely responsible for the quality of the design
and construction of the mid-bay area, and for the suitability of the mid-bay
area for Tenant's purpose. Tenant's approval of each periodic draw request
and the final draw request shall be conclusive evidence in any dispute between
the Tenant and the Landlord that the design and construction of the mid-bay
area through the date of the draw request has been completed in a good and
workmanlike manner in accordance with the plans and specifications, and is
suitable for Tenant's purpose. Tenant shall indemnify, defend, and hold
Landlord harmless from all claims, demands, suits, damages, losses, costs, and
expenses, including reasonable attorneys' fees, arising from or in any way
related to the design, the construction, or the use and operation of the
mid-bay area.
<PAGE> 6
<PAGE>
14. All other terms, covenants, and conditions of the Lease, as
amended, not amended by the provisions set forth above shall remain unchanged
and in full force and effect, as if fully set forth herein.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this Amendment
on the dates set forth opposite their signatures below but effective as of the
date first stated above.
WITNESSES: TAMPA WEST INDUSTRIAL PARK,
/s/Sherrill P. Allen /s/Howard L McCarthy
By:
As its President
(Corporate Seal)
WITNESSES: REFLECTONE, INC.
/s/Sherril P. Allen /s/ (Sp?) C. Palmer
By:
/s/Carol Collins
As its V P Operations
(Corporate Seal)
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<PAGE>
Exhibit 10.10
LEASE TO BUILD ADDITION AGREEMENT
THIS LEASE TO BUILD ADDITION AGREEMENT made and entered into this 11th
day of August, 1982, by and between TAMPA WEST INDUSTRIAL PARK, INC., a
Florida corporation, whose business address is Post Office Box 23943, Tampa,
Florida, 33623, (hereinafter referred to as "LESSOR"), and REFLECTONE, INC., a
Delaware corporation, with its principal place of business at 5125 Tampa West
Boulevard, Tampa, Florida 33611 (hereinafter referred to as "LESSEE").
W I T N E S S E T H:
WHEREAS, LESSOR and LESSEE are parties to a certain Lease to Build
Agreement dated December 28, 1978, as amended by First Amendment to Lease to
Build dated March 26, 1979. Second Amendment to Lease to Build dated May 10,
1979, Third Amendment to Lease to Build dated February 15, 1980, Tampa West
Industrial Park, Inc. letter dated June 4, 1980 and Fourth Amendment to Lease
to Build dated July 10, 1980, (collectively, the "Lease"), and
WHEREAS, LESSOR and LESSEE wish to enter into this Lease to Build
Addition Agreement wherein LESSOR shall construct or cause to be constructed
an addition to the existing building occupied by LESSEE under the Lease, as
more particularly described on the plans and specifications attached hereto as
Exhibit "A,'' (the "Addition"), and
NOW, THEREFORE, it is mutually agreed as follows:
LESSOR, in consideration of the rents and covenants, hereinafter
stipulated to be paid and performed by LESSEE, does hereby grant, demise and
lease unto LESSEE, and LESSEE hereby leases from LESSOR the property described
as Parcels 2 and 3 as shown on Exhibit "B" attached hereto and made a part
hereof (the "Premises").
l. BUILDING: LESSOR agrees to cause to be constructed on Parcel 2, the
Addition described in Exhibit "A" which Addition shall be located on a l.561
plu or minus sacre tract as shown on the survey entitled "Boundary Survey
Reflectone Expansion Tampa West Industrial Park," prepared by Mills
Associates and dated June 17, 1982, and revised as of July 30, 1982, and
attached hereto as Exhibit "C," and which will be a modern, first quality
building containing approximately 40,500 square feet of ground floor area
and a second floor mezzanine totaling 19,000 square feet.
2. PARKING: The LESSOR agrees, at its sole cost and expenses, to cause
to be constructed a paved, striped and lighted parking lot to be situate in
the 2.487 plus or minus acre tract described as Parcel 3 and shown on
Exhibit "B." LESSOR shall provide and install landscaping in accordance with
plans and specifications to be provided by LESSEE, but same shall be maintained
after installation by LESSEE.
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<PAGE>
3. TERM AND OPTIONS: The lease term shall be for a period beginning on
the date of substantial completion of the Addition and either: (1) possession
by LESSEE: or (2) issuance of the Certificate of Occupancy ("Commencement
Date"), and expiring at midnight on July 31, 1999. LESSOR and LESSEE agree to
execute a certificate indicating the Commencement Date when same has occurred.
Thereafter, and provided the LESSEE is not then in default under any provision
hereof, the LESSEE shall have the option to renew this lease agreement for
four (4) successive five (5) years periods, provided LESSEE shall have given
written notice of its intention to LESSOR twelve (12) months prior to the
termination date of the original lease period and twelve (12) months prior to
the termination of any renewal period. Each five (5) year term Shall be
renewed under the same terms and conditions as set forth herein, except as to
the rental amount set forth herein. The basic rental amount shall be
increased, for each renewal period, to the "Market Rental Rate." The "Market
Rental Rate" shall be determined by agreement between LESSOR and LESSEE,
within 90 days of notice by LESSEE of intent to renew. Should LESSOR and
LESSEE be unable to agree, each shall, within ten (10) days, select a licensed
real estate appraiser and LESSOR and LESSEE agree to accept the written
agreement of the two appraisers as to the "Market Rental Rate" of like
properties of familiar quality. Should the two appraisers fail to reach
agreement as to the "Market Rental Rate" within 30 days, the appraisers shall
agree upon a third appraiser, and thereafter an agreement between any two of
the appraisers shall be accepted by LESSOR and LESSEE as to "Market Rental
Rate." LESSOR and LESSEE each agree to pay their own appraiser's fees. If a
third appraiser is required, his fee shall be shared between the parties
hereto.
4. RENTAL: LESSEE covenants and agrees to pay as rent for the Premises
the amount of $232,376.00, annually, in equal monthly installments, subject to
adjustments from time to time as hereinafter provided. Although rent is
calculated on an annual basis, adjusted as reguired, rent is payable in equal
monthly installments, in advance without further notice or demand, beginning
on the Commencement Date and continuing on the same day of each month
thereafter.
In addition to the rent payment, with each monthly installment of rent,
LESSEE shall pay LESSOR the applicable Florida sales tax, if any.
The rent contains within it four subcomponents. These are: (a) Parking
Lot Lease, $32,331.00; (b) Debt Service (principal and interest payments)
required under the terms of a first mortgage on the Premises securing a note
in the amount of $1,000,000.00, with interest initially at the rate of 13-3/4%
per annum amortized evenly over a 30-year period, $139,814.00; (c) an overide
on Debt Services equal to 10% of the Debt Service referred to in (b) above,
$13,981.00; and (d) return on LESSOR's cash investment, $46,250.00.
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The Debt Service may increase from time to time according to the terms
of the first mortqage and the bonds or other debt instruments, secured
thereby. To the extent that Debt Service increases, the parties agree that
the total rent shall increase in the same proportion; for example, if the Debt
Service under any mortgage which constitutes a first lien against the Premises
increases from $139,814.00 to $150,300.00, an increase of 7-1/2% (.075), then
the total rent would increase from $232,376.00 to $249,804.20, also an
increase of 7-1/2% (.075).
All rental increases shall occur simultaneously with increases in the
Debt Service, or in the event that the mortgage and bonds contemplated by this
paragraph are paid off, the rental shall increase at the same times, and by
the same amount as it would have had the mortgage and bonds retained in place.
However, notwithstanding anything contained herein to the contrary, increases
in rental shall not be passed on to nor be the responsibility of LESSEE if the
increase in Debt Service was caused by LESSOR.
The parties acknowledge that the foregoing rental calculations assume an
initial Debt Service of $139,814.00 per annum calculated on an interest rate
of 13-3/4% per annum and a term of 30 years on the initial S1,000,000 mortgage
loan. In the event the initial mortgage loan specifies a Debt Service other
than the assumed Debt Service of $139,814.00, the initial Debt Service
(subcomponent (b) above) and the override on Debt Service (subcomponent (c)
above) shall be adjusted accordingly. Thereafter, all adjustments to the
rental shall be made to the total rental (all four components).
5. EARLY ENTRY: Upon reasonable notice to LESSOR, LESSEE shall have
the right from time to time to enter the Premises prior to the Commencement
Date in order to equip and prepare the Premises for occupancy. This right is
conditioned upon LESSEE causing no interference or delay in the construction
work or damage to the Premises.
LESSEE shall indemnify, defend LESSOR against, and hold LESSOR harmless
of and from all claims, cauces of action, losses, damages, costs, and expenses
(including reasonable attorneys' fees) arising from or in any way related to
LESSEE's presence in or about the Premises before the Commencement Date.
6. NOTICE: Whenever this lease agreement requires that notice or
demand shall be given or served on either party to this Lease, such notice or
demand shall be in writing and shall be delivered personally or forwarded by
certified or registered mail, evidenced by a U.S. Postal mailing receipt,
addressed as follows:
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LESSOR: Tampa West Industrial Park, Inc.
Post Office Box 23943
Tampa, Florida 33623
Attention: Elmer J. Kraus
LESSEE: Reflectone, Inc.
5125 Tampa West Boulevard
Tampa, Florida 36614
ATTN: President
with a copy to:
Rockwood, Edelstein & Duffy, P.C.
One Water Street
White Plains, New York 10601
Attention: Peter M. Edelstein
Holland & Knight
P.O. Box 1288
Tampa, Florida 33601
Attention: Jack S. Newsome
7. REPAIRS AND MAINTENANCE: LESSEE, shall, at its own expense, keep and
maintain the interior of the building, including painting the doors, and
keeping all mechanical equipment, storm sewers, water retention areas, roof
drains and landscaping in good condition and repair, so as to tender it to
LESSOR on the termination date, broom clean and in the same condition as
received, ordinary wear and tear, damage by fire or other casualty and the
elements or acts of God excepted.
LESSOR shall, at its own expense, keep and maintain the structural and
exterior (excluding cosmetics, painting or hairline cracks which are not
structural or cracks which are caused by LESSEE's negligence) portions of the
building except LESSOR SHALL HAVE NO RESPONSIBILITY WHATSOEVER FOR MAINTENANCE
OF ROOF DRAINS OR LANDSCAPING. LESSOR, shall, at or before Commencement Date,
or as soon thereafter as possible, (LESSOR using best efforts) assign to
LESSEE all equipment warranties and guaranties received by it with respect to
the improvements. LESSOR shall use its best efforts to cause the plumbing,
heating, electric, roofing and paving subcontractors to guarantee their work
(labor and materials) for a minimum of one (1) year, or such longer period as
may be customary; to the extent LESSOR is able to obtain same, after using its
best efforts, from said subcontractors and shall deliver said guaranties to
LESSEE at or before the Commencement Date, or as soon thereafter as possible
(LESSOR using best efforts).
LESSOR warrants the Addition, equipment and paved areas to be free from
defects in labor, material or structural design for a period of one year from
the Commencement Date of the Lease. During said period, LESSOR shall repair,
replace or otherwise correct any such defects or deficiencies promptly upon
receipt of written notice from LESSEE. Said written notice must be received
on or Before the expiration of said one year period. If notice is timely,
LESSOR shall have the continuing responsibility to remedy said defect.
<PAGE> 4
<PAGE>
LESSEE, following said first year, shall, at its own expense, make all
repairs to and provide for the maintenance of the heating plant, air
conditioning or air cooling units, plumbing, sanitary sewer lines, and all
other fixtures on the Premises.
8. IMPROVEMENTS BY LESSEE: LESSEE shall have the right at its own
expense to make reasonable structural alterations or additions to the Premises
having first obtained LESSOR's written approval which shall not be
unreasonably withheld. All changes to the building which could in any way
impair the building structure must be designed by a qualified, licensed,
structural engineer, and LESSOR by its consent to any changes or alterations
is not responsible for any problems or liability resulting from such changes.
However, LESSEE, without approval, may make nonstructural and interior office
alterations and improvements, if such alterations and improvements do not
damage, reduce the value of, nor impair the structural integrity of the
building. THE LESSEE SHALL, UNDER NO CONDITIONS, HAVE THE POWER OR AUTHORITY
TO SUBJECT, AND IS EXPRESSLY PROHIBITED FROM SUBJECTING THE PREMISES TO ANY
LIEN, CHARGE OR ENCUMBRANCES WHATSOEVER, and shall promptly remove or transfer
to a satisfactory bond, any such liens imposed against the Premises, and shall
indemnify, defend, and save harmless the LESSOR against all liens, charges or
encumbrances that may be asserted against the subject premises as the result
OF LESSEE's action.
Trade fixtures and office improvements placed or installed upon or
within the Premises by LESSEE shall remain the personal property of LESSEE and
may be removed upon termination of this lease agreement, provided LESSEE
satisfactorily repairs any damage resulting from said removal.
Upon termination of this lease agreement, LESSEE shall restore the
Premises to LESSOR in the same condition as when LESSEE received the same,
excepting structural improvements made by LESSEE with the written approval of
LESSOR, repairs which may be the responsibility of LESSOR, ordinary wear and
tear, damage by fire or other casualty covered by insurance or the elements or
acts of God excepted.
LESSOR acknowledges that LESSEE intends to finish approximately 30,000
square feet of office area at its own expense, estimated to be $300,000, (the
"Tenant Improvements") and approval for such improvements is hereby granted.
9. INSPECTION: Subject to any applicable governmental security
regulations, LESSOR shall have the right of access to the Premises at
reasonable times, and upon reasonable notice, for the purpose of examination
and inspection, making repairs, alterations or improvements to the extent
permitted or required herein, exhibiting the Premises to prospective
purchasers, mortgagees, and tenants, or exercising any of the rights of the
LESSOR under this lease agreement provided, however, that LESSOR shall not
unreasonably interfere with the conduct of business operations by LESSEE.
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<PAGE>
10. UTILITIES: LESSEE shall pay all use charges and expenses for
electricity, water, sewerage, heat, gas, power, steam, and all other services
used or consumed by it in connection with the maintenance and operation of the
Premises or LESSEE's business. LESSOR is not responsible for LESSEE'S losses
arising from or in any way related to the interruption of any utility service
and such interruption does not constitute a sufficient ground for LESSEE to
terminate this lease agreement or any of LESSEE's obligations hereunder.
If any equipment installed by LESSEE in the Premises requires additional
utility facilities or capacity, LESSEE shall upgrade the utility facilities or
capacity, at LESSEE'S sole expense, in accordance with plans and
specifications approved in advance by LESSOR, such approval not to be
unreasonably withheld.
11. SIGNS: LESSEE may attach to the Addition signs of reasonable size
displaying LESSEE's name and business, provided any said signs shall fully
comply with the ordinances of Hillsborough County, Florida. LESSEE shall
maintain all signs in good condition and repair and, at the end of the term,
LESSEE shall remove all signs and shall repair any damage to the Premises
caused by said removal.
12. PLATE GLASS: LESSEE shall, at its own cost and expense, replace
any plate glass which may be broken during the term of this lease agreement.
13. FIRE OR OTHER CASUALTY: If the Premises are totally destroyed (or
so substantially damaged as to be wholly untenantable) by any casualty, either
LESSOR or LESSEE may elect to terminate this lease agreement as of the date of
the casualty by written notice to the other within 30 days after the casualty.
If either party elects to terminate, the rent shall be prorated to the
termination date. All insurance proceeds for the casualty shall be allocated
between LESSOR and LESSEE as follows:
(a) Until LESSEE installs Tenant Improvements, all insurance
proceeds shall be allocated 82% to LESSOR and 18% to LESSEE.
(b) After LESSEE installs Tenant Improvements, all insurance
proceeds shall be allocated according to a formula to
agreed upon by LESSOR and LESSEE reflecting the proportion equities of the
parties in the Addition.
If the Premises are damaged by any casualty but not rendered wholly
untenantable, this lease agreement shall not terminate and LESSOR shall
restore the Premises as speedily as practicable. During the restoration period
this lease agreement shall remain in full force and effect with no abatement
of rent.
So long as LESSOR is diligently restoring the premises, under no
circumstances shall LESSOR be responsible to LESSEE for consequential damages
resulting from LESSEE's inability to use the Premises during the period of
untenantability or from LESSOR's failure to make the Premises tenantable
again.
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<PAGE>
11. EMINENT DOMAIN:
(a) If the whole of the Premises is condemned or purchased in
lieu of condemnation by any competent authority, for any public purpose, this
lease agreement shall terminate from the time when possession by the authority
is required and the rent shall be prorated to the termination date.
(b) If a portion of the Premises is condemned or purchased in
lieu of a condemnation by any competent authority for any public purpose and
the portion of the Premises remaining cannot be effectively utilized for
LESSEE's business, LESSEE may terminate this lease aqreement by giving LESSOR
written notice within 20 days after receipt of notice of the condemnation from
LESSOR or, in the absence of such notice, within a reasonable time after the
taking occurs. If LESSEE is entitled to terminate this lease agreement and
does so, rent shall be prorated to the date the condemning authority takes
possession. If LESSEE is not entitled to terminate this lease agreement, or
if it does not exercise its option to terminate, then LESSEE will be
responsible for the full rent to the date of such taking or purchase;
thereafter the rent shall be reduced proportionately as the usable improved
area of the remaining Premises compares to the usable improved area of the
Premises before the taking or purchase. If the taking or purchase involves an
unimproved portion of the Premises other than a parking area, the rent shall
not be reduced.
(c) If a substantial or material part of the improved portion of the
Premises is taken by condemnation or by deed in lieu of condemnation and
LESSOR decides not to restore the premises, LESSOR may, upon reasonable prior
notice to LESSEE, terminate this lease agreement.
(d) If this lease agreement is not terminated by either party as
provided herein, LESSOR shall apply the proceeds of condemnation received by
LESSOR to restoration of the Premises to the extent necessary, but in no event
shall LESSOR be obligated to use funds in excess of the proceeds of
condemnation to restore the Premises.
(e) If all or any part of the Addition is taken and this lease
agreement is terminated by either party, LESSOR and LESSEE agree that the
portion of the condemnation award allocated to the value of the Addition shall
be allocated between LESSOR and LESSEE as follows:
(i) Until LESSEE installs Tenant Improvements 82% of the
award shall go to LESSOR, 18% to LESSEE.
(ii) After LESSEE installs Tenant Improvements, the award
shall be divided according to a formula to be agreed upon by LESSOR and LESSEE
reflecting the proportionate equities of the parties in the Addition.
(f) If portions of the Premises other than the Addition are taken and
this lease agreement is terminated by either Party, any award belongs solely
to LESSOR and LESSEE waives any right to make a claim for any portion of the
award except for any portion of the award allocated to LESSEE's trade
fixtures.
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(g) LESSEE shall not be precluded from pursuing any claim allowed by
Florida law against the condemning authority so long as that claim does not
diminish LESSOR's award as described above.
15. QUIET POSSESSION: LESSOR warrants that LESSEE, on paying the rent
installments and on keeping, observing and performing all other terms,
conditions, and provisions herein contained on the part of LESSEE to be kept,
observed and performed shall, during the full Lease term, peaceably and
quietly have, hold and enjoy the Premises for the full term of this lease
agreement, unless this lease agreement shall be sooner terminated by agreement
of the parties, subject to the terms, conditions and provisions hereof, and
any mortgages now or hereafter encumbering the Premises.
16. USE: LESSEE shall use the Premises only for its lawful business
purposes and shall make no unlawful, improper or offensive use of the Premises
for any purpose in violation of the Protective Covenants affecting the
Property or in any manner that would injure the Premises or any part thereof.
LESSEE agrees to abide by and conform to all zoning regulations, fire, health
and building codes or other ordinances, laws, rules, and regulations imposed
by any authority having jurisdiction over the Premises or the use thereof.
17. DEFAULT: If one or more of the following shall occur:
(a) LESSEE shall fail to make payment of rent or any other sum
due and owing by LESSEE to LESSOR for a period of twelve (12) days from the
date same shall become due and LESSEE has received three (3) days' notice.
(b) LESSEE shall make an assignment for the benefit of creditors;
(c) LESSEE shall file a petition or answer seeking reorganization
or arrangement under any of the laws of the United States relating to
bankruptcy or any other applicable state;
(d) An attachment or execution shall be levied upon LESSEE's
property or interest under this Lease, and shall not be satisfied, bonded or
released within sixty (60) days thereafter;
(e) A petition in bankruptcy shall be filled by or against
LESSEE, or a receiver or trustee for all or any part of the property of LESSEE
shall be appointed by any Court, and such petition shall not be withdrawn,
dismissed, or discharged, or such receiver or trustee removed, within thirty
(30) days from the filing or appointment thereof;
(f) Default shall be made in the performance or observance of any
other covenant, agreement, obligation, provision, or condition to be kept or
performed by LESSEE under the provisions of this lease agreement and such
default shall continue for thirty (30) days after written notice thereof given
by LESSOR to LESSEE:
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In case of such default, LESSOR may, at its option:
(i) Terminate this lease agreement by written notice to
LESSEE. Upon such termination by LESSOR, LESSEE will at once surrender
possession of the Premises to LESSOR and remove all of LESSEE's effects
therefrom; and LESSOR may re-enter the Premises and remove all persons and
effects therefrom, using such force as may be necessary without being guilty
of trespass, forcible entry or detainer or other tort; or
(ii) Remedy such default for the account and at the expense
of LESSEE without waiving such default. LESSEE shall reimburse LESSOR on
demand for all advances LESSOR makes on LESSEE's account together with
interest thereon at the highest rate allowed by applicable law from the date
of the advance until paid in full.
In addition to (and not in lieu of) the LESSOR's foregoing rights,
LESSOR, may, at its option, as LESSEE's agent without termination of this
lease agreement, enter upon and rent the Premises at the best price obtainable
by reasonable effort, with or without advertisement, and by private
negotiations and for any terms LESSOR deems proper. LESSEE shall be liable to
LESSOR for the deficiency, if any, between all rent reserved hereunder and the
total rent applicable to the term obtained by LESSEE on reletting after
deducting LESSOR's expenses in restoring the Premises and all costs incident
to such reletting, including without limitation, advertising costs, reasonable
attorneys' fees, and brokerage commissions. The total rent applicable to the
term obtained by LESSOR on such reletting shall be the property of the LESSOR
and LESSOR shall not be liable to LESSEE for any excess over the rent due
hereunder.
In the event the LESSOR refuses or neglects to do any of the things
specified to be done by LESSOR under the terms of this Lease, then LESSEE may,
but is not obligated to, upon LESSOR's failure to cure such default within
thirty (30) days after receipt of written notice from LESSEE which specified
the particular default complained of, make such payment or do or cause to be
done such things at LESSOR's expense. All money properly advanced or expended
by LESSEE in connection with the aforesaid matters shall be charged against
the rents accruing under the Lease and shall have the same effect as though
the amount thereof had been paid as rent to LESSOR, or LESSOR shall reimburse
LESSEE on demand for all advances made on LESSOR's account together with
accrued interest at the highest rate allowed by applicable law from the date
of the advance until paid in full.
The various rights and remedies given to or reserved to LESSOR and/or
LESSEE by this lease agreement, or allowed by law, shall be cumulative, and no
delay or omission to exercise any of their rights shall be constructed as a
waiver of any continuing or subsequent breach of the same provision.
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18. SUBORDINATION: LESSEE shall, upon LESSOR's request, execute any
instrument or instruments permitting a mortgage to be placed on the Premises
or any part thereof provided; however, as a condition to any subordination
instrument being executed by LESSEE, LESSOR shall cause any mortgagee under
such a mortgage to acknowledge an agreement with LESSEE, in recordable form,
which will provide that so long as LESSEE pays the rents due under this lease
agreement and is not otherwise in default hereunder, the holder of such
mortgage will not disturb possession of LESSEE.
19. INDEMNIFICATION: Each party hereto shall indemnify the other and
hold it harmless from and against any direct damage suffered or liability
incurred, including reasonable attorney's fees, on account of bodily injury to
any person or persons and damage to property on or about the Premises during
the term of this lease agreement occasioned by the negligent or willful acts
or omissions, or breach of any covenant contained herein by the indemnifying
party, its officers, agents, invitees or servants.
The parties shall promptly notify each other of any damage to the
Premises, accident in or about the Premises, or defect in the Premises or in
any of LESSEE's alterations, improvements, equipment, and fixtures installed
in or about the Premises, known to that party.
20. WAIVER OF RIGHTS OF SUBROGATION: Inasmuch as such agreement is
permitted in their insurance policies covering buildings, equipment, LESSEE's
improvements, fixtures and stock, LESSOR and LESSEE each hereby releases and
waives the right of subrogation against the other including their officers,
directors and employees, if any, for any injury or death of persons or damage
or loss to property and all insurance policies obtained and maintained for the
Premises shall contain a waiver of Subrogation endorsement.
21. INSURANCE: At all times during the term of this Lease, LESSEE
shall, at LESSEE's sole expense, obtain and maintain the following insurance
policies with reputable insurance carriers reasonably acceptable to LESSOR,
naming LESSEE and LESSOR and any mortgage holder as co-insured: (a) public
liability insurance on an all-risk basis in the amount of $600,000.00 combined
single limit coverage with an excess umbrella policy of at least
$2,000,000.00; and (b) fire insurance and extended coverage, vandalism,
malicious mischief, and water damage insurance in an amount equal to the full
replacement value of the Premises together with all alterations, improvements,
and fixtures made by or on behalf of LESSEE, including all replacements,
restorations and substitutions thereof.
LESSEE shall provide LESSOR certificates from each insurance carrier
certifying that each policy required is in full force and effect and that,
before changing or canceling the coverage of the policy, the insurer will give
LESSOR 30 days' written notice. LESSOR may comply with the terms of this
article under its blanket insurance policies. LESSOR and LESSEE agree that on
each fifth anniversary of the date of this lease agreement, they shall, in
good faith, review the adequacy of the limits of coverage described in this
Article XXI.
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22. TAX CLAUSE: LESSEE shall pay, before delinquency, any and all ad
valorem property taxes assessed against the Premises. In the event that tax
bills or notices are mailed to LESSOR as record owner, LESSOR shall promptly
transmit said bills or notices to LESSEE and no failure of payment by LESSEE
shall be deemed a breach hereof unless and until said bills or notices have in
fact been transmitted. Penalties or interest assessed by reason of LESSOR's
failure or delay to transmit bills or notices shall be borne by LESSOR.
23. ASSIGNMENT AND SUBLETTING: Without the prior written consent of
LESSOR, which consent shall not be unreasonably withheld. LESSEE shall not
assign, mortgage, pledge, hypothecate, or sublet this lease agreement in whole
or in part to any entity other than a wholly-owned subsidiary or affiliate of
LESSEE. If LESSOR approves an assignment or sublease of all or part of the
Premises, that approval shall not operate to release LESSEE from its
obligations under this lease agreement unless LESSOR expressly releases LESSEE
in writing.
If LESSEE assigns or sublets the Premises, in whole or in part, to an
entity other than a wholly-owned subsidiary or affiliate of LESSEE, LESSEE
agrees to pay LESSOR a percentage of the rent collected under the assignment
or sublease in excess of the rent due under this Lease (the "excess rent")
calculated as follows: multiply the amount of excess rent times a fraction,
the numerator of which is the LESSOR's book value in the Premises and the
denominator of which is the sum of the LESSOR's and LESSEE's book value in the
Premises. If multiple accounting records are kept, those used for federal
income tax purposes shall be used for this calculation.
LESSEE may retain all excess rent from a sublease where the subtenant is
an aviation industry client or customer of LESSEE, the sublease is made in the
ordinary course of LESSEE'S business, and the sublease is for not more than
40% of the Premises.
LESSEE may retain all excess rent for the first three years of an
approved assignment or sublease if LESSEE is in financial need, but
thereafter, LESSEE shall pay all excess rent to LESSOR. Notwithstanding
anything contained herein to the contrary, LESSEE may assign or sublet all or
a portion of the Premises to a wholly-owned subsidiary or an affiliate.
24. HOLDING OVER: In the event LESSEE shall, after the termination of
this lease agreement or any extension thereof, continue to occupy or remain on
the Premises without a written agreement having been entered into, then any
such holding over shall be deemed a month-to-month tenancy, but otherwise
subject to all of the terms of this lease agreement.
25. FORCE MAJEURE: LESSOR shall be excused for the period of any delay
in the performance of its obligations when prevented from prompt performance
by a cause or causes beyond its reasonable control, including, without
limitation, labor disputes, civil commotion, war, sabotage, governmental
regulations or controls, fire or other casualty, material shortages, service
shortages, or acts of God.
<PAGE> 11
<PAGE>
26. SUCCESSORS: This lease agreement shall bind and inure to the
benefit of the successors and assigns, of the parties hereto, subject to the
provisions herein.
27. ENDORSEMENTS: No agreements, oral or written, respecting the
Premises shall be binding upon either party to this lease agreement unless in
writing and attached hereto.
28. PROTECTIVE COVENANTS: LESSOR has prepared Protective Covenants
governing the use and occupancy of the respective tracts in Tampa West
Industrial Park of which the Premises is a part, and a copy of said Protective
Covenants is attached hereto and made a part hereof as Exhibit "C." LESSEE
agrees that such Protective Covenants are firm and binding, and LESSEE agrees
to comply with same.
29. ADVANCE RENT: LESSEE, contemporaneously with the execution of this
lease agreement, has deposited with LESSOR the first monthly installment of
rental and a deposit of the same amount on the last monthly installment of
rental of the lease term, plus applicable Florida state sales tax, receipt of
which is hereby acknowledged. The last month's rent deposit is to be held by
LESSOR as security for the full and faithful performance by LESSEE of all of
the terms, covenants and conditions of this lease agreement upon LESSEE's part
to be performed.
LESSOR shall have the right, but not the obligation, to apply any part
of the advance rent to cure any default of LESSEE, and if LESSOR does so,
LESSEE shall, upon demand, deposit with LESSOR the amount so applied so that
LESSOR shall have the full advance rent on hand at all times during the term
of this lease agreement. LESSEE failure to pay to LESSOR a sufficient amount
to restore the advance rent to the original sum deposited within ten (10) days
after receipt of demand therefor shall constitute a breach of this lease
agreement. No interest shall be paid by LESSOR to LESSEE on such advance
rent, and LESSOR may commingle the deposit with LESSOR's other funds. Should
LESSEE comply with all of the terms and conditions of this lease agreement and
promptly pay all rental herein provided for as it falls due and all other sums
payable by LESSEE LESSOR hereunder, the advance rent deposit shall be applied
to the last rent payment of the current term, provided an adjustment shall be
made by charging LESSOR for any short-fall and refunding any surplus to
LESSEE. LESSOR's use of the deposit to offset costs, losses or expenses
incurred by LESSOR as a result of LESSEE's default shall not constitute a
waiver of any other right or remedy.
In the event of a sale or transfer of the Premises to any third party,
LESSOR shall have the right to transfer the advance rent to the purchaser or
transferee, and, thereupon, LESSOR shall be released from any liability for
the return of such advance rent and LESSEE shall look solely to the new LESSOR
for proper application of the advance rent.
30. MARKETING OF PROPERTY: Should the LESSOR, during the initial lease
term, or any extension thereof, elect to place on the market all or any
portion of the Premises LESSOR shall notify the LESSEE.
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31. CHOICE OF LAW: This lease agreement shall be governed by the laws
of the State of Florida.
32. RECORDING: LESSEE shall not record this lease agreement. LESSEE
may record a Memorandum of Lease.
33. ADDITIONAL RENT: All sums of money due and payable to LESSOR under
this lease agreement are rent. LESSEE shall pay LESSOR a late charge equal to
3% of any payment not received on or before its due date. On any payment in
default, LESSEE shall pay LESSOR interest at the highest rate allowed by
applicable law from the date of the default until the date paid in full.
34. COSTS AND EXPENSES: LESSEE shall pay LESSOR on demand all costs
and expenses (including reasonable attorneys' fees) incurred by LESSOR in
enforcing this lease agreement., should LESSOR be the prevailing party.
35. NO PARTNERSHIP: LESSOR and LESSEE do not, by reason of their
execution of this lease agreement, in any way or for any purpose, become
partners or joint venturers in a conduct of their respective business, it
being the intent of the parties that the only relationship created by this
lease agreement is that of LESSOR and LESSEE.
36. OBLIGATIONS UNDER THE MORTGAGE: During the term of this lease
agreement, and any extensions and renewals, LESSEE assumes and agrees to
perform all LESSOR's obligations under any mortgage approved by LESSEE except
the obligation to repay the loan.
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<PAGE>
37. PERSONAL LIABILITY: Notwithstanding anything to the contrary in
this lease agreement, after the Commencement Date, LESSOR's liability
hereunder shall be enforceable only out of LESSOR's interest in the Premises.
The lien of any judgment against LESSOR in any proceeding instituted on or in
connection with this lease agreement shall not extend to any property of
LESSOR other than the Premises, and LESSEE expressly agrees that LESSOR shall
not be personally liable for any judgment or deficiency.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed in due form of law as of the day and year first above written.
Signed, sealed and delivered TAMPA WEST INDUSTRIAL PARK, INC.
/s/Bernard W. Shiell /s/Elmer J. Krauss, V.P.
By:
(Corporate Seal)
/s/Susan M. Deaton "LESSOR"
Witnesses as to LESSOR
REFLECTONE, INC.
/s/Bernard W. Shiell /s/ George Seiden
By:
(Corporate Seal)
/s/Susan M. Deaton
"LESSEE"
Witnesses as to LESSEE
<PAGE> 14
<PAGE>
PARCEL 2
DESCRIPTION: A portion Of Tract 3, TAMPA WEST INDUSTRIAL PARK, PHASE 1,
according to map or plat thereof recorded in Plat Book 46, Page 29, Public
Records of Hillsborough County, Florida, being more particularly described as
follows:
From the Northwest corner of Tract 4, TAMPA WEST INDUSTRIAL PARK, PHASE 1, as
recorded in Plat Book 46, Page 29, Public Records of Hillsborough County,
Florida; run S.89 degree -24'-17"E. along the North boundary of said Tract 4,
500.0 feet; thence S.00 degree-35'-43"W. along the projection of the West
boundary of Tract 2 and the Easterly right-of-way line of Savarese Circle,
805.01 feet to point of intersection of the prolongation of the North and
West boundaries of Tract 3; thence S.89 degree-24'-17"E. along the projection
of and the North boundary of said Tract 3, 160.10 feet to the Point of
Beginnings; thence continue S.89 degree-24'-l7"E. along said North boundary
of Tract 3, 291.00 feet; thence S.00 degree-35'-43"W., 274.90 feet; thence
N.89 degree-24'-17 inches W., 51.00 feet; thence N.00 degree-35 feet-43 inches
E., 50.00 feet; thence N.89 degree-24'-17 inches W., 240.00 feet; thence N.00
degree-35'-43"E., 224.90 feet to the Point of Beginning.
Containing 1.561 acres more or less.
<PAGE> 15
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PARCEL 3
A portion of Leslie Blank Boulevard (closed by Resolution recorded in O.R.
Book 3575, Page 1102, Public Records of Hillsborough County, Florida) together
with a portion of Tract 2 of TAMPA WEST INDUSTRIAL PARK, PHASE 1, as shown on
map or plat thereof recorded in Plat Book 46, Page 29, Public Records of
Hillsborough County, Florida, being more particularly described as follows:
From the Northwest corner of Tract 4, TAMPA WEST INDUSTRIAL PARK, PHASE 1, as
recorded in Plat Book 46, Page 29, Public Records of Hillsborough County,
Florida; run S.89 deg-24'-17"E. along the North boundary of said Tract 4, 500.00
feet; thence S.00 deg-35'-43"W. along the projection of the West boundary of
Tract 2 and the Easterly right-of-way line of Savarese Circle 758.01 feet to
the Point Of Beginning; said point lying on the intersection of the projection
of the West boundary of Tract 2 and a line 3.00 feet South of and parallel to
the South boundary of said Tract 2; thence S.89 deg-24'-17"E. along a line 3.00
feet South of and parallel to the South boundary of said Tract 2' 387.00 feet
thence N.00deg-35'-43"E., 303.01 feet; thence S.89deg-24'-17"E., 254.22 feet;
thence S.00deg-35'-43"W., 350.01 feet to the North boundary of Tract 3 and the
South right-of-way line of Leslie Blank Boulevard (closed by Resolution O.R.
Book 3575, Page 1102); thence N.89deg-24'-17"W. along said North boundary of
Tract 3 and the South right-of-way line of Leslie Blank Boulevard , 550.75
feet to the beginning of a curve concave to the South having a radius of
167.00 feet; thence Southwesterly along said curve and the South right-of-way
line of Leslie Blank Boulevard 53.03 feet (through an angle of 18deg-11'-43") to
the beginning of a compound curve concave to the Southeast having a radius of
47.00 feet; thence Southwesterly along said curve and the South right-of-way
line of Leslie Blank Boulevard 43.97 feet (through an angle of 53deg-36'-34")
to the beginning of a curve concave to the East having a radius of 167.00 feet;
thence Southerly along said curve and the South right-of-way line of Leslie
Blank Boulevard; 53.03 feet (through an angle of 18deg-11'-43") to the East
right-of-way line of Savarese Circle; thence N.00deg-35'-43"E. along said East
right-of-way line, 137.47 feet to the Point of Beginning.
Containing 2.4869 acres more or less.
EXHIBIT B TO LEASE TO BUILD ADDITION AGREEMENT
<PAGE> 16
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TOGETHER WITH an easement over and the right to enter upon property
owned by LESSOR and described as follows:
PARCEL 1
DESCRIPTION: A portion of Tract 3, TAMPA WEST INDUSTRIAL PARK, PHASE 1,
according to map or plat thereof as recorded in Plat Book 46, Page 29, Public
Records of Hillsborough County, Florida, being more particularly described as
follows:
From the Northwest corner of Tract 4, TAMPA WEST INDUSTRIAL PARK, PHASE 1, as
recorded in Plat Book 46, Page 29, Public Records of Hillsborough County,
Florida; run S.89deg-24'-17"E. along the North boundary of said Tract 4, 500.0
feet; thence S.00deg-35'-43"W. along the projection of the West boundary of
Tract 2 and the Easterly right-of-way line of Savarese Circle 895.48 feet to
the Point of Beginning; said point also being the beginning of a curve concave
to the East having a radius of 167.00 feet. thence Northeasterly along said
curve and the Northwesterly boundary of Tract 3, 53.03 feet (through an angle
of 18deg-11'-43") to the beginning of a compound curve concave to the Southeast
having a radius of 47.00 feet; thence Northeasterly along said curve and said
Northwesterly boundary of Tract 3, 43.97 feet (through an angle of
53deg-36'-34") to the beginning of a curve concave to the South having a radius
of 167.00 feet; thence Easterly along said curve and the North boundary of
Tract 3, 53.03 feet (through an angle of 18deg-11'-43"); thence S.89deg-24'
- -17"E. along the North boundary of Tract 3, 69.63 feet; thence S.00deg-35'
- -43"W.,224.90 feet; thence S.89deg-24'-17"E., 240.00 feet; thence S.00deg-35'
- -43"W.,50.00 feet; thence S.89deg-24'-17"E., 51.00 feet; thence N.00deg-35'43"
E., 274.90 feet to the North boundary of Tract 3; thence S.89deg-24'-17"E.
along said North boundary, 190.12 feet; thence S.00deg-35'-43"W., 300.00
feet; thence N.89deg-24'-17"W., 110.00 feet; thence S.00deg-35'-43"W., 300.00
feet to the North right-of-way line of Savarese Circle and the South boundary
of Tract 3; thence N.89deg-24'-17"W. along said South boundary of Tract 3 and
the North right-of-way line of Savarese Circle, 440.75 feet to the beginning
of a curve concave to the North having a radius of 167.00 feet; thence Westerly
along said curve and said North right-of-way line of Savarese Circle and the
South boundary Of Tract 3, 53.03 feet (through an angle of 18deg-11'-43") to the
beginning of a curve concave to the Northeast having a radius of 47.00 feet;
thence Northwesterly along said curve and the boundary of Tract 3 and the
right-of-way line for Savarese Circle, 43.97 feet (through an angle of
53deg-36'-34") to the beginning of a curve concave to the East having a radius
of 167.00 feet; thence Northerly along said curve and the boundary of Tract 3
and the right-of-way line for Savarese Circle, 53.03 feet (through an angle of
53deg-36'-34"); thence N.00deg-35'-43"E. along the West boundary of Tract 3,
419.06 feet to the Point of Beginning.
<PAGE> 17
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TOGETHER WITH the right of ingress and egress to and from the same, and
all rights therein and all privileges thereon which are or may be necessary or
convenient for the full purpose and enjoyment of such easement, which is for
the purposes of constructing, operating, maintaining and replacing on and
removing from said land water, gas, electric, and sanitary sewer lines, septic
tank systems, valves, controls, manholes, meters, drainage pipes, ducts,
wires, poles, power equipment and other utility facilities incidental thereto,
all at locations designated by Plans and Specifications prepared by Peter
Pateracki, dated July 9, 1982.
The LESSOR may use said land for any purpose which will not interfere or
conflict in any manner with the use of same by the LESSEE for the Purposes
enumerated above.
FURTHER TOGETHER WITH the right of LESSEE and LESSEE's employees, guests
and business invitees, to the unexclusive, free and unrestricted use of the
parking facilities located or to be located on property owned by LESSOR and
described as follows:
<PAGE> 18
<PAGE>
PARCEL 3
A portion of Leslie Blank Boulevard (closed by Resolution recorded in O.R.
Book 3575, page 1102, Public Records of Hillsborough County Florida) together
with a portion of Tract 2 of TAMPA WEST INDUSTRIAL PARK, PHASE 1, as shown on
map or plat thereof recorded in Plat Book 46, Page 29, Public Records of
Hillsborough County, Florida, being more particularly described as follows:
From the Northwest corner of Tract 4, TAMPA WEST INDUSTRIAL PARK, PHASE 1, as
recorded in Plat Book 46, Page 29, Public Records of Hillsborough County,
Florida; run S.89deg-24'-17"E. along the North boundary of said Tract 4, 500.00
feet; thence S.00deg-35'-43". along the projection of the West boundary of Tract
2 and the Easterly right-of-way line of Savarese Circle 758.01 feet to the
Point of Beginning; said point lying on the intersection of the projection of
the West boundary of Tract 2 and a line 3.00 feet South of and parallel to the
South boundary of said Tract 2; thence S.89deg-24'-17"E. along a line 3.00 feet
South of and parallel to the South boundary of said Tract 2, 387.00 feet;
thence N.00deg-35'43"E., 303.01 feet; thence S.89deg-24'-17"E., 254.22 feet;
thence S.00deg-35'-43"W., 350.01 feet to the North boundary of Tract 3 and the
South right-of-way line of Leslie Blank Boulevard (closed by Resolution O.R.
Book 3575, Page 1102); thence N.89deg-24'-17"W. along said North boundary of
Tract 3 and the South right-of-way line of Leslie Blank Boulevard, 550.75 feet
to the beginning of a curve concave to the South having a radius of 167.00
feet; thence Southwesterly along said curve and the South right-of-way line of
Leslie Blank Boulevard 53.03 feet (through an angle of 18deg-11'-43" to the
beginning of a compound curve concave to the Southeast having a radius of
47.00 feet; thence Southwesterly along said curve and the South right-of-way
line of Leslie Blank Boulevard 43.97 feet (through an angle of 53deg-36'-34") to
the beginning of a curve concave to the East having a radius of 167.00 feet;
thence Southerly along said curve and the South right-of-way line of Leslie
Blank Boulevard 53.03 feet (through an angle of 18deg-11'-43") to the East
right-of way line of Savarese Circle; thence N.00deg-35'-43"E., along said East
right-of-way line, 137.47 feet to the Point of Beginning.
AND FURTHER TOGETHER WITH the right of LESSEE to use as a party wall in
the erection of any building that may be constructed upon the following
described property:
<PAGE> 19
<PAGE>
PARCEL 2
DESCRIPTION: A portion of Tract 3, TAMPA WEST INDUSTRIAL PARK, PHASE 1,
according to map or plat thereof recorded in Plat Book 46, Page 29, Public
Records of Hillsborough County, Florida, being more particularly described as
follows:
From the Northwest corner of Tract 4, TAMPA WEST INDUSTRIAL PARK, PHASE 1, as
recorded in Plat Book 46, Page 29, Public Records of Hillsborough County,
Florida; run S.89deg-24'-17"E. along the North boundary of said Tract 4, 500.00
feet; thence S.00deg-35'-43"W. along the projection of the West boundary of
Tract 2 and the Easterly right-of-way line of Savarese Circle, 805.01 feet to
the point of intersection of the prolongation of the North and West boundaries
of Tract 3, thence S.89deg-24'-17"E. along the projection of and the North
boundary of said Tract 3, 160.10 feet to the Point of Beginning; thence
continue S.89deg-24'-17"E. along said North boundary of Tract 3, 291.00 feet;
thence S.00deg-35'-43"W., 274.90 feet; thence N.89deg-24'-17"W., 51.00 feet;
thence N.00deg-35'43"E., 50.00 feet; thence N.89deg-24'-17"W., 240.00 feet;
thence N.00deg-35'-43"E., 224.90 feet to the Point of Beginning.
A portion of the north and east walls of the existing building immediately
adjoining Parcel 2 on the south and west side.
For the purpose of erecting, extending, repairing or replacing the wall,
each party (party being the Owner, LESSEE or Mortgagee of Parcel 1 and Owner,
LESSEE or Mortgagee of Parcel 2) is licensed by the other to enter on the
other party's premises to make necessary excavations or to do other work
necessary to exercise the rights provided for herein.
Either party shall have the full right to use the walls to support
joists, cross-beams, studs, and other structural members as required from time
to time, provided, however, that such use shall not injure the existing
building.
Either party shall have the right to extend the wall either horizontally
or vertically, or both, provided, however, that either party thereafter shall
have the right to use the wall for any purposes provided for previously
herein.
Should it become necessary to rebuild or reconstruct said wall following
casualty damage, the cost of such repair or rebuilding shall be borne equally
between the owners of both parcels of land.
Each party shall be responsible for payment of any repairs necessitated
by damage incurred when attaching any items by that party to the wall. This
right of use shall continue so long as said wall shall stand, including any
replacement wall rebuilt following casualty damage or destruction.
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<PAGE>
Should the wall be totally or partially destroyed by fire or other
cause, either party, his heirs or assigns, shall have the right to reconstruct
the wall at its own expense, if it alone intends to continue the use of the
wall, or at the expense of both parties in the event that both intend to
continue the use of the wall.
<PAGE> 21
<PAGE>
Exhibit l0.ll
BASIC AGREEMENT
THIS AGREEMENT, made this 11th day of August, 1982, by and between Tampa
West Industrial Park, Inc., a Florida corporation, whose business address is
Post Office Box 23943, Tampa, Florida 33623("TWIP"), and Reflectone, Inc., a
Delaware corporation whose principal place of business is 5125 Tampa West
Boulevard, Tampa, Florida 33614, ("REFLECTONE");
W I T N E S S E T H:
WHEREAS, REFLECTONE is a tenant in good standing by virtue of a certain
Lease (described below); and
WHEREAS, TWIP is the owner in fee of the Land (described below) and the
building (described below) which is the subject of the Lease; and
WHEREAS, REFLECTONE desires to have an additional building constructed
on adjacent land; and
WHEREAS, TWIP shall construct or cause to be constructed the Addition
(described below); and
WHEREAS, certain modifications are to be required to be made to the
Lease in order to effectuate the intent of the parties hereto; and
WHEREAS, certain financial arrangements are required to be made to
effectuate the intent of the parties hereto at this time; and
WHEREAS, the parties are desirous of entering into or causing to be
entered into a certain lease agreement for possible future expansion of the
REFLECTONE operation; and
WHEREAS, the parties are desirous of entering into this basic Agreement
to provide for, among other things, the arrangements between the parties
commencing immediately concerning said construction, financing and leasing,
NOW THEREFORE, it is mutually agreed as follows:
1. Definitions.
A. "Addition" means a proposed addition to the existing
Reflectone Building (described below) of approximately 59,500 square feet, to
be situate on together with a parking area to be Parcel 2 (described below),
situate on Parcel 3 which Addition is the subject of the Lease to Build
Addition (described below) and is more fully described in plans and
specifications prepared by REFLECTONE and attached to the Construction
Contract (described below).
<PAGE> 1
<PAGE>
B. "Basic Agreement" means this agreement.
C. "Building" means the existing building occupied by
REFLECTONE on the date hereof and more fully described in the Lease.
D. "Construction Contract" means a certain construction
contract by and between TWIP (described below) and Gene McKie General
Contractors, Inc. concerning construction of the Addition.
E. "Funding Agreement" means a certain agreement between TWIP and
REFLECTONE concerning the ONE MILLION DOLLARS ($1,000,000) Note (described
below) and Mortgage (described below).
F. "Institutional First Mortgage" means a mortgage in the
Principal amount of $1,000,000.00 on substantially the same terms and
conditions as shown on the Application to Union Mutual Life Insurance Company
(attached hereto as Exhibit "A").
G. "Land" means the land upon which the Addition is to be
constructed or Parcel 2.
H. "Land Lease" means a certain agreement between TWIP and
REFLECTONE setting forth the terms and conditions concerning the leasing of
Parcels 4 and 5.
I. "Lease" means a Lease To Build Agreement dated December 28,
1978, as amended by First Amendment to Lease to Build dated March 26, 1979,
Second Amendment to Lease dated May 10, 1979, Third Amendment to Lease to
Build dated February 15, l980, Tampa West Industrial Park, Inc. Letter dated
June 4, 1980, Fourth Amendment to Lease to Build dated July 10, 1980, and a
Fifth Amendment to Lease to Build dated of even date herewith.
J. "Lease to Build Addition" means a certain agreement between
TWIP setting forth the terms and conditions concerning construction of the
Addition and other matters.
K. "Mortgage" means a certain mortgage in which TWIP is the
mortgagor and REFLECTONE is the mortgagee, given to secure the Note.
L. "Note" means the promissory note made by TWIP to RFFLECTONE
in the principal amount of ONE MILLION DOLLARS (S1,000,0OO)
<PAGE> 2
<PAGE>
M. "Parcel" "1," "2," "3," "4" and "5" or the "Parcels" means
those parcels, individually or collectively, as the context may require,) as
shown and described on the Survey (described below).
N. Survey means Boundary Survey, Reflectone Expansion,
Tampa West Industrial Park, Inc., dated June 17, 1982, revised July 30, 1982,
by Mills and Associates.
O. "TWIP" means Tampa West Industrial Park, Inc., a Florida
corporation whose business address is Post Office Box 23943, Tampa, Florida
33623.
2. The Transactions.
The parties hereto covenant and agree to promptly, when requested in an
orderly sequence, execute and deliver or cause the prompt execution and
delivery of all documents that may be reasonably requested by either party,
whether or not specifically referred to herein, and to cooperate in all other
respects, necessary or appropriate to accomplish the following transactions:
A. TWIP shall execute and deliver any and all documents
reasonably necessary or appropriate to close and effectuate the Institutional
First Mortgage.
B. TWIP shall enter into the Construction Contract.
C. REFLECTONE shall lend TWIP the sum of ONE MILLION DOLLARS
($1,000,000), pursuant to the Funding Loan Agreement which amount shall be
evidenced by the Note and secured by a first mortgage on the Building and
Addition.
D. TWIP shall provide the sum of TWO HUNDRED FIFTY THOUSAND
DOLLARS ($250,000) toward the balance of the total cost of the Addition.
E. TWIP and REFLECTONE shall enter into the Lease To Build
Addition.
F. REFLECTONE shall amend the Lease, to among other things,
release Parcel 2 therefrom.
3. Institutional First Mortgage.
TWIP shall execute and deliver all documents reasonably necessary or
appropriate to close and effectuate the Institutional First Mortgage. The
parties covenant and agree that said Institutional First Mortgage may be with
Union Mutual Life Insurance Company or any other institutional lender provided
that the terms and conditions are reasonable and substantially the same as
those set forth on the Application attached hereto as Exhibit "A."
<PAGE> 3
<PAGE>
4. Construction Contract.
TWIP will enter into the Construction Contract attached hereto as
Exhibit "B". The total cost of construction as set forth therein is ONE
MILLION FOUR HUNDRED AND TWO THOUSAND DOLLARS ($1,402,000) of which ONE
MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS ($l,250,000) is the
responsibility of and shall be paid by TWIP and $lS2,000.00 is the
responsibility of and shall be paid by Reflectone. Said Construction
Contract shall not be amended or modified without the prior written consent
of REFLECTONE. REFLECTONE has prepared the plans and specifications
attached to the Construction Contract, and TWIP has caused the
certification of same by Licensed Engineers (structural, civil,
mechanical, electrical).
5. Construction Loan Agreement, Note, Mortgage.
The parties agree that REFLECTONE shall lend TWIP the sum of ONE
MILLION DOLLARS ($1,000,000) and TWIP shall repay said amount to REFLECTONE
pursuant to the Funding Agreement as attached hereto as Exhibit "C," which
debt shall be evidenced by the Note attached hereto as Exhibit "D," and
secured by a Mortgage attached hereto as Exhibit "E."
6. Cost of Addition.
TWIP agrees that it shall contribute the sum of TWO HUNDRED FIFTY
THOUSAND DOLLARS (S250,000) to the total cost of construction.
7. Leases.
The parties covenant and agree to execute and exchange or cause the
execution and exchange of the Lease to Build Addition attached hereto as
Exhibit "F," the Land Lease attached hereto as Exhibit "G," and the Fifth
Amendment to Lease to Build Addition attached hereto as Exhibit "H."
<PAGE> 4
<PAGE>
8. Representations and Warranties of TWIP. TWIP represents and
warrants to REFLECTONE that:
A. Organization, Standing, Powers.
I. TWIP as a corporation:
a. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida: and
b. has the corporate power and authority to own
its respective properties and assets and to carry on its respective
business as now being conducted; and
c. is duly qualified to do business in every
jurisdiction where such qualification is necessary.
d. has the power to execute, deliver and perform
this Basic Agreement and all agreements and documents referred to herein or
necessary or appropriate to effectuate the intent hereof.
B. Authorization of Actions.
I. The execution, delivery and performance of this
Basic Agreement and all agreements and documents referred to herein or
necessary or appropriate to effectuate the intent hereof
a. have been duly authorized by all requisite
corporate action (including approvals by the shareholders if required by
applicable law).
b. will not violate
1. any provision of applicable law, any
governmental rule or regulation, any order of any court or other agency of
government or the Certificate of Incorporation or Bylaws, or
2. any provision of any indenture,
agreement or other instrument to which it or they are a party or which it
or they or any of their respective properties or assets are bound, or be in
conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under, any such indenture, agreement or
other instrument or result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of their properties
or assets.
c. No registration with or consent or approval
of, or other action by, any Federal, state or other governmental authority
or regulatory body, including, without limitation, the Environmental
Protection Agency) is required in connection with the execution, delivery
and performance of this Basic Agreement or with the execution, delivery and
performance of a11 agreements and documents referred to herein or necessary
or appropriate to effectuate the intent hereof.
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C. Title to Properties.
TWIP has or will acquire good title to all of its respective
properties which are referred to herein or in any of the agreements and
documents referred to herein, or necessary or appropriate to effectuate the
intent hereof, and all such property is free and clear of all mortgages,
pledges, liens, charges and other encumbrances of any nature whatsoever,
except as disclosed on Exhibit "I" attached hereto.
D. Other Instruments.
i. TWIP is not a party to any agreement, indenture,
lease or any other instrument or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, rule or
regulation materially and adversely affecting its business, properties,
condition, financial or otherwise; and,
ii. TWIP is not in default in the performance,
observance or fulfillment of any of any material obligations, covenants or
conditions contained in any agreement or instrument of which they are a
party.
9. Representations and Warranties of Reflectone.
REFLECTONE represents and warrants to TWIP, that:
A. Organization, Standing, Powers.
i. REFLECTONE as a corporation:
a. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware; and
b. has the corporate power and authority to own
its respective properties and assets and to carry on its respective
business as now being conducted; and
c. is duly qualified to do business in every
jurisdiction where such qualification is necessary.
d. has the power to execute, deliver and perform
this Basic Agreement and all agreements and documents referred to herein or
necessary or appropriate to effectuate the intent hereof.
B. Authorization of Actions.
i. The execution, delivery and performance of this
Basic Agreement and all agreements and documents referred to herein or
necessary or appropriate to effectuate the intent thereof:
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a. Have been duly authorized by all requisite
corporate action (including approvals by the shareholders if required by
applicable law)
b. will not violate
1. any provision of applicable law, any
governmental rule or regulation, any order of any court or other agency of
government or the Certificate of Incorporation or Bylaws, or
2. subject to receipt of waivers, any
provision of any indenture, agreement or other instrument to which it is a
party or by which it or any of its respective properties or assets are
bound, or be in conflict with, result in a breach of or constitute (with
due notice of lapse of time or both) a default under any such indenture,
agreement or other instrument or result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any of its
properties or assets.
C. Other Instruments.
i. It is not a party to any agreement, indenture,
lease or any other instrument or subject to any charter or other corporate
restriction or any judgment, order, writ, injunction, decree, rule or
regulation materially adversely affecting its business, properties, assets,
operations or condition, financial or otherwise; and,
ii. It is not in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained
in any agreement or instrument to which it is a party.
10. Conditions - Representations and Warranties.
The obligations of the parties to consummate the transactions
referred to in Article 2 hereof are subject to the representations and
warranties by each party as set forth herein being true and correct on and
as of the date of each respective transaction with the same affect as
though such representations and warranties had been made on and as of such
date.
11. Documents and Cooperation. The parties covenant and agree that
on or before the date hereof or on or before the date of any of the
transactions contemplated by Article 2 hereof, each shall furnish promptly
upon the reasonable request of the other, any and all certificates of
corporate documents, resolutions, good-standing certificates, encumbancy
certificates, "bring-down" certificates, or any other agreements,
instruments or documents that may be requested by any party hereto.
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12. Miscellaneous.
A. Notices. Any notice shall be conclusively deemed to have
been received by a party hereto and shall be effective on the day on which
delivered to such party,
i. in the case of REFLECTONE, addressed to REFLECTONE,
as the case may be, at: 5125 Tampa West Boulevard, Tampa, Florida 33614,
Attention of the President, with a copy to Messrs, Rockwood, Edelstein &
Duffy, P.C., One Water Street, White Plains, New York 10601, Attention of
Peter M. Edelstein, Esq., and
ii. in the case of TWIP, addressed to Post Office Box
23943, Tampa, Florida 33623, Attention of Elmer J. Krauss, or if sent by
registered mail, on the third business day after the date on which mailed,
addressed to REFLECTONE or TWIP, as the case may be, at its addresses as
set forth above. The parties may designate by notice in writing to the
other party, another addressee for the purposes hereof.
B. Survival of Agreement. All covenants, agreements,
representations and warranties made herein and in the certification
delivered pursuant hereto not fully accomplished or performed at closing
shall survive the closing by the parties of any of the transactions
contemplated by this Basic Agreement and shall continue in full force and
effect so long as the principal of or any accrued interest on the Note is
outstanding and unpaid. Whenever in this Basic Agreement any of the parties
hereto is referred to, such references shall be deemed to include the suc-
cessors and assigns of such party. A11 covenants, promises and agreements
by or on behalf of the parties which are contained in this Agreement shall
inure to the benefit of the successors and assigns of the parties.
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C. Applicable Law.. This Basic Agreement and any and all
documents or agreements referred to herein or necessary or appropriate to
effectuate the intent of the parties shall be constituted in accordance
with and governed by the laws of the State of Florida.
D. Modification of Agreement. No modification or waiver of
any provision of this Basic Agreement or any and all documents or
agreements referred to herein or necessary or appropriate to effectuate the
intent of the parties, nor consent to any departure by the parties
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the parties hereto, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for
which given.
E. Application For Bond Issue. The parties acknowledge: (a)
that Reflectone has applied for and received approval from the Hillsborough
County Industrial Development Authority ("HCIDA") for a bond issue (the
"Bond Issue"), in which part of the proceeds thereof would be utilized to
retire the Note; (b) that Reflectone is proceeding to take such steps as
may be necessary to close said Bond Issue; (c) that because of the
relationship of the parties hereto in their various capacities including
that of Lessor and Lessee, the full and complete cooperation of TWIP is
required for Reflectone to consummate the Bond Issue, therefore, the
parties hereto agree that: for so long as Reflectone's application for said
Bond Issue is pending before the HCIDA, the provisions of a rider attached
hereto as Exhibit "J" shall be deemed a part of this Basic Agreement and
shall be an addition to, and not in lieu of, the terms and provisions of
this BASIC Agreement, except where the terms of the rider conflict with the
terms herein in which event the terms of the rider shall control.
F. Expenses. In connection with the transactions con-
templated hereby, the parties agree that TWIP shall pay all expenses listed
on Exhibit "K" attached hereto, and Reflectone shall pay all others.
G. Waiver of Rights for the Parties. No failure or delay on
the part of the parties in exercising any right, power or privileges under
this Basic Agreement, or any other and all documents or agreements referred
to herein or necessary or appropriate to effectuate the intent of the
parties, shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise or the exercise of
any other right, power or privilege.
H. Severability. In case any one or more of the provisions
contained in this Basic Agreement or any other and all documents or
agreements referred to herein or necessary or appropriate to effectuate the
intent of the parties, should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby.
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I. Counterparts. This Basic Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all
of which, when taken together, shall constitute but one instrument, and
shall become effective when copies hereof which, when taken together, bear
the signatures of each of the parties hereto, shall be delivered or mailed
to the parties.
I. Headings. Section headings used herein are for
convenience of references only and are not to affect the construction of,
or be taken into consideration in, interpreting this Agreement.
IN WITNESS WHEREOF, REFLECTONE and TWIP have caused this Agreement to
be duly executed and delivered, all on the day and year first above
written.
Witnesses: REFLECTONE, INC.
/s/Bernard W. Shiell
/s/Roberta S. Hatton /s/George Seiden, Exec V.P.
By
TAMPA WEST INDUSTRIAL
PARK, INC., a Florida
corporation
/s/Bernard W. Shiell
/s/Roberta S. Hatton /s/Elmer J. Krauss, V.P.
By
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Exhibit 10.16
LETTER OF CREDIT AGREEMENT
This LETTER OF CREDIT AGREEMENT ("this Agreement") is made as of the
First day of November 1st, 1995 between LLOYDS BANK PLC (the "Bank") and
REFLECTONE, INC. (the "Applicant").
Subject to the terms and conditions of this Agreement the Bank hereby
agrees to issue and provide, for the account and at the request of the
applicant including its wholly-owned subsidiary Reflectone U.K. Ltd., one or
more: (i) irrevocable letters of credit, and (ii) Bonds and overdraft
facilities as described in the Letter of Agreement between Reflectone U.K. Ltd
and the Bank which is attached hereto as Exhibit A. Each of the Letters of
Credit or Bonds shall be in such currency and each in such form as shall have
been agreed by the Bank and the Applicant (each a "Credit", and together the
"Credits") PROVIDED that (a) the aggregate face amount of all unexpired
Credits issued pursuant hereto, together with all amounts drawn under any
Credits issued pursuant hereto and not yet reimbursed by or for the account of
the Applicant shall never when added to the over draft facilities detailed in
the attached Exhibit A exceed $20,000,000 or its equilavent in other
currencies (as determined by the Bank) (the "Commitment"), (b) the Commitment
shall be available to be utilized by the Applicant by means of its requesting
the Bank to issue Credits for the Applicant's account thereunder from the date
hereof until October 31, 1996 (the "Commitment Termination Date"), no Credit
shall have a term from its date of issuance to its stated date of expiry of
longer than one (1) year and (d) the following statements shall be true on and
as of the date of issuance of each Credit: (i) the representations and
warranties contained in Section 7 of this Agreement are correct on and as of
such date and as though made on and as of such date and (ii) no event which
is, or with the giving of nice or the passage of time, or both, would be, an
Event of Default (collectively, "Defaults", and individually a Default") shall
then exist and be continuing or shall result from the issuance of such Credit.
In CONSIDERATION of the issuance by the Bank of one or more Credits as
requested in the Agreement (as each Credit may, from time to time, be amended
or modified with the written agreement of the Aplicant), the Applicant hereby
agrees with the Bank as follows:
1. The Applicant hereby agrees to pay on demand to the Bank at the
Bank's office at 199 Water Street, New York, New York 10038 (the "Issuing
Branch"):
(i) the amount which the Bank shall have paid pursuant to the
terms of each Credit at any time;
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(ii) interest on (a) the amounts referred to in clause (i) above
from the date any such amount is paid by the Bank under such Credit until
payment in full is received by the Bank and (b) any other amount due from the
Applicant to the Bank under this Agreement from the date which is ten (10)
days following the Bank's written demand to the Applicant therefor, at a
fluctuating interest rate per annum (computed on the basis of a year of 360
days for the actual number of days elapsed until payment in full) equal to the
rete designated from time to time by the Bank in the United States as its
Prime Rate plus 1%, such rate to change automatically from time to time as of
the opening of business on the effective date of each change in the Prime Rate
(the "Bank Rate"), and
(iii) any and all reasonable charges and expenses as described in
Sections 2 and 6 hereof incurred by the Bank relativ to the Credit, together
with interest thereon at the Bank Rate from the tenth (10th) day following
delivery by the Bank to the Applicant of a written invoic detailing any such
charges or expenses.
2.(a) The Applicant will pay to the Bank at the Issuing Branch a
non-refundable commission with respect to each Credit at the rate of 0.55% per
annum on the stated amount of such Credit on each day for the preceding
quarter (the "Maximum Amount"). Such commission shall be computed on the basis
of a 360-day year for the actual number of days elapsed and shall be payable
quarterly in arrears for so long as usch Credit remains in effect (and on the
expiry date of such Credit).
(b) If any change in any law, regulation or regulatory guideline, or
in the interpretation thereof by any court or andministrative or governmental
authority charged with the administration thereof shall either (i) impose,
modify or deem applicable any reserve, special deposit, capital adequacy or
similar requirement or guideline against letters of credit, or commitments to
extend credit, issued by the Bank or (ii) impose on the Bank any other
conditiosn therefor, and the result of any event referred to in clause (i) or
(ii) above shall be to increase, by an amount deemed by the Bank in its sole
discretion to be material, the cost (other than an increase resulting from a
change in any net income tax imposed upon the Bank) to the Bank of issuing or
maintaining any Credit or the commitment, then, within ten (10) days following
demand by the Bank, accompanied by the certificate referred to in the
following sentence, the Applicant shall immediately pay to the Bank, from time
to time as specified by the Bank, additional amounts which shall be sufficient
to compensate the Bank for such increased cost. A certificate as to such
increased cost incurred by the Bank as a result of any event mentioned in
clause (i) or (ii) above, submitted by the Bank to the Applicant and including
a statement in reasonable detail as to the reason for and calculation of such
increase, shall, absent manifest error, be conclusive as to the amount
thereof.
2(A) The obligation of the Bank to issue the initial Credit requested
by the Applicant is subject to the conditions precedent that the Bank shall
have received on or before the day of issuance of such initial Credit the
following, each dated on or within thirty (30) days prior to such date of
issuance, in form and substance satisfactory to the Bank:
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(a) A certified copy of the reoloution of the Board of Directors of
the Applicant authorizing this Agreement, and all documents evidencing other
necessary corporate (or other) action and governmental approvals, if any, with
respect to this Agreement.
(b) An Incumbency Certificate executed by the Secretary or an
Assistant Secretary of the Applicant certifying the names and tru signatures
of the officers of the Applicant authorized to sign this Agreement and the
other documents to be delivered hereunder.
(c) The original of the unconditional guarantee, in a form and in
substance acceptable tothe Bank (the "Guarnatee"), from BRITISH AEROSPACE PLC
(the "Guarantor"), guaranteeing the prompt payment and performance of the
obligations of the Applicant to the Bank under this Agreement.
(d) A certified copy of the resolution of the Banking Committee of the
Board of Directors of the Guarantor authorizing the Guarantee, and all
documents evidencing other necessary corporate or other) action and
governmental approvals, if any, with respect to the Guarantee.
(e) A Power of Attorney executed by the Secretary or an Assistant
Secretary of the Guarantor authorizing certain individuals to sign the
Guarantee and any other documents to be delevered thereunder.
3. The obligations of the applicant under this Agreement shall be
absolute and unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agrement, under all cercumstances
whatsoever, including, without limitation, the following circumstances:
(a) any lack of validity or enforceability of this Agreement, any
Credit, or any other agreement or instrument relating thereto (collectively,
the "Related Documents");
(b) any amendment or wiver of or any consent to departure fromall or
any of the Related Documents;
(c) the existence of any claim, set-off, defense or other right which
the Applicant may have at any time against the beneficiary of any Credit (or
any entities for whom such beneficiary may be acting), whether in connection
with this Agreement, the transactions comtemplated hereby or any unrelated
transaction;
(d) any statement or any other draft or document presented under any
Credit proving to be forged, fraudulent, invailid or inaccurate in any
material respect;
(e) payment by the Bank under any Credit against presentation of a
statement or draft which does not strictly comply with the terms of the Letter
of Credit,
<PAGE>
Exhibit 10.17
27 February 1996
Mr. R.W. Welshhans,
Chief Financial Officer,
Reflectone, Inc.,
4908 Tampa West Blvd.,
Tampa, FL 33634
UNITED STATES OF AMERICA
Dear Richard,
In connection with your preparation of the consolidated financial
statements of Reflectone, Inc. and subsidiaries (the "Company") for the
purpose of preparing the consolidated financial statements which
present fairly the financial position, results of operations and cash
flows of the Company in conformity with generally accepted accounting
principles, and further for the purpose of making disclosures in
documents required to be filed with the Securities and Exchange
Commission (the "SEC"), which are considered necessary by the SEC for
a fair and accurate presentation; I confirm that it is the intention of
British Aerospace Plc. ("BAe") to continue to renew annually the
corporate guarantee for the $10 million Wachovia credit facility for so
long as financing without recourse to BAe is not available to the
Company and BAe continues to hold, or has the ability to hold, through
the exercise of conversion rights and warrants, a majority ownership
position in the Company. It is also our intention to continue to renew
annually the $20 million British Aerospace Finance Inc. financing
facility and to continue annually to renew the guarantee of the $20
million Letter of Credit facility with Lloyds Bank Plc. for so long as
BAe continues to hold, or has the ability to hold through the exercise
of conversion rights and warrants, a majority interest in the Company
and other more attractive financing alternatives are not available to
the Company.
I also confirm that it is the intention of BAe to provide the Company
annual debt financing for the C-130J programme with Lockheed
Aeronautical Systems Company ("LASC") for as long as BAe continues to
hold, or has the ability to hold, through the exercise of conversion
rights and warrants, a majority ownership position in the Company and
until payment is received from LASC, currently scheduled for the fourth
quarter of 1997.
Yours sincerely,
/s/J Pulsford
J.M.PULSFORD
Treasurer - Corporate Finance
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Exhibit 10.18
Rev. 11/9/89
DIRECTOR'S
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the 9th day of November, 1989 between Reflectone,
Inc., a Florida corporation ("Corporation") and
("Director").
WHEREAS, Director is a member of the Board of Directors of the Corporation and
in such capacity is performing a valuable service; and
WHEREAS, the Corporation's Bylaws (the "Bylaws") provide for the
indemnification of the officers, directors, agents and employees of the
Corporation to the maximum extent authorized by Section 607.014 of Florida
Statutes Annotated, as amended to date (the "State Statute"); and
WHEREAS, such Bylaws and the State Statute specifically provide that they are
not exclusive, and contemplate that contracts may be entered into between the
Corporation and the members of its Board of Directors with respect to
indemnification of such directors; and
WHEREAS, in accordance with the authorization provided by the State Statute,
the Corporation has purchased and presently maintains a policy of directors
and officers liability insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of their services for the Corporation; and
WHEREAS, recent developments with respect to the terms and availability of D &
O Insurance have raised questions concerning the adequacy and reliability of
the protection afforded to directors thereby and under the Bylaws and State
Statute; and
WHEREAS, in order to resolve such questions and thereby induce Director to
continue to serve as a member of its Board of Directors, and to otherwise
provide services to the Corporation, the Corporation has determined and agreed
to enter into this contract with Director;
NOW, THEREFORE, in consideration of Director's continued service as a
Director, and in such other capacities as Director shall render services to
the Corporation, after the date hereof, the parties hereto agree as follows:
<PAGE> 1
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1. Indemnity of Director. The Corporation hereby agrees to hold harmless
and indemnify Director to the full extent authorized or permitted by the
provisions of subsections (1) through (6) and (8) of the State Statute, or by
any amendment thereof or other similar statutory provision authorizing or
permitting such indemnification which is adopted after the date hereof.
2. Maintenance of Insurance and Self Insurance.
(a) Subject only to the provisions of Section 2(b) hereof, the
Corporation hereby agrees that, so long as Director shall continue to
serve as a director of the Corporation (or shall continue at the request
of the Corporation to serve as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise), and thereafter so long as Director shall be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the
fact that Director was a director of the Corporation (or served in any
of said other capacities), the Corporation will purchase and maintain in
effect for the benefit of Director one or more valid, binding and
enforceable policy or policies of D & O Insurance providing, in all
respects, coverage at least comparable to that presently provided
pursuant to the policy of D & O Insurance currently maintained in force
and effect by the Corporation (the "Insurance Policy").
(b) The Corporation shall not be required to maintain said policy or
policies of D & O Insurance in effect if said insurance is not
reasonably available or if, in the reasonable business judgment of the
Board of Directors, either (i) the premium cost for such insurance is
substantially disproportionate to the amount of coverage, or (ii) the
coverage provided by such insurance is so limited by exclusions that
there is insufficient benefit from such insurance.
(c) In the event the Corporation does not purchase and maintain in
effect said policy or policies of D & O Insurance pursuant to the
provisions of Section 2(b) hereof, the Corporation agrees to hold
harmless and indemnify Director to the full extent of the coverage which
would otherwise have been provided for the benefit of Director pursuant
to the Insurance Policy.
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3. Additional Indemnity. Subject only to the exclusions set forth in
Section 4 hereof, and in addition to the indemnity provided in Sections 1 and
2(c) hereof, Corporation hereby further agrees to hold harmless and indemnify
Director against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
Director in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Corporation) to which Director
is, was or at any time becomes a party, or is threatened to be made a party,
by reason of the fact that Director is, was or at any time becomes a director,
officer, employee or agent of the Corporation, or is or was serving or at any
time serves at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section 3
hereof shall be paid by the Corporation:
(a) In respect of expenses, judgments and settlement amounts to the
extent attributable to the recovery of remuneration paid or other
financial benefit provided to Director by the Corporation if it shall be
determined by a final judgment or other final adjudication that such
remuneration or financial benefit was paid or provided in violation of
Director's duties and obligations to the Corporation;
(b) On account of any suit in which judgment is rendered against a
Director for an accounting of profits, made from the purchase or sale by
Director of securities of the Corporation, pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any federal, state or local statutory
law, or on account of any payment by Director to the Corporation in
respect of any claim for such an accounting;
(c) On account of Director's conduct if it shall be determined by a
final judgment or other final adjudication to have been knowingly
fraudulent, deliberately dishonest, or grossly negligent, or to have
constituted willful misconduct; or
(d) If a final decision by a Court having jurisdiction in the matter
shall determine that such indemnity is prohibited by the State Statute
or otherwise is not lawful.
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5. Contribution. If the indemnification provided in Sections 1, 2(c) and 3
is unavailable and may not be paid to Director for any reason other than those
set forth in paragraphs (a), (b) and (c) of Section 4, or as a result of
prohibitions set forth in the State Statute, then in respect of any
threatened, pending or completed action, suit or proceeding in which the
Company is jointly liable with Director (or would be if joined in such action,
suit or proceeding), the Company shall contribute to the amount of expenses,
judgments, fines and settlements paid or payable by Director in such
proportion as is appropriate to reflect (i) the relative benefits received by
the Company on the one hand and the Director on the other hand from the
transaction from which such action, suit or proceeding arose, and (ii) the
relative fault of the Company on the one hand and of the Director on the other
in connection with the events which resulted in such expenses, judgments,
fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Director on the other shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such expenses, judgments,
fines or settlement amounts. The Company agrees that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by pro
rata allocation or any other method of allocation which does not take account
of the foregoing equitable considerations.
6. Continuation of Obligations. All agreements and obligations of the
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of the Corporation (or is serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise),
and shall continue thereafter for so long as Director shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal or investigative, by reason of the fact that Director
was a director of the Corporation or serving in any other capacity referred to
herein.
7. Notification and Defense of Claim. Promptly after receipt by Director
of notice of the commencement of any action, suit or proceeding, Director
will, if a claim in respect thereof is to be made against the Corporation
under this Agreement (other than under Section 1 hereof), notify the
Corporation of the commencement thereof, but the omission so to notify the
Corporation will not relieve it from any liability which it may have to
Director otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which Director so notifies the Corporation:
(a) The Corporation will be entitled to participate therein at its own
expense;
(b) The Corporation will directly pay, or promptly reimburse Director
for, all expenses reasonably incurred by Director in the defense
thereof; and
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(c) Except as otherwise provided below, the Corporation may assume the
defense thereof. After notice from the Corporation to Director of its
election so to assume such defense, the Corporation will not be liable
to Director under this Agreement for any legal or other expenses
subsequently incurred by Director in connection with the defense
thereof, other than reasonable costs of investigation or as otherwise
provided below. Director shall have the right to employ his separate
counsel in such action, suit or proceeding, but the fees and expenses of
such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Director
unless (i) the employment of counsel by Director has been authorized by
the Corporation, (ii) counsel designated by the Corporation to conduct
such defense shall not be reasonably satisfactory to Director, or (iii)
the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
such counsel shall be at the expense of the Corporation. For the
purposes of clause (ii) above, Director shall be entitled to determine
that counsel designated by the Corporation is not reasonably
satisfactory if, among other reasons, Director shall have been advised
by qualified counsel that, because of actual or potential conflicts of
interest in the matter between Director, other officers or directors
similarly indemnified by the Corporation, and/or the Corporation,
representation of Director by counsel designated by the Corporation is
likely to materially and adversely affect Director's interests or would
not be permissible under applicable canons of legal ethics.
The Corporation shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Corporation shall not settle any action or
claim in any manner which would impose any penalty or limitation on Director
without Director's written consent. Neither the Corporation nor Director will
unreasonably withhold their consent to any proposed settlement.
8. Repayment of Expenses. Director agrees to reimburse the Corporation for
all reasonable expenses paid by the Corporation in defending any civil or
criminal action, suit or proceeding against Director in the event, and only to
the extent, that it shall be ultimately determined that Director is not
entitled to be indemnified by the Corporation for such expenses under the
provisions of the State Statute, the Bylaws, this Agreement or otherwise.
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9. Enforcement.
(a) The Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in
order to induce Director to continue as a director of the Corporation
and to otherwise provide such services to the Corporation as may be
provided by Director from time to time, and acknowledges that Director
is relying upon this Agreement in continuing to serve in such capacity
or capacities.
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful
in such action, the Corporation shall reimburse Director for all of
Director's reasonable fees and expenses in bringing and pursuing such
action.
10. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable in whole or in part for
any reason, such invalidity or unenforceability shall not affect the validity
or enforceability of the other provisions hereof.
11. Governing Law; Successors; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Florida.
(b) This Agreement shall be binding upon Director and the Corporation,
its successors and assigns, and shall inure to the benefit of Director,
his heirs, personal representatives and assigns and to the benefit of
the Corporation, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
REFLECTONE, INC.
___________________ By: ____________________
Director Chairman of the Board
<PAGE> 6
<PAGE>
Exhibit 10.19
Rev. 11/9/89
OFFICER'S
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the day of , 19
between Reflectone, Inc., a Florida corporation ("Corporation"),
and ("Officer").
WITNESSETH THAT:
WHEREAS, Officer is an officer of the Corporation and ln such
capacity is performing a valuable service; and
WHEREAS, the Corporation's Bylaws (the "Bylaws") provide for the
indemnification of the officers, directors, agents and employees
of the Corporation to the maximum extent authorized by Section
607.014 of Florida Statutes Annotated, as amended to date (the
"State Statute"); and
WHEREAS, such Bylaws and the State Statute specifically provide
that they are not exclusive, and contemplate that contracts may
be entered into between Corporation and its officers with respect
to indemnification of such officers and
WHEREAS, in accordance with the authorization provided by the
State Statute, the Corporation has purchased and presently
maintains a policy of directors and officers liability insurance
("D & O Insurance"), covering certain liabilities which may be
incurred by its directors and officers in the performance of
their services for the Corporation; and
WHEREAS, recent developments with respect to the terms and
availability of D & O Insurance have raised questions concerning
the adequacy and reliability of the protection afforded to
officers thereby and under the Bylaws and State Statute; and
<PAGE> 1
<PAGE>
WHEREAS, in order to resolve such questions and thereby induce
Officer to continue to serve as an officer of the Corporation,
and to otherwise provide services to the Corporation, the
Corporation has determined and agreed to enter into this contract
with Officer;
NOW, THEREFORE, in consideration of Officer's continued service
as an officer, and in such other capacities as Officer shall
render services to the Corporation, after the date hereof, the
parties hereto agree as follows:
1. Indemnity of Officer. The Corporation hereby agrees to hold
harmless and indemnify Officer to the full extent authorized or
permitted by the provisions of subsections (1) through (6) and
(8) of the State Statute, or by any amendment thereof or other
similar statutory provision authorizing or permitting such
indemnification which is adopted after the date hereof.
2. Maintenance of Insurance and Self Insurance.
(a) Subject only to the provisions of Section 2(b) hereof,
the Corporation hereby agrees that, so long as Officer shall
continue to serve as an officer of the Corporation (or shall
continue at the request of the Corporation to serve as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise), and
thereafter so long as Officer shall be subject to any
possible claim or threatened, pending or completed action,
suit or proceeding, whether civil, criminal or
investigative, by reason of the fact that Officer was an
officer of the Corporation (or served in any of said other
capacities), the Corporation will purchase and maintain in
effect for the benefit of Officer one or more valid, binding
and enforceable policy or policies of D & O Insurance
providing, in all respects, coverage at least comparable to
that presently provided pursuant to the policy of D & O
Insurance currently maintained in force and effect by the
Corporation (the "Insurance Policy").
<PAGE> 2
<PAGE>
(b) The Corporation shall not be required to maintain said
policy or policies of D & O Insurance in effect if said
insurance is not reasonably available or if, in the
reasonable business judgment of the Board of Directors,
either (i) the premium cost for such insurance is
substantially disproportionate to the amount of coverage, or
(ii) the coverage provided by such insurance is so limited
by exclusions that there is insufficient benefit from such
insurance.
(c) In the event the Corporation does not purchase and
maintain in effect said policy or policies of D & O
Insurance pursuant to the provisions of Section 2(b) hereof,
the Corporation agrees to hold harmless and indemnify
Officer to the full extent of the coverage which would
otherwise have been provided for the benefit of Officer
pursuant to the Insurance Policy.
3. Additional Indemnity. Subject only to the exclusions set
forth in Section 4 hereof, and in addition to the indemnity
provided in Sections 1 and 2(c) hereof, the Corporation hereby
further agrees to hold harmless and indemnify Officer against any
and all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred
by Officer in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the
right of the Corporation) to which Officer is, was or at any time
becomes a party, or is threatened to be made a party, by reason
of the fact that Officer is, was or at any time becomes an
officer, employee or agent of the Corporation, or is or was
serving or at any time serves at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
<PAGE> 3
<PAGE>
4. Limitations on Additional Indemnity. No indemnity pursuant
to Section 3 hereof shall be paid by the Corporation:
(a) In respect of expenses, judgments and settlement
amounts to the extent attributable to the recovery of
remuneration paid or other financial benefit provided to
Officer by the Corporation if it shall be determined by a
final judgment or other final adjudication that such
remuneration or financial benefit was paid or provided in
violation of Officer's duties and obligations to the
Corporation;
(b) On account of any suit in which judgment is rendered
against Officer for an accounting of profits, made from the
purchase or sale by Officer of securities of the
Corporation, pursuant to the provisions of Section 16(b) of
the Securities Exchange Act of 1934 and amendments thereto
or similar provisions of any federal, state or local
statutory law, or on account of any payment by Officer to
the Corporation in respect of any claim for such an
accounting;
(c) On account of Officer's conduct if it shall be
determined by a final judgment or other final adjudication
to have been knowingly fraudulent, deliberately dishonest,
or grossly negligent, or to have constituted willful
misconduct; or
(d) If a final decision by a Court having jurisdiction in
the matter shall determine that such indemnity is prohibited
by the State Statute or otherwise is not lawful.
<PAGE> 4
<PAGE>
5. Contribution. If the indemnification provided in Sections
1, 2(c) and 3 is unavailable and may not be paid to Officer for
any reason other than those set forth in paragraphs (a), (b) and
(c) of Section 4, or as a result of prohibitions set forth in the
State Statute, then in respect of any threatened, pending or
completed action, suit or proceeding in which the Company is
jointly liable with Officer (or would be if joined in such
action, suit or proceeding), the Company shall contribute to the
amount of expenses, judgments, fines and settlements paid or
payable by Officer in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the
one hand and Officer on the other hand from the transaction from
which such action, suit or proceeding arose, and (ii) the
relative fault of the Company on the one hand and of Officer on
the other in connection with the events which resulted in such
expenses, judgments, fines or settlement amounts, as well as any
other relevant equitable considerations. The relative fault of
the Company on the one hand and of Officer on the other shall be
determined by reference to, among other things, the parties'
relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such
expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution
pursuant to this Section 5 were determined by pro rata allocation
or any other method of allocation which does not take account of
the foregoing equitable considerations.
6. Continuation of Obligations. All agreements and obligations
of the Corporation contained herein shall continue during the
period Officer is an officer, employee or agent of the
Corporation (or is serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise), and shall
continue thereafter for so long as Officer shall be subject to
any possible claim or threatened, pending or completed action,
suit or proceeding, whether civil, criminal or investigative, by
reason of the fact that Officer was an officer of the Corporation
or serving in any other capacity referred to herein.
<PAGE> 5
<PAGE>
7. Notification and Defense of Claim. Promptly after receipt
by Officer of notice of the commencement of any action, suit or
proceeding, Officer will, if a claim in respect thereof is to be
made against the Corporation under this Agreement (other than
under Section 1 hereof), notify the Corporation of the
commencement thereof, but the omission so to notify the
Corporation will not relieve it from any liability which it may
have to Officer otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to which
Officer so notifies the Corporation:
(a) The Corporation will be entitled to participate therein
at its own expense;
(b) The Corporation will directly pay, or promptly
reimburse Officer for, all expenses reasonably incurred by
Officer in the defense thereof; and
<PAGE> 6
<PAGE>
(c) Except as otherwise provided below, the Corporation may
assume the defense thereof. After notice from the
Corporation to Officer of its election so to assume such
defense, the Corporation will not be liable to Officer under
this Agreement for any legal or other expenses subsequently
incurred by Officer in connection with the defense thereof,
other than reasonable costs of investigation or as otherwise
provided below. Officer shall have the right to employ his
separate counsel in such action, suit or proceeding, but the
fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof
shall be at the expense of Officer unless (i) the employment
of counsel by Officer has been authorized by the
Corporation, (ii) counsel designated by the Corporation to
conduct such defense shall not be reasonably satisfactory to
Officer, or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of such counsel
shall be at the expense of the Corporation. For the
purposes of clause (ii) above, Officer shall be entitled to
determine that counsel designated by the Corporation is not
reasonably satisfactory if, among other reasons, Officer
shall have been advised by qualified counsel that, because
of actual or potential conflicts of interest in the matter
between Officer, other officers or directors similarly
indemnified by the Corporation, and/or the Corporation,
representation of Officer by counsel designated by the
Corporation is likely to materially and adversely affect
Officer's interests or would not be permissible under
applicable canons of legal ethics.
The Corporation shall not be liable to indemnify Officer
under this Agreement for any amounts paid in settlement of any
action or claim effected without its written consent. The
Corporation shall not settle any action or claim in any manner
which would impose any penalty or limitation on Officer without
Officer's written consent. Neither the Corporation nor Officer
will unreasonably withhold their consent to any proposed
settlement.
<PAGE> 7
<PAGE>
8. Repayment of Expenses. Officer agrees to reimburse the
Corporation for all reasonable expenses paid by the Corporation
in defending any civil or criminal action, suit or proceeding
against Officer in the event, and only to the extent, that it
shall be ultimately determined that Officer is not entitled to be
indemnified by the Corporation for such expenses under the
provisions of the State Statute, the Bylaws, this Agreement or
otherwise.
9. Enforcement.
(a) The Corporation expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations
imposed on it hereby in order to induce Officer to continue
as an officer of the Corporation and to otherwise provide
such services to the Corporation as may be provided by
Officer from time to time, and acknowledges that Officer is
relying upon this Agreement in continuing to serve in such
capacity or capacities.
(b) In the event Officer is required to bring any action to
enforce rights or to collect moneys due under this Agreement
and is successful in such action, the Corporation shall
reimburse Officer for all of Officer's reasonable fees and
expenses in bringing and pursuing such action.
10. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so
that if any provision hereof shall be held to be invalid or
unenforceable in whole or in part for any reason, such invalidity
or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
11. Governing Law; Successors; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Florida.
(b) This Agreement shall be binding upon Officer and the
Corporation, its successors and assigns, and shall inure to
the benefit of Officer, his heirs, personal representatives
and assigns and to the benefit of the Corporation, its
successors and assigns.
<PAGE> 8
<PAGE>
(c) No amendment, modification, termination or cancellation
of this Agreement shall be effective unless in writing
signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
REFLECTONE, INC.
___________________ By: ____________________
Officer Its
<PAGE> 9
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Reflectone, Inc., and Subsidiaries on Form S-8 (File No. 2-82048, 33-3059,
33-37077 and 33-79912) of our report dated March 22, 1996, on our audits of the
consolidated financial statements and financial statement schedules of
Reflectone, Inc. and Subsidiaries, as of December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995, which report is
included in the Company's Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
March 22, 1996
<PAGE> 1
<PAGE>
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