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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ x / Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended April 30, 1998, or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-16115
IMPCO Technologies, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 91-1039211
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(State of Incorporation) (IRS Employer ID. No.)
16804 GRIDLEY PLACE, CERRITOS, CALIFORNIA 90703
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (562) 860-6666
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock;
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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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. / /
Approximate aggregate market value of the voting stock held by
non-affiliates of the registrant as of June 30, 1998 was $108,206,166.
Number of shares outstanding of each of the registrant's classes of
common stock, as of June 30, 1998:
7,171,601 shares of Common Stock
Documents incorporated by reference:
See Item 14
Information required by Part III is incorporated by reference from the
definitive proxy statement to be filed pursuant to Regulation 14A or by an
amendment hereto, in either case, within 120 days of the end of fiscal year
1998.
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2
PART I
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ITEM 1 - BUSINESS
General
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IMPCO Technologies, Inc. [effective September 15, 1997, AirSensors, Inc.
changed its name to IMPCO Technologies, Inc.] (IMPCO) was incorporated in the
State of Washington in 1978 and became a Delaware corporation in 1985. IMPCO,
together with its subsidiaries, are hereinafter referred to as the "Company."
The Company designs, manufactures and markets equipment that allows internal
combustion engines to operate on alternative fuels, primarily propane and
natural gas.
ACQUISITIONS
In October 1995, the Company acquired 51% of the outstanding stock of
Technisch Bureau Media, B.V., a private company in the Netherlands, from
Centradas B.V. for 3,187,500 Dutch Guilders (U.S. $2,023,000). In May 1998,
the Company acquired the remaining 49% equity interest from Centradas B.V.
for 1,400,000 Dutch Guilders (U.S. $693,000). The company now operates as
IMPCO Technologies, B.V. (IMPCO BV). It distributes gaseous fuel
carburetion systems, components and related devices for use in internal
combustion engines along with catalytic converters for the off-highway
industrial market. IMPCO BV services the European marketplace from its
headquarters in the Netherlands and through its subsidiaries and facilities
in Germany, France and the United Kingdom. IMPCO BV's revenues totaled
approximately $11,588,000, $9,203,000 and $5,601,000 in fiscal years 1998,
1997 and 1996, respectively.
In April 1996, the Company acquired substantially all of the business
assets of Garretson Equipment Company, Inc. (Garretson) of Mt. Pleasant, Iowa
for approximately $1,041,000. Garretson is a leading manufacturer of fuel
systems, components and related devices that allow small engines of 35
horsepower or less to run on either natural gas or propane. Major product
applications include generator sets, industrial equipment and utility engines.
In July 1996, the Company through IMPCO Technologies, Pty. Ltd (IMPCO
Pty), a wholly-owned subsidiary, acquired certain assets of Ateco Automotive
Pty. Ltd. (Ateco), including a 50% ownership interest in Gas Parts (NSW)
Pty., for a purchase price of approximately $6,532,000. Ateco distributed
IMPCO's gaseous fuel carburetion systems, components and related devices for
use in internal combustion engines since 1969. IMPCO Pty services the
Australian marketplace from its offices in Melbourne and Sydney. In January
1998, IMPCO Pty acquired the remaining 50% ownership interest in Gas Parts
(NSW) Pty. for A$225,000 (U.S. $148,500) in cash. IMPCO Pty's revenues
totaled approximately $6,893,000 in fiscal year 1998 and $7,816,000 for 10
months of operations in fiscal year 1997.
In December 1997, the Company purchased certain manufacturing equipment
and inventory of the Algas Carburetion Division of PGI International at a
purchase price of $2,400,000 paid in cash. On the same day, the Company
acquired a 90% interest in Industrias Mexicanas de Productos de Combustibles,
S. de R.L. de C.V.("Grupo I.M.P.C.O. Mexicano") at a purchase price of
$961,000 paid in cash. Immediately prior to the Company's acquisition of its
interest in Grupo I.M.P.C.O. Mexicano, Grupo I.M.P.C.O. Mexicano acquired
certain assets of the carburetion division of Algas Mexicana, de R.L. de C.V.
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3
In December 1997, the Company purchased from the bankruptcy trustee of
EDO Canada, Ltd. certain development, testing, quality control and
manufacturing equipment used for the manufacture of storage tanks for
compressed natural gas. The US$790,000 purchase price was paid in cash.
PRODUCTS AND MARKETS
The Company's products include fuel management systems and components,
including electronic fuel control processors, carburetors, converters or
regulators, fuel lock-offs, repair kits or replacement parts and other sundry
devices. The Company's products, sold for aftermarket conversions and as
original equipment, are used in a variety of motor vehicles, forklifts and
small portable to large stationary engines. Worldwide, the products are
marketed through distributors and original equipment manufacturers (OEM)
under the brand names IMPCO (registered trademark), BEAM(registered
trademark), GARRETSON(registered trademark), J&S Carburetion (registered
trademark), and Algas. Ease of installation, consistent performance, high
quality and safety are attributes of the Company's products.
The Company's fuel management systems are designed to offer several
levels of technology to meet customer needs. The Adaptive Digital Processor
(ADP) uses advanced electronic technology to learn and store key operating
characteristics of the specific vehicle. The ADP enhancer complements the
ADP with diagnostics and spark timing modules. The Company's Advanced Clean
Fuels Technology (ACFT) uses mass sensing hot wire anemometry to calculate
the engine's air/fuel mixture. The Company's Heavy Duty Advance Fuel
Electronics (HD-AFE) uses patented hot wire anemometry mass sensing of both
fuel and air to precisely control lean burn combustion in heavy duty engines
utilized in trucks and mass transit vehicles to maximize performance at
reduced emissions. During engine operation, an on-board computer adjusts the
mixture to achieve optimum results in engine performance to reduce emissions.
The Company is also developing a fuel injection system for ultra low emission
vehicles. These injectors are designed for vaporized natural gas or
vaporized propane for use in the latest engine technologies.
The Company's carburetors are designed for use in 5 to 5,000 horsepower
engines. The Company's liquid propane gas (LPG) converter is a two stage
regulator and vaporizer that regulates the amount of fuel entering the
carburetor and then transforms the fuel from a pressurized liquid state to a
gaseous vapor by exposing the fuel to near atmospheric pressure. The
Company's vacuum and electro- mechanical fuel lock-off devices stop the flow
of fuel when engines stop running. The vacuum fuel lock-off has been a
popular product with OEM's due to its safety characteristics.
During fiscal year 1998, sales of carburetors represented approximately
30% of consolidated product sales, converters approximately 21%, fuel
lock-offs approximately 7%, repair kits approximately 17%, electronic control
systems approximately 7%, and other products and sundry devices approximately
18%. The product sales mix during fiscal year 1998 was substantially the
same as during the prior two fiscal years.
The Company's products are sold worldwide to distributors and OEMs and
as aftermarket components and/or retrofit systems. In fiscal year 1998 sales
in the United States and Canada represented 57% of the Company's consolidated
sales. Sales by region are shown below:
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4
<TABLE>
<CAPTION>
Fiscal years ended April 30,
---------------------------------
1998 1997 1996
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<S> <C> <C> <C>
United States and Canada 57% 66% 67%
Pacific Rim 13% 11% 10%
Europe 19% 12% 16%
Latin America 11% 11% 7%
</TABLE>
During fiscal year 1998, sales to distributors accounted for
approximately 55% of consolidated product sales, sales to OEM customers
accounted for approximately 39% and system conversions accounted for
approximately 6% of consolidated product sales.
Distributors primarily service the aftermarket conversion business and
small-volume OEMs, and are generally specialized and privately-owned
enterprises. Many domestic distributors have been customers of IMPCO for
more than 30 years, and most export distributors have been customers for more
than 20 years.
Most OEM customers are large engine, vehicle, and forklift manufacturers
such as Caterpillar Inc., Clark Material Handling Co., Ford Motor Company,
Generac, General Motors Corporation, Kohler Company, Mitsubishi Caterpillar
Forklift America, Inc., NACCO Material Handling Group, Onan Corporation,
Toyota Industrial Equipment Mfg. Inc. and the Waukesha Engine Division of
Dresser Industries, Inc.
The Company's older products use vacuum and mechanical controls to
regulate engine air/fuel ratios. Motor vehicle carburetors, as well as some
ancillary devices, often are mechanical and operate independent of other
engine functions. In recent years in more industrially advanced countries,
electronically controlled devices have replaced some vacuum actuated
mechanical devices to improve the engine performance and to more tightly
control the emissions from internal combustion engines. The Company has
addressed this change by introducing new electronic devices designed for
gaseous fuels that interface with the OEM electronics.
To remain competitive, the Company continues to improve its older
products and is developing new products. The Company upgraded its ACFT
gaseous fuel management system that is based on its mass-sensing technology
and proprietary software. ACFT is designed to manage air/fuel ratios to
achieve optimum air/fuel mixture and other engine functions. The Company is
enhancing its on-board computer utilizing the vehicle-specific software
required for the AFE product, a mass-sensor and the necessary hardware for a
variety of vehicle types including pickup trucks, vans and passenger cars.
The Company is focusing its ACFT marketing efforts on OEMs. The Company is
also developing improved technologies including injectors, high and low
pressure regulators, on-board diagnostics, high performance 32-bit engine
control modules, fuel lockoffs and related components. The Company believes
that it will continue to satisfy the differing engine and emission control
approaches being used on engines in its domestic and foreign markets.
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5
MARKET AND REGULATORY ENVIRONMENT
The Company's worldwide market is influenced by environmental laws which
regulate emission standards and energy laws which strive for energy
independence. In addition, there are certain economic advantages to using
alternate gaseous fuels in many countries. Legislation has provided
incentives and programs to promote and develop infrastructures for
alternative fueled vehicles, some requiring fleet vehicle owners to phase in
alternative fueled vehicles and imposed penalties upon failure to meet
standards and guidelines.
In the United States, the Federal Energy Policy Act of 1992 mandates
that 75% of the light duty vehicles acquired by the federal, state and
municipal governments by fiscal 2002, and thereafter, be alternative fueled
vehicles, and non-government fleet operators of 20 or more vehicles will be
required to include at least 20% alternative fueled light duty vehicles in
their total vehicle purchases by fiscal 2002. Beginning 2006 and thereafter,
70% of the vehicles acquired by fleet operators of 20 or more must be
alternative fueled vehicles.
Companies that manufacture retrofit systems for use in California are
required to comply with requirements under Title XIII, which require that a
certain percentage of retrofit conversions be certified, inspected, carry a
product warranty and comply with new emission standards. For vehicle model
year 1998 and 1999, the Company will be required to certify all of its
retrofit engine families. Manufacturers are also required to conduct 100,000
mile durability tests and comply with in-service emission standards. The
Environmental Protection Agency has adopted similar requirements for the
entire United States beginning in 2002.
Several other states have adopted similar regulations and mandates which
are expected to increase the demand for alternative fuels. These include
Arizona, Arkansas, Colorado, Connecticut, Florida, Georgia, Hawaii, Iowa,
Kansas, Louisiana, Massachusetts, Missouri, New Hampshire, New Mexico, New
York, Oklahoma, Oregon, Texas, Utah, Virginia, Washington and West Virginia.
In addition, legislation to foster energy independence and/or reduce
pollution is spurning growth in the use of gaseous fuels in countries such as
Australia, Mexico, Chile, China, Netherlands, Taiwan, Turkey and Venezuela.
STRATEGIC MARKETING PLAN
The Company's goal is to retain its position as one of the world's
leading suppliers of engine components and systems that allow internal
combustion engines to operate on gaseous fuels. A key element of the
Company's steady growth has been the diversity of markets that its products
serve. The increasing worldwide demand for gaseous alternative fuel
management products and systems for motor vehicle uses, material handling
equipment, and industrial and heavy duty mobile engines, provides the Company
with a broad market foundation and eliminates dependency on a single market
segment. The Company's two largest markets, motor vehicle (primarily fleet
vehicles) and material handling (primarily forklifts), accounted for
approximately 83% of the Company's consolidated product sales in the last
fiscal year. See "Products and Markets." Of these two markets, the motor
vehicle market is believed to have the greatest potential for significant
growth. The Company anticipates that this growth will result from worldwide
governmental regulations imposing more stringent emission standards to
achieve energy independence. See "Market and Regulatory Environment."
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6
The Company's global short-term strategy is to continue its presence in
the retrofit market for fleet vehicles and to continue introducing upgrades
to its existing products. The Company will also continue its presence in
both the retrofit and OEM market by promoting its products to meet the
expected demand for equipment which will allow motor vehicle engines to meet
the more stringent emission regulations. The Company's strategy for future
participation in the U.S. retrofit market will be limited to motor vehicle
applications which will provide large potential conversions and can be
economically justified.
In the long-term, the worldwide demand for alternative fueled vehicles
is making it feasible for OEM production. The Company has taken steps to
become a preferred OEM supplier for gaseous fuel components. During the last
fiscal year, the Company signed a five-year teaming agreement with General
Motors Corporation to develop clean gaseous fuel delivery systems for
passenger cars and medium- and light-duty trucks. Development programs and
the commercialization of OEM vehicles with IMPCO systems is on-going in
Mexico, Australia, Japan, China, and South America. In addition, the
Company's recent acquisition of EDO's tank technology and equipment will
extend the Company's capabilities from tank testing and research and
development into the next generation of fuel storage systems. Development of
fuel storage technology is an important component of the Company's long-term
strategy to be the premier Tier 1 component supplier to automotive OEMs. The
Company believes that product quality is essential for OEM recognition and it
is continually upgrading its quality assurance program.
The Company's aftermarket products are primarily marketed through a
network of specialized distributors which the Company expects to continue to
utilize for its existing product lines. However, under recent regulations in
the U.S., the Company and its installers are required to certify their
products and services. To meet these requirements, the Company is seeking new
channels of distribution to complement its existing distributor network.
The Company has expanded the marketing of its older non-electronically
controlled products in countries with less stringent emission standards than
those in the United States. This strategy is being applied in Central and
South America, Eastern Europe and the Far East. In countries such as Mexico
and Taiwan, where the level of emission standards is increasing, but is not
as stringent as in the United States, the Company's strategy is to upgrade
its older products to improve both emission levels and engine performance.
Significant changes are also occurring in the forklift industry. The
increased emphasis on emissions and durability will require engine and
equipment manufacturers to consider new fuel and engine management products
as a part of a complete, certified engine package. The Company is starting
to work closer with the OEMs in order to manage this change and meet these
new requirements. The Company expects the marketing and distribution of
forklift products to continue with a strong OEM focus.
The primary growth potential for the industrial engine and heavy duty
mobile engine business is in the power generation market and the heavy duty
mobile gas engines used in trucks and buses. North American generator set
production continues to increase in response to growing global demand. Many
of these sets are fueled by propane or natural gas. The growth in the heavy
duty mobile engine market will be supported by the increased worldwide
government mandates for clean air, such as the Clean air Act of 1990, the
Energy Policy Act of 1992 and the EURO 3 European emission standards. The
Company has been developing advanced
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7
electronic heavy duty fuel systems for a number of heavy duty OEMs for trucks
and buses utilizing compressed natural gas and liquefied natural gas.
COMPETITION AND OTHER MARKET FACTORS
The Company estimates there are approximately twenty-three manufacturers
of gaseous fuel delivery components and/or delivery systems. IMPCO, Landi,
Tartarini, OMVL, GFI, Koltec & Vialle are estimated to account for over 90%
of the world market. The Company has competitors in various worldwide market
segments in the motor vehicle gaseous fuel equipment industry. Landi,
Tartarini and OMVL are major competitors in the Southern Europe and South
America motor vehicle market. Vialle is a competitor in the European and
Australian markets. Koltec is a competitor in the Dutch market and the Far
East. GFI primarily serves the North American motor vehicle market.
Overall, the Company estimates that it has an approximate 35% market share of
the world market for gaseous fuel delivery components and/or systems for the
motor vehicle market.
The Company estimates that it has a greater than 80% market share in the
material handling and industrial engine market. Competitors include Nolff
Manufacturing and AISAN who combined, have less than a 5% market share.
Other competitors are mostly local manufacturers of repair kits and other
maintenance components for IMPCO products.
To be competitive into the future, the Company believes it will be
necessary to continue to enhance its gaseous fuel engine management products
utilizing mass-sensing, electronic and electro- mechanical technology. The
Company anticipates that the gaseous fuel equipment industry will be
experiencing rapid technological changes in the next ten years. This should
result in the majority of the existing competitors being limited in the market
place because of their lack of adequate capital or their lack of willingness to
develop high tech, low emission products now being required by future emissions
laws. However, the Company anticipates new competitors will enter the
alternative fuel marketplace due to the potential increase in the size of the
market. These competitors may include large motor vehicle OEMs who may adapt
their existing gasoline technology to alternative fueled vehicles.
MANUFACTURING
The Company's products are presently manufactured in the Company's
facilities in Cerritos and Irvine, California. Manufacturing operations consist
largely of mechanical assembly with light machining. A machining facility is
also operated in Mt. Pleasant, Iowa. The Company places substantial reliance on
outside vendors for parts, components and electronic assemblies. It obtains
product components from a variety of domestic motor vehicle and electronic part
suppliers and assemblers, diecasters, metal stamping and machine shops. In
fiscal year 1998, 10 suppliers accounted for approximately 55% of raw material
purchases and one supplier accounted for approximately 18% of such purchases.
Material costs represent the major component of cost of sales.
Coordination with suppliers for quality control and timely shipment is
critical to maximize the Company's inventory management. The Company uses a
computerized material requirements planning system to schedule material flow and
balance the competing demands of timely shipments, productivity and inventory
management.
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8
The Company has not experienced, and does not expect to experience, any
significant difficulty in complying with environmental regulations applicable
to its manufacturing processes and facilities.
PRODUCT CERTIFICATION
The Company must obtain certification from the Environmental Protection
Agency (EPA) to sell certain of its products in the United States and from
the California Air Resources Board to market certain products in California.
In September 1997 EPA modified the phase-in program (Option 3 of EPA
Memorandum 1-A) to ease certification requirements for retrofit conversions
through model year 1999. California regulations require that all of model
year 1997, 1998, and future retrofit conversions be certified, inspected,
carry a product warranty and comply with new emission standards.
Manufacturers are also required by the EPA and California regulations to
conduct 100,000 mile durability tests for retrofit vehicles. Some other
states have similar types of regulations. The Company's continued
participation in the U.S. retrofit market will be closely monitored as the
business transitions to OEM vehicles.
The Company seeks product approval by Underwriters Laboratories, Inc.
(UL(registered trademark)), the American Gas Association, and international
approval services on certain products. While approval is not always
required, the Company believes such approval enhances the acceptability of
products in the domestic marketplace. Many foreign countries also accept
these agency approvals as satisfying "approval for sale" requirements in
their markets.
PATENTS AND TRADEMARKS
The Company holds a number of domestic and foreign patents. While the
Company believes that these patents and patent applications protect certain
proprietary rights and technologies, there can be no assurance that any
existing and future patents will provide such protection. Moreover, the
Company believes that its growth and future success are more dependent upon
technical expertise and marketing skills than on the ownership of patent
rights. Also, other technology exists which performs functions substantially
equivalent to the technology covered by the Company's patents and patent
applications, and that technology may be used by others without infringing
upon the Company's patents.
The "IMPCO", "BEAM", "GARRETSON" and "CARBURETION J&S" marks are
registered as trademarks on the United States Principal Register. They are
also registered in various other countries throughout the world.
BACKLOG
The Company's backlog consists of anticipated sales of products for
which the Company has confirmed orders scheduled for shipments over the next
90 days. Such backlog was approximately $10,894,000 and $11,500,000 at April
30, 1998 and April 30, 1997, respectively. The Company believes that backlog
as of any date is not necessarily indicative of future product sales.
EMPLOYEES
The Company employed 446 persons worldwide as of April 30, 1998. None of the
employees are represented by labor unions, and rapport with employees is
believed to be good.
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9
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk to the
availability and integrity of financial systems and the reliability of
operational systems both internally and externally. The Company has
completed its assessment of the Year 2000 issue through 1) communication with
key customers, suppliers, financial institutions and others with which it
conducts business and 2) review of its current internal computer systems to
identify potential Year 2000 issues. Based on this assessment, the Company
is not aware of any key customer, supplier, or financial institution with
inadequate solutions. The Company has developed plans to address system
modifications required by December 31, 1999 and these plans basically require
the upgrade to new versions of packaged software. The Company plans to have
all systems upgraded by December 1998. The financial impact of making the
required systems changes is not expected to be material to the Company's
consolidated financial position, results of operations or cash flows.
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ITEM 2 - PROPERTIES
The Company's executive offices and primary manufacturing facilities are
located in Cerritos, California and occupy 105,000 square feet in two
buildings at a single 4-acre location. The Company's Technology and
Automotive OEM Center is located in Irvine, California and occupies 80,000
square feet in one building at a 3-acre location. The Company believes these
facilities are adequate for its core product manufacturing operations and OEM
development programs and production. The Cerritos site is leased until May
1999, with two 5-year renewal options. The Irvine site is leased until
August 2004, with two 5-year renewal options. The Company maintains a
research and development facility in a suburb of Seattle, Washington which
occupies approximately 10,000 square feet in a portion of an office park
building. These premises are leased until December 2000. The Company also
owns a machine shop in Mt. Pleasant, Iowa which occupies approximately 16,500
square feet at an industrial site. The Company's facility in Rijswijk,
Holland occupies approximately 16,000 square feet and is leased until October
31, 2000, with a five year renewal option. The Company's facility in
Cheltenham, Australia occupies approximately 15,000 square feet and is leased
until May 31, 2001, with a four year renewal option. The Company's facility
in Mexico City, Mexico occupies approximately 3,500 square feet and is leased
until December 1998.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a party to several legal actions, but based on
discussions with legal counsel, management does not believe that any of these
actions will have a material adverse effect on its business or financial
condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year ended April 30, 1998.
FORWARD-LOOKING STATEMENTS
The statements contained in this Part I that are not historical in nature
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
in "Certain Facors" at the end of Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations.
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11
PART II
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ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The Nasdaq Stock Market under the
symbol "IMCO". All common stock prices are closing prices per The Nasdaq Stock
Market.
<TABLE>
<CAPTION>
Fiscal year 1998 Fiscal year 1997
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Quarter Ended High Low High Low
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<S> <C> <C> <C> <C>
July 31 $ 10 $ 6 7/8 $ 11 1/8 $ 8
October 31 12 5/8 9 5/8 9 7/8 6
January 31 12 3/8 9 1/4 10 7/8 5 3/4
April 30 13 1/8 11 1/4 11 7/8 7 1/2
</TABLE>
On June 30, 1998, there were 546 holders of record of the Company's common
stock.
The Company has never paid dividends on its common stock. It intends to
retain future earnings to finance the operation and expansion of its business
and does not anticipate paying cash dividends in the foreseeable future on
common stock.
The holders of the 1993 Series 1 Preferred Stock are entitled to
cumulative cash dividends in an amount equivalent to interest at an annual rate
per share (based on a deemed value of $1,000 per share) equal to the
Seattle-First National Bank prime rate of interest, plus 1.5%, but not to exceed
$105 per share nor be less than $80 per share annually.
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12
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
In thousands, except per share amounts
-----------------------------------------------------
Fiscal Years Ended April 30,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Statement of
operations data:
- -----------------
<S> <C> <C> <C> <C> <C>
Net revenue(1) $ 71,083 $ 61,828 $ 51,575 $ 45,231 $ 36,410
Research and
development expense 13,337 8,480 7,171 6,197 5,103
Operating income 7,118 4,850 4,132 3,540 3,069
Financing charges 935 1,100 504 292 320
Net income(2) 4,865 3,225 4,671 2,967 2,511
Preferred stock expenses(3) 595 581 610 548 612
Net income applicable
to common stock 4,270 2,644 4,061 2,420 1,898
Net income per share(4):
Primary .67 .46 .72 .43 .34
Fully diluted .60 .43 .64 .39 .31
Number of shares used in
per share computation(4):
Basic 6,334 5,722 5,648 5,620 5,515
Diluted 8,155 6,131 7,300 6,272 6,200
Balance sheet data:
- --------------------
Total current assets $ 37,492 $ 29,904 $ 24,578 $ 13,626 $ 10,420
Total assets 57,385 47,113 37,728 22,109 17,464
Total current liabilities 11,417 11,656 9,266 5,111 4,810
Long-term obligations 10,594 12,721 8,823 1,855 334
Stockholders' equity 34,305 22,063 19,256 15,143 12,320
</TABLE>
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See accompanying notes.
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Includes contract revenue during fiscal year ended April 30, 1998, 1997,
1996, 1995 and 1994, of $8,873,554, $3,391,528, $3,087,229, $1,523,952 and
$3,880,416, respectively. See note 12 of the Notes to "Consolidated Financial
Statements."
(2) Includes an income tax benefit of $1,700,000, due to the reduction in the
valuation allowance for deferred tax assets and $318,000 net income from the
Company's European subsidiary during the year ended April 30, 1996. See note 5
of the Notes to "Consolidated Financial Statements."
(3) Includes dividends on Preferred.
(4) During fiscal year 1998, the Company adopted FAS 128, Earnings Per Share,
and all prior years have been restated. During fiscal years 1996 and 1998,
shares assumed to be issued upon conversion of the Company's preferred stock
were included in the calculation since it resulted in a reportable dilution.
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13
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not historical in nature
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
in "Certain Factors" at the end of this discussion and other factors identified
from time to time in the Company's reports filed with the Securities and
Exchange Commission. All period references are to the Company's fiscal periods
ended April 30, 1998, 1997 or 1996, unless otherwise indicated.
Overview
- ---------
IMPCO Technologies, Inc. designs, manufactures and markets equipment that
allows internal combustion engines to operate on alternative gaseous fuels,
primarily propane and natural gas. The Company's products include fuel
management systems and components, and are sold for maintenance, aftermarket
conversions and as original equipment on motor vehicles, forklifts and small
portable to large stationary engines. Worldwide, the products are marketed
through distributors and original equipment manufacturers.
Results of Operations
- ----------------------
Acquisitions
- -------------
In fiscal year 1996, the Company acquired 51% of the outstanding stock of
Technisch Bureau Media, B.V. and on May 1, 1998 acquired the remaining 49%
interest. Its European subsidiary is now operated under the name IMPCO
Technologies, B.V. (IMPCO BV) and had revenues of approximately $11,588,000,
$9,203,000 and $5,601,000 in fiscal years 1998, 1997 and 1996, respectively.
In fiscal year 1996, the Company acquired substantially all of the business
assets of Garretson Equipment Company, Inc. (Garretson) of Mt. Pleasant, Iowa.
Garretson is a leading manufacturer of fuelsystems, components and related
devices that allow small engines of 35 horsepower or less to run on either
natural gas or propane. Major product applications include generator sets,
industrial equipment and utility engines.
In fiscal year 1997, the Company through IMPCO Technologies, Pty. Ltd
(IMPCO Pty), a wholly-owned subsidiary, acquired certain assets of Ateco
Automotive Pty. Ltd. (Ateco), including a 50% ownership interest in Gas Parts
(NSW) Pty. In fiscal year 1998, IMPCO Pty acquired the remaining 50% ownership
interest in Gas Parts (NSW) Pty. IMPCO Pty's consolidated revenues totaled
approximately $6,893,000 in fiscal year 1998 and $7,816,000 for 10 months of
operations in fiscal year 1997.
In fiscal year 1998, the Company purchased certain manufacturing equipment
and inventory of the Algas Carburetion Division of PGI International. On the
same day, the Company acquired a 90% interest in Industrias Mexicanas de
Productos de Combustibles, S. de R.L. de C.V. ("Grupo I.M.P.C.O. Mexicano").
Grupo I.M.P.C.O. Mexicano had revenues of approximately $823,000 in fiscal year
1998.
<PAGE>
14
In fiscal year 1998, the Company purchased from the bankruptcy trustee of
EDO Canada, Ltd. certain development, testing, quality control and manufacturing
equipment used for the manufacture of storage tanks for compressed natural gas.
Net Revenue
- --------------
The Company's net revenue for fiscal year 1998 increased by $9,255,000 or
15% compared to a $10,253,000 or 20% increase in fiscal year 1997. For the
current year, contract revenues, primarily from the General Motors Corporation
program, represented $5,482,000 of this increase.
Product sales for fiscal year 1998 and 1997 increased by approximately 6%
and 21%, respectively. During 1998, the increase in product sales was
unfavorably reduced by $2,326,000, or 4% as a result of the negative effects of
a strengthening U.S. dollar against foreign currencies. The following table
sets forth the Company's product sales by application, (all dollars in
thousands):
<TABLE>
<CAPTION>
Fiscal years ended April 30,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Motor vehicle products $ 21,870 $ 23,784 $ 17,063
Forklifts and other
material handling equipment 29,493 23,291 23,316
Small portable to
large stationary engines 10,846 11,362 8,108
--------- --------- ---------
Total product sales $ 62,209 $ 58,437 $ 48,487
--------- --------- ---------
--------- --------- ---------
</TABLE>
During fiscal year 1998, net revenue attributable to the Company's motor
vehicle products decreased by $1,914,000, or 8%, over 1997. This decrease in
motor vehicle product sales was unfavorably impacted by the negative effects of
a strengthening U.S. dollar against foreign currencies of $817,000, or 3%.
During fiscal year 1997, sales for the motor vehicle products increased by
$6,721,000, or 39%, over 1996. The primary reason for the fiscal year 1997
increase was the addition of the Australian subsidiary which increased
consolidated revenues by $5,294,000 from 1996 to 1997. The following table sets
forth the Company's worldwide motor vehicle product sales by component parts and
upfitting systems, (all dollars in thousands):
<TABLE>
<CAPTION>
Fiscal years ended April 30,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Motor vehicle component parts $ 18,152 $ 20,864 $ 13,982
Motor vehicle upfitting systems 3,718 2,920 3,081
--------- --------- ---------
Total motor vehicle products $ 21,870 $ 23,784 $ 17,063
--------- --------- ---------
--------- --------- ---------
</TABLE>
Sales for the Company's motor vehicle component parts in 1998 decreased
$2,712,000, or 13%, as compared with 1997. Thirty percent (30%) of this
decrease was attributable to the strengthening of the U.S. dollar. Also, the
decrease resulted from lower product sales for aftermarket conversions in the
U.S. market due to new regulatory requirements shifting the automotive
<PAGE>
15
conversion market to direct OEM upfits. Additionally, the decrease resulted
from lower product sales in Australia as a result of a general economic slowdown
and unfavorable price differentials between petroleum and alternative fuels
which unfavorably impacted the Company's component sales. These decreases were
slightly offset by $603,000 in incremental revenues generated by the newly
acquired Mexican operation. For fiscal year 1997, the increase in component
parts sales, as compared to 1996, was primarily due to incremental revenue of
$5,294,000 resulting from its Australian acquisition. Increased sales to Latin
America accounted for most of the remaining increase. Management anticipates
that revenue attributable to the Company's motor vehicle component parts will be
higher during fiscal year 1999 as compared to 1998 primarily as a result of a
full year of operations for the Mexican subsidiary and an increase in demand in
Latin America. This is a forward-looking statement. See "Certain Factors"
below.
During fiscal year 1998, revenue attributable to upfitting vehicles with
the Company's systems increased by $798,000, or 27%, compared to the previous
fiscal year. This upfitting revenue represented sales of 438 mid-year 1997 GM
pick-ups upfit with the Company's bi-fuel natural gas fuel system and sales of
880 1998 medium-duty dedicated Liquid Propane Gas (LPG) kits under a cross
license agreement with General Motors. During fiscal year 1997, a portion of
revenue attributable to upfitting vehicles for aftermarket fleet use in 1997
resulted from a program with Ford Motor Company in which the Company's bi-fuel
propane system was utilized in 1996 model year F-150 and F-250 pickup trucks.
The Ford program was materially completed during the first quarter of fiscal
year 1997. During the third quarter of fiscal year 1997, the Company began
converting postal vehicles to compressed natural gas under a $1.5 million Postal
Service contract. Deliveries were completed during the fourth quarter of fiscal
year 1997. During fiscal year 1996, upfitting revenue primarily resulted from a
Postal Service contract to convert postal vehicles to compressed natural gas and
initial shipments of the aforementioned 1996 model year F-150 and F-250 Ford
trucks utilizing the Company's bi-fuel propane system. Management anticipates
that the commercialization by General Motors Corporation of model year 1998 and
1999 Chevrolet and GMC pickup trucks, and other vehicles, with the Company's
systems will result in significantly higher upfitting revenue during fiscal year
1999. Although the current labor disputes at General Motors are not impacting
the upfit programs that are in process, the length of the disputes could impact
future delivery schedules and upfitting revenues. These are forward looking
statements. See "Certain Factors" below.
During fiscal year 1998, net revenue attributable to the Company's products
for forklifts and other material handling equipment increased by approximately
$6,202,000, or 27%, over 1997. This increase in forklift related product sales
was unfavorably impacted by the negative effects of a strengthening U.S. dollar
against foreign currencies of $1,509,000 or 6%. During fiscal year 1998, the
Company realized increased revenues of $2.4 million from its European operations
which primarily sells material handling equipment. Without the strengthening
U.S. dollar, revenues from European operations would have increased $3.9 million
for fiscal year 1998. The remaining increase in sales was derived from domestic
operations. Both the European and domestic operations realized increases as a
result of the general upswing in economic conditions. Total revenue from
forklifts and material handling equipment in fiscal year 1997 was comparable to
1996 revenue. Management anticipates that sales for forklifts and other
material handling equipment in fiscal year 1999 will be comparable to 1998.
Management projects increases in the European market but will be offset by a
decline in the Asian market. In addition, it is anticipated in the near future
that the California Air Resources Board (CARB) and the Environmental Protection
Agency (EPA) will adopt emission requirements for forklifts and other material
handling equipment that are similar to those being adopted for
<PAGE>
16
the motor vehicle industry. These are forward-looking statements. See
"Certain Factors" below.
During fiscal year 1998, sales of small portable to large stationary
engines decreased $516,000, or 5% over sales in 1997. The decrease is
related to new EPA regulations affecting the small engine aftermarket.
During fiscal year 1997, sales of small portable to large stationary engines
increased $3,254,000, or 40%, over sales in 1996. The increase was
attributable to the Garretson product line purchased in April 1996 and to
higher demand for large and small power generation units used in power
replacement and recreational applications. Management anticipates that
revenue from industrial engines in fiscal year 1999 will be higher compared
to 1998 levels. This is a forward-looking statement. See "Certain Factors"
below.
Contract revenue was 12% of total revenue in fiscal year 1998, as compared
to 5% and 6% in 1997 and 1996, respectively. During 1998, total contract
revenue increased by approximately $5.5 million, or 162%, as compared to 1997.
During 1997, total contract revenue increased by approximately $304,000, or 10%,
as compared to 1996. These increases were due to the addition of several
gaseous fueled vehicle platforms for development under the contract with General
Motors Corporation and to development contracts obtained from various federal
and state agencies. Contract revenue is principally recognized by the
percentage of completion method. Profits expected to be realized on contracts
are based on the Company's estimates of total contract sales value and costs at
completion. These estimates are reviewed and revised periodically throughout
the lives of the contracts. Based on the expected increases in vehicle
platforms and new developmental contracts, management anticipates that contract
revenues during fiscal year 1999 will be significantly higher than 1998. This
is a forward-looking statement. See "Certain Factors" below.
During fiscal year 1998, 1997, and 1996 the Company's product revenue was
generated in the following geographic regions:
<TABLE>
<CAPTION>
Fiscal years ended April 30,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
United States and Canada 57% 66% 67%
Pacific Rim 13% 11% 10%
Europe 19% 12% 16%
Latin America 11% 11% 7%
</TABLE>
Gross Profit Margin
- ---------------------
The Company's gross profit margin on product sales during fiscal year 1998
was $24,040,000 (39%) compared to $21,095,000 (36%) for the prior year. During
the current year, the Company's domestic operations contributed approximately
$2.0 million to the increase through higher sales volumes and as a result of a
higher gross margin percent realized by lower material costs. The foreign
operations contributed approximately $.9 million to the gross margin increase
due to the addition of the Mexican operation during 1998, a full year of
reporting for the Australian operation, and higher sales volumes at the European
operation. The gross profit margin percentage realized at the foreign
operations during the current year is comparable to the percentage realized
during fiscal year 1997.
The Company's gross profit margin on product sales during fiscal year 1997
was $21,095,000 (36%) compared to $16,476,000 (34%) for fiscal year
<PAGE>
17
1996. The Company's foreign operations contributed approximately $3.2
million to this increase as a result of a full year of reporting for the
European operation and the addition of the Australian operation during fiscal
1997. Favorable market driven sales price adjustments and product mix
improvements from domestic operations translated into higher gross profit
percents and accounted for the remaining increase in margins from 1996 to
1997.
Management anticipates that percent profit margins will continue to be
favorably impacted by higher production volumes and volume purchases, but will
be offset by the higher revenue and inherently lower upfitting margins as
upfitter sales become a larger segment of the Company's business. In addition,
gross profit percentages at the foreign operations could be lower in the future
as a result of the strengthening U.S. dollar versus foreign currencies.
However, as the upfitter business and sales volumes increase, overall gross
profits are expected to increase. These are forward-looking statements. See
"Certain Factors" below.
Research and Development
- ---------------------------
Research and development (R&D) expense for fiscal year 1998 increased by
$4.9 million to $13.3 million, a 57% increase over fiscal year 1997. R&D
expense directly related to the GM program increased from $3.0 in 1997 to $4.7
million in 1998. R&D expense for fiscal year 1997 increased by $1.3 million to
$8.5 million, an 18% increase over fiscal year 1996. R&D expense directly
related to the GM program increased from $1.6 in 1996 to $3.0 million in 1997.
The remaining increase in R&D expense was primarily for internally funded
product and other contract R&D work with Perkins Technology Limited and the
Southern California Air Quality Management District. Management believes the
Company's future success depends on its ability to design, develop and market
new products that interface successfully with new engine electronic technology,
and which meet mandated emission standards. Management anticipates that R&D
expense during fiscal year 1999 will be continue to be higher than the levels
experienced during fiscal year 1998 due to internally funded development work
and new product development under the GM contract and other contract development
work. This is a forward-looking statement. See "Certain Factors" below.
Selling General and Administrative
- -------------------------------------
Selling, general and administrative (SG&A) expense for fiscal year 1998
increased by approximately $1.3 million, or 12%, as compared to the prior fiscal
year. This increase was primarily due to the addition of the Mexican
subsidiary, inclusion of IMPCO Pty's SG&A expenses for a full fiscal year versus
only ten months in the previous fiscal year, and increased administrative
expenses from the U.S. operations. These expenses included administrative
salaries, incentive compensation, and legal expenses. However, as a percentage
of net revenues, SG&A expense decreased from 18% in fiscal year 1997 to 17.5% in
the last fiscal year.
SG&A expense for fiscal year 1997 increased by approximately $2.9 million,
or 35%, as compared to fiscal year 1996. The combined SG&A expenses for the
Company's European and Australian operations in 1997 were $4,526,000, compared
to $1,357,000 for European expenses only in 1996. SG&A as a percentage of sales
increased from 16% to 18% due to the Company's foreign operations. The European
facilities distribute alternative fuel products from multiple locations in
Europe and incur higher SG&A expenses as a percentage of sales than the
Company's domestic operations.
<PAGE>
18
Management anticipates that SG&A expense for fiscal year 1999 will be
higher than fiscal year 1998 primarily as a result of additional expenses to
support anticipated growth in revenues and including a full year of the Mexican
operation. However, as a percentage of net revenues, SG&A expense is expected
to be lower for fiscal year 1999 as compared to 1998. These are forward-looking
statements. See "Certain Factors" below.
Financing charges
- --------------------
Financing charges for fiscal year 1998 decreased by approximately 15% as
compared to 1997. The decrease is attributable to lower borrowings on the
Company's line of credit as compared to the prior year and prepayments on
long-term borrowings primarily from funds received from the Company's
redemption of its common stock purchase warrants. Financing charges for
fiscal year 1997 increased by approximately 118% over 1996 due to loans
associated with the acquisitions of IMPCO BV and IMPCO Pty, and the increased
use of the line of credit. Management anticipates that financing charges for
fiscal year 1999 will be lower as compared to the current fiscal year. This
is a forward-looking statement. See "Certain Factors" below.
Provision for income taxes
- --------------------------
The Company's effective income tax rate for fiscal years 1998, 1997, and
1996 were 14.7%, 7.0%, and (37.2%), respectively. Provision for taxes
consist primarily of federal, state and foreign income taxes which are
computed using statutory rates. The effective tax rate represents the
statutory income tax rate reduced by the use of net operating loss
carryforwards, R&D tax credits and other items. During fiscal year 1996, the
Company reduced its valuation allowance for deferred tax assets as required
by SFAS No. 109 and recorded $1,700,000 of income tax benefits primarily
related to the assumed future utilization of net operating loss
carryforwards. During fiscal year 1997, the deferred tax asset increased by
$273,000 to $1,973,000 at April 30, 1997. During fiscal year 1998, the
deferred tax asset decreased by $373,000 to $1,600,000 at April 30, 1998.
For federal income tax purposes, the Company has utilized all net operating
loss carryforwards as of the end of the 1998 fiscal year. Management has
determined, based on the Company's history of prior operating earnings and
its expectations for the future, that operating income of the Company will
more likely than not be sufficient to recognize fully these net deferred tax
assets and that the estimated effective annual rate in the future years will
approximate the statutory rate. This is a forward-looking statement. See
"Certain Factors" below.
Liquidity and Capital Resources
- --------------------------------
The Company uses cash generated from its operations and external financing
to fund capital expenditures, pay dividends on the preferred stock and invest in
and operate its existing operations and new businesses. Management believes
that such sources of funds will be sufficient to meet the needs of its business
for the foreseeable future. This is a forward-looking statement. See "Certain
Factors" below.
The Company's financial condition remains strong. The ratio of current
assets to current liabilities was 3.28 at April 30, 1998, as compared to 2.57 at
the end of fiscal year 1997. The total amount of working capital increased by
$7,827,000 to $26,075,000 at the end of fiscal year 1998. This
<PAGE>
19
compares to $18,248,000 at the end of the prior year. Net cash provided by
operating activities was $1,508,000 during fiscal year 1998, compared to net
cash provided by operating activities of $3,708,000 and $2,578,000 in fiscal
years 1997 and 1996, respectively. The decrease in cash provided by
operating activities during the last fiscal year resulted from a $3.7 million
increase in inventory and a $3.4 million increase in accounts receivable.
The increase in inventory was primarily due to the Algas acquisition and a
temporary buildup of inventory in anticipation of future upfitter and core
product sales. The increase in accounts receivable was primarily due to
April 1998 billings on the GM program. The decrease in cash provided by
operating activities was partially offset by a $1.6 million increase in net
income during fiscal year 1998 compared to the prior fiscal year.
Net cash used in investing activities in fiscal year 1998 was approximately
$5,763,000, a decrease of approximately $623,000 from 1997. Included in this
amount is equipment purchased from EDO Canada Ltd., dies, tooling and equipment
purchased from the Algas Carburetion Division of PGI International, the
Company's normal capital expenditures for dies, molds and patterns and machinery
and equipment, and the investment in IMPCO Mexicano. Investing activities for
the prior year principally included the purchase of the Company's Australian
subsidiary, which resulted in a net use of cash of approximately $4,655,000.
Capital expenditures for dies, molds and patterns and machinery and equipment
totaled $3,220,000 in fiscal year 1998, compared to $1,702,000 in fiscal year
1997 and $1,996,000 in fiscal year 1996. Management projects capital
expenditures during fiscal year 1999, primarily relating to equipment
enhancements and facilities for the development and production of new products,
to be comparable to expenditures during the fiscal year 1998. The Company
expects to fund a major portion of these expenditures from cash generated from
operations and by use of its bank credit facility. These are forward-looking
statements. See "Certain Factors" below.
Net cash provided by financing activities in fiscal year 1998 was
approximately $5,051,000. The Company received approximately $8,454,000 from
the issuance of common stock as a result of the exercise of common stock
purchase warrants. It also received approximately $3,993,000 from the Bank
of America credit facility to fund the Algas and IMPCO BV acquisitions. The
Company decreased its borrowing under the operating line of credit by
approximately $2,407,000 and made $4,403,000 in principal repayments on term
loans and notes. Approximately $2,335,000 of the loan and note payments
represented pre-payments. Net cash provided by financing activities in fiscal
year 1997 was approximately $4,174,000, of which $3,968,000 was from a term
loan with Bank of America to finance the acquisition of the Company's
Australian subsidiary. During fiscal year 1997, the Company increased its
borrowing under the operating line of credit by approximately $2,050,000
primarily for current operations and material purchases.
The Company has a $12,000,000 revolving line of credit and a $5,525,000
capital lease facility with Bank of America. At April 30, 1998,
approximately $3,048,000 and $2,625,000 was outstanding under the revolving
line of credit and the capital lease facility, respectively. The revolving
line of credit expires on August 31, 1999, and the capital lease facility
expires on December 31, 2003. In addition, the Company's subsidiary in the
Netherlands has a 3,000,000 NLG (U.S. $1,500,000) credit facility with Mees
Pierson, a financial institution in the Netherlands.
<PAGE>
20
Derivative Financial Instruments
- --------------------------------
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest and foreign exchange
rates. While these hedging instruments are subject to fluctuations in value,
such fluctuations are generally offset by the value of the underlying exposures
being hedged. The Company is not a party to leveraged derivatives and does not
hold or issue financial instruments for speculative purposes.
(a) Foreign Currency Management
The results and financial condition of the Company's international
operations are affected by changes in exchange rates between certain foreign
currencies and the U.S. Dollar. The Company's exposure to fluctuations in
currency exchange rates has increased as a result of the growth of its
international subsidiaries. The functional currency for all of the Company's
international subsidiaries is the local currency of the subsidiary. An
increase in the value of the U.S. dollar increases costs incurred by the
subsidiaries because most of its international subsidiaries' inventory
purchases are U.S. dollar denominated. The Company monitors this risk and
attempts to minimize the exposure through forward currency forward contracts
and the management of cash disbursements in local currencies. At April 30,
1998 the Company had currency forward contracts protecting U.S.$600,000 in
inventory purchases. At April 30, 1998 the fair value of foreign currency
forward contracts approximated contract values. On May 29, 1998 the Company
entered into six currency forward contracts to protect an additional
U.S.$1,200,000 in inventory purchases.
The Company seeks to hedge its foreign currency economic risk by
minimizing its U.S. dollar investment in foreign operations using foreign
currency term-loans to finance the operations of its foreign subsidiaries.
The term loans are denominated in local currencies and translated to U.S.
dollars at period end exchange rates.
(b) Interest Rate Management
The Company uses interest rate swap agreements with Bank of America to
manage its exposure to interest rate changes and stabilize the cost of
borrowed funds. When an agreement is executed, the swap is linked to a
specific debt instrument. At April 30, 1998, the Company had $4,160,000
secured under fixed interest rate agreements at a weighted average fixed
interest rate of 7.78%. Absent these fixed rate agreements, the weighted
average variable rate for this debt at April 30, 1998 would have been 7.38%.
At April 30, 1998 the fair value of interest rate swap agreements
approximated carrying value. On May 29, 1998 the Company secured an
additional $3,271,000 under a fixed interest rate agreement.
Year 2000
- ---------
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems both
internally and externally. The Company has completed its assessment of the Year
2000 issue through 1) communication with key customers, suppliers, financial
institutions and others with which it conducts business and 2) review of its
current internal computer systems to identify potential Year 2000 issues. Based
on this assessment, the Company
<PAGE>
21
is not aware of any key customer, supplier, or financial institution with
inadequate solutions. The Company has developed plans to address system
modifications required by December 31, 1999 and these plans basically require
the upgrade to new versions of packaged software. The Company plans to have
all systems upgraded by December 1998. The financial impact of making the
required systems changes is not expected to be material to the Company's
consolidated financial position, results of operations or cash flows.
Certain Factors
- ----------------
The preceding discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company faces a
number of risks and uncertainties which could cause actual results or events to
differ materially from those contained in any forward-looking statement.
Factors that could cause or contribute to such differences include, but are not
limited to, the following:
DELAY IN IMPLEMENTATION OF GOVERNMENT REGULATIONS
The market for alternative fueled vehicles and the demand for the Company's
products are, to a significant degree, driven by local, state and federal
regulations in the United States related to air quality and requiring conversion
of motor vehicles to alternative fuels. The Company's international business is
also affected by similar foreign governmental regulations. Timing in the
implementation of these regulations could have an unfavorable impact on the
Company's financial performance.
DEPENDENCE ON ALTERNATIVE FUEL MARKET
Although the Company believes that there will be substantial growth in the
market for alternative fueled engines, especially among fleet vehicle owners,
there can be no assurance that such growth will materialize or, if such growth
does occur, that it will result in increased sales of the Company's products.
The Company's products are designed for gaseous alternative fueled vehicles, but
not for alternative fuels such as electricity, methanol, ethanol and hydrogen.
If the major growth in the alternative fuel market is solely for such fuels, the
Company will be adversely affected. At present, the lack of a well-developed
infrastructure for the supply of alternative fuels is limiting growth in the
alternative fuel engine market. Such an infrastructure is necessary for
widespread use of all alternate fuels.
<PAGE>
22
DEPENDENCE ON NEW PRODUCTS
The Company believes that its future success is dependent upon its ability to
design and market new fuel management products as well as enhance its existing
products. It believes that the markets for its products will be characterized
by rapidly changing technology, new product introductions and the entry of new
competitors. The Company's ability to enhance existing products in a timely
manner and to develop and introduce new products that incorporate new
technologies, conform to increasingly stringent emission standards and achieve
market acceptance in a timely manner will significantly affect its future
performance.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are subject to annual and quarterly fluctuations
as a result of a variety of factors, including without limitation, budget cycles
and funding arrangements of governmental agencies, purchasing cycles of fleet
operators, the uncertainty of timing of deliveries of vehicles to be upfitted,
the timing of implementation of government regulations promoting alternative
fuel vehicles, as well as general economic factors.
RISK OF INTERNATIONAL OPERATIONS
The Company operates in Europe, Australia and Mexico and markets its products
and technologies in other international markets, including both industrialized
and developing countries. The Company's international operations are subject to
various risks common to international activities, such as exposure to currency
fluctuations, the inherent difficulty of administering business abroad and the
need to comply with a wide variety of foreign import and United States export
laws. The Company's competitiveness in overseas markets may be negatively
impacted when there is a significant increase in the value of the dollar against
foreign currencies where the Company does business.
COMPETITION
The Company believes that competition in the alternative fuel engine marketplace
is increasing, particularly in the growing market for propane and natural gas
fueled vehicle products. Some of the current competitors and potential future
competitors are large, well-financed companies, with financial and marketing
resources and research and development capabilities that are substantially
larger than those of the Company.
ENTRY OF ORIGINAL EQUIPMENT MANUFACTURERS INTO MARKET
As the market for alternative fueled vehicles increases, original equipment
manufacturers may find it advantageous to develop and produce their own fuel
management equipment rather than purchasing such equipment from suppliers such
as the Company. If this occurs, the total potential demand for the Company's
products could be adversely impacted.
ABILITY TO MEET OEM SPECIFICATIONS
In 1995 the Company began to offer complete alternative fuel systems, which
include tanks, brackets, electronics and all other under-hood components
required to convert a motor vehicle to alternative fuels. Customers for such
systems require that they meet OEM standards. These requirements have resulted
in increased development, manufacturing, warranty and administrative costs. If
these costs increase significantly, the Company's profitability could be
adversely affected.
DEPENDENCE ON QUALIFIED PERSONNEL
The Company is dependent upon a limited number of key management and technical
personnel. In addition, as products become complex, the Company's future
success will depend in part upon its ability to attract and retain highly
qualified personnel.
<PAGE>
23
INCREASED WARRANTY CLAIMS
Vehicle manufacturers are, in response to consumer demand, providing
increasingly longer warranty periods for their products. Suppliers, such as the
Company, are required to provide correspondingly longer product warranties.
Consequently, the Company could incur substantially greater warranty claims in
the future.
NEED TO COMPLY WITH GOVERNMENTAL REGULATIONS
The Company must obtain product certification from governmental agencies such as
the Environmental Protection Agency and the California Air Resources Board to
sell certain of its products in the United States automotive markets. A
substantial portion of the Company's future sales will depend upon sales of fuel
management products that are certified to meet existing and future air quality
and energy standards. Although the Company believes its technologies will
permit its existing and new products to meet these standards, there can be no
assurance that this will occur.
ABILITY TO SECURE FUTURE DEVELOPMENT CONTRACTS
The Company has obtained funding under development contracts with original
equipment manufacturers and governmental agencies to develop specified
products. There can be no assurance that such funding will be obtainable in
the future, the lack of which may significantly impact the Company's ability
to develop and market new products and technologies.
PRODUCT LIABILITY & RECALL
Although the Company carries and plans to continue to carry product liability
and recall insurance, there can be no assurance that such coverage is adequate
or that adequate coverage will continue to be available or, if available, that
it will be available at an acceptable cost.
LABOR DISPUTES AT OEM FACILITIES
As the Company enhances its automotive upfit programs with OEMs, the Company is
becoming increasingly dependent on OEM production and the associated labor
forces at OEM sites. Most of the labor force at OEM facilities are represented
by labor unions. There can be no assurance that labor disputes will not occur.
In the event of a dispute, upfit sales may be adversely impacted.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is indexed in Part IV in Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
--------
The information required in Part III (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive proxy statement to be
filed pursuant to Regulation 14A or by an amendment hereto, in either case, no
later than 120 days after the end of the fiscal year covered by this Form 10-K.
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed As Part of This Report:
---------------------------------------
(1) Consolidated Financial Statements:
----------------------------------
Report of independent auditors
Consolidated balance sheets as of
April 30, 1998 and 1997
Consolidated income statements
for the years ended April 30, 1998,
1997 and 1996
Consolidated statements of stockholders'
equity for the years ended April 30, 1998,
1997 and 1996
Consolidated statements of cash flows
for the years ended April 30, 1998, 1997
and 1996
Notes to consolidated financial statements
(2) Supplemental Financial Statement Schedules:
-------------------------------------------
Schedule II - Valuation accounts
All other schedules are omitted because the information is not
applicable or is not material, or because the information is
included in the consolidated financial statements or the notes
thereto.
<TABLE>
<CAPTION>
(3) Exhibits:
---------
<S> <C>
10.12 Lease betweeen Klein Investments, Family Limited Partnership, as
lessor, and IMPCO Technologies, Inc., as lessee, dated August 18,
1997.
10.13 Amendment dated March 18, 1998 to Loan agreement
<PAGE>
<S> <C>
dated October 7, 1997 between Bank of America
National Trust and Savings, as lender, and IMPCO
Technologies, Inc., as borrower.
10.14 Amendment dated April 29, 1998 to Loan agreement
dated October 7, 1997 between Bank of America
National Trust and Savings, as lender, and IMPCO
Technologies, Inc., as borrower.
10.15 Loan Agreement between IMPCO Technologies, B.V. as borrower,
and Bank of America National Trust and Savings Association,
acting through its Amsterdam branch, as lender, dated
as of April 27, 1998.
22.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
</TABLE>
Executive Compensation Plans and Arrangements.
- --------------------------------------------------------------------------------
Employment Agreement dated April 1, 1997,
between IMPCO Technologies, Inc., as the Company,
and Robert M. Stemmler, as the Employee - Exhibit 10.7.
1991 Executive Stock Option Plan dated November 5,
1991 among IMPCO Technologies, Inc., as the Company, and
Bertram R. Martin, James J. Mantras and Dale L.
Rasmussen, as Optionees - Exhibit 10.3
1989 Incentive Stock Option Plan and Amendment
to 1989 Incentive Stock Option Plan - Exhibits
10.2 and 10.6, respectively.
1996 Incentive Stock Option Plan - Exhibit 10.8.
1997 Incentive Stock Option Plan - Exhibit 10.9.
Reports on Form 8-K.
- -------------------------------------------------------------------------------
No reports were filed on Form 8-K during the last quarter of
the Company's fiscal year covered by this report.
<TABLE>
<CAPTION>
Exhibits
- --------------------------------------------------------------------------------
<S> <C> <C>
2.1 Agreement of Purchase and Sale of Stock by and
among IMPCO Technologies, Inc., as buyer, and
Centradas B.V., as Shareholder, dated as of
October 31, 1995. (8)
2.2 Shareholders Agreement for Technisch Bureau Media
B.V. by and among IMPCO Technologies, Inc., and
Centradas B.V., dated as of October 31, 1995. (8)
<PAGE>
2.3 Deed of Sale of Business by and among IMPCO Technologies
Pty. Limited, as buyer, and Ateco Automotive Pty Limited,
as seller, dated as of July 1, 1996. (9)
2.4 Deed of Release by and among IMPCO Technologies, Inc. and
Ateco Automotive Pty Limited dated as of July 1, 1996. (9)
2.5 Shareholders Agreement for Gas Parts (NSW) Pty Limited by
and among IMPCO Technologies Pty. Limited, Gas Parts Pty
Limited and Gas Parts (NSW) Pty. Limited, dated as of July
4, 1996. (9)
3.1 Articles of Incorporation and Bylaws. (1)
3.2 Amended Certificate of Designation of AirSensors,
Inc. establishing 1993 Series 1 Preferred Stock. (5)
3.3 Certificate of Amendment of Certificate of
Incorporation providing for limitation of
directors' liability. (3)
3.4 Certificate of Amendment of Certificate of
Incorporation providing for the decrease in
authorized shares of common stock from
50,000,000 to 25,000,000. (6)
10.1 Lease between L-W Income Properties and IMPCO
Technologies, Inc. dated May 10, 1989. (2)
10.2 1989 Incentive Stock Option Plan. (3)
10.3 1991 Executive Stock Option Plan dated
November 5, 1991, among AirSensors, Inc., as the
Company, and Bertram R. Martin, James J. Mantras
and Dale L. Rasmussen, as Optionees. (4)
<PAGE>
<S> <C> <C>
10.4 First Amendment to Lease dated April 19, 1993,
between L-W Income Properties and IMPCO
Technologies, Inc. (6)
10.5 1993 Stock Option Plan for Nonemployee Directors (7)
10.6 Amendment to 1989 Incentive Stock Option Plan (7)
10.7 Employment Agreement dated April 1, 1997, between
IMPCO Technologies, Inc., as the Company, and Robert
M. Stemmler, as the employee. (10)
10.8 1996 Incentive Stock Option Plan (10)
10.9 1997 Incentive Stock Option Plan (11)
10.10 Loan agreement dated October 7, 1997, between
Bank of America National Trust and Savings,
as lender, and IMPCO Technologies,
Inc., as the borrower. (12)
10.11 Amendment dated February 4, 1998 to Loan agreement
dated October 7, 1997, between Bank of America
National Trust and Savings, as lender, and
IMPCO Technologies, Inc., as the borrower. (13)
10.12 Lease betweeen Klein Investments, Family Limited
Partnership, as lessor, and IMPCO Technologies, Inc.,
as lessee, dated August 18, 1997. (14)
<PAGE>
<S> <C> <C>
10.13 Amendment dated March 18, 1998 to Loan agreement
dated October 7, 1998 between Bank of America
National Trust and Savings, as lender, and IMPCO
Technologies, Inc., as the borrower. (14)
10.14 Amendment dated April 29, 1998 to Loan agreement
dated October 7, 1998 between Bank of America
National Trust and Savings, as lender, and IMPCO
Technologies, Inc., as the borrower. (14)
10.15 Loan Agreement for IMPCO Technologies, B.V. as borrower,
and Bank of America National Trust and Savings Association,
acting through its Amsterdam branch, as lender, dated
as of April 27, 1998. (14)
22.1 Subsidiaries of the Company. (14)
23.1 Consent of Ernst & Young LLP. (14)
--------------------------------------
(1) Incorporated by reference from Form S-18 filed under
Registration No. 33-4013-S.
(2) Incorporated by reference from Form 10-K for fiscal year
1989.
(3) Incorporated by reference from Form 10-K for fiscal year
1990.
(4) Incorporated by reference from Form 10-K for fiscal year
1992.
(5) Incorporated by reference from Form S-2, File no. 33-56610
declared effective March 9, 1993
(6) Incorporated by reference from Form 10-K for fiscal year
1993.
(7) Incorporated by reference from Form 10-K for fiscal year
1994.
(8) Incorporated by reference from Form 8-K dated October 31,
1995, and filed as Exhibit Numbers (2.1) through (2.4)
thereunder.
<PAGE>
(9) Incorporated by reference from 8-K/A dated July 1, 1996,
and filed as Exhibit Numbers (2.5) through (2.9) thereunder.
(10) Incorporated by reference from Form 10-K for fiscal year
1997.
(11) Incorporated by reference from Proxy Statement for fiscal
year 1997.
(12) Incorporated by reference from Form 10-Q for period ended
October 31, 1997.
(13) Incorporated by reference from Form 10-Q for period ended
January 31, 1998.
(14) Filed herewith.
</TABLE>
<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.
IMPCO Technologies, Inc.
By /s/ Robert M. Stemmler
-------------------------------------
Robert M. Stemmler,
President &
Chief Executive Officer
Dated July 27, 1998
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Stemmler President, July 27, 1998
------------------------- Chief Executive Officer and
Interim Chairman of the Board
(Principal Executive Officer)
/s/ Thomas M. Costales Chief Financial Officer July 27, 1998
------------------------- and Treasurer
(Principal Financial Officer)
/s/ Brian Olson Corporate Controller July 27, 1998
-------------------------
/s/ Norman L. Bryan Director July 27, 1998
-------------------------
/s/ V. Robert Colton Director July 27, 1998
-------------------------
/s/ Paul Mlotok Director July 27, 1998
-------------------------
/s/ Christopher G. Mumford Director July 27, 1998
-------------------------
/s/ Edward L. Scarff Director July 27, 1998
-------------------------
/s/ Don Simplot Director July 27, 1998
-------------------------
/s/ Rawley F. Taplett Director July 27, 1998
-------------------------
/s/ Douglas W. Toms Director July 27, 1998
-------------------------
</TABLE>
<PAGE>
31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
IMPCO Technologies, Inc.
We have audited the accompanying consolidated balance sheets of IMPCO
Technologies, Inc. [formerly AirSensors, Inc.] as of April 30, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended April 30, 1998.
Our audits also included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of IMPCO Technologies, Inc. [formerly AirSensors, Inc.] at April 30, 1998 and
1997, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended April 30, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Long Beach, California
June 30, 1998 except for Note 16,
as to which the date is July 27, 1998
<PAGE>
32
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and 1997
-----------
ASSETS
------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 2,617,869 $ 1,975,903
Accounts receivable 14,528,000 11,456,539
Less allowance for doubtful accounts 314,794 288,111
------------ ------------
Net accounts receivable 14,213,206 11,168,428
Inventories:
Raw materials and parts 9,565,310 7,717,710
Work-in-process 1,055,411 754,576
Finished goods 7,308,190 5,711,966
------------ ------------
Total inventories 17,928,911 14,184,252
Other current assets 2,731,963 2,575,055
------------ ------------
Total current assets 37,491,949 29,903,638
Equipment and leasehold improvements:
Dies, molds and patterns 5,039,892 4,272,220
Machinery and equipment 7,074,004 4,846,940
Office furnishings and equipment 4,968,605 4,130,351
Leasehold improvements 2,288,022 1,730,174
Land and Buildings 267,000 267,000
------------ ------------
19,637,523 15,246,685
Less accumulated depreciation and
amortization 10,613,052 8,026,594
------------ ------------
Net equipment and leasehold
improvements 9,024,471 7,220,091
Intangibles arising from acquisitions 13,024,441 11,351,802
Less accumulated amortization 3,265,341 2,950,805
------------ ------------
Net intangibles arising from
acquisitions 9,759,100 8,400,997
Other assets 1,109,888 1,588,364
------------ ------------
$57,385,408 $47,113,090
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
33
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and 1997
(Continued)
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current liabilities:
Notes payable $ - $ 328,839
Accounts payable 5,606,922 4,538,243
Accrued payroll obligations 1,848,425 1,564,028
Income taxes payable 746,587 563,947
Other accrued expenses 1,807,032 3,144,978
Current portion of term loans 1,408,225 1,515,585
------------ ------------
Total current liabilities 11,417,191 11,655,620
Line of credit 2,650,000 5,450,000
Term loan - Bank of America NT&SA 3,799,395 3,592,013
Term loan - DEPA Holding B.V. 1,820,000 2,154,399
Other long term liabilities 2,324,971 1,524,906
Minority interest 1,068,500 673,044
Commitments and contingencies - -
Stockholders' equity:
1993 Series 1 Preferred Stock, $0.01
par value, 5,950 shares authorized,
issued and outstanding $5,950,000
liquidation value 5,650,000 5,650,000
Common stock, $.001 par value, authorized
25,000,000 shares; 7,091,601 issued and
outstanding at April 30, 1998
(5,814,587 at April 30, 1997) 7,092 5,815
Additional paid-in capital relating to
common stock 38,386,357 29,342,121
Shares held in trust (36,759) (8,814)
Accumulated deficit (8,197,885) (12,467,953)
Foreign currency translation adjustment (1,503,454) (458,061)
------------ ------------
Total stockholders' equity 34,305,351 22,063,108
------------ ------------
$57,385,408 $47,113,090
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
34
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended April 30, 1998, 1997 and 1996
---------
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Product sales $62,209,310 $58,436,508 $48,487,480
Contract revenue 8,873,554 3,391,528 3,087,229
------------ ------------ ------------
Net revenue 71,082,864 61,828,036 51,574,709
Costs and expenses:
Cost of sales 38,173,943 37,341,704 32,011,253
Research and development
expense 13,336,708 8,479,919 7,170,965
Selling, general and
administrative expense 12,454,253 11,156,547 8,260,778
------------ ------------ ------------
Total costs and expenses 63,964,904 56,978,170 47,442,996
Operating income 7,117,960 4,849,866 4,131,713
Financing charges 934,825 1,100,449 503,886
------------ ------------ ------------
Income before income taxes and
minority interest in income of
consolidated subsidiary and
dividends 6,183,135 3,749,417 3,627,827
Provision (benefit) for
income taxes 907,516 262,459 (1,348,616)
Minority interest in income of
consolidated subsidiary 410,554 261,667 305,568
------------ ------------ ------------
Net Income before dividends 4,865,065 3,225,291 4,670,875
Dividends on preferred stock 594,997 581,365 609,875
------------ ------------ ------------
Net income applicable to
common stock $ 4,270,068 $ 2,643,926 $ 4,061,000
------------ ------------ ------------
------------ ------------ ------------
Net income per share:
Basic $ .67 $ .46 $ .72
------------ ------------ ------------
------------ ------------ ------------
Fully diluted $ .60 $ .43 $ .64
------------ ------------ ------------
------------ ------------ ------------
Number of shares used in
per share calculation:
Basic 6,333,769 5,722,382 5,648,290
------------ ------------ ------------
------------ ------------ ------------
Fully Diluted 8,155,476 6,130,542 7,300,199
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
35
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended April 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
1993 Series 1 Preferred Stock:
Beginning balance $ 5,650,000 $ 5,650,000 $ 5,650,000
------------ ------------ ------------
Ending balance 5,650,000 5,650,000 5,650,000
Common Stock:
Beginning balance 5,815 5,655 5,641
Issuance of common stock
(57,796, 139,244, and 13,198 shares,
respectively) resulting from the
exercise of options pursuant to
the stock option plans 58 139 14
Issuance of common stock
(1,219,218 and 20,775 shares,
respectively)resulting from the
exercise of warrants 1,219 21 -
------------ ------------ ------------
Ending balance 7,092 5,815 5,655
Additional paid-in capital:
Beginning balance 29,342,121 28,746,994 28,660,181
Issuance of common stock
resulting from the exercise
of options pursuant to the
stock option plans 194,271 439,335 86,813
Issuance of common stock
resulting from the exercise
of warrants 8,453,063 155,792 -
Issuance of common stock
purchase warrant 93,000 - -
Reduction in current tax liability
related to stock options 303,902 - -
------------ ------------ ------------
Ending balance 38,386,357 29,342,121 28,746,994
Treasury stock for deferred
compensation program, at cost
(2,572 and 1,032 shares,
respectively) (36,759) (8,814) -
Accumulated Deficit:
Beginning balance (12,467,953) (15,111,879) (19,172,879)
Net income applicable
to common stock 4,270,068 2,643,926 4,061,000
------------ ------------ ------------
Ending balance (8,197,885) (12,467,953) (15,111,879)
Foreign currency translation
adjustment (1,503,454) (458,061) (34,748)
------------ ------------ ------------
Total stockholders' equity $ 34,305,351 $ 22,063,108 $ 19,256,022
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
36
See accompanying notes.
<PAGE>
37
IMPCO TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30, 1998, 1997 and 1996
-----------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,865,065 $ 3,225,291 $ 4,670,875
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangibles
arising from acquisition 455,645 263,998 239,639
Depreciation and other
amortization 2,488,605 2,452,594 1,774,695
Increase in accounts receivable (3,396,372) (2,750,026) (2,578,110)
Increase in inventories (3,665,033) (385,003) (1,158,391)
Increase/(decrease)
in deferred tax asset 372,856 (272,856) (1,700,000)
Increase in accounts payable 1,178,829 58,508 978,963
Increase/(decrease) in
accrued expenses (806,387) 799,321 266,570
Minority interest in income of
consolidated subsidiaries 395,456 289,847 383,198
Other, net (381,131) 26,201 (299,517)
------------ ------------ ------------
Net cash provided by
operating activities 1,507,533 3,707,875 2,577,922
Cash flows from investing activities:
Purchase of equipment and
leasehold improvements (3,219,766) (1,702,477) (1,995,981)
Investment in IMPCO BV - - (1,965,678)
Investment in IMPCO Pty - (4,654,794) -
Investment in IMPCO Mexicano (961,000) - -
Purchase of intangible assets (1,852,197) (74,600) (327,148)
Proceeds from sale of equipment 270,001 74,319 118,172
Deferred software production costs - - (430,597)
Other, net - (28,637) (702,241)
------------ ------------ ------------
Net Cash Used in
investing activities (5,762,962) (6,386,189) (5,303,473)
Cash flow from financing activities:
Net borrowings
in lines of credit (2,407,382) 2,050,000 2,400,000
Payments on notes payable (328,839) (1,083,615) (508,833)
Proceeds from issuance of
notes payable - 558,685 643,818
Proceeds from issuance of
common stock 8,924,568 595,288 86,828
Payments on term loan (4,074,197) (1,035,454) (334,656)
Proceeds from issuance of
bank term note 3,992,521 3,968,750 2,050,000
Payments on capital lease
obligations (461,023) (297,961) (256,072)
Dividends on preferred stock (594,997) (581,365) (609,875)
------------ ------------ ------------
Net cash provided by
financing activities 5,050,651 4,174,328 3,471,210
------------ ------------ ------------
Translation Adjustment (153,256) (331,259) -
Net increase in cash 641,966 1,164,755 745,659
Cash beginning of year 1,975,903 811,148 65,489
------------ ------------ ------------
Cash at end of year $ 2,617,869 $ 1,975,903 $ 811,148
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS - The
consolidated financial statements of IMPCO Technologies, Inc. (IMPCO or the
Company) [effective September 15, 1997, AirSensors, Inc. changed its name to
IMPCO Technologies, Inc.] include the accounts of the Company and it's majority
owned subsidiary IMPCO Technologies B.V. (IMPCO BV) [Effective January 1, 1998,
IMPCO Media Europe B.V. changed its name to IMPCO Technologies B.V.], its
majority-owned subsidiary Grupo I.M.P.C.O. Mexicano, S. de R.L. de C.V.
(I.M.P.C.O. Mexicano) [Effective January 20, 1998 Industrias Mexicanas de
Productos de Combustibles, S. de R.L. de C.V. changed its name to Grupo
I.M.P.C.O. Mexicano, S. de R.L. de C.V.] and its wholly owned subsidiary IMPCO
Technologies, Pty. Limited (Impco Pty). All significant intercompany accounts
and transactions have been eliminated in consolidation.
The Company is engaged in the design, manufacturing and marketing of
gaseous fuel delivery systems and related devices that allow internal
combustion engines to operate on alternative fuels, primarily propane and
natural gas. Worldwide the Company's products are sold to distributors and
original equipment manufacturers (OEMs).
(b) INVENTORIES - Inventories are valued at the lower of cost or market.
Cost is determined by the first-in, first-out (FIFO) method while market is
determined by replacement cost for raw materials and parts and net realizable
value for work-in-process and finished goods.
(c) PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated on the basis of historical cost. Depreciation of equipment is provided
using the straight-line method over the assets' estimated useful lives, ranging
from three to seven years. Amortization of leasehold improvements, and
equipment financed by the Company's capital lease facility, is provided using
the straight-line method over the shorter of the assets' estimated useful lives
or the lease terms.
(d) INTANGIBLES ARISING FROM ACQUISITION - Intangibles arising from
acquisition are recorded based on the excess of the cost of the acquisition over
amounts assigned to tangible assets and liabilities. These intangible assets
include goodwill, product rights and trademarks. The intangible assets are
being amortized using the straight-line method over their estimated lives of
twenty years.
(e) DEFERRED COSTS - Deferred costs, included in other assets, represent
amounts paid for software and other costs incurred after the establishment of
technological feasibility. These costs are capitalized and subsequently
amortized using the straight-line method over the estimated economic life of the
related product.
(f) WARRANTY COSTS - Estimated future warranty obligations related to
certain products are provided by charges to operations in the period in which
the related revenue is recognized. Estimates are based, in part, on
historical experience.
(g) RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
charged to expense as incurred. Equipment used in research and development with
alternative future uses is capitalized.
<PAGE>
(h) CONTRACT REVENUE RECOGNITION - Contract revenue is principally
recognized by the percentage of completion method. Profits expected to be
realized on contracts are based on the Company's estimates of total contract
sales value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contracts.
(i) MINORITY INTEREST IN SUBSIDIARY - In October 1995, IMPCO purchased 51
percent of IMPCO BV. In July 1996, IMPCO acquired IMPCO Pty which included a 50
percent share in a subsidiary (Gas Parts, NSW.) In January 1998, IMPCO Pty
acquired the remaining 50 percent of Gas Parts, NSW. In December 1997, IMPCO
acquired a 90 percent interest in IMPCO Mexicano. Minority interest represents
the minority shareholder's proportionate share of equity in the IMPCO BV, Gas
Parts, NSW and IMPCO Mexicano subsidiaries. The balance sheet amounts in
minority interest at April 30, 1998 represent 49 percent of the equity held by
the single minority shareholder in IMPCO BV and ten percent of the equity held
by the single minority shareholder in I.M.P.C.O. Mexicano.
(j) NET INCOME PER SHARE - In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128 "Earnings Per Share". Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic income per share is computed
by dividing net income applicable to common stock by the weighted average shares
outstanding during the period. Unlike primary earnings per share, common stock
equivalents, including outstanding stock options and warrants, are excluded from
the Basic calculation. Diluted earnings per share, similar to the fully diluted
computation, is computed based on the weighted average number of common shares,
all common stock equivalents, and if dilutive, shares issued upon conversion of
preferred stock. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement 128
requirements.
(k) STOCK BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123 "Accounting of Stock Based Compensation",
which established accounting and reporting standards for stock based employee
compensation plans effective after fiscal year 1996. SFAS 123 encourages
entities to adopt the new method ("fair value based method") of accounting;
however it also allows an entity to continue to measure compensation cost
prescribed under existing rules ("intrinsic value based method") prescribed by
Accounting Principle Board No. 25. Such entities who elect to remain on the
"intrinsic value based" method must make certain pro forma disclosures as if the
new fair value method had been applied. At this time, the Company has not
adopted the recognition provision of SFAS 123, but has provided pro forma
disclosures (see note 9).
(l) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF - During the first quarter of 1997, the company adopted SFAS No.
121 "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of" which established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets. The Statement requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment
(significant decrease in market value of an asset, significant change in
extent or manner in which the asset is used or significant physical change to
the asset) are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. Since
adoption, the Company did not experience any significant changes in the
business climate or in the use of assets that would require the Company to
write down the value of the assets recorded in the balance sheet. The
adoption of SFAS No.121 did not have a material effect on the consolidated
financial position or results of operations of the Company.
<PAGE>
(m) USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(n) RECLASSIFICATIONS - Certain reclassifications have been made to the
fiscal year 1996 and 1997 consolidated financial statements to conform to the
fiscal year 1998 presentation.
(o) FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the Company's
foreign subsidiaries are generally translated at current exchange rates, and
related revenues and expenses are translated at average exchange rates in effect
during the period. Resulting translation adjustments are recorded as a foreign
currency component in shareholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of an identifiable foreign
currency commitment, or as a hedge of a foreign currency investment position,
are included in the results of operations as incurred.
(p) FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial
instruments recorded on the balance sheet include cash, short-term bank debt,
and long-term bank debt. Because of the short maturity, the carrying amount of
cash and short-term bank debt approximates fair value. Since the interest rates
on the long-term debt are reset at intervals not to exceed twelve months, the
carrying value of the Company's long-term debt approximates fair value.
At April 30, 1998, off balance sheet derivative financial instruments
include foreign currency forward contracts and interest rate swap agreements
(see note 4).
The Company enters into foreign currency forward contracts to hedge the net
receivable/payable position arising from intercompany transactions by its
foreign subsidiaries. Foreign currency contracts reduce the Company's exposure
to unfavorable fluctuations in foreign currencies versus the U.S. dollar.
Foreign currency gains and losses on intercompany transactions are not deferred.
Interest rate swap agreements are used by the Company to manage interest
rate risk on its floating rate debt portfolio. Each interest rate swap is
matched as a hedge against a specific debt instrument and has the same notional
amount and tenor as the related debt instrument principle. Fair value of these
instruments is based on estimated currency settlement cost.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued certain Statements of
Financial Accounting Standards (SFAS) which are applicable to the Company. SFAS
No. 130, "Reporting Comprehensive Income", which is effective for fiscal years
beginning after December 15, 1997; SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997; and, SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging
<PAGE>
Activities" which is effective for fiscal years beginning after June 15, 1999.
SFAS No. 130 requires all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The changes in cumulative translation adjustments,
reported through stockholders' equity, is currently the Company's only
component of comprehensive income. The Company currently plans to adopt this
standard in fiscal 1999.
SFAS No. 131 requires a public enterprise to report financial and
descriptive information about its reportable operating segments based upon
the way management organizes segments within the enterprise for making
operating decisions and assessing performances. Adoption of this standard
will not require any material changes in current disclosures. The Company
plans to adopt the standard in fiscal 1999.
SFAS No. 133 requires all derivatives to be recorded on the balance
sheet at fair value and establishes special accounting for the following
three types of hedges: hedges of changes in the fair value of assets,
liabilities, or firm commitments (referred to as fair value hedges); hedges
of the variable cash flows of forecasted transactions (cash flow hedges); and
hedges of foreign currency exposures of net investments in foreign
operations. Though the accounting treatment and criteria for each of the
three types of hedges is unique, they all result in offsetting changes in
value or cash flows of both the hedge and the hedged item being recognized in
earnings in the same period. Changes in fair value of derivatives that do not
meet the criteria of one of these three categories of hedges would be
included in income. As this standard was recently issued, the Company will
begin analyzing the various requirements in order to determine what impact,
if any, it will have on its disclosures, financial position, results of
operations, and cash flows. Currently, the Company does not anticipate
adopting this standard before fiscal 2001.
2. ACQUISITIONS
(a) ALGAS CARBURETION
On December 5, 1997, the Company purchased certain manufacturing equipment
and inventory of the Algas Carburetion Division of PGI International. The
purchase price of $2,400,000 was paid in cash. On the same day, the Company
acquired a 90% interest in Industrias Mexicanas de Productos de Combustibles, S.
de R.L. de C.V. Effective January 20, 1998 Industrias Mexicanas de Productos de
Combustibles, S. de R.L. de C.V. changed its name to Grupo I.M.P.C.O. Mexicano,
S. de R.L. de C.V.("Grupo I.M.P.C.O. Mexicano"). The purchase price of $961,000
was paid in cash. Immediately prior to the Company's acquisition of a 90%
ownership interest in Grupo I.M.P.C.O. Mexicano, Grupo I.M.P.C.O. Mexicano
acquired certain assets of the carburetion division of Algas Mexicana, S.A. de
C.V. These acquisitions were financed by term loans of approximately $3.3
million provided by Bank of America [See note 3(a)(iv)].
(b) EDO CANADA, LTD.
On December 12, 1997, the Company purchased from the bankruptcy trustee of
EDO Canada, Ltd. certain development, testing, quality control and manufacturing
equipment used for the manufacture of storage tanks for compressed natural gas.
The purchase price of $790,000 was paid in cash and was primarily financed
through Bank of America's BA Capital Leasing.
<PAGE>
42
(c) ATECO AUTOMOTIVE PTY. LTD.
On July 1, 1996, the Company acquired certain assets of Ateco Automotive
Pty. Ltd. ("Ateco") for approximately $6,500,000. Ateco, an Australian private
company, has distributed IMPCO's gaseous fuel carburetion systems and related
devices for use with internal combustion engines since 1969 through its Gas
Division near Melbourne, Australia.
In order to effectuate the transaction, IMPCO established a wholly owned
subsidiary in Australia, IMPCO Technologies Pty. Limited (IMPCO Pty). The
acquisition of Ateco has been accounted for under the purchase method of
accounting and the acquired operations have been included in the consolidated
financial statements since the date of acquisition. The assets acquired by
IMPCO Pty. primarily consist of receivables, inventory, equipment, a note,
business goodwill, distribution rights in Australia, and a 50% interest in
Ateco's sub-distributor Gas Parts (NSW) Pty. The amount of the consideration
was determined through negotiations between Ateco and IMPCO Pty.
The purchase price was financed through approximately $4,000,000 of term
loans provided by Bank of America NT&SA and its Sydney Australia Branch [See
note 3(a)(iii) and note 3(b)]. The term loans are three-year loans with a
five-year amortization schedule and interest at market rates. In addition,
accounts receivables due to IMPCO by Ateco, totaling approximately
$1,852,000, were offset against the purchase price. The balance of the
purchase price was paid with proceeds from IMPCO's existing line of credit
with Bank of America NT&SA. The Company recognized approximately $3,601,000
of intangible assets arising from acquisition which will be amortized over 20
years. The purchase price allocation is based on management's best estimates
at the acquisition date. The tangible assets and liabilities have been
recorded at their estimated fair values as of the date of acquisition as
follows:
<TABLE>
<CAPTION>
Value
-----------
<S> <C>
Accounts receivable $ 398,399
Inventory 2,265,589
Equipment 44,879
Notes Receivable 158,200
Other assets 49,930
----------
2,916,997
Accrued payroll and related expenses (17,959)
----------
Net tangible assets $2,899,038
----------
----------
</TABLE>
On January 31, 1998, the Company's wholly-owned subsidiary IMPCO
Technologies Pty. Limited acquired the remaining 50% ownership interest in Gas
Parts (NSW) Pty. for A$225,000 (US$148,500) in cash. The acquisition was
accounted for using the purchase method of accounting for step-acquisitions.
Excess purchase price over fair market value of the underlying assets of
A$141,000 (US$93,000) was allocated to goodwill.
<PAGE>
43
(d) IMPCO TECHNOLOGIES B.V.
On October 31, 1995, the Company, through its wholly owned subsidiary
IMPCO, acquired 51 percent of the outstanding stock of Technisch Bureau Media
B.V., a private company in the Netherlands, from Centradas B.V., a private
company in the Netherlands, for cash in the amount of 3,187,500 Dutch
Guilders (U.S. $2,023,000). Effective January 1, 1998, IMPCO Media Europe BV
changed its name to IMPCO Technologies B.V. (IMPCO BV). IMPCO B.V. has
distributed IMPCO's gaseous fuel carburetion systems and related devices for
use in internal combustion engines since 1972. IMPCO BV services the
European marketplace from its headquarters in the Netherlands and through its
subsidiaries in Germany, France and the United Kingdom.
The acquisition was financed through a term loan provided by Bank of
America which will be repaid over a five-year period with interest at market
rates [See Note 3(a)(ii)]. The acquisition of IMPCO BV has been accounted
for under the purchase method of accounting and has been included in the
consolidated financial statements since October 31, 1995, the date of
acquisition. The Company recognized $2,100,000 of intangible assets arising
from acquisition which will be amortized on the straight-line method over 20
years. The tangible assets and liabilities of IMPCO B.V. have been recorded
at their estimated fair market values at the date of the acquisition as
follows:
<TABLE>
<CAPTION>
Value
------------
<S> <C>
Cash $ 57,747
Accounts receivable 1,808,609
Inventory 3,062,545
Equipment 591,109
Other assets 171,691
-----------
5,691,701
Accounts payable and accrued expenses (2,021,422)
Term loan - DEPA Holding B.V. (2,693,283)
Other liability - DEPA Holding B.V. (810,561)
-----------
Net tangible assets $ 166,435
-----------
-----------
</TABLE>
On May 1, 1998 the Company purchased the remaining 49% of IMPCO BV from
Depa Holding BV for 1,400,000 Dutch Guilders (U.S. $693,000). As a condition
precedent to purchase of the outstanding shares, IMPCO BV retired the debt
outstanding to Depa Holding BV with the proceeds from the term loan granted
by Bank of America NT&SA [See Note 3(a)(v)]. The acquisition was accounted
for using the purchase method of accounting for step-acquisitions. The
Company recognized approximately $238,000 of goodwill arising from the
acquisition of the 49% interest which will be amortized on the straight-line
method over 20 years.
3. DEBT PAYABLE
(a) BANK OF AMERICA NT&SA
On October 7, 1997 IMPCO amended its credit facility with Bank of America
NT&SA by extending the term of the revolving line of credit for a twelve month
period ending August 31, 1999. The amended credit facility also increased the
revolving line of credit by $4,000,000 to $12,000,000, and added a $4,000,000
term loan facility for possible future acquisitions. On February 4, 1998 the
Company amended the credit facility by extending the payment terms of the
acquisition facility from three years to five years. The amended credit
facility also includes, as part of the $12,000,000 revolving line of credit, a
$1,000,000 revolving line of credit to the Company's Mexican subsidiary.
<PAGE>
44
On March 18, 1998 the Company further amended the credit facility by
lowering the interest rate on the revolving line of credit and the acquisition
facility by one-quarter of one percentage point. On April 29, 1998 the Company
amended the credit facility with the bank by adjusting the acquisition facility
disbursement terms. The acquisition facility was adjusted to allow for a second
disbursement of $692,520.78 for the purchase of the minority portion of IMPCO
Technologies B.V.
On April 27, 1998 IMPCO Technologies B.V. entered into a credit facility
with Bank of America NT&SA through its Amsterdam branch for a term loan for
$2,100,000 or an equivalent amount in freely convertible foreign currencies.
On September 23, 1997, the Company expanded the capital lease facility from
$3,525,000 to $5,525,000 and extended the expiration date to August 31, 2003.
Including the revolving line of credit, the capital lease facility and the
acquisition facilities, the total Bank of America credit facility was
$22,378,000 at April 30, 1998.
(i) REVOLVING LINE OF CREDIT
The revolving line of credit bears interest, payable monthly, at a
fluctuating per annum rate equal to the Bank of America reference rate minus
one-quarter of one percentage point (which was 8.25% on April 30, 1998). The
Company may elect to have all or portions of the line bear interest at an
alternative interest rate agreed upon by the Bank for periods of not less than
30 days nor more than one year. At April 30, 1998, the total outstanding line
of credit balance of $2,650,000 was subject to the reference rate.
The credit facility provides a Mexican peso line of credit equivalent to
$1,000,000 for Grupo I.M.P.C.O. Mexicano and is included as part of the existing
$12,000,000 revolving line of credit between the Company and Bank of America
NT&SA. For U.S. borrowings, the revolving line of credit carries interest,
payable monthly, at a fluctuating per annum rate equal to the Bank of America
reference rate or the London Interbank Offering Rate (LIBOR) plus 1.75% (7.41%
at 4/30/98). For Mexican borrowings, the revolving line of credit carries
interest, payable monthly, at a fluctuating per annum rate equal to the Bank of
America Mexico (BAMSA) cost of funds plus 1.50% or the TIIE plus 1.50% (21.02%
at 4/30/98). The TIIE is the Interbank Interest Equilibrium Rate calculated by
the Bank of Mexico for the most recent period of twenty-eight (28) days prior to
commencement of the interest period. The Company may prepay the facility, in
full or in part, upon two-business days notice, subject to break funding costs,
if any. The minimum prepayment is US$250,000. At April 30, 1998, the total
outstanding line of credit balance of Ps. 3,375,775 (U.S. $397,805) was subject
to the BAMSA cost of funds rate (22.8% at 4/30/98).
It is management's intent to renew the amount of its present borrowings
under the revolving line of credit for an uninterrupted period extending beyond
one year from the balance sheet date.
The line may be used for financing commercial letters of credit with a
maximum maturity of 180 days and standby letters of credit with a maximum
maturity of five years not to extend beyond April 30, 2002. The amount of
letters of credit outstanding at any one time may not exceed $2,000,000 for
commercial letters of credit and $750,000 for standby letters of credit. At
April 30, 1998, a standby letter of credit totaling $375,000 was outstanding.
<PAGE>
45
The maximum amount available at any one time on the revolving line of credit and
the commercial letters of credit is $12,000,000.
(ii) TERM LOAN FOR ACQUISITION OF IMPCO TECHNOLOGIES B.V.
This term loan bears interest, payable monthly, at the Bank's reference
rate. The Company may elect to have all or portions of the term loan bear
interest at an alternative interest rate agreed upon by the Bank for periods of
not less than 30 days nor more than one year. The alternative interest rate is
based on the Offshore rate plus 1.50%. Each alternative rate portion must be
for an amount not less than $500,000 and may not include any portion of
principal that is scheduled to be repaid before the last day of the applicable
interest period. On October 20, 1997, the Company entered into a 34 month
interest rate swap agreement with Bank of America NT&SA ending August 31, 2000,
that fixes the interest rate on the facility at 7.90%. At April 30, 1998, the
total outstanding balance was $1,025,000.
(iii) TERM LOAN FOR THE ACQUISITION FOR ATECO
On October 31, 1997, the Company retired this facility early by making a
balloon payment of $1,600,000.
(iv) TERM LOAN FOR FUTURE ACQUISITION(S)
This term loan bears interest, payable monthly, at the Bank's reference
rate. The Company may elect to have all or portions of the term loan bear
interest at an alternative interest rate agreed upon by the Bank for periods of
not less than 30 days nor more than one year. The alternative interest rate is
based on the Offshore rate plus 1.75%. Each alternative rate portion must be
for an amount not less than $500,000 and may not include any portion of
principal that is scheduled to be repaid before the last day of the applicable
interest period. Principal is payable in 20 successive quarterly installments,
starting on the last day of the third month after funding. The first 19
installments will be equal to 1/19 of the original principal amount with the
last installment equal to the remaining balance. The term loan may be prepaid,
with payments applied in inverse order of maturity, in whole or in part, at any
time.
On December 5, 1997, the Company utilized $3.3 million of the $4 million
term loan for the acquisition of Algas (See Note 2). On February 3, 1998, the
Company entered into a 58-month interest rate swap agreement with Bank of
America ending December 5, 2002 that fixes the interest rate on the facility at
7.74%. At April 30, 1998, the total outstanding balance was $3,135,000.
On April 30, 1998, the Company utilized $693,000 of the remaining term loan
facility for the acquisition of the minority shares of IMPCO Technologies B.V.
(See Note 2). The outstanding balance of $693,000 was subject to the offshore
rate (7.46%). On May 29, 1998, the Company entered into a 59-month interest
rate swap agreement with Bank of America ending April 15, 2003 that fixes the
interest rate on the facility at 7.80%.
(v) IMPCO TECHNOLOGIES B.V. TERM LOAN
On May 1, 1998 IMPCO Technologies B.V. borrowed 4,200,000 Dutch Guilders
(U.S. $2,098,000) to refinance the existing term loan with Depa Holdings as a
condition precedent to the sale of the minority shares in IMPCO Technologies
B.V. This term loan bears interest, payable monthly, at the
<PAGE>
46
Amsterdam Interbank Offered Rate for the corresponding period of the advance,
plus 1.50%. Principal is payable in 19 successive quarterly installments of
210,000 Dutch Guilders and the remaining balance is payable as the 20th
installment. The term loan may be prepaid, with payments applied in inverse
order of maturity, in whole or in part, at any time. At May 1, 1998, the
outstanding balance of 4,200,000 Dutch guilders bore an interest rate of
4.94%.
(vi) CAPITAL LEASE FACILITY
The capital lease facility is available in incremental draws of $50,000 or
more to finance acquisitions of equipment such as machinery, dies, molds, office
furniture, and motor vehicles. At April 30, 1998, approximately $2,625,000 was
outstanding and approximately $1,746,000 remained available. Each draw is to be
repaid in twenty consecutive equal quarterly installments and bears interest at
either a variable rate or fixed rate of interest. The fixed rate of interest is
the U.S. Treasury note bond-equivalent yield per annum corresponding to the
number of months remaining on the draw, plus 2.55 percentage points. The
variable rate of interest is equal to Bank of America's London Branch 3-month
LIBOR rate plus 2.15 percentage points. At April 30, 1998, all draws were
subject to the variable rate of interest. The long-term and short-term portions
of the capital lease facility are included in other long-term liabilities and
other accrued expenses, respectively, on the Company's balance sheet. On May
29, 1998, the Company entered into a 59-month interest rate swap agreement with
Bank of America ending April 15, 2003 that fixes the interest rate on $2,578,000
of the facility at 8.50% for fundings 1 through 18 and 8.20% for fundings 19
through 22.
If the Company exercises an early termination option before the scheduled
expiration date of a capital lease, a termination charge will be assessed. The
termination charge is a sliding percentage (not to exceed 3%) of the balance on
the lease at time of termination.
(vii) LOAN COVENANTS AND COLLATERAL
The Bank of America credit facility contains certain restrictions and
financial covenants, including liquidity, tangible net worth and cash flow
coverage thresholds, as well as limitations on other indebtedness, and is
secured by substantially all of the Company's assets. At April 30, 1998, the
Company was in compliance with all covenants.
(b) TERM LOAN - BANK OF AMERICA, AUSTRALIA
On January 31, 1998, the Company retired this facility by making a payment
of A$1,000,000 (U.S. $650,000).
<PAGE>
(c) TERM LOAN - DEPA HOLDING B.V.
As of April 30, 1998, the outstanding principal balance on the term loan
was 4,200,000 Dutch Guilders (U.S. $2,100,000) and was subject to the annual
interest rate of 4.11%. On May 1, 1998, as a condition precedent to the sale
of the minority shares held by Depa Holding B.V., IMPCO Technologies B.V.
retired this facility from the proceeds of the term loan facility granted by
Bank of America NT&SA.
(d) CREDIT FACILITY - MEES PIERSON
In February of 1996, IMPCO Technologies B.V. secured a 3,000,000 Dutch
Guilder (U.S. $1,500,000) revocable credit facility with Mees Pierson, a
financial institution in the Netherlands. The interest rate is determined
weekly based on a weighted average of several money market indices. IMPCO
Technologies B.V.'s borrowings under this facility may not exceed the
combined total of a specified amount of its accounts receivable (70% of book
value) and inventory (50% of book value). At April 30, 1998, the interest
rate was 5.125% and there was no outstanding balance on the credit facility.
Annual maturities of long-term debt for the five years subsequent to May 1,
1998 (in millions) are as follows: 1999 - $1.4; 2000 - $1.5; 2001 - $1.3; 2002 -
$1.1; 2003 - $1.0; and thereafter - $.7.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest and foreign exchange
rates. While these hedging instruments are subject to fluctuations in value,
such fluctuations are generally offset by the value of the underlying exposures
being hedged. The Company is not a party to leveraged derivatives and does not
hold or issue financial instruments for speculative purposes.
(a) Foreign Currency Management
The results and financial condition of the Company's international
operations are affected by changes in exchange rates between certain foreign
currencies and the U.S. Dollar. The Company's exposure to fluctuations in
currency exchange rates has increased as a result of the growth of its
international subsidiaries. The functional currency for all of the Company's
international subsidiaries is the local currency of the subsidiary. An
increase in the value of the U.S. dollar increases costs incurred by the
subsidiaries because most of its international subsidiaries' inventory
purchases are U.S. dollar denominated. The Company monitors this risk and
attempts to minimize the exposure through forward currency forward contracts
and the management of cash disbursements in local currencies. At April 30,
1998 the Company had currency forward contracts protecting U.S.$600,000 in
inventory purchases. At April 30, 1998 the fair value of foreign currency
forward contracts approximated contract values. On May 29, 1998 the Company
entered into six currency forward contracts to protect an additional
U.S.$1,200,000 in inventory purchases.
The Company seeks to hedge its foreign currency economic risk by
minimizing its U.S. dollar investment in foreign operations using foreign
currency term-loans to finance the operations of its foreign subsidiaries.
The term loans are denominated in local currencies and translated to U.S.
dollars at period end exchange rates.
<PAGE>
(b) Interest Rate Management
The Company uses interest rate swap agreements with Bank of America to
manage its exposure to interest rate changes and stabilize the cost of
borrowed funds. When an agreement is executed, the swap is linked to a
specific debt instrument. At April 30, 1998, the Company had $4,160,000
secured under fixed interest rate agreements at a weighted average fixed
interest rate of 7.78%. Absent these fixed rate agreements, the weighted
average variable rate for this debt at April 30, 1998 would have been 7.38%.
At April 30, 1998 the fair value of interest rate swap agreements
approximated carrying value. On May 29, 1998 the Company secured an
additional $3,271,000 under a fixed interest rate agreement.
(c) Fair Value of Long-Term Debt
The fair value of the Company's long-term debt is estimated using
discounted cash flows based on the Company's incremental borrowing rates for
similar types of borrowings. At April 30, 1998 the fair value of the
Company's long-term debt approximated carrying value.
5. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal years ended April 30,
----------------------------------------
Current: 1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Federal $ 90,759 $ 79,065 $ 32,352
State 36,314 23,828 (29,966)
Foreign 208,556 432,422 348,998
-------- -------- --------
335,629 535,315 351,384
--------- ---------- ----------
--------- ---------- ----------
Deferred:
Federal 571,887 (272,856) (1,600,000)
State - - (100,000)
Foreign - - -
--------- ---------- ----------
571,887 (272,856) (1,700,000)
--------- ---------- ----------
--------- ---------- ----------
Total provision (benefit)
for income taxes: $ 907,516 $ 262,459 $(1,348,616)
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
Income before income taxes and minority interest in income of
consolidated subsidiaries and dividends for U.S. and foreign based operations is
shown below:
<TABLE>
<CAPTION>
Fiscal Years ended April 30,
----------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
U.S. $ 4,574,310 $ 2,737,074 $ 2,655,220
Foreign 1,608,825 1,012,343 972,607
----------- ----------- ------------
6,183,135 3,749,417 3,627,827
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The current provision (benefit) for income taxes for fiscal years 1998,
1997 and 1996 has been reduced by the utilization of approximately
$5,045,500, $3,953,000 and $1,650,000 of federal net operating loss
carryforwards, respectively. During fiscal years 1998, 1997 and 1996, the
current provision for state taxes was reduced by the utilization of
approximately $375,000, $246,000 and 140,000, respectively, of investment
and/or research tax credits. In addition, in fiscal year 1996 a state income
tax refund of approximately $82,000 was applied to the 1996 provision.
<PAGE>
During the fourth quarter of fiscal year 1996, the Company reevaluated
the valuation allowance for its deferred tax assets. Based on this
reevaluation, which considered among other items projections as to future
taxable income, the Company determined that the valuation allowance should be
reduced by $1,700,000 principally due to the presumed future use of federal
net operating loss carryforwards. This reduction in the valuation allowance
is reflected in the deferred tax benefit for fiscal year 1996. During the
fourth quarter of fiscal year 1997, the Company reevaluated the valuation
allowance for its deferred tax assets. Based on this reevaluation, which
considered among other items, projections as to future taxable income, the
Company determined that the valuation allowance should be reduced by
$1,559,000 principally due to the presumed future use of federal net
operating loss carryforwards. This reduction in the valuation allowance is
reflected in the deferred tax benefit for fiscal year 1997. During fiscal
year 1998, the Company determined that there is no need to carry a valuation
allowance and therefore reduced the valuation allowance by $510,000. This
reevaluation was based on projections of future taxable income.
A reconciliation of income taxes computed at the federal statutory income
tax rate to income taxes reported in the consolidated statements of income is as
follows:
<TABLE>
<CAPTION>
Fiscal years ended April 30,
--------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate 34.0% 34.0% 34.0%
Permanent differences 3.0% 4.0 3.0
Benefit of net operating loss
carryforward (13.8) (38.0) (15.4)
Federal alternative minimum tax - 2.1 .9
State tax, net .4 .6 (3.7)
Foreign tax, net .1 4.3 .5
R and D Credit (9.0) - -
Recognition of Deferred Tax Asset - - (56.5)
----- ----- -----
Effective tax rate 14.7% 7.0% (37.2)%
----- ----- -----
----- ----- -----
</TABLE>
The components of the Company's deferred tax liabilities and assets and the
related valuation allowance is as follows:
<TABLE>
<CAPTION>
Years ended April 30,
--------------------------
1998 1997
----------- ------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ (955,000) $ (866,000)
Other (81,000) (53,000)
----------- ----------
(1,036,000) (919,000)
----------- ----------
Deferred tax assets:
Net operating loss carryforwards - 1,234,000
Tax credit carryforwards 2,024,000 1,564,000
Inventory reserves 173,000 224,000
Other provisions for estimated expenses 439,000 380,000
----------- ----------
2,636,000 3,402,000
----------- ----------
Gross deferred tax asset 1,600,000 2,483,000
Valuation allowance - (510,000)
----------- ----------
Net deferred tax asset recognized $ 1,600,000 $ 1,973,000
----------- ----------
----------- ----------
</TABLE>
<PAGE>
The net deferred tax assets are included in other current assets and other
assets in the accompanying balance sheets.
At April 30, 1998, the Company had a general business tax credit
carryforward available for federal income tax purposes of approximately
$1,776,000 which, if not utilized, will expire by fiscal year 2012.
Additionally, the Company had an alternative minimum tax credit carryforward
available for federal income tax purposes of approximately $248,000 which does
not expire for tax reporting purposes.
6. COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company has certain non-cancelable operating leases for
facilities and equipment, and non-cancelable capital leases for machinery,
equipment and motor vehicles. Future minimum lease commitments under
non-cancelable leases are as follows:
<TABLE>
<CAPTION>
Lease Obligations
--------------------------------
Fiscal years ending April 30, Capital Operating
----------------------------- -------------- ---------------
<S> <C> <C>
1999 $ 1,022,641 $ 1,035,726
2000 897,219 650,908
2001 646,055 503,772
2002 407,970 489,543
2003 258,551 503,394
Later years - 650,217
------------ ------------
Total minimum lease payments 3,232,436 $ 3,833,560
------------ ------------
Less imputed interest 457,061
------------
Present value of future minimum
lease payments 2,775,375
Less current portion 741,685
------------
Long-term capital lease obligation $ 2,033,690
------------
------------
</TABLE>
Total rental expense under the operating leases for the fiscal years ended
April 30, 1998, 1997 and 1996 was approximately $1,126,700, $903,000, and
$632,000, respectively. The Company currently leases facilities in Cerritos,
California; Irvine, California; Seattle, Washington; Rijswijk, Holland;
Cheltenham, Australia; and De Mexico, Mexico. These leases are non-cancelable
and certain leases have renewal options.
During fiscal year 1998, IMPCO increased its $3,525,000 capital lease
facility to $5,525,000 to finance acquisitions of equipment such as machinery,
dies, molds and patterns, office furniture and fixtures and motor vehicles. At
April 30, 1998 and 1997 respectively, approximately $2,625,000 and $1,819,000
was outstanding under the capital lease facility. At April 30, 1998 the gross
and net assets acquired under the capital lease facility was approximately
$3,854,000 and $2,131,000, respectively. At April 30, 1997 the gross and net
assets acquired under the capital lease facility was approximately $2,482,000
and $1,056,000, respectively.
<PAGE>
51
(b) CONTINGENCIES
The Company is currently subject to certain legal proceedings and claims
arising in the ordinary course of business. Based on discussions with legal
counsel, management does not believe that the outcome of any of these matters
will have a materially adverse effect on the Company's consolidated financial
statements.
INVESTMENT AND TAX SAVINGS PLAN
The Company's Investment and Tax Savings Plan (the Plan) is a defined
contribution plan which is qualified under Internal Revenue Service Code
Section 401(k). The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). All employees who are at
least age twenty-one or older are eligible to participate in the Plan on the
first day of any calendar month following one year of service with the
Company. Employees of the Company who elect to participate in the Plan may
contribute into the Plan not less than 1% nor more than 15% of compensation.
The Company's matching contributions are discretionary and match elective
salary deferrals up to 1.8% of compensation. Approximately 42% of eligible
employees were enrolled in the 401(k) plan at April 30, 1998. Employer
contributions totaled approximately $98,000, $95,000, and $85,000 for fiscal
years ended 1998, 1997 and 1996.
7. STOCKHOLDERS' EQUITY
(a) 1993 SERIES 1 PREFERRED STOCK
The holders of the Company's' 1993 Series 1 Preferred Stock (1993
Preferred) are entitled to receive annual cumulative dividends of up to $105
per share and not less than $80 per share ($100 per share at April 30, 1998).
The dividend rate, which is adjusted on the first day of each calendar
quarter, is based on the Seafirst Bank prime rate of interest plus 1.5%
(assuming a deemed principal value of $1,000 per share). Holders of 1993
Preferred are entitled to vote on all matters brought before the common
stockholders and have the number of votes equal to the number of full shares
of common stock into which the 1993 Preferred could then be converted.
The 1993 Preferred is convertible into common stock at the option of the
holders by dividing the then conversion price into its liquidation value of
$1,000 for each share being converted. At April 30, 1998, the conversion
price was $5.29 per share. The conversion price decreases if additional
shares of common stock are issued for a consideration per share less than the
then conversion price.
Each share of 1993 Preferred automatically converts into shares of
common stock upon the Company reporting audited consolidated net earnings of
$5,000,000 for a fiscal year, or upon the closing of an underwritten public
offering of the Company's common stock in which the Company realizes gross
proceeds of $10,000,000 or more and the public offering price is at least
$12.00 per share, provided that all dividends in arrears are paid and the
obligation of the underwriters is that all offered shares must be purchased.
Commencing March 31, 1999, the Company has the right to convert the 1993
Preferred to common stock if the average market price for the common stock
for the immediately preceding 30 trading days equals or exceeds the
conversion price then in effect and the Company pays all accrued dividends.
<PAGE>
52
(b) WARRANTS TO PURCHASE COMMON STOCK
In the fourth quarter of the current fiscal year, the Company issued a
contingent warrant certificate that entitles a contractor to purchase 38,750
shares of Common Stock at a price of $12.00 per share. The warrant vests and
becomes exercisable if the closing price equals or exceeds $14.40 per share
occuring prior to April 9, 1999. In the first quarter of fiscal year 1999,
this condition was met but pursuant to an additional requirement the warrants
are not exercisable until April 9, 1999. The following table sets forth the
expiration date, number of warrants and the respective exercise prices of
these warrants.
<TABLE>
<CAPTION>
EXPIRATION NUMBER
DATE OF WARRANTS EXERCISE PRICE
----------------- ------------------- --------------------
<S> <C> <C>
April 9, 2001 38,750 $12.00
</TABLE>
At date of grant, the fair value of the warrants was determined at
$93,000 and is being amortized to expense over the service period.
(c) STOCK OPTIONS
The Company has five stock option plans which provide for the issuance of
options to key employees and directors of the Company. As of April 30, 1998,
1997 and 1996, the Company had outstanding stock options of 1,308,086, 922,810,
and 841,303, respectively, to purchase shares of common stock. The following
table summarizes the transactions of the Company's stock option plans for the
three year period ended April 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
_____________________________________________________________________
<S> <C> <C>
Unexercised options outstanding -
April 30, 1995 798,335 $7.59
Options granted 95,000 $8.56
Options exercised (13,198) $6.58
Options forfeited (38,834) $10.28
_____________________________________________________________________
Unexercised options outstanding -
April 30, 1996 841,303 $7.59
Options granted 238,118 $6.84
Options exercised (139,244) $3.16
Options forfeited (17,367) $8.60
_____________________________________________________________________
Unexercised options outstanding -
April 30, 1997 922,810 $7.82
Options granted 475,556 $7.86
Options exercised (57,795) $3.36
Options forfeited (32,485) $6.80
_____________________________________________________________________
Unexercised options outstanding -
April 30, 1998 1,308,086 $8.06
Price range $0.00 to $1.50 21,806 $.06
(weighted-average contractual life
of 3.5 years)
Price range $3.00 to $4.50 51,668 $3.89
(weighted-average contractual life
of 3.5 years)
Price range $4.50 to $6.00 80,832 $5.63
(weighted-average contractual life
<PAGE>
53
of 3.5 years)
Price range $6.00 to $7.50 193,876 $6.43
(weighted-average contractual life
of 8.2 years)
Price range $7.50 to $9.00 664,348 $7.92
(weighted-average contractual life
of 8.7 years)
Price range $9.00 to $10.50 12,000 $9.13
(weighted-average contractual life
of 9.2 years)
Price range $10.50 to $12.00 283,556 $11.53
(weighted-average contractual life
of 6.0 years)
_____________________________________________________________________
Exercisable options -
April 30, 1996 576,889 $6.81
April 30, 1997 501,727 $8.00
April 30, 1998 544,232 $8.63
Price range $0.00 to $1.50 21,806 $.06
Price range $3.00 to $4.50 51,668 $3.89
Price range $4.50 to $6.00 80,832 $5.63
Price range $6.00 to $7.50 29,876 $7.04
Price range $7.50 to $9.00 117,550 $8.71
Price range $10.50 to $12.00 242,500 $11.57
_____________________________________________________________________
</TABLE>
1997 INCENTIVE STOCK OPTION PLAN
During fiscal year 1998, the Company adopted the 1997 Incentive Stock Option
Plan. Options for up to 750,000 shares of common stock may be issued to
eligible employees. Options vest at a rate of 40% after the first two years
following the date of grant and 20% each year thereafter so that the employee is
100% vested in the option after 5 years. The Board of Directors may grant
options which have different vesting and exercise provisions. Further
information relating to this plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
PER SHARE APRIL 30, 1998
--------------- ----------------
<S> <C> <C>
Granted and effective $7.63 to $11.63 427,000
Exercisable at April 30 -
Shares available for future grant 3,000
</TABLE>
In addition to the 427,000 options granted, 320,000 options have been
issued with contingent vesting schedules. These 320,000 options shall vest
pursuant to the plan's normal vesting schedule and be exercisable if the
closing price of the Company's Common Stock equals or exceeds (i) $17.00 per
share on or prior to April 30, 1999 or (ii) $15.30 per share on at least
twenty of thirty consecutive trading days occurring on or before April 30,
1999. The contingency provision was satisfied on June 26, 1998.
1996 INCENTIVE STOCK OPTION PLAN
During fiscal year 1997, the Company adopted the 1996 Incentive Stock
Option Plan. Options for up to 250,000 shares of common stock may be issued
to eligible employees. Options vest at a rate of 40% after the first two
years following the date of grant and 20% each year thereafter so that the
<PAGE>
54
employee is 100% vested in the option after 5 years. Further information
relating to this plan is as follows:
FISCAL YEAR ENDED APRIL 30,
---------------------------
OPTION PRICE
PER SHARE 1998 1997
--------------- ------- -------
Beginning balance $6.25 to $11.00 212,583 -
Granted $6.25 to $11.00 38,556 218,118
Relinquished $6.25 to $8.75 (11,735) (5,535)
Exercised $8.38 (2,000) -
Ending balance $6.25 to $11.00 237,404 212,583
Exercisable at April 30 2,800 -
------- -------
------- -------
Shares available for future grant 10,596 37,417
------- -------
<PAGE>
55
1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
During fiscal year 1994, the Company adopted the 1993 Stock Option Plan
for Nonemployee Directors. Options for up to 350,000 shares of the Company's
common stock may be issued to members of the Company's Board of Directors who
are not and have not been employees of the Company within three years prior
to the date of the grant of an option. Options are not assignable and
generally vest cumulatively at the rate of 25% per year, commencing twelve
months following the date of grant. The option exercise price per share is
the higher of (i) the average of the fair market values for the fifteen
trading days immediately following the date of grant or (ii) the market value
on the fifteenth trading day immediately following the date of grant.
Further information relating to this plan is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
------------------------------------
OPTION PRICE
PER SHARE 1998 1997 1996
--------------- ------- ------- -------
<S> <C> <C> <C> <C>
Beginning balance $8.64 to $11.78 290,000 270,000 220,000
Granted $8.64 to $11.78 - 20,000 70,000
Relinquished 11.78 - - (20,000)
------- ------- -------
Ending balance $8.64 to $11.78 290,000 290,000 270,000
------- ------- -------
------- ------- -------
Exercisable at April 30 255,000 222,500 200,000
------- ------- -------
------- ------- -------
Shares available for future grant 60,000 60,000 80,000
------- ------- -------
------- ------- -------
</TABLE>
1991 EXECUTIVE STOCK OPTION PLAN
During fiscal year 1992, the Company adopted the 1991 Executive Stock
Option Plan, under which three executive officers were granted Series A and
Series B options. These options may be exercised at any time through
November 6, 2001, are not assignable, and may be exercised whether or not the
optionee is an employee at the time of exercise. The Series B options were
granted in exchange for the termination of certain executive officers rights
in the 1989 phantom stock pool. Further information relating to this Plan is
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
SERIES A OPTIONS OPTION PRICE -------------------------------------
---------------- PER SHARE 1998 1997 1996
---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Beginning balance $3.89 51,668 126,668 126,668
Exercised $3.89 - (75,000) -
------- -------- --------
Ending balance $3.89 51,668 51,668 126,668
------- -------- --------
------- -------- --------
Exercisable at April 30 51,668 51,668 126,668
------- -------- --------
------- -------- --------
SERIES B OPTIONS
Beginning balance $0.06 53,520 96,900 96,900
Exercised $0.06 31,714 43,380 -
------- -------- --------
Ending balance $0.06 21,806 53,520 96,900
------- -------- --------
------- -------- --------
Exercisable at April 30 21,806 53,520 96,900
------- -------- --------
------- -------- --------
</TABLE>
<PAGE>
56
1989 INCENTIVE STOCK OPTION PLAN
Under the Company's 1989 Incentive Stock Option Plan, up to 500,000
options may be issued. Options generally vest at the rate of 25% per year,
cumulatively, beginning on the first anniversary of the date of grant.
Further information relating to the 1989 Incentive Stock Option Plan is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
-------------------------------------
OPTION PRICE
PER SHARE 1998 1997 1996
--------------- ------- ------- -------
<S> <C> <C> <C> <C>
Beginning balance $5.25 to $15.00 315,039 347,735 354,767
Granted $8.00 10,000 - 25,000
Exercised $6.00 to $ 9.00 (24,081) (20,864) (13,198)
Relinquished $6.00 to $10.38 (20,750) (11,832) (18,834)
------- ------- -------
Ending balance $5.25 to $15.00 280,208 315,039 347,735
------- ------- -------
Exerciseable at April 30 212,958 174,039 153,321
------- ------- -------
------- ------- -------
Shares available for future grant 23,586 12,836 1,004
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
57
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $5,275,619 $3,486,958 $4,976,443
Preferred stock dividends (594,997) (581,365) (609,875)
Minority interest (410,554) (261,667) (305,568)
----------- ----------- -----------
Numerator for basic earnings per
share - income available to
common stockholders to common stock 4,270,068 2,643,926 4,061,000
Effect of dilutive securities:
Preferred stock dividends 594,997 - 609,875
----------- ----------- -----------
----------- ----------- -----------
Numerator for diluted earnings per
share - income available to
common stockholders after
assumed conversions $4,865,065 $2,643,926 $4,670,875
Denominator:
Denominator for basic earnings per
Share -- weighted-average shares 6,333,769 5,722,382 5,648,290
Effect of dilutive securities:
Employee stock options 450,315 117,738 166,503
Warrants 246,628 290,422 361,917
Convertible preferred stock 1,124,764 - 1,123,489
----------- ----------- -----------
Dilutive potential common shares 1,821,707 408,160 1,651,909
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions 8,155,476 6,130,542 7,300,199
----------- ----------- -----------
Basic earnings per share $0.67 $0.46 $0.72
----------- ----------- -----------
----------- ----------- -----------
Diluted earnings per share $0.60 $0.43 $0.64
----------- ----------- -----------
</TABLE>
For additional disclosures regarding the outstanding preferred stock, the
employee stock options, and the warrants, see Note 7.
Options to purchase 260,000 shares of common stock at prices ranging
from $10.88 to $11.78 were outstanding during fiscal year 1998 but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be anti-dilutive.
9. FASB 123: COMPENSATORY STOCK OPTION PLAN
The Company has elected to account for its employee stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations in accounting for employee
stock options. No compensation expense is recorded under APB 25 because the
exercise price of the Company's employee common stock options equals the
market price of the underlying common stock on the grant date.
<PAGE>
58
Statement 123 requires "as adjusted" information regarding net income
and net income per share to be disclosed for new options granted after fiscal
year 1996. The Company determined this information using the fair value
method of that Statement. The fair value of these options was determined at
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996
------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Calculated volatility .534 .486 .497
Risk-free interest rate 3% 3% 3%
Expected Life of the option in years 9.09 8.70 8.35
</TABLE>
The estimated fair value of the options is amortized to expense over the
options' vesting period for "as adjusted" disclosures. The net income per
share "as adjusted" for the effects of statement No. 123 is not indicative of
the effects on reported net income/loss for future years. The Company's
reported "as adjusted" information at April 30 is as follows: (in thousands,
except per share amounts):
<PAGE>
59
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income $4,270 $2,654 $4,061
As Adjusted $3,628 $2,467 $3,756
Net Income Per Share As Reported - Basic $.67 $.46 $.72
Net Income Per Share "As Adjusted" - Basic $.57 $.43 $.66
Net Income Per Share As Reported - Dilutive $.60 $.43 $.64
Net Income Per Share "As Adjusted" - Dilutive $.52 $.40 $.60
</TABLE>
In management's opinion existing stock option valuation models do not
provide a reliable single measure of the fair value of employee stock options
that have vesting provisions and are not transferable. In addition, option
pricing models require the input of highly subjective assumptions, including
expected stock price volatility. For fiscal years 1997 and 1996, the "As
Adjusted" net income per share has been restated based on refined estimates
and assumptions.
10. REVENUES
During fiscal year 1998, the IMPCO, BV, IMPCO Pty and I.M.P.C.O.
Mexicano subsidiaries accounted for approximately sixteen percent, ten
percent and one percent of total consolidated revenues, respectively, and
contract revenue accounted for approximately twelve percent of consolidated
revenues. During fiscal year 1998, General Motors Corporation accounted for
approximately FIFTEEN percent of consolidated revenues. During fiscal years
1997 and 1996, no single unaffiliated customer exceeded ten percent of
consolidated revenues.
The Company routinely sells products to a broad base of customers, which
includes distributors and original equipment manufacturers. Based on the
nature of these customers, credit is generally granted without collateral
being required. Management does not anticipate that a significant credit risk
exists as a result of these customer relationships.
11. SEGMENT DATA
The Company has U.S. based operating facilities and three foreign based
operating subsidiaries in Holland (IMPCO BV), Australia (IMPCO Pty) and
Mexico (I.M.P.C.O. Mexicano). Transfers between geographic areas include
inter-company sales, which are eliminated in consolidation. Operating income
is total revenue less operating expenses, excluding finance charges and
taxes. Information concerning the Company's geographic areas of operation in
fiscal year 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal year ended April 30, 1998
---------------------------------------------------
United States Europe Australia Mexico Elims Consolidated
------------- ------ --------- ------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
Customers $51,780 $ 11,588 $ 6,893 $ 822 $ - $ 71,083
Transfers between
geographic areas 8,826 - - - (8,826) -
------- -------- ------- ------ ------- ---------
Total revenue 60,606 11,588 6,893 822 (8,826) 71,083
------- -------- ------- ------ ------- ---------
------- -------- ------- ------ ------- ---------
Operating income 5,778 1,364 455 (47) (432) 7,118
------- -------- ------- ------ ------- ---------
------- -------- ------- ------ ------- ---------
Total assets,
at April 30, 1998 51,375 7,399 7,169 1,647 (10,298) 57,292
------- -------- ------- ------ ------- ---------
------- -------- ------- ------ ------- ---------
</TABLE>
<PAGE>
60
Export sales from the corporation's United States operations to
unaffiliated customers were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ --------
<S> <C> <C> <C>
Canada $ 1,214 $1,499 $ 1,659
Pacific Rim 8,146 4,139 4,966
Europe 11,588 5,500 2,529
Latin America 6,719 6,537 3,779
</TABLE>
12. CONTRACT REVENUE
In August 1995, the Company extended its original 1993 two year
fixed-price contract with General Motors Corporation (GM) to develop,
manufacture and install compressed natural gas engine management systems (CNG
systems). Under the terms of the contract, the Company is engineering,
testing and validating CNG systems for certain 1997, 1998, and 1999 model
year car and truck platforms in compliance with GM's specifications.
Revenues for development efforts are principally recognized by the
percentage of completion method and principally related to contracts with GM.
During fiscal year 1998, 1997, and 1996 GM and other contract revenues
comprised 12%, 5%, and 6% of the Company's total revenues, respectively.
Operating income earned on the GM and other development contracts during
fiscal year 1998, 1997 and 1996 was approximately $1,511,000, $400,000 and
$155,000 after deducting an allocation for selling, general and
administrative costs.
13. PURCHASES
During fiscal years 1998, 1997 and 1996, purchases from one vendor
constituted approximately 18%, 17% and 20% of consolidated net inventory
purchases, respectively. In fiscal year 1998, 10 suppliers accounted for
approximately 55% of consolidated net inventory purchases.
14. SUPPLEMENTARY CASH FLOW INFORMATION
During fiscal years 1998, 1997 and 1996 the following non-cash
transactions were effected and are not reflected in the Consolidated
Statements of Cash Flows:
a) The Company incurred capital lease obligations of approximately
$1,296,000, $835,000 and $700,000, respectively.
b) Pursuant to the IMPCO BV acquisition an outstanding debt obligation of
1,279,000 Dutch Guilders (US $766,000), was converted into a term loan
during fiscal year 1996.
c) Interest and taxes paid during fiscal year 1998, 1997, and 1996 are as
follows:
<TABLE>
<CAPTION>
Fiscal year ended April 30
--------------------------------------
1998 1997 1996
-------- ---------- --------
<S> <C> <C> <C>
Interest paid $940,000 $1,062,000 $436,000
Taxes paid 191,000 755,000 110,000
</TABLE>
<PAGE>
61
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal year 1998
July 31 Oct. 31 Jan. 31 Apr. 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Product sales $ 14,151 $ 15,730 $ 14,835 $ 17,493
Contract revenue 2,138 2,432 2,158 2,146
Total revenue 16,289 18,162 16,993 19,639
Cost of sales 8,819 9,756 8,657 10,942
Gross Profit 7,470 8,406 8,336 8,697
Research and development
expense 3,066 3,278 3,628 3,365
Net income 692 991 1,197 1,391
Net income per share:
Basic .12 .17 .18 .20
Diluted .11 .15 .16 .18
<CAPTION>
Fiscal year 1997
July 31 Oct. 31 Jan. 31 Apr. 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Product sales $ 14,179 $ 14,014 $ 14,765 $ 15,479
Contract revenue 970 633 294 1,495
Total revenue 15,149 14,647 15,059 16,974
Cost of sales 9,109 8,636 9,183 10,414
Gross Profit 6,040 6,011 5,876 6,560
Research and development
expense 2,284 2,087 1,784 2,325
Net income 567 495 623 959
Net income per share:
Basic .10 .09 .11 .17
Diluted .09 .08 .10 .15
</TABLE>
16. OTHER MATTERS
In July 1998, the Company became aware of a fourth quarter 1997
transaction that could be in violation of certain U.S. Government export
regulations. In July 1997, the Company became aware of a similar transaction
which also occurred in the fourth quarter of 1997. In both cases, the
Company immediately engaged legal counsel to investigate the occurrences,
assess whether a violation occurred and advise whether disclosure should be
made to the appropriate governmental authorities. Following discovery of the
first fourth quarter 1997 transaction, the Company adopted a compliance
policy which includes compliance with export licensing and trade sanctions,
and has taken steps to make employees aware of export regulations. Also, the
first transaction was disclosed to the appropriate governmental authorities
in August of 1997.
Currently, there are no charges of wrong doing, any pending government
investigation of the Company's export activities or any other response from
the governmental authorities to the Company's prior disclosure. It is the
opinion of the Company that as a result of its disclosure of the facts to the
appropriate authorities in both cases, and in light of the facts that the
products sold were non-sensitive in nature and that the Company has installed
policies and procedures to prevent future violations of export regulations,
an ultimate settlement with the government should not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows. However, until the matter is settled with the government, the amount
of fines, if any, or other sanctions that may be imposed cannot be reasonably
estimated.
<PAGE>
62
IMPCO TECHNOLOGIES, INC.
SCHEDULE II - VALUATION ACCOUNTS
<TABLE>
<CAPTION>
Additions
charged
Balance at (credited) Write-offs Balance
beginning to costs and and other at end of
of period expenses adjustments period
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
for the years ended:
April 30, 1998 $288,111 $119,390 ($92,707) $314,794
April 30, 1997 165,322 157,288 (34,499) 288,111
April 30, 1996 153,802 13,000 (1,480) 165,322
Inventory valuation reserve
for the years ended:
April 30, 1998 837,718 235,865 (298,851) 774,732
April 30, 1997 610,515 384,829 (157,626) 837,718
April 30, 1996 1,280,000 237,151 (906,636) 610,515
Warranty reserve
for the years ended:
April 30, 1998 275,761 219,812 (194,383) 301,190
April 30, 1997 469,639 222,121 (416,000) 275,760
April 30, 1996 217,123 627,978 (375,462) 469,639
Product liability reserve
for the years ended:
April 30, 1998 91,935 - (42,944) 48,991
April 30, 1997 156,848 10,793 (75,705) 91,935
April 30, 1996 234,489 - (77,641) 156,848
</TABLE>
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULLET-TENANT BUILDINGS)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only
August 18, 1997, is made by and between KLIEG INVESTMENTS, FAMILY LIMITED
PARTNERSHIP ("Lessor") and IMPCO TECHNOLOGIES, INC., A DELAWARE CORPORATION
("Lessee").
(collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 17872 CARTWRIGHT ROAD, IRVINE, located in the County of ORANGE, State
of CALIFORNIA, and generally described as (describe briefly the nature of the
property, and, if applicable, the "Project", if the property is located within a
project) AN APPROXIMATE 79,150 SQUARE FOOT INDUSTRIAL BUILDING AND THE LEGAL
PARCEL OF LAND ON WHICH IT IS SITUATED. ("Premises"). (See also Paragraph 2)
1.3 Term: SEVEN (7) years and 0 months ("Original Term") commencing
August 18, 1997 ("Commitment Date") and ending August 17, 2004 ("Expiration
Date"). (See also Paragraph 3)
1.4 Early Possession: N/A ("Early Possession Date"). (See also
Paragraphs 3.2 and 3.3)
1.5 Base Rent: $34,826.00 per month ("Base Rent"), payable on the FIRST
(1st) day of each month commencing UPON LEASE EXECUTION SEE ADDENDUM (See also
Paragraph 4) _ if this box is checked, there are provisions in this Lease for
the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $15,727.87 a Base Rent for the period
August 15, 1997 THROUGH AUGUST 31, 1997.
1.7 Security Deposit: $34,826.00 ("Security Deposit"). (See also
Paragraph 5)
1.8 Agreed Use: MANUFACTURING, DISTRIBUTION, AND OFFICE ADMINISTRATION
Lessor. (See also Paragraph 6)
1.9 Insuring Party. Is the "Insuring Party" unless otherwise stated
herein. (See also Paragraph 8)
1.10 Real Estate Brokers: (See also Paragraph 15) SEE ADDENDUM
(a) Representation: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction (check
applicable boxes):
THE SEELEY COMPANY - MICHAEL HARTEL represents Lessor exclusively ("Lessor's
Broker");
CB COMMERCIAL - BRENT CARROLL represents Lessee exclusively ("Lessee's
Broker"); or
N/A represents both Lessor and Lessee ("Dual Agency").
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"VOIDED PARAGRAPH"
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See also Paragraph 37)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of paragraphs 51 through 68 and Exhibits A and B, all of which
constitute a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may
have been used in calculating rental, is an approximation which the Parties
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual size is more or less.
"VOIDED PARAGRAPH"
2.2 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("Applicable Requirements") in
effect on the Start Date. Said warranty does not apply to the use to which
Lessee will put the Premises or to any Alterations or Utility Installations
(as defined in Paragraph 7.3(a)) made or to be made by Lessee. Note: Lessee
is responsible for determining whether or not the zoning is appropriate for
Lessee's intended use, and acknowledges that past uses of the Premises may no
longer be allowed. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided, promptly after receipt of written notice
from Lessee setting forth with Specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Start Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense. If the
Applicable Requirements are hereafter changed (as opposed to being in
existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so
as to require during the term of this Lease the construction of an addition
to or an alteration of the Building, the redemption of any Hazardous
Substance, or the reinforcement or other physical modification of the
Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost
of such work as follows:
(a) Subject to Paragraph 2.2(c) below, if such Capital Expenditures are
required as a result of the specific and unique use of the Premises by Lessee as
compared with uses by tenants in general, Lessee shall be fully responsible for
the cost thereof, provided, however that if such Capital Expenditure is required
during the last two (2) years of this Lease and the cost thereof exceeds six (6)
months Base Rent, Lessee may instead terminate this Lease unless Lessor
notifies Lessee, in writing, within ten (10) days after receipt of Lessee's
termination notice that Lessor has elected to pay the difference between the
actual cost thereof and the amount equal to six (6) months Base Rent. If
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Lessee elects termination, Lessee shall immediately cease the use of the
Premises which requires such Capital Expenditure and deliver to Lessor
written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier
than the last day that Lessee could legally utilize the Premises without
commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation
to pay for such costs pursuant to the provisions of Paragraph 7.1(c);
provided, however, that if such Capital Expenditure is required during the
last two years of this Lease and provided that such Capital Expenditure does
not exceed the amount of three (3) months Base Rent then payable, or if
Lessor reasonably determines that it is not economically feasible to pay its
share thereof, Lessor shall have the opinion to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies
Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If
Lessor does not elect to terminate, and fails to tender its share of any such
Capital Expenditure, Lessee may advance such funds and deduct same, with
interest, from Rent until Lessor's share of such costs have been fully paid.
If Lessee is unable to finance Lessor's share, or if the balance of the Rent
due and payable for the remainder of this Lease is not sufficient to fully
reimburse Lessee on an offset basis, Lessee shall have the right to terminate
this Lease upon thirty (30) days written notice to Lessor. SEE ADDENDUM
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered
by Lessee as a result of an actual or proposed changed in use, changed in
intensity of use, or modification to the Premises made by Lessee then, and in
the event, Lessee shall be fully responsible for the cost thereof, and Lessee
shall not have any right to terminate the Lease.
2.4 Acknowledgments. Lease acknowledgments that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements), and their suitability for Lessee's intended
use, (b) Lessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's
agents, nor any Broker has made any oral or written representations or
warranties with respect to said matters other than as set forth in this
Lease. In addition, Lessor acknowledges that: (a) Broker has made no
representations, promises or warranties concerning Lessee's ability to honor
the Lease or suitability to occupy the Premises, and (b) it is Lessor's sole
responsibility to investigate the financial capability and/or suitability of
all proposed tenants.
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2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including but not limited to the obligations to pay Real Property
Taxes and insurance premiums and to maintain the Premises) shall, however, be
in effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 Delay In Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is no delivered within
sixty (60) days after the Commencement Date, Lessee may, at its option, by
notice in writing within ten (10) days after the end of such sixty (60) day
period, cancel this Lease, in which event the Parties shall be discharged
from all obligations thereunder. If such written notice is not received by
Lessor within said ten (10) day period, Lessee's right to cancel shall
terminate. Except as otherwise provided, if possession is not tendered to
Lessee by the Start Date and Lessee does not terminate this Lease, as
aforesaid, any period of rent abatement that Lessee would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts or omissions of
Lessee. If possession of the Premises is not delivered within four (4)
months after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 Lessee Compliance. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5). Pending
delivery of such evidence, Lessee shall be required to perform all of its
obligations under this Lease from and after the Start Date, including the
payment of Rent, notwithstanding Lessor's election to withhold possession
pending receipt of such evidence of insurance. Further, if Lessee is
required to perform any other conditions prior to or concurrent with the
Start Date, the Start Date shall occur but Lessor may elect to withhold
possession until such conditions are satisfied.
4. Rent.
4.1 Rent Defined. All monitory obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be
("Rent").
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4.2 Payment. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction
(except as specifically permitted in this Lease), on or before the day on
which it is due. Rent for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual
number of days of said month. Payment of Rent shall be made to Lessor at its
address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less
than the amount then due shall not be a waiver or Lessor's rights to the
balance of such Rent, regardless of Lessor's endorsement of any check so
stating.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Lessor or to
reimburse or compensate Lessor for any liability, expense, loss or damage
which Lessor may suffer or incur by reason thereof. If Lessor uses or
applies all or any portion of said Security Deposit, Lessee shall within ten
(10) days after written request therefor deposit moneys with Lessor
sufficient to restore said Security Deposit to the full amount required by
this Lease. If the Base Rent increases during the term of this Lease, Lessee
shall, upon written request from Lessor, deposit additional moneys with
Lessor so that the total amount of the Security Deposit shall at all times
bear the same proportion to the increased Base Rent as the initial Security
Deposit bore to the initial Base Rent. Should the Agreed Use be amend to
accommodate a material change in the business of Lessee or to accommodate a
sublease or assignee, Lessor shall have the right to increase the Security
Deposit to the extent necessary, in Lessor's reasonable judgment, to account
for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and
following such change the financial condition of Lessee is, in Lessor's
Reasonable judgment, significantly reduced, Lessee shall deposit such
additional moneys with Lessor as shall be sufficient to cause the Security
Deposit to be at a commercially reasonable level based on said change in
financial condition. Lessor shall not be required to keep the Security
Deposit separate from its general accounts. Within fourteen (14) days after
the expiration or termination of this Lease, if Lessor elects to apply the
Security Deposit only to unpaid Rent, and otherwise within thirty (30) days
after the Premises have been vacated pursuant to Paragraph 7.4(c) below,
Lessor shall return that portion of the Security Deposit not used or applied
by Lessor. No part of the Security Deposit shall be considered to be held in
trust, to bear interest or to be prepayment for any moneys to be paid under
this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for
no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that
disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold or delay its consent to
any written request for a modification of the Agreed Use, so long as the same
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will not impair the structural integrity of the improvements on the Premises
or the mechanical or electrical systems therein, is not significantly more
burdensome to the Premises. If Lessor elects to withhold consent, Lessor
shall within five (5) business days after such request give written
notification of same, which notice shall include as explanation of Lessor's
objections to the change in use.
6.2 Hazardous Substances. SEE ADDENDUM
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, or waste
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a bases for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "Reportable Use" shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of
a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements
requires that a notice be given to persons entering or occupying the Premises
of neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurance as Lessor reasonably deems necessary to protect itself, the public,
the Premises and/or environment against damage, contamination, injury and/or
liability, including, but not limited to, the installation (and removal on or
before Lease expiration or termination) of protective modifications (such as
concrete encasements) and/or increasing the Security Deposit.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and
provide Lessor with a copy of any report, notice, claim or other
documentation which it has concerning the presence of such Hazardous
Substance.
(c) Lessee Redemption. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
premises (including through
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the plumbing or sanitary sewer system) and shall promptly, at Lessee's
expense, take all investigator and/or remedial action reasonably recommended,
whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of the
Premises, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) Lessee Indemnification. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and lessor, if any, harmless from and
against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys and consultants fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
(provided, however, that Lessee shall have no liability under this Lease with
respect to underground migration of any Hazardous Substance under the Premises
from adjacent properties). Lessee's obligations shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation,
removal, redemption and/or abatement, and shall survive the expiration or
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.
(e) Lessor Indemnification. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including cost of
redemption, which existed as a result of Hazardous Substances on the Premises
prior to the Start Date or which are caused by the negligence or willful
misconduct of Lessor, its agents or employees. Lessor's obligations, as and
when required by the Applicable Requirements, shall include, but not be limited
to, the cost of investigation, removal, redemption, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or redemption measures required by
governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
redemption measure is required as a result of Lessee's use (including
"Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate
fully in any such activities at the request of Lessor, including allowing Lessor
and Lessor's agents to have reasonable access to the Premises at reasonable
times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) Lessor Termination Option. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and redemption
thereof required by the Applicable
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Requirements and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor
may, at Lessor's option, either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect,
or (ii) if the estimated cost to remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $10,000, whichever is greater, given
written notice to Lessee, within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days
following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within ten (10) days thereafter, give written
notice to Lessor of Lessee's commitment to pay the amount by which the cost
of the redemption of such Hazardous Substance Condition exceeds an amount
equal to twelve (12) times the then monthly Base Rent or $10,000, whichever
is greater. Lessee shall provide Lessor with said funds of satisfactory
assurance thereof within thirty (30) days following such commitment. In such
event, this Lease shall continue in full force and effect, and Lessor shall
precede to make such redemption as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and
provide the required funds or assurance thereof within the time provided,
this Lease shall terminate as of the date specified in Lessor's notice of
termination.
6.3 Lessee's Compliance with Applicable Requirements. Except as otherwise
provided in the this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the reasonable requirements of any applicable fire insurance
underwriter or rating bureau, and the reasonable commendations of Lessor's
engineers and/or consultants which relate in any manner to the Premises, without
regard to whether said requirements are now in effect or become effective after
the Start Date. Lessee shall, within ten (10) days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other documents,
and other information evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving the failure of Lessee or the Premises to comply with any Applicable
Requirements.
6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times
after reasonable prior notice for the purpose of inspecting the condition of the
Premises and for verifying compliance by Lessee with this Lease. The cost of
any such inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such case,
Lessee shall upon request reimburse Lessor for the cost of such inspections, so
long as such inspection is reasonably related to the violation or contamination.
7. Maintenance; Repairs, Utilities Installations; Trade Fixtures and
Alterations.
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7.1 Lessee's Obligations.
(a) In General. Subject to the provisions of Paragraph 2.2
(Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2
(Lessor's Obligations), 9 (Damage or Distraction), and 14 (Condemnation),
Lessee shall, at Lessee's sole expense, keep the Premises, Utility
Installations, and Alterations in good order, condition and repair (whether
or not the portion of the Premises requiring repairs, of the means of
repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of such portion of the Premises),
including, but not limited to, all equipment or facilities, such as plumbing,
heating, ventilating, air-conditioning, electrical, lighting facilities,
boilers, presser vessels, fire protection system, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining
walls, signs, sidewalks and parkways located in, on, or adjacent to the
Premises. Lessee, in keeping the Premises in good odor, condition and
repair, shall exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts required
by Paragraph 7.1(b) below. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
building.
(b) Service Contracts. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced the maintenance
of the following equipment and improvements. If any, if and when installed on
the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire
extinguishing system, including fire alarm and/or smoke detection, (iv)
landscaping and irrigation systems, and (v) roof covering and drains.
(c) Replacement. Subject to Lessee's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date of which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamorized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
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7.2 Lessor's Obligations. Subject to the previous of Paragraph 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Distraction) and 14 (Condemnation),
it is intended by the Parties hereto that Lessor have no obligation, in any
manner whatsoever, to repair and maintain the Premises, or the equipment
therein, all which obligations are intended to be that of the Lessee. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term:
"Alterations" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not owned by
Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Alterations and Utility Installations
to the interior of the Premises (excluding the roof) without such consent but
upon notice to Lessor, as long as they are not visible from the outside, do not
involve puncturing, relocating or removing the roof or any existing walls, and
the cumulative cost thereof during this Lease as extended does not exceed
$50,000 in the aggregate or $10,000 in any one year.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance with
all conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which cost an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alterations or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notice of non-responsibility. If Lessee shall contest the
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validity of any such lien, claim, or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof. If Lessor shall require, Lessee
shall furnish a surety bond in an amount equal to one and one-half times the
amount of such contested lien, claim or demand, indemnifying Lessor against
liability for the same. If Lessor elects to participate in any such action,
Lessee shall pay Lessor's attorneys fees and cost.
7.4 Ownership; Removal; Surrender; and Restoration. See Addendum
(a) Ownership. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) Removal. Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. Prior to the installation of same, Lessee may inquire of Lessor
whether Lessor will require removal of such items by Lessee by the expiration or
termination of this Lease, and Lessor shall notify Lessee within five (5)
business days of Lessee's inquiry. Lessor may require the removal at any time
of all or any part of any Lessee Owned Alterations or Utility Installations made
without the required consent.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all of the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wear and tear excepted, "Ordinary
wear and tear" shall not include any damage or deterioration that would have
been prevented by good maintenance practice. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee
Owned Alterations and/or Utility Installations, furnishing, and equipment as
well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or redemption of any soil, material or groundwater
contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and
shall be removed by Lessee. The failure by Lessee to timely vacate the Premises
pursuant to this Paragraph 7.4(c) without the express written consent of Lessor
shall constitute a holdover under the provisions of Paragraph 26 below.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2 (b) in excess of $2,000.00 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lessee term shall be prorated to correspond to the Lease term.
8.2 Liability insurance.
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(a) Carried by Lessee. Lessee shall obtain and keep in force a
Commercial General Liability Policy of insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant therein. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "Additional insured-Managers or Lessors of Premises
Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any inter-insured exclusions as between insured parsons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's of any obligation
hereunder. All insurance carried by Lessee shall be primary to and not
contributory with any similar insurance carried by lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor, Lessor shall maintain liability insurance as
described in Paragraph 8.2(a) in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be names as an additional
insured therein.
8.3 Property insurance - Building improvements and Rental Value.
(a) Building and improvements. The insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
Lessor, any groundless, and to any Lender(s) insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the insuring Party,
however, Lessee Owned Alterations and Utility and Utility Installations, Trade
Fixtures, and Lessee's personal property shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or Policies shall insure against all risks
of direct physical loss of any Applicable Requirements requiring the upgrading,
demolition, reconstruction or replacement of any position of the Premises as the
result and inflation guard protection casing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted US
Department of Labor Consumer Price index for all Urban Consumers Price Index for
all Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible classes, the deductible amount shall
not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an insured loss.
(b) Rental Value. The Insuring Lessor shall obtain and keep in force
a policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the even the Lease is terminated by reason of an insured
loss, the period of indemnity of such coverage shall be extended beyond the date
of the completion of repairs or replacement of the Premises, to provide for one
full year's loss of Tent from the date of any such loss. Said insurance shall
contain an agreed valuation provision in lieu of any coinsurance clause, and the
amount of coverage shall be adjusted annually to reflect the projected Rent
otherwise payable by Lessee's acts, omissions use or occupancy of the Premises.
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(c) Adjacent Premises. If the Premises are part of a larger
building, or of a group of a group buildings owned by Lessor, which are adjacent
to the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
8.4 Lessee's Property/Business interruption insurance.
(a) Property Damage. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee
Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures, Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with
written evidence that such insurance is in force.
(b) Business Interruption. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) Adjacent Premises. If the Premises are part of a larger building,
or of a group of buildings owned by lessor which are adjacent to the Premises,
the Lessee shall pay for any increase in the premiums for the property insurance
of such building or buildings if said increase is caused by Lessee's acts,
omission, use or occupancy of the Premises.
8.5 Insurance Policies. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in most current issue of "Best's
Insurance guide".or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidated the required
insurance polices. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies o such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such change the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. Such policies shall be for a term of
at least one year, or the length of the remaining term of the Lease, whichever
is less. If either Party shall fail to procure and maintain the insurance
required to be carried by it. the other Party may, but shall not be required to
procure and maintain the same.
8.6 Waiver of Subrogation.. With out affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damage against the other, for loss of or damage
to its property arising out of a incident to the parts required to be insured
against herein. The effect of such releases and waivers is not limited by
amount of insurance carried or required, or by any deductibles applicable
herein. The Parties agree to have their respective property damage
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insurance carriers waive any right to subrogation that such companies may
have against Lessor or Lessee, as the case may be, so long as the insurance
is not invalidated thereby.
8.7 Indemnity. Except to Lessor's negligence or willful misconduct,
Lessee shall indemnity, protect, defend and hold harmless the Premises, Lessor,
and its agents. Lessor's master or ground lessor, partners and Lenders, from
and against any and all claims, loss of rents and/or occupancy of the Premises
by Lessee. If any action of proceeding is brought against Lessor by reason of
any of the foregoing maters, Lessee shall upon notice defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to defended or indemnified.
8.8 Exemption of Lessor from Liability, Except for Lessor's negligence or
willful misconduct, Lessor shall not be liable for injury or damage to the
person or goods, wares, merchandise or other property of Lessee, Lessor's
employees, contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wire, appliances,
plumbing, HVAC or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Premises or upon other
portions of Building of which the Premises are a part, or from other sources of
places. Lessor shall not be liable for any damages arising from any neglect of
any other tenant of Lessor.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in six (6) months or less from
the date of he damage or destruction, Lessor shall notify Lessee in writing
within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired in six (6) months or less
from the date of the damage of destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as
to whether or not the damage in Partial or Total.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demotion, debris, removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall at Lessor's expense, repair such
damage (but no Lessee's
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Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon
as reasonably possible and this lease shall continue in full force and
effect; provided, however, that Lessee shall at Lessor's election, make the
repair of any damage or destruction the total cost to repair of which is
$10,000 or less, and, in such event, Lessor shall make any applicable
insurance proceeds available to Lessee on a reasonable basis for the purpose.
Notwithstanding the foregoing the foregoing, if the required insurance was
not in force as to the fact that, by reason of the unique nature of
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds to fully restore the unique aspect of the
Premises unless Lessee provides Lessor with funds to cover same, or adequate
assurance thereof within said ten (10) days period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and
this Lease shall remain in full force and effect. If such funds or assurance
are not received, Lessor may nevertheless elect by/written notice to Lessee
within ten (10) days thereafter to: (I) make such restoration and repair as
it commercially reasonable with Lessor paying shortage in proceeds, in which
case this Lease any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall be
subject in Paragraph 9.3, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be make available
for repairs if made by either Party.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expensive, in
which event this Lease shall continue in full force and effect, or (1)repair
such damage as soon as reasonably possible at Lessor's within thirty (30) days,
after receipt by Lessor of knowledge of the occurrence of such damage. Such
termination shall be effective ten (10) days after receipt of the termination
notice to give written notice to lessor of Lessee's commitment to pay for the
repair of such damage without reimbursement from Lessor. Lessee shall provide
Lessor with said funds or satisfactory assurance thereof within thirty (30)
days, after making such commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such repairs as soon as
reasonably possible after the required funds are available. If Lessee does not
make the required commitment this Lease shall terminate as of the date specified
in the termination notice.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction.. If the damage or destruction was caused by the
gross negligence or will full misconduct or Lessee, Lessor shall have the right
to recover Lessor's damages from Lessee's damages from Lessee, except as
provided in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month Base Rent, whether or not an insured loss either party may terminate
this lease effective sixty (60) days following the date of occurrence of such
damage by giving a written termination notice to the other within thirty (30
days after the date of occurrence of such damage.
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Notwithstanding the foregoing, If Lessee at that time has an execrable option
to extend this Lease or to purchase the Premises, then Lessee may preserve
this Lease by, (a) exercising such option and (b) providing Lessor with any
shortage in insurance proceeds (or adequate notice purporting to terminate
the Lessee, or (I) the day prior to the date which is ten days after Lessee's
receipt of Lessor's written at Lessor's commercially reasonable expense,
repair such damage as seasonably possible and this lease shall continue in
full force and effect. If Lessee fails to exercise such option and provide
such funds or assurance during such period, then this lease shall terminate
on the date specified in the termination notice and Lessee's option shall be
extinguished.
9.6 Abatement of Rent: Lessee's; Lessee's Remedies.
(a) Abatement. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, redemption or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but,
not to exceed the proceeds liability for any such damage, destruction,
redemption, repair of restoration except as provided herein.
(b) Remedies. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within forty-five (45) days after such obligation shall come
]accrued, Lessee may, at any time prior to the commencement of such repair of
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice and repair or restoration is not commenced with thirty (30 days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within said thirty (30) days,
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced with in said thirty (30 days, this
Lease shall continue in full force and effect. "Commence" shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Termination-Advance Payments. Upon termination of this Lease
pursuant to Paragraph 6.2 (g) Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by
Lessee by Lessor. Lessor shall, in addition, return to Lessee so much of
Lessee's Security Deposit as has not been or is not then required to be used
by Lessor.
9.8 Waive Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination
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of his Lease and hereby waive the provisions of any present or future statute
to the extent inconsistent herewith.
10 Real Property Texas.
10.1 Definition of "Real Property Texas"(SEE ADDENDUM) as used herein,
"Real Property Taxes" shall include any form of assessment; improvement
estate, general, special, ordinary or extraordinary, or rental levy or tax
(other than inheritance, personal income or estate taxes) ; improvement bond;
and/or license fee imposed upon or levied against any legal or equitable
interest of Lessor in the Premises, Lessor's right to other income therefrom,
and/or Lessor's business of leasing, by authority having the direct or
indirect poser to tax and where the funds are generated with reference to the
Building address and where the proceeds so generated are to applied by the
city, county or other local taxing authority of a jurisdiction within which
the Premises are located. The term "Real Property Taxes" shall also include
any tax, fee, levy, assessment or change, or any increase therein, imposed by
reason of events occurring during the term of the Lease including but not
limited to, a change in the ownership of the Premise.
10.2
(a) Payment of Taxes. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of the Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10) days
prior to any delinquency date. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes
shall cover any period of the time prior to or after the expiration or
termination of this Lease, Lessee's share of such taxes shall be prorated to
cover only that portion of the tax bill applicable to the period that this
Lease is infect, and Lessor shall reimburse Lessee for any overpayment. If
Lessee shall fail to pay any required Real Property Taxes, Lessor shall have
the right to pay the same, and Lessee shall reimburse Lessor therefor upon
demand.
(b) Advance Payment. In the event Lessee incurs a late change on
the third missed Rent payment and all missed Rent thereafter, Lessor may at
Lessor's option, estimate the current Real Property Taxes, and require that
such taxes to paid in advance to Lessor by Lessee, with: (i)in a lump sum
amount equal to the installment due, at least twenty (20) days prior to the
applicable delinquency date, or (ii)monthly in advance with the payment of
the Base Rent. If Lessor elects to require payment monthly in advance
payment shall be an amount equal to the amount of the estimated installment
of taxes divided by the number of months remaining before the month in which
said installment becomes delinquent. When the actual funds needed to pay the
applicable taxes. If the amount collected by Lessor is insufficient to pay
such Real Property Taxed when due. Lessee may be intermingled with other
moneys of Lessor and shall not bear interest. If the event of Breach by
Lessor, be treated as an additional Security Deposit.
10.3 Joint Assessment. If the Premises are not separately assesses,
Lessee's liability shall be an equitable proportion of the Teal Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively
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determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information as may be reasonably
available.
10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency,
all Taxes assessed against and levied upon Lessee Owned Alteration, Utility
installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee. When possible, Lessee shall cause such property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of written statement.
11. furnishings, equipment and all personal property of Lessee. When
possible, Lessee shall cause such property to be assessed and billed
separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of written statement.
11. Utilities. Lessee shall pay for all water, gas, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all changes jointly metered.
12. Assignment and Subletting.
12.1 Lessor's consent Required
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or
sublet all or any part of Lessee's Interest in this Lease or in the Premises
without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of fifty
percent (50%) or more of the voting control of Lessee shall constitute a
change in control for this purposes.
(c) The involvement of Lessee of its assets in any transaction, or
series of transactions (by way of merger, acquisition, financing, transfer,
leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net worth of Lessee by an amount greater than
fifty percent(50%) of such New Worth as it was represented at the time of
execution of this Lease or at the time of the most recent assignment to which
Lessor has connected, or as it exists immediately prior to aid transactions
constituting such reduction, whichever was or is greater, shall be considered
an assignment of the Lease to which Lessor may withhold its consent. "Net
Worth of Lessee" shall mean the net worth of Lessee (excluding any
guarantors) established under generally accepted accounting principles.
(d) An assignment of subletting without consent shall, at Lessor
option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
lessor elects to treat such unproved assignment of subletting of noncurable
Breach, Lessor may either:(i) terminate this Lease or (ii) upon thirty
(30)days written notice. Increase the monthly Base Rent to one hundred ten
percent (110%) of the Base Rent then in effect. Further, in the event of
such
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Breach and rental adjustment, (i) the purchase price previously in effect,
and (ii) all fixed and non-fixed rental adjustments scheduled during the
reminder of the Lease term shall be increased to One Hundred Ten Percent
(110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment of subletting,
shall not: (i) be effective without the express written assumption by such
assignment or subleases of the obligations of Lessee under the lease (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligation
from any persons other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise in remedies for Lessee's Default or
Branch
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible
for the performance of Lessee's obligations under this Lease, including any
assignee, without first exhausting Lessor's remedies against any other person
or entity responsible therefore to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of the
proposed assignee or subleases, including but not limited to the intended use
and/or required modification of the Premises. If any Lessee agrees to
provide Lessor with such other or additional information and/or documentation
as may be reasonably requested.
(f) Any assignee of, or subleases under, this Lease shall by reason
of accepting such assignment or entering into such sublease, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by
Lessee during the term of said assignment or sublease, other than such
obligations as are contrary to or inconsistent with provision of an
assignment or sublease to which Lessor has specially consented to in writing.
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12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and conditions shall apply to any subletting by Lessee of all of any
part of the Premises and shall be deemed included in all subleases under this
Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all Lessee's interest
in all Rent payable on any sublease, and Lessor may collect such Rent and
apply same toward Lessee's obligations, Lessee may collect said Rent. Lessor
shall not, by reason of the foregoing and comply with any of Lessee's
obligations of such sublease. Lessee hereby irrevocably authorizes and
directs any such subleases, upon receipt of a written notice from Lessor
starting that a Branch exists in the performance of Lessee's obligations
under the Lease, to pay to Lessor all Rent due and to become due under the
Sublease. Sublease shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Branch exists, notwithstanding any claim form Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublease to attorney to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of
exercise of said option to the expiration of such sublease provided, however,
Lessor shall not liable for any prepaid rents or security deposit paid by
such sublessor or any prior Defaults or Breaches or such sub lessor.
(c) Any matter requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor.
(d) No Sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the Sublessee, who shall have the right to cure the Default of
Lessee, within the grace period, if any, specified in such notice. The
Sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default: Breach: Remedies.
13.1 Default Breach. a "Default" is defined as a failure by the Lessee
to comply with or perform any of the terms, covenants, conditions or rules
under the Lease. A "Breach" is defined as the occurrence of one or more of
the following Defaults, and the failure of Lessee to cure such Default with
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or
where the coverage of the property insurance described in Paragraph 8.3 is
jeopardized as a result, or without providing reasonable assurances to
minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor
or to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of five
(5) business days following written notice to Lessee.
(c) The failure by Lessee to provide (J) reasonable written
evidence of compliance with Applicable Require (ii) the service contracts,
(iii) the recession, of an unauthorized assignment or subletting, (iv)a
Tenancy Statement, (v) a requested subordination,
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(vi) evidence concerning any guaranty and/or Guarantor, (vii) any document
requested under Paragraph 42(easements), or (viii) any other documentation or
information which Lessor may reasonable require of Lessee under the terms of
this Lease, where any such failure continues for a period of twenty (20) days
following notice to Lessee.
(d) A Default by Lessee as to terms, convent, conditions or
provisions of the this lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraph 13.1 (a), (b), or (c), above, where
such Default continues for a period of thirty (30)days after written notice;
however, that if the nature of Lessee's Default is such that more than thirty
(30)days are reasonably required for its cure, then it shall not be deemed to be
a Breach if Lessee commerce such cure within thirty (30)day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (1) the making
of any general arrangement or assignment for the benefit of creditors:(ii)
becoming a "debtor" as defined in 11 U.S..C.~101 or any successor statute
thereto (unless, in the case of a petition filled against Lessee, the same in
dismissed within sixty (60) days; (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located
at the Premises or of Lessee's interest in this Lease, where such seizure is
not discharge within thirty (30) days; provided, however, in the event that
any provision of this subparagraph (e) is contrary to any applicable law,
such provision shall be of no force or effect, and not affect the validity of
the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (1)the death of a Guarantor. (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) guarantor's becoming insolvent or the
subject of a bankruptcy filling, (iv) a Guarantor's refusal to honor the
guaranty or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and the
Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice). Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental license,
permits or approvals. The costs and expenses of any such performance by
Lessor shall be due and payable by Lessee upon receipt of invoice therefor.
If any check given to Lessor by Lessee shall not be honored by the bank upon
which it is drawn, Lessor at its option may require all future payments to
made by Lessee to be by cashier's check. In the event of a Broach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which, case this Lessee shall terminate and Lessee's shall
immediately surrender
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possession to Lessor. In such event Lessor shall be entitled to recover from
Lessee: (I) the unpaid Rent which had been earned at the time of
termination; (i) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of resetting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexplored term of this Lease. The worth
at the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount
at the discount rate of the Federal Reserve Bank of the District within which
the Premises are located at the time of award plus one percent (1%). Efforts
by Lessor to mitigate damages causes by Lessee's Branch of this Lease shall
not waive Lessor's right to recover damages under Paragraph 12. If
termination of this Lease is obtained through the provisional remedy of
unlawful detained, Lessor shall have the right to recover in such proceeding
any unpaid Rent and damages as are recoverable therein, or Lessor may reserve
may reserve the right to recover damages under Paragraph 12. If termination
of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1
was not previously given, a notice to pay rent or quit, or to perform or quit
given to Lessee under the unlawful detainer statute shall run concurrently,
and the failure of Lessee to cure the Default within the greater of the
Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease to remedies provided for in this Lease and/or said statute.
(b) Continue the Lease and Lessee's right to possession and recover
in Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to
relate, and/or the appointment of a receiver to protect the Lessor's
interests, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available under the
laws of judicial decisions of the state wherein the Premises are located.
The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring during the
term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture. Any agreement for free or abated rent or
other changes, or for the giving or paying by Lessor to or for Lessee o any
cash or other bonus, inducement or consideration for Lessee's entering into
this Lease all of which concessions are hereinafter referred to as
"inducement Provisions", shall be deemed
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conditioned upon Lessee's full and faithful performance of all the terms,
covenants and conditions of this Lease. Upon Breach of this Lease by Lessee,
any rent, other change, bonus, inducement, or consideration therefore abated,
given or paid by Lessor under such an inducement Provision shall be
immediately due and payable by Lessor, notwithstanding any subsequent cure of
said Breach by Lessees. The acceptance by Lessor of rent or cure of the
Breach which initiated the operation of this paragraph shall not be deemed a
waiver by Lessor on a pro-rate basis based upon the ratio of the time
remaining in the initial term of the Lease to the then expired portion of the
Lease. (of the provision of this paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 Late charges. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor in incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to processing and accounting charges,
and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within five (5) days
after such amount shall be due then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a fair and reasonable estimate of the cots
Lessor will occur by reason of such late payment. Acceptance of such late
charge by Lessor shall in no event constitute a waiver of Lessee's Default or
Breach with respect to such overdue amount nor prevent the exercise of the
other rights and remedies granted hereunder. In the event that a late charge
a payable hereunder, whether or not collect, for three (3) consecutive
installments of Base Rent, then notwithstanding any provision of this lease
to the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 Interest. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor when due as to scheduled payments (such
as Base Rent) or within thirty (30) days following the date on which it was due
for non-scheduled payment shall bear interest for the date when due, as to
scheduled payments, or the thirty-first (31) day after it was due as to
non-scheduled payment. The interest ("interest") charged shall be equal to
the prime rate reported in the Wall Street Journal as published closest prior
to the date when due plus four percent (4%), but shall not exceed the maximum
rate more than once in any twelve (12) month period, or twice of the entire
Term of the Lease, (including any extensions) allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph
13.4.
13.6 Breach by Lessor.
(a) Notice of Breach. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For Purpose of this Paragraph, a
reasonable time shall in no event less than thirty (30) days after receipt by
Lessor, and any Lender whose name and address shall
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have been performed; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days are reasonable required
for its performance, then Lessor shall not be in breach if performance is
commenced with such thirty (30) day period and thereafter diligently pursued
to completion.
(b) Performance by Lessor shall not be deemed in breach of this Lease
nor Lender cures said breach within thirty (30) days after receipt of said
notice, or if having commenced said cure they do not diligently pursue it to
completion, then Lessee may elect to cure said breach at Lessee's expense and
off set from Rent an amount equal to the greater of one month's Base Rent or
the Security Deposit, and to pay a excess such expense under protest,
reserving Lessee's right to reimbursement from Lessor. Lessee shall document
the cost of said cure and supply said documentation to Lessor.
14. Condemnation. If the Premises or any portion thereof under the power of
eminent domain or sold under the threat of the exercise of said power
(collectively "Condemnation"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title possession,
whichever first occurs. If more than ten percent (10%) of any building
portion of the premises, or more than twenty-five percent (25%) of the land
area portion of the premises not occupied by any building, is taken by
Combination, Lessee may, at Lessee authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease, shall remain in full force and effect as to the portion of the
Premises remain, except that the Base Rent shall be reduced in proportion to
the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the leasehold, the value of the part taken, or for
severance damages; provided however, that Lessee shall be entitled to any
compensation for Lessee's relocation expenses, loss of business goodwill
and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In
the event that this Lease is not terminated by reason of the Condemnation,
Lessor shall repair any damage to the Premises caused by such Condemnation.
16. Estoppel Certificates,
(a) Each Party (as "Responding Party"-See Addendum) shall within five
(5) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in
writing in form similar to the then most current "Estoppel Certificate" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
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(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate stating that (i) the Lease is in full force and effect
without modification except as may be represented by the Requesting Party.
(ii) there are no uncured defaults in the Requesting Party's performance, and
(iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrances may rely upon
the Requesting Party Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any thereof, Lessee and all Guarantors shall deliver to any Potential lender
or purchaser designated by Lessor such current financial statements as may be
reasonable required by such lender of purchaser, including but not limited to
Lessee's financial statements for past three (3) years. Which statements
shall be audited if it is Lessee's custom to do so, or otherwise, such
financial statements shall be certified as accurate by Tenant's President or
CFO. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for purpose herein
set forth.
17. Definition of Lessor. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or
if this a sublease, of the Lessee's interest in the prior lease. In the
event of transfer of Lessor's title or interest in the Premises of the Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor. Except as provided in Paragraph 15,
upon such transfer or assignment and delivery of the Security Deposit, as
aforesaid, the prior Lessor shall be relieved of all liability with respect
to the obligations and/or covenants under this Lease thereafter to be
Performed by Lessor. Subject to the foregoing the obligations and/or
covenants in this Lease to be performed by Lessor shall be binding only upon
the Lessor or herin active defined. Notwithstanding the above, and subject to
the provisions of Paragraph 20 below, the original Lessor under this Lease,
and all subsequent holders of the Lessor's interest in Lease shall remain
liable and responsible with regard to the potential duties and liabilities of
Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Days Unless otherwise specially indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. Limitation on Liability. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute
personal obligations of Lessor, the individual partners of Lessor or is its
or their individual partners, directors, officers or shareholders, and Lessee
shall look to the Premises, and to no other assets of Lessor, for the
satisfaction of any liability of Lessor with respect to this Lessee, and
shall not seek
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recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholder, or any of their
personal assets for such satisfaction.
21. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
22. No Prior or Other Agreement Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior to contemporaneous agreement or understanding shall be
effective Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality character and financial responsibility of the other Party to
this Lease and as to the nature, quality, and character and financial
responsibility of the other Party to this Lease and as to the nature, quality
and character of the Premises. Brokers have no responsibility with respect
thereto or with respect to any default or breach hereof by either Party. The
Liability (including court costs and Attorneys' fees), of any Broker with
respect to negotiation, execution, delivery or performance by either Lessor
or Lessee under this Lease or any amendment or modification hereto shall be
limited to an amount to an amount up to the fee received by such Broker
pursuant to this Lease; provided, however, that the foregoing limitation on
each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
courier) be sent by certified or registered mail or US Postal Service Express
Main, with postage prepaid, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to
a party's signature on this Lease shall be that Party's address for delivery
or mailing of notices. Either Party may by written notice to the other
specify a different address for notice on the business day. A copy of
notices of Lessor shall be concurrently transmitted to such party of parties
of such addresses as Lessor may from time to time hereafter designate in
writing.
23.2 Date of Notice. Any notice sent by registered of certified main
receipt requested shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown on the postmark thereon.
Express mail or overnight courier that guarantee next delivery shall be
deemed after delivery of the same to the Postal Service or courier. If
notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. Waivers. No waiver by Lessor of Default or Breach of any term,
convenient or condition hereof by Lessee, shall be deemed a waiver of any
other term, covenant or condition hereof, or of any subsequent Default or
Breach by Lessee of the same or of any other term, covenant or condition
hereof. Lessor's consent, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Lessor's consent to, or approval of,
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any subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor
on account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit
of such payment.
25. Recording. Either Lessor or Lessee shall upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable therein.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any thereof beyond the expiration of termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increase to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained
herein shall be construed as consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election herunder shall be, wherever
possible, be cumulative with all other remedies at law or in equity
28. Covenants and Conditions; Construction of Agreement. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the
plural and vice versa. This Lease shall not be construed as if prepared by
one of the parties, but rather according to its fair meaning as a whole, as
if both parties had prepared it.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of he State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any option granted hereby shall be
subject and a subordinate to any ground lease, mortgage, deed of trust or
other hypothecation or security device (Collectively, "Security Device"), now
or hereafter place upon the Premises, to any and all advance made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Lessor under this Lease accruing
prior to taking title to the Premises. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
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Device by give written notice thereof to Lessee, whereupon this Lease and
such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 Attornment Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to althorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security, and that
in the event of such foreclosure, such new owner shall not; (i) be liable for
any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets of defenses
which Lessee might have against any prior Lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance, With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement ") from the Lender which
Non-Disturbance Agreement provides that Lessee's possession of the Premises,
and this Lease, including any options to extend the term hereof, will not be
disturbed so long as Lessee is not in Breach hereof and attires to the record
owner of the Premises. Further, with sixty (60) days after the executive of
this Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security Device
which is secured by the Premises. In the event that Lessor is unable to
provided the Non-Disturbance Agreement within said sixty (60) days, Lessee
may, at Lessee's option, directly contract Lessor's lender and attempt to
negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the executive of any further writings as may be
reasonably required to separately document any subordination, attornment
and/or Non-Disturbance Agreement provided for herein.
31. Attorney's Fees. If any Party brings an action of proceeding involving
the Premises to enforce the terms hereof or to declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term,
"Prevailing Party" shall included, without imitation, a Party who
substantially obtains or defeats to decision or judgment. The term,
"Prevailing Party" shall include, without imitation, a Party who
substantially obtains or defeats the relied sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party of its claim of defense. The attorney's' fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorney's fee reasonably incurred. In addition, Lessor
shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach.
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32. Lessor's Access; Showing Premises; Repairs. After reasonable prior
notice, Lessor's agents shall have the right to enter the Premises an any
time, the case of an emergency, and otherwise all reasonable times for the
purpose of showing the same to prospective purchasers, lenders, or lessees
during the last six (6) months of the Term, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem
necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the premises any
ordinary "For Sale" signs provided it is clear that only the Premises, is for
sale and not Lessee's business, Lessor may during the last six (6) months of
the term hereof place on the Premises any ordinary "For Lease" signs. Lessee
may at any time place or about the Premises any ordinary "For Sublease" sign.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's Prior written consent. Lessor
shall not be obligated to exercise any standard of reasonableness in
determining whether to permit an auction.
34. Signs Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however that Lessor may elect to continue any one
or all existing subtenants. Lessor's failure within ten (10) days following
any such event to elect to the contrary by written notice to the holder of
any such lesser interest, shall constitute Lessor's election to have such
interest.
36. Consents. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architect's,
attorney's and other consultants' fees) incurred in the consideration of or
response to, a request by Lessee for any Lessor consent, including but not
limited to consents to as assignment, a subletting or presence of use of a
Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and
supporting documentation therefor. Lessor's consent to a any act, assignment
or subletting shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may otherwise
specifically state in writing by Lessor at the time of such consent. The
failure to specify herein and particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such future
or other conditions as are then reasonable with reference to the particular
matter for which consent is being give. In the event that either Party
disagrees with any determination made by other hereunder and reasonably
requests the reasons or such determination, the determining party shall
furnish
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its reasons in writing and in reasonable detain within ten (10) days
following such request.
37. Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industry Real Estate
Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any,
Guaranty fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements,
(c) a Tenancy Statement, or (d) written confirmation that the guaranty is
still in effect.
38. Quiet Possession. Subject to payment by Lessee of the Rent and
performance of all of the convenants, conditions and provision on Lessee's
part to observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during he term hereof.
39. Options SEE ADDENDUM
39.1 Definition. ":Option" shall mean: (a) the right to extend the term
of renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first other to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of
Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee, and cannot as assigned or
exercised by anyone's other than said original Lessee and only while the
original Lessee is in full possession of the Premises, and if requested by
Lessor, with Lessor's certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised
unless the prior Options have been validly exercised
39.4 Effect of Default on Options.
(a) Lessee hall have no right to exercise an option: (I) during the
period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any rent is
unpaid (provided that notice thereof is given Lessee).(iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been
given three (3) or more notices of separate Default, whether or not
30
<PAGE>
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within an Option may be exercised shall not be
extended or enlarge by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or affect,
notwithstanding Lessee's due and timely exercise of the Option, if, after
such exercise and prior to the commencement of the extended term, (I) Lessees
fails to pay Rent for a period of thirty (30) days after such Rent becomes
due (without any necessity of Lessor to give notice thereof), (ii) Lessor
gives to Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of
the grounds and including the parking, loading and unloading of vehicles, and
that Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. Security Measures. Lessee hereby acknowledges hat the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invites and their property from the acts of third
parties.
42. Reservations. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, right and
declarations that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereto, the Parry whom the obligation to pay the money is asserted
shall have the right to make payment "under protest" and such payment shall
not be regarded as a voluntary payment and there shall survive the right on
the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said
Party to pay such sum or any part thereof said Party shall be entitled to
recover such sum or no much or so much thereof as it was not legally required
to pay.
31
<PAGE>
44. Authority. If either Party hereto is a corporation, trust, limited
company, partnership, or similar antity, each individual executing this Lease
on behalf of such entity represents and warrants that he or she is duty
authorized to execute and deliver this Lease on a its behalf. Each party
shall, with, thirty (30) days after request, deliver, deliver to the other
party satisfactory evidence of such authority.
45. Conflict. Any conflict between the printed previsions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. Other. Preparation of this Lease by either Party or their agent and
submission of same to the other Party and shall not be deemed an offer to
lease to the other Party. The Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary medications to this Lease as may be reasonably
requires's by a Lender connection with the obtaining of normal financing or
refinancing of the Premises.
48. Multiple Parties. If more than one person or entity is names herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. Mediation and Arbitration of Disputes. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease. (X is not attached to this Lease)
32
<PAGE>
[LOGO] BANK OF AMERICA AMENDMENT TO DOCUMENTS
- -------------------------------------------------------------------------------
AMENDMENT NO. TWO TO
BUSINESS LOAN AGREEMENT
This Amendment No. Two (the "Amendment") dated as of March 18th, 1998, is
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank")
and IMPCO TECHNOLOGIES, INC. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of October 7, 1997, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 Subparagraph (a) of Paragraph 1.3 of the Agreement is amended in
its entirety to read as follows:
"(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference
rate MINUS one-quarter (0.25) of one percentage point."
2.2 Paragraph 1.5 of the Agreement is amended in its entirety to
read as follows:
"1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based
on the Bank's Reference Rate, the Borrower may elect the
optional interest rates listed below for this Facility No. 1
during interest periods agreed to by the Bank and the Borrower.
The optional interest rates shall be subject to the terms and
conditions described later in this Agreement. Any principal
amount bearing interest at an optional rate under this Agreement
is referred to as a `Portion.' The following optional interest
rates are available:
(a) the Cayman Rate plus 1.50 percentage points.
(b) the LIBOR Rate plus 1.50 percentage points."
2.3 Subparagraph (b) of Paragraph 4.4 is amended in its entirety to
read as follows:
"(b) The Borrower will repay principal in installments on the
dates and in the amounts set forth on Exhibit A attached here to."
2.4 Paragraph 4.5 of the Agreement is amended in its entirety to
read as follows:
"4.5 OPTIONAL INTEREST RATES. Instead of the interest rate based
on the Bank's Reference Rate, the Borrower may elect the
optional interest rates listed below for this Facility No. 4
during interest periods agreed to by the Bank and the Borrower.
The optional interest rates shall be subject to the terms and
conditions described later in this Agreement. Any principal
amount bearing interest at an optional rate under this Agreement
is referred to as a `Portion.' The following optional interest
rates are available:
(a) the Cayman Rate plus 1.75 percentage points.
(b) the LIBOR Rate plus 1.75 percentage points."
<PAGE>
2.5 An Exhibit A is added to the Agreement as set forth on Exhibit A
attached here to.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION IMPCO TECHNOLOGIES, INC.
x /s/ Karim Teymourtache x /s/ Thomas M. Costales
- --------------------------------- --------------------------
By: KARIM TEYMOURTACHE, VICE PRESIDENT By: THOMAS M. COSTALES
Title: CFO
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
DUE DATE PAYMENT AMOUNT
-------- --------------
<S> <C>
March 5, 1998 $165,000
June 5, 1998 $165,000
September 8, 1998 $165,000
December 7, 1998 $165,000
March 5, 1999 $165,000
June 7, 1999 $165,000
September 7, 1999 $165,000
December 6, 1999 $165,000
March 6, 2000 $165,000
June 5, 2000 $165,000
September 5, 2000 $165,000
December 5, 2000 $165,000
March 5, 2001 $165,000
June 5, 2001 $165,000
September 5, 2001 $165,000
December 5, 2001 $165,000
March 5, 2002 $165,000
June 5, 2002 $165,000
September 5, 2002 $165,000
December 5, 2002 $165,000
</TABLE>
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION IMPCO TECHNOLOGIES, INC.
x /s/ Karim Teymourtache x /s/ Thomas M. Costales
- --------------------------------- --------------------------
By: KARIM TEYMOURTACHE, VICE PRESIDENT By: THOMAS M. COSTALES
Title: CFO
<PAGE>
BANK OF AMERICA AMENDMENT TO DOCUMENTS
- -------------------------------------------------------------------------------
AMENDMENT NO. THREE TO
BUSINESS LOAN AGREEMENT
This Amendment No. Three (the "Amendment") dated as of April 9, 1998,
is between Bank of America National Trust and Savings Association (the "Bank")
and IMPCO Technologies, Inc. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of October 7, 1997, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 Paragraph 4.2 of the Agreement is amended to read in its
entirety as follows
"4.2 AVAILABILITY PERIOD. The loan is available in two
disbursements from the Bank between the date of this Agreement
and August 31, 1998, unless the Borrower is in default. The
first disbursement must be for at lease Three Million Three
Hundred Thousand Dollars ($3,300,000) (the 'First
Disbursement'). The second disbursement must be for at least
Six Hundred Ninety-Two Five Hundred Twenty and 78/100 Dollars
($892,620.78) (the `Second Disbursement')."
2.2 Paragraph 4.4(b) of the Agreement is amended to
read in its entirety as follows:
"(b) The Borrower will repay principal as follows:
(i) The Borrower will repay principal of the First
Disbursement in 20 successive quarterly installments
of One Hundred Sixty-Five Thousand Dollars ($165,000)
starting March 5, 1998. On December 5, 2002, the
Borrower will repay the remaining principal balance
plus any interest then due under the First
Disbursement.
(ii) The Borrower will repay principal of the Second
Disbursement in 20 successive quarterly installments
of Thirty-Four Thousand Six Hundred Twenty-Six Dollars
($34,626) starting July 31, 1998. On April 30, 2003,
the Borrower will repay the remaining principal
balance plus any interest then due under the Second
Disbursement."
3. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that (a) there is
no event which is, or with notice or lapse of time or both would be a default
under the Agreement, (b) the representations and warranties in the Agreement
are true as of the date of this Amendment as if made on the date of this
Amendment, (c) this Amendment is within the Borrower's powers, has been duly
authorized, and does not conflict with any of the Borrower's organizational
papers, and (d) this Amendment does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
- 1 -
<PAGE>
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
National Trust and Savings Association IMPCO Technologies, Inc.
X /s/ Karim Teymouftache X /s/ Thomas M. Costales
---------------------------------- --------------------------------
By: Karim Teymouftache, Vice President By: Thomas M. Costales, Chief
Financial Officer
- 2 -
<PAGE>
Amsterdam, April 27, 1998
SUBJECT: CREDIT FACILITY
We are pleased to inform you that Bank of America National Trust and Savings
Association, acting through its Amsterdam branch (the "Bank"), is prepared
to make available a term loan, subject to the following terms and conditions:
BORROWER:
IMPCO Technologies B.V., established at Rijswijk, The Netherlands.
TYPE AND PURPOSE OF CREDIT:
A. 5 year Term Loan.
B. Instruments: Advances of 1,3,6 or 12 months tenors
C. Purpose: to finance the purchase/buyout of the 49% minority partner in
IMPCO Technologies B.V.
AMOUNT OF CREDIT:
USD 2,100,000 (United States Dollars Two Million One Hundred Thousand), or an
equivalent amount in freely convertible foreign currencies.
AVAILABILITY:
Immediately upon receipt of your written confirmation of acceptance of this
letter.
DRAWDOWN:
Latest May 31 1998
REPAYMENT:
20 equal quarterly installments of USD 105,000 (United States Dollars One
Hundred and Five Thousand), commencing August 31 1998.
Payments or reimbursements under this credit facility shall be made to the
Bank when due, without set-off or counterclaim, in the currency advanced,
free and clear of any deduction for any present or future reserves, fees or
taxes and agrees to pay any present or future reserves, fees or taxes or
charges with respect to such payments or reimbursements which may be imposed
by any government authority, except net income taxes imposed to the Bank by
any jurisdiction, and to pay to the Bank, at the time interest is paid, all
additional amounts which the Bank specifies as necessary to preserve the
after-tax yield that the Bank would have received if such reserves, fees or
taxes had not been imposed.
<PAGE>
EXPIRY DATE:
May 31 2003
INTEREST:
FOR ADVANCES IN DUTCH GUILDERS:
As advised by the Bank at time of request of drawing, a present Amsterdam
Interbank Offered Rate for the corresponding period of the advance, plus
1.50%. Interest is calculated on 365/360 days basis and is payable at
maturity of the advance or quarterly, whichever comes first.
FOR ADVANCES IN CONVERTIBLE CURRENCIES OTHER THAN DUTCH GUILDERS:
The rate of interest at which deposits in the amount and currency of the
advance and for the relevant interest period would be offered to Bank in the
interbank market plus 1.5%. Interest will be calculated on the basis
applicable for the currency in question (365/360 or 365/365) and will be
payable at maturity of the advance or quarterly, whichever comes first.
The obligation to pay the aforementioned reserves, fees, taxes and additional
amounts shall survive the payment in full of principal and interest under
this credit facility.
DEFAULT INTEREST:
If any sum due and payable by the Borrower is not paid when due, such sum
shall bear interest at a rate of 2% p.a. above the cost at which Bank can
fund itself in the applicable interbank market.
PREPAYMENTS:
The Borrower shall only be entitled to prepay any amount under this credit
facility with the prior written consent of the Bank and under the conditions
to be determined by the Bank.
Prepayments will be applied to the remaining installments in inverse order of
maturity.
Any costs incurred by the Bank in the re-deployment of the sums
prepaid to the maturity date of the advance will be for borrower's account.
EXPENSES:
The Borrower will pay to the Bank, immediately upon demand, all costs and
expenses, including legal fees, and the allocated costs of in-house counsel,
expended or incurred by the Bank in connection with the preparation,
negotiation, due diligence, closing, administration, including waivers and
amendments, and enforcement of this credit facility, including such waivers
and amendments, and any instruments or agreements required or executed in
connection with this credit facility.
COLLATERAL/SUPPORT:
An unconditional guarantee of IMPCO Technologies, Inc in a format acceptable
to the Bank.
<PAGE>
[LOGO]
CONDITIONS AND ADDITIONAL TERMS:
This credit commitment is further subject to the following terms and
conditions:
Financial and other reporting requirements:
Borrower shall submit to the Bank:
- - Within 210 days after the end of each financial year of the
Borrower, audited fiscal year-end financial statements;
- - Any additional information which the Bank may reasonably request
from time to time.
CROSS DEFAULT:
The unpaid balance of the loan shall be immediately due and payable in case
of any breach or default of IMPCO Technologies B.V. or IMPCO Technologies,
Inc with Bank or under any other agreement involving the borrowing of money
or the extension of credit under which Borrower or Guarantor may be obligated
as borrower or guarantor, if such default consists of the failure to pay any
indebtedness when due or if such default permits or causes the acceleration
of any indebtedness or the termination of any commitment to lend.
REGULATORY:
The availability of this credit facility is at all times subject to the
Bank's compliance with any and all restrictions, rules and regulations of
De Nederlandsche Bank N.V. (Central Bank) or any other applicable regulatory
authority.
PARI PASSU:
The Borrower represents and warrants that all rights of the Bank under this
credit facility shall at all times rank at least equally and ratably with
rights of other providers of similar credit facilities.
NEGATIVE PLEDGE: The Borrower shall not without the prior written consent of
the Bank create or permit, or undertake to create or permit any encumbrance
to subsist on all or any of its present or future assets.
ASSET SALES:
Bank has the right to create participations by other lenders for the whole or
part of its rights in respect to loans made to you under this credit
facility. Such participations may be created by assignment or other
contractual relations and may involve the transfer or assignment of such
loans from our books to the books of the participant(s). You agree to the
creation of participations in this way.
To enable Bank to create such participations, it may be necessary for Bank,
to disclose the terms of this credit facility letter, any notices delivered
pursuant to this credit facility letter and any other information which you
authorize us to disclose or which is publicly available.
The creation of such participations would have certain accounting
implications to Bank, which make it necessary for any amount which has been
or is to be advanced, to be repaid on the last day of its interest period.
However, Bank will treat it as having been repaid of the proceeds of that
re-advance and re-advanced for the next interest period. Consequently, unless
the credit facility for whatever reason is or fails to be repaid before or at
the end of a current interest period, no actual transfer of funds by you will
be called for.
<PAGE>
[LOGO]
GENERAL BANKING CONDITIONS:
Except as otherwise agreed, our relationship will be governed by the General
Banking Conditions as filed by the Dutch Bankers' Association at the
Registrar's Office of the District Court in Amsterdam, as such General
Banking Conditions may be amended from time to time.
By signing the attached copy of this letter, the Borrower declares to have
received the enclosed copy of the General Banking Conditions and to be
familiar with its contents.
APPLICABLE LAW AND FORUM:
Unless otherwise agreed upon for specific transactions, this credit facility
shall be governed by and construed in accordance with the laws of the
Netherlands. Any disputes arising in connection herewith shall be submitted
to the competent court in Amsterdam, provided that the Bank may seek
enforcement of the obligations of the Borrower hereunder through any other
competent court in any other jurisdiction.
ACCEPTANCE:
To evidence your acceptance of this term loan, kindly return the attached
copy of this letter, duly signed and dated.
If the Bank has not received these documents by May 15, 1998, this offer will
expire on that date. This credit facility shall be available upon receipt
by the Bank of the attached copy of this letter, duly signed.
Sincerely,
BANK OF AMERICA NT&SA ACCEPTED AND AGREED TO:
This 29th day of April, 1998
By: /s/ F.J.M. Meens By: /s/ R. Frings
------------------------- ----------------------
Name: F.J.M. Meens Name: R. Frings
Title: Vice President Title: MD.
By: /s/ Job R.H.M. van Luyken By:
------------------------- ----------------------
Name: Job R.H.M. van Luyken Name:
Title: Assistant Vice President Title:
Enclosure: General Banking Conditions
<PAGE>
63
EXHIBIT 22.1, IMPCO TECHNOLOGIES, INC. SUB OF THE CO
Exhibit 22.1
IMPCO TECHNOLOGIES, INC.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
<S> <C>
Fuel Injection Centers
of America, Inc. Washington
Canadian AirSensors, Inc. British Columbia, Canada
IMPCO Technologies, B.V. Holland
IMPCO Europe, B.V. Holland
IMPCO Technologies, Pty. Australia
Grupo I.M.P.C.O. Mexicano,
S. de R.L. de C.V. Mexico
IMPCO de Venezuela S. de R.L. Venezuela
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in (a) Amendment No. 3 to the
Registration Statement (Form S-3, No. 33-56610) pertaining to shares of
common stock IMPCO Technologies, Inc. and in the related Prospectus, (b)
Amendment No. 1 to the Registration Statement (Form S-8, No. 33-38649)
pertaining to the 1989 Incentive Stock Option Plan of IMPCO Technologies,
Inc. and in the related Prospectus, (c) the Registration Statement (Form S-8,
No. 33-72008) pertaining to the 1991 Executive Stock Option Plan of IMPCO
Technologies, Inc. and in the related Prospectus, (d) the Registration
Statement (Form S-3, No. 33-37035) pertaining to the 1996 Incentive Stock
Option Plan of IMPCO Technologies, Inc. and (e) the Registration Statement
(Form S-8, No. 33-62889) pertaining to the IMPCO Investment and Tax Savings
Plan, of our report dated June 30, 1998 except for Note 16, as to which the
date is July 27, 1998, with respect to the consolidated financial statements
and financial statement schedule of IMPCO Technologies, Inc. included in this
Annual Report (Form 10-K) for the year ended April 30, 1998.
/s/ Ernst & Young LLP
Long Beach, California
July 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<CASH> 2,617,869
<SECURITIES> 0
<RECEIVABLES> 14,528,000
<ALLOWANCES> 314,794
<INVENTORY> 17,928,911
<CURRENT-ASSETS> 37,398,949
<PP&E> 19,637,523
<DEPRECIATION> 10,613,052
<TOTAL-ASSETS> 57,292,408
<CURRENT-LIABILITIES> 11,417,191
<BONDS> 0
0
5,650,000
<COMMON> 7,092
<OTHER-SE> 28,555,259
<TOTAL-LIABILITY-AND-EQUITY> 57,292,408
<SALES> 62,209,310
<TOTAL-REVENUES> 71,082,864
<CGS> 38,173,943
<TOTAL-COSTS> 63,964,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 934,825
<INCOME-PRETAX> 6,183,135
<INCOME-TAX> 907,516
<INCOME-CONTINUING> 4,865,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,270,068
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.60
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> APR-30-1997 APR-30-1996
<PERIOD-END> APR-30-1997 APR-30-1996
<CASH> 1,975,903 811,148
<SECURITIES> 0 0
<RECEIVABLES> 11,456,539 9,792,356
<ALLOWANCES> 288,111 278,361
<INVENTORY> 14,184,252 11,438,002
<CURRENT-ASSETS> 29,903,638 24,578,326
<PP&E> 15,246,685 13,413,611
<DEPRECIATION> 8,026,594 6,935,878
<TOTAL-ASSETS> 47,113,090 37,727,887
<CURRENT-LIABILITIES> 11,655,620 9,265,581
<BONDS> 0 0
0 0
5,650,000 5,650,000
<COMMON> 5,815 5,655
<OTHER-SE> 16,407,293 13,600,367
<TOTAL-LIABILITY-AND-EQUITY> 47,113,090 37,727,887
<SALES> 58,436,508 48,487,480
<TOTAL-REVENUES> 61,828,036 51,574,709
<CGS> 37,341,704 32,011,253
<TOTAL-COSTS> 56,978,170 47,442,996
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,100,449 503,886
<INCOME-PRETAX> 3,749,417 3,627,827
<INCOME-TAX> 262,459 1,348,616
<INCOME-CONTINUING> 3,225,291 4,670,875
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,643,926 4,061,000
<EPS-PRIMARY> 0.46 0.72
<EPS-DILUTED> 0.43 0.64
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1998 APR-30-1997
<PERIOD-END> JAN-31-1998 OCT-31-1997 JUL-31-1997
<CASH> 964,120 1,571,101 2,851,311
<SECURITIES> 0 0 0
<RECEIVABLES> 10,846,053 9,118,014 10,025,086
<ALLOWANCES> 265,602 346,930 245,764
<INVENTORY> 17,664,204 15,120,749 15,059,097
<CURRENT-ASSETS> 31,350,195 27,719,093 30,139,372
<PP&E> 19,042,064 16,711,806 16,413,004
<DEPRECIATION> 10,122,070 9,206,373 8,763,824
<TOTAL-ASSETS> 51,268,862 44,239,036 47,355,963
<CURRENT-LIABILITIES> 11,166,842 9,438,788 11,094,406
<BONDS> 0 0 0
0 0 0
5,650,000 5,650,000 5,650,000
<COMMON> 7,036 5,984 5,815
<OTHER-SE> 27,198,871 18,566,832 16,855,318
<TOTAL-LIABILITY-AND-EQUITY> 51,268,862 44,239,036 47,355,963
<SALES> 44,716,184 29,880,881 14,151,086
<TOTAL-REVENUES> 51,444,821 34,451,586 16,289,323
<CGS> 27,232,314 18,574,808 8,819,156
<TOTAL-COSTS> 46,400,444 31,403,058 14,974,619
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
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