<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)
<TABLE>
<S> <C>
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1999.
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER 0-16401
------------------------
ADVANCED MATERIALS GROUP, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
NEVADA 33-0215295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20211 S. SUSANA ROAD, RANCHO DOMINGUEZ, CALIFORNIA 90221
(Address of principal executive offices) (Zip Code)
</TABLE>
------------------------
Issuer's telephone number, including area code: (310) 537-5444
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.001 par value
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
There were 8,519,055 shares of the registrant's voting common stock with a
par value of $0.001 outstanding at February 4, 2000. The aggregate market value
of the shares of voting common stock held by non-affiliates of the registrant on
February 4, 2000 was $9,389,951.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant's Annual Meeting
of Share Owners, to be held April 4, 2000 are is incorporated by reference in
Part III to the extent described therein.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Advanced Materials Group, Inc. ("AMG" or the "Company"), through its
subsidiaries, develops, manufactures and markets a wide variety of industrial
products. The Company's principal subsidiary, Advanced Materials, Inc. (formerly
known as Wilshire Advanced Materials, Inc.) ("AM"), is the successor to a
forty-six year old business that converts specialty materials including foams,
foils, films and adhesive composites into components and finished products such
as printer cartridge inserts and inking felts, disk drive gaskets, automobile
air conditioning insulators, water and dust seals, surgical pads and applicators
for the medical, electronics, automotive and consumer products markets. Advanced
Materials Foreign Sales Corporation Ltd. ("AM FSC") was formed in Fiscal Year
1997 ("FY97") as a wholly-owned subsidiary of AM to conduct the same business
activities in the Asian market. Advanced Materials Ltd., ("AM Ltd.") was formed
in FY97 as a wholly-owned subsidiary of the Company to conduct the same business
activities in the European market.
The Company, which was formerly known as Far West Ventures, Inc., was
incorporated in Nevada in October 1986. The Company was inactive from
January 1990 until April 1993, when it acquired AM. AM had previously been
formed as a California corporation in August, 1992 for the purpose of acquiring
the assets of the General Foam Products division of Wilshire Technologies, Inc.
("WTI"). The assets acquired by AM constituted a portion of the business and
assets previously acquired by WTI from Wilshire Foam Products, Inc. in November,
1990.
The Company's principal executive offices are located at 20211 S. Susana
Road, Rancho Dominguez, California 90221, and its telephone number is
(310) 537-5444.
ACQUISITIONS
In November 1992, AM acquired the General Foam Products division of WTI for
aggregate consideration of approximately $5,971,000, including the assumption of
approximately $3,971,000 of certain liabilities of WTI related to its General
Foam Products division.
In April 1993, AM effected a reverse acquisition of the Company (formerly
known as Far West Ventures, Inc.). In connection with the transaction, the
Company issued 5,030,160 shares of its Common Stock to the stockholders of AM.
In October 1993, the Company acquired all of the outstanding stock of Condor
for aggregate consideration of $1,025,000, payable $640,876 in cash and the
issuance of 55,975 shares of the Company's Common Stock. The Company also agreed
to pay additional consideration to the sellers based upon Condor achieving
specified levels of profit for subsequent calendar years, but that agreement was
replaced in 1995 with a bonus plan based on operating performance. The Company
assumed all of the obligations of Condor (other than federal income tax
liabilities) which amounted to approximately $207,000 as of the closing date.
On November 23, 1993, AM purchased from WTI certain assets of WTI's OEM
Medical Products Division that had been used in connection with the private
label manufacturing of products for medical accounts. The aggregate purchase
price was $2,300,000 plus the assumption of liabilities under certain executory
contracts in the approximate amount of $21,000.
On September 1, 1996 the Company entered into an asset purchase agreement
with Gasket and Molded Products, Inc. ("GMP"), a Colorado corporation, and its
shareholders, whereby for cash of $130,000, as adjusted, the Company acquired
substantially all of the assets and assumed certain liabilities of GMP.
2
<PAGE>
BUSINESS STRATEGY
The Company's objective is to become a leading supplier of specialty
polymeric and advanced materials in both domestic and foreign markets. Polymers
are synthetic chemical structures used in a variety of configurations and
products. The worldwide market for specialty industrial products used as
components in industrial products is substantial. Management believes that
manufacturers are increasingly recognizing the value in conserving or
reallocating their resources by outsourcing the specialty components of their
products. The Company is positioning itself in the marketplace to benefit from
this trend. In addition, the Company is reviewing strategic acquisition
candidates for expansion opportunities.
The Company's long-term strategy is to penetrate foreign marketplaces by
establishing fabrication plants in such areas as Singapore, Ireland and Mexico.
Two fabrication plants, located in Ireland and Singapore, respectively, began
production in fiscal 1998. The Ireland facility operates as Advanced
Materials Ltd., a wholly owned subsidiary of Advanced Materials Group, Inc. The
Company formed Advanced Materials Foreign Sales Corporation Ltd., a wholly-owned
subsidiary of AM to enter into a strategic manufacturing agreement in Singapore.
AM FSC Ltd. has entered into a ten year agreement with Foamtec Pte. Ltd.
("Foamtec"). Terms of the agreement call for AM FSC to lease production
equipment and provide certain technology to Foamtec. Foamtec will in turn
provide its manufacturing facilities and workforce to fabricate foam products at
Foamtec's Singapore facility. The Company's long-term strategy also includes the
identification and acquisition of undervalued entities which will add strategic
and economic value to the Company's product line and competitive positioning.
PRODUCTS
The Company's AM subsidiary manufactures a variety of specialty materials
including foams, foils, films and adhesive composites, into components and
finished products for the automotive, electronics, medical and consumer products
markets. These products include foam inserts for computer printer cartridges,
insulators used in automobile air conditioners, inking felts used in printers,
water and dust seals for automobiles, computers, printers and HVAC systems, foam
filters for trucks, computers and electrical humidifiers, sound attenuation foam
for printers, and foam/fabric composites for cushions and padding in helmets,
soft luggage and other consumer products. In addition, private label
manufacturing of products for medical accounts include electrosurgical grounding
pads, sponges, neck braces, kneepads and other specialty foam products. All of
these products are designed and produced to meet the specifications of each
customer. AM typically provides no warranty for its products other than
compliance with specifications at the time of delivery.
All of the products produced by AM are manufactured to specifications
furnished by its customers. Accordingly, the Company does not engage in research
and development of new products. The Company has, however, acquired new and
advanced equipment, an example of which is impulse sealing equipment for making
foam/non-woven filters, in order to maintain production capabilities consistent
with its customers' specifications.
MANUFACTURING
AM currently has two fabrication facilities located in Rancho Dominguez,
California and Dallas, Texas, and two warehouses located in Portland, Oregon and
Denver, Colorado. The Rancho Dominguez facility is approximately 56,000 square
feet, the Dallas facility is approximately 82,600 square feet, the Portland
facility is approximately 43,100 square feet and the Denver facility is
approximately 3,700 square feet. The four facilities serve different
geographical markets. The Rancho Dominguez, Portland, and Denver facilities
service a region consisting of the Western United States, Northwestern Mexico
and the Pacific Rim area. The Dallas facility primarily services customers in
the Southwestern United States and the central and northeast border area of
Mexico. The Rancho Dominguez, Dallas, Portland and Denver facilities have
substantially the same equipment. A substantial amount of the equipment has been
designed
3
<PAGE>
and constructed by AM. The Rancho Dominguez and Dallas facilities each maintain
a separate sales and production staff, while administration and purchasing are
centralized in the Rancho Dominguez facility.
AM Ltd. is leasing approximately 24,000 square feet of space in Dublin,
Ireland. The facility serves as the Company's European headquarters and has
substantially the same equipment as in the U.S. facilities.
AM has developed and employs a wide variety of advanced processing
techniques in fabricating its products. These techniques include thermoforming,
vacuum forming, flame lamination, pressure sensitive lamination, die cutting and
slitting. Thermoforming is a process that involves heating a foam or foam/fabric
laminate until the material is pliable, using pressure to form the material into
a mold, and then cooling the material until it takes the form of the mold. AM
currently produces backpack components and display cases using its thermoforming
equipment. Vacuum forming is a process that involves heating a foam until the
material is pliable and then pulling the material into a cooled mold using a
vacuum to get intimate contact to the mold surface with the material which then
takes the form of the mold. AM currently produces automotive air conditioner
insulators and computer mouse pad components with its vacuum forming equipment.
Flame lamination is a process that involves the use of a flame to melt a thin
layer on the surface of the foam, and then applying fabric against the surface,
and as the foam surface cools it forms a "glue" layer to the fabric. AM to
currently uses this process to fabricate leather substitute products such as
holsters, luggage and weight training belts. Pressure sensitive lamination is a
process that involves the use of heat and pressure to apply an adhesive laminate
to the substrate and a paper liner to the adhesive, which can be pulled off by
the user to attach the substrate to the desired surface. AM currently produces
caulking and sealing foam tape using this process. Die cutting is a process that
involves the use of a match tool die in a hydraulic press to cut material. AM
currently produces a variety of products such as electrosurgical pads, EKG pads,
diagnostic swabs and artificial fingernail adhesive tabs with its die cutting
equipment. Slitting is a process that uses saws or slitters with blades ranging
from saw tooth to razor edge, depending on the material to be processed, to
horiontally and/or vertically slice layers off blocks of raw material.
AM is able to produce a variety of products for different markets by using
the same fabrication techniques with different materials. For example, using its
slitter, pressure sensitive laminator and die cutter equipment in sequence, AM
can produce a variety of products, such as sound attenuation devices for
computer printers, gaskets for hard disk drives, water seals for automotive air
conditioners, inking pads and nail files. Using its slitter, flame laminating
and thermoforming equipment in sequence, AM can produce other products such as
padding for helmets, mouse pads for computers, sunglass frames, holsters and
back support belts.
In addition to fabricating polyurethane and polyethylene foam, AM fabricates
other materials used in combination with foam such as fabrics, pressure
sensitive adhesives and foils. AM also fabricates plastic films, pressure
sensitive adhesives and other materials not in combination with foam. This
capability enables AM to minimize its dependence on market sectors, which may be
cyclical in nature.
AM manufactures its products for its industrial customers pursuant to
customer purchase orders, most of which provide for multiple shipping release
dates. This enables AM to plan raw material purchases and production scheduling.
For its largest accounts, AM will produce a two to four week supply of products
and stock them for quick delivery.
QUALITY CONTROL
AM is ISO 9002 certified at its Rancho Dominguez, Dallas, Portland and
Ireland facilities. It also maintains systems and procedures that meet customer
quality specifications and has successfully completed qualification surveys
conducted by Fortune 500 OEM manufacturers. AM also maintains procedures for
conducting quality compliance surveys of its major suppliers. AM has specific
procedures in place for receiving inspection, source inspection, process
inspection and control, instrument calibration standards, records maintenance,
training and internal quality audits. AM has implemented systems for statistical
4
<PAGE>
process control, which utilize statistical techniques to identify, monitor and
improve critical manufacturing processes such as sawing, die cutting and
thermoforming.
SUPPLIERS
AM purchases raw materials primarily consisting of polyurethane foam,
crosslinked polyolefin foams and pressure sensitive adhesives. The Company's
largest supplier of raw materials is Foamex Engineered Polyurethanes ("Foamex"),
which in fiscal 1999, 1998 and 1997 supplied approximately 62%, 60% and 54%,
respectively, of AM's raw materials' requirement.
AM is an authorized fabricating distributor of a number of raw material
suppliers, including Foamex, Voltek, Avery Dennison (pressure sensitive
adhesives), Zotefoam (crosslinked polyethylenes) and Ensolite (vinyl foam).
Management believes that these supply arrangements, many of which have been
active for 25 years or more, provide AM with a diverse mix of raw materials at
the best available prices. AM purchases raw materials pursuant to purchase
orders placed from time to time in the ordinary course of business. Failure or
delay by such suppliers in supplying necessary raw materials to AM could
adversely affect AM's ability to manufacture and deliver products on a timely
and competitive basis. AM purchases its raw materials on standard credit terms
and considers its relationship with its suppliers to be good.
Management believes that the loss of either Foamex or Voltek as a major
supplier of foam would not have a materially adverse effect on AM's business in
the long term because other suppliers of foam could be relied upon to meet AM's
requirements at a comparable cost. However, the loss of either Foamex or Voltek
would have a materially adverse effect on AM's business in the short term
(approximately three months). Management believes that the loss of any other
supplier would not have a material adverse effect on AM.
AM's business is subject to the risk of price fluctuations and periodic
shortages of raw materials. AM purchases raw materials pursuant to purchase
orders placed from time to time in the ordinary course of business. Failure or
delay by such suppliers in supplying necessary raw materials to AM could
adversely affect AM's ability to manufacture and deliver products on a timely
and competitive basis.
MARKETING AND SALES
AM's products are marketed and sold primarily to major divisions of large
industrial customers, many of which are industry leaders whose products have
significant market share. All of AM's products are components or finished
products manufactured to order for its industrial customers. The customer's
purchase decision often involves the engineering, manufacturing and purchasing
groups within the customer's management.
AM's eighteen full-time salesmen make sales in the United States on a direct
basis. Nine salesmen are in the field and nine salesmen provide inside sales
support. The nine field salesmen receive a base salary plus a commission and the
nine inside salesmen receive a salary. AM Ltd. has three full-time salesmen who
concentrate on the European market. AM's domestic sales as a percentage of total
sales were approximately 66%, 92% and 100% for fiscal years 1999, 1998 and 1997,
respectively.
AM currently does business in a number of foreign regions including Asia,
Europe, South America and the Middle East. Foreign sales, which accounted for
approximately 34%, 8% and 0% of fiscal 1999, 1998 and 1997 sales, respectively,
are made on a direct basis and through sales agents who receive commissions.
AM relies primarily upon referrals by its customers and vendors and the
activities of its salesmen for new business. AM advertises in the Thomas
Register, a sourcing guide for industrial engineering and purchasing groups. AM
also participates in industrial design and engineering trade shows as a means of
marketing its products.
5
<PAGE>
BACKLOG
AM manufactures all of its products pursuant to customer purchase orders.
Backlog is comprised of firm orders for products, which have a scheduled
shipment date within the next 12 months. Certain orders in the backlog may be
cancelled under certain conditions without significant penalty. At November 30,
1999, 1998 and 1997, AM's backlog of orders was approximately $6,207,000,
$8,248,000 and $8,597,000, respectively.
CUSTOMERS
AM generally sells its products pursuant to customer purchase orders. There
can be no assurance that any such customers will continue to purchase products
from AM in the future. These customers are in the computer printer, medical
disposables, automotive air conditioning and consumer cleaning supply markets.
Management believes that this diversity spreads the risk of dependence upon one
customer or one market sector. However, Hewlett Packard accounted for 41% and
39% of consolidated revenues for the years ended November 30, 1999 and 1998,
respectively. Hewlett Packard and Ethicon Endo-Surgery accounted for 39% and
10%, respectively, of consolidated revenues for the year ended November 30,
1997. While AM has acquired new customers as well as orders for new products
from existing customers, the loss of one or more of its largest customers or a
decline in the economic prospects of such customers could have an adverse effect
on AM's business.
AM's prices are competitive with other fabricators of custom materials. AM
sales are typically made on terms, which require payment of the net amount due
in 30 days.
AM's domestic customers are located primarily in the West, Southwest and
Southeast regions of the United States. For bulky, low value products, high
freight costs on long distance shipments from AM's Rancho Dominguez, Portland,
Denver and Dallas facilities make it difficult for AM to be competitive in other
regions of the United States or internationally.
LICENSES AND PROPRIETARY RIGHTS
The Company has secured a patent on a manufacturing process for fabricating
plastic foam sheet material with compound radius. AM relies on proprietary
know-how, exclusive license rights and distribution agreements, and employs
various methods to protect its processes. However, such methods may not afford
complete protection, and there can be no assurance that others will not
independently develop such processes.
COMPETITION
The custom materials fabrication industry in which AM competes is highly
competitive. High barriers to entry and fragmented competition characterize the
industry. Barriers to entry are high because most of the products must be
produced by customized, proprietary equipment which is designed and/or built
in-house and cannot be produced with standard equipment. Most of the Company's
competitors are small, privately held companies, which generally specialize in
only one product or process. Three of the Company's principal competitors are
Boyd Industrial, which has four locations in the Western United States,
Packaging Alternatives Corp. and Foam Molders. AM competes primarily on the
basis of its ability to meet customers' specifications promptly and cost
effectively, and on the quality of its products.
Current competitors or new market entrants could introduce new or enhanced
products with features which render AM's products obsolete or less marketable,
or could develop means of producing competitive products at a lower cost. The
ability of AM to compete successfully will depend in large measure on its
ability to adapt to technological changes in the industry. There can be no
assurance that AM will be able to keep pace with the technological demands of
the market place or successfully develop new products, which are in demand by
the industry.
6
<PAGE>
GOVERNMENT REGULATION
The manufacture of certain products by AM requires the purchase and use of
chemicals and other materials, which are or may be, classified as hazardous
substances. The Company and its subsidiaries do not maintain environmental
impairment insurance. There can be no assurance that the Company and its
subsidiaries will not incur environmental liability or that hazardous substances
are not or will not be present at their facilities.
The Company and its subsidiaries are subject to regulations administered by
the United States Environmental Protection Agency, various state agencies,
county and local authorities acting in conjunction with federal and state
agencies and EU and Irish agencies. Among other things, these regulatory bodies
impose restrictions to control air, soil and water pollution. The extensive
regulatory framework imposes significant complications, burdens and risks on the
Company. Governmental authorities have the power to enforce compliance with
these regulations and to obtain injunctions and/or impose civil and criminal
fines or sanctions in the case of violations.
The Federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), imposes strict, joint and several liability
on the present and former owners and operators of facilities which release
hazardous substances into the environment. The Federal Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), regulates the generation,
transportation, treatment, storage and disposal of hazardous waste. In
California, the handling and disposal of hazardous substances is governed by the
law, which contains the California counterparts of CERCLA and RCRA. The Company
and its subsidiaries believe that their manufacturing activities are in
substantial compliance with all material Federal, state, EU, and Irish laws and
regulations governing their respective operations. Amendments to existing
statutes and regulations could require the Company or its subsidiaries to modify
or alter methods of operations at costs, which could be substantial. There can
be no assurance that the Company or its subsidiaries will be able, for financial
or other reasons, to comply with applicable laws and regulations.
Various laws and regulations relating to safe working conditions, including
the Occupational Safety and Health Act ("OSHA"), are also applicable to the
Company and its subsidiaries. The Company believes it and its subsidiaries are
in substantial compliance with all material Federal, state, local, EU and Irish
laws and regulations regarding safe working conditions.
EMPLOYEES
As of November 30, 1999, the Company and its subsidiaries had approximately
123 full-time employees, of whom approximately 63 were located at AM's Rancho
Dominguez, California facility, approximately 39 were located at AM's Dallas,
Texas facility, 6 were located at AM's Portland, OR facility, 3 were located at
AM's Denver, Colorado facility, and 12 were located at the Company's Ireland
subsidiary. Of the Company's full-time employees, approximately 83 are employed
in manufacturing, 15 are in sales, 19 perform general and administrative
functions and 6 perform other functions. The Company also utilizes the services
of contract workers as needed from time to time in its manufacturing operations.
As of November 30, 1999, the number of contract workers being utilized by the
Company was approximately 106.
None of the employees of the Company or its subsidiaries are presently
represented by a labor union, and management considers the relationship of the
Company and its subsidiaries with its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 56,000 square feet of manufacturing and
office space in Rancho Dominguez, California, approximately 82,600 square feet
of manufacturing and office space in Dallas,
7
<PAGE>
Texas, approximately 28,500 and 14,600 square feet of warehousing and office
space in Portland, Oregon and approximately 3,700 square feet in Denver,
Colorado. The Company pays rent of approximately $22,400 per month under its
Rancho Dominguez lease, approximaely $22,700 per month under its Dallas lease,
approximately $8,300 and $7,700 under its Portland leases and approximately
$1,600 under its Denver lease. The Rancho Dominguez lease expires May 2002, the
Dallas lease expires in November 2000, the Portland leases expire February 2000
and July 2001 and the Denver lease expires in July 2001.
The Company's Ireland subsidiary, Advanced Materials, Ltd., leases
approximaely 24,000 square feet of manufacturing and office space in Dublin,
Ireland. AM ltd. pays rent of approximately 9,750 Irish Pounds per month
(equivalent to approximately $14,650 per month at November 30, 1999) and the
lease expires in February 2003.
ITEM 3. LEGAL PROCEEDINGS.
In October 1996, the Company was notified that it had been named in a bodily
injury lawsuit pending in the 192(nd) Judicial District Court of Dallas County
Texas, involving silicon breast implants. Such suit alleges that AM supplied
certain foam "wipers" which were incorporated into certain implants by
manufacturers also named in the suit, which have allegedly caused adverse
effects to the plaintiffs. The suit asks for unspecified damages. The Company
believes it has no exposure in this case as: (1) AM was not incorporated at the
time of such implants; (2) AM has had no involvement with silicone or other
breast implants; (3) AM has never marketed such "wipers"; and, (4) there exists
two indemnification agreements that provide protection to the Company. The
Company believes the aforementioned provide several layers of protection in the
event this case progresses. Accordingly, no provision for any liability has been
made in the accompanying consolidated financial statements. An adverse ruling
could, however, have a marked adverse effect on the Company's financial
condition.
AM currently maintains product liability insurance in the amount of
$1,000,000, with excess umbrella coverage in the amount of $10,000,000. Except
for the breast implant suit, no product liability claims have been made to date.
However, there can be no assurance that any such claims will not be made in the
future in excess of such limits or that any such claims, if successful and in
excess of such limits, will not have a material adverse effect on AM's assets
and its ability to conduct its business.
The Company's Condor subsidiary was named in a lawsuit originally filed in
the Superior Court of California, San Joaquin County, on January 24, 1992 by
Vern Auten and Shirley Auten, doing business as Aglo Plastics Company.
Plaintiffs alleged that Condor breached a supply contract by obtaining various
molds from a competing supplier, and sought damages therefor. Plaintiffs also
sought damages based upon an alleged intentional infliction of emotional
distress upon plaintiffs by a Condor employee and by its then owner. Condor
filed a cross-complaint alleging that plaintiffs breached the contract.
Plaintiffs received a non-binding arbitration award of approximately $267,000
plus interest. Condor had requested a trial de novo. Condor subsequently
received notice from an attorney representing the plaintiffs of an alleged
infringement by Condor of a patent held by the plaintiffs.
On October 5, 1998, a jury entered a partial verdict finding that Condor had
breached the supply contract. A judgment in the amount of $382,500 was entered
in favor of the plaintiffs. In response to a motion by the plaintiffs the court,
on December 22, 1998 awarded attorneys' fees in the amount of $266,000. Condor
has recorded a provision in the amount of $975,000, which also includes
estimated interest on the award.
The jury was unable to reach a verdict on the alleged intentional infliction
of emotional distress upon plaintiffs by a Condor employee and by its then
owner. This matter has been remanded back to the Superior Court of California,
San Joaquin County. The jury further found that the plaintiffs had not breached
the supply contract. The jury also found that Condor did not infringe on the
patent held by the plaintiffs.
8
<PAGE>
On July 19, 1999 the Company filed a complaint for declaratory relief
against Vern Auten and Shirley Auten, individually and doing business as Aglo
Plastics Co, in United States District Court, Southern District of California.
The relief sought by the Company is a declaration by the Court that Advanced
Materials Group, Inc., the parent company of Condor Utility Products, Inc., has
no obligation to pay the Condor Judgment. The ultimate outcome of this
litigation cannot presently be determined.
In October 1999, the Company was notified that it and its Condor subsidiary
had been named in a lawsuit in the United States District Court, Eastern
District of California. Such suit alleges that the Company and its Condor
subsidiary and several other parties also named in the suit maliciously
prosecuted Vern and Shirley Auten. The suit seeks unspecified damages. The
ultimate outcome of this litigation cannot presently be determined.
The sellers of Condor had agreed to indemnify the Company and Condor with
respect to any potential liability from the alleged breach of contract. Condor
has determined that it will be unable to collect against the indemnification
agreement. Since the assets of Condor are not sufficient to pay the full amount
of the award, Condor attempted to reach a settlement with the plaintiffs but was
unable to do so. It is unclear at this time if a settlement can be reached. The
plaintiffs have now indicated in writing that they may assert a claim against
the Company under principles of alter ego and related theories of liability. The
Company would vigorously defend itself against any such claim. An adverse ruling
could, however, have a material adverse effect on the Company's financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
9
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock has traded on the NASDAQ Small-Cap Stock Market
("NASDAQ") under the symbol ADMG since June 23, 1993. The high and low closing
prices for the common stock for the past two fiscal years as reported by NASDAQ
are set forth in the following table. Such quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.
<TABLE>
<CAPTION>
FISCAL 1999 HIGH LOW FISCAL 1998 HIGH LOW
- ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Fourth Quarter................. $ 1 5/32 $ 11/16 Fourth Quarter................. $ 1 7/16 $ 7/8
Third Quarter.................. $ 1 13/32 $ 1 Third Quarter.................. $ 2 5/8 $ 1 1/2
Second Quarter................. $ 1 7/32 $ 27/32 Second Quarter................. $ 3 7/16 $ 2 5/8
First Quarter.................. $ 1 17/32 $ 1 First Quarter.................. $ 3 1/2 $ 2 23/32
</TABLE>
There were 1,253 stockholders of record as of February 4, 2000.
The present policy of the Company is to retain earnings to provide funds for
the operation and expansion of its business. The Company has paid no cash
dividends during the past three fiscal years and management does not anticipate
that it will do so in the foreseeable future.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales................... $34,798,000 $28,916,000 $28,898,000 $17,133,000 $14,728,000
Costs and expenses:
Cost of sales............... 30,257,000 22,513,000 21,460,000 14,044,000 13,076,000
Selling, general and
administrative............ 4,528,000 4,027,000 3,554,000 2,526,000 2,725,000
Write-off of start-up costs -- 608,000 -- -- --
Write-off of capitalized
license................... -- 158,000 -- -- --
Write-down of goodwill...... -- 909,000 -- -- 719,000
Interest expense............ 504,000 298,000 211,000 561,000 783,000
Loss on discontinued
operations................ -- 1,627,000 223,000 94,000 --
Depreciation and
amortization.............. 220,000 322,000 369,000 369,000 401,000
Other....................... 163,000 247,000 124,000 11,000 --
----------- ----------- ----------- ----------- -----------
Total costs and
expenses................ 35,672,000 30,709,000 25,941,000 17,605,000 17,704,000
----------- ----------- ----------- ----------- -----------
Other income:
Realized gain on sale of
securities................ -- -- 139,000 4,310,000 --
Gain on forgiveness of
debt...................... -- -- -- 508,000 --
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes....................... (874,000) (1,793,000) 3,096,000 4,346,000 (2,976,000)
Income taxes.................. -- (538,000) (180,000) (162,000) (3,000)
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ (874,000) $(2,331,000) $ 2,916,000 $ 4,184,000 $(2,979,000)
=========== =========== =========== =========== ===========
Net income (loss) per share
Basic....................... $ (0.10) $ (0.27) $ 0.30 $ 0.40 $ (0.32)
=========== =========== =========== =========== ===========
Diluted..................... $ (0.10) $ (0.27) $ 0.27 $ 0.39 $ (0.32)
=========== =========== =========== =========== ===========
Working capital............... $ 1,356,000 $ 2,055,000 $ 3,505,000 $ 4,266,000 $ 1,051,000
Total assets.................. $16,092,000 $12,682,000 $12,601,000 $13,661,000 $14,126,000
Total liabilities............. $13,105,000 $ 8,565,000 $ 6,265,000 $ 7,091,000 $10,497,000
Stockholders' equity.......... $ 2,987,000 $ 4,117,000 $ 6,336,000 $ 6,570,000 $ 3,629,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS FOR FISCAL 1999 COMPARED WITH 1998 AND 1998 COMPARED WITH
1997
The Company's revenue from continuing operations for the fiscal year ended
November 30, 1999 was $34.8 million, an increase of 20.3% compared to fiscal
1998. Revenues from the Singapore strategic manufacturing venture grew to
$8,409,000 in fiscal 1999 from $2,035,000 in 1998. Revenues in Ireland grew to
$3,313,000 in fiscal 1999 from $423,000 in 1998. Revenues from U.S. operations
declined to $23,076,000 in fiscal 1999 from $26,458,000 in 1998. The shift in
revenues from U.S.-based plants to overseas operations is due to local sourcing
requirements of a major customer. This shift first began in mid-1998. Revenues
in 1998 were essentially flat compared to fiscal 1997. Revenues from the
Singapore strategic manufacturing venture grew to $2,035,000 in fiscal 1998 from
$0 in 1997. Revenues in Ireland grew to $423,000 in fiscal 1998 from $0 in 1997.
Revenues from U.S. operations declined to $26,458,000 in fiscal 1998 from
$28,898,000 in 1997.
11
<PAGE>
Cost of sales in fiscal 1999 increased by 34.4% to $30,257,000, from
$22,513,000 in 1998. Lower volumes at the Company's domestic locations has led
to lower capacity utilization and negatively impacted labor and overhead
absorption. The Company has responded to declining U.S. volumes by announcing
closures of plants in Portland, Oregon and Denver, Colorado. AMG's expansion in
Ireland added fixed cost. Profit sharing in the Singapore strategic
manufacturing venture also added significantly to cost of sales. The Company
also experienced pricing pressures during the year. Cost of sales increased 4.9%
in 1998 from 1997. AMG added manufacturing capacity with expansions in Ireland
and a strategic manufacturing relationship with a company in Singapore. Lower
volumes at the Company's domestic locations led to lower capacity utilization
and negatively impacted labor and overhead absorption. The Company also
experienced pricing pressures and larger than expected start-up costs on certain
new products in the second half of the year.
AMG's gross profit percentage was 13.1% in 1999, compared to 22.1% in 1998
and 25.7% in 1997.
Selling, general and administrative expense increased in 1999 to $4,528,000,
versus $4,027,000, excluding $608,000 of Ireland start-up expenses and a
$158,000 write-off of a capitalized license. The increase is due primarily to
the expansion of the U.S. sales force and as a result of the manufacturing
expansion at the Company's subsidiary in Ireland. Selling, general and
administrative expense increased 13% to $4,027,000 in 1998 due to the
manufacturing expansion at the Company's subsidiary in Ireland.
Interest expense in fiscal 1999 was $504,000 compared to $298,000 in fiscal
1998. The increase was due to a change in the discount factor used for deferred
compensation, higher borrowing levels to support the Company's expansion in
Ireland and Singapore and higher interest rates. In 1998 interest expense
increased by $87,000 as a result of the Company's expansion in Ireland and
Singapore.
The Company has no income tax expense in fiscal 1999 due primarily to the
1999 net loss and an increase in the valuation allowance relative to deferred
tax assets. The Company recorded a tax provision of $538,000 in fiscal 1998 due
to foreign losses without tax benefit and an increase in the valuation allowance
relative to deferred tax assets. This resulted in an effective tax rate of 35.7%
in 1998.
Net loss from continuing operations for fiscal 1999 was $874,000 compared to
a net loss from continuing operations in 1998 of $704,000. Fiscal 1998 results
included several non-recurring items including start-up costs incurred of
approximately $608,000 related to the Company's Ireland facility, a write-off of
$158,000 for license rights relative to technology which has been discontinued
and an impairment charge of $909,000 on goodwill associated with the
discontinuance of product sales relative to the purchase of certain assets of
Wilshire Technologies Inc.'s OEM Medical Products Division in 1993. Exclusive of
these items, fiscal 1998 net income from continuing operations would have been
$971,000.
Fiscal 1997 results included a one-time transaction relating to the sale of
50,000 shares of IT stock in January 1997. Excluding this one-time transaction
the Company would have reported net income from continuing operations of
$3.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities consumed $1,245,000 from operating
activities in fiscal 1999, compared to cash generated of $749,000 and $2,740,000
in 1998 and 1997, respectively.
Accounts receivable increased by approximately $2.1 million in 1999 as a
result of shipments to Singapore, which is partially offset by increases to
accounts payable and deferred income totaling $1.7 million. Inventory, primarily
in raw materials, increased in 1999 as a direct result of the increase in sales
volume. During the three-year period the Company experienced an increase in its
concentration of credit risk as one customer, Hewlett Packard, accounted for 41%
of revenue during fiscal 1999, compared to 39% in 1998 and 1997. The same
customer accounted for 29% and 34% of accounts receivable at the end of 1999 and
1998, respectively.
12
<PAGE>
AMG invested $1,012,000 and $1,315,000 in capital equipment to start-up
operations in Ireland and to support domestic product-line expansion, in 1999
and 1998, respectively. In 1997, the Company invested $794,000 in capital
equipment to support increases in production volumes and upgrade computer
systems throughout the Company. The Company currently has outstanding capital
equipment commitments totaling $100,000.
The Company had approximately $496,000 of cash and cash equivalents at
November 30, 1999. The Company's operating credit line with its primary lenders
has current availability, as of February 4, 2000, of $5,000,000 with $3,800,000
currently outstanding. AML has a commitment from an Irish lender to provide up
to $800,000 for capital equipment expenditures. AML currently has $396,000
outstanding against this line. AML also has a commitment from an Irish bank to
provide a $200,000 overdraft facility. Currently, there is no outstanding
balance against this line. The Company anticipates that existing cash, cash from
operations and existing lines of credit will supply sufficient cash for
investment, working capital requirements, capital expenditures and debt payments
for the next twelve months.
Prior to year end the Company entered in to a forbearance agreement with its
bank after it violated several debt covenants during fiscal 1999. In February
2000, the Company also entered into a new asset-based credit agreement which
will provide a borrowing base of $5,650,000.
BUSINESS OUTLOOK
The outlook section contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially.
The Company currently has sufficient orders from OEMs to believe that sales
growth will continue in fiscal 2000. Based on current projected order releases
from major customers, the sales growth year-to-year is projected to be
approximately 15% in fiscal 2000. Ireland is expected to show substantial growth
in 2000, with more modest growth projected from the Singapore strategic
manufacturing venture and U.S. operations.
Gross profit and operating profit margins are expected to improve in 2000,
primarily due to the Company's plant closures in the U.S. and growth in Ireland.
Interest expense is expected to increase in fiscal 2000 due to anticipated
higher average interest rates.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $35,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides for a "safe
harbor" for forward looking statements to encourage Companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement. The
Act only became law in late December 1995 and,
13
<PAGE>
except for the Conference Report, no official interpretations of the Act's
provisions have been published. Accordingly, the Company hereby identifies the
following important factors which could cause the Company's actual financial
results to differ materially from any such results which might be projected,
forecast, estimated or budgeted by the Company in forward looking statements.
a) General business conditions, including a worsening economy which might slow
the overall demand for the Company's products; increased inflationary
pressures which might lead to increasing prices for raw materials, labor,
and increases of interest costs based on the Company's borrowing activities.
b) Competitive factors, including the entry of new competitors into the
marketplace and/or heightened competition from existing competitors leading
to increased price competition and margin erosion; and the introduction of
new products or technologies by customers or competitors.
c) Under utilization of the Company's factories and plants, or of any new
plants.
d) Concentrations of sales in markets and customers.
e) Failures to obtain new customers, retain existing customers or volume
reductions by current customers.
f) Concentrations of raw material suppliers, including difficulties or delays
in obtaining raw materials.
g) Inability to execute marketing and sales plans, including price increases.
h) Inability to develop cost effective means for timely production of new
product orders in required quantities.
i) Delays or cancellations of orders; timing of significant orders; and
introduction of new products.
j) Delays in development of production equipment required for new products.
k) Short-term fluctuations in margins due to yields and efficiencies.
l) The effects of changes in foreign currencies.
m) Loss of executive management or other key employees.
n) Changes in financing amount, availability or cost.
o) The effects of changes in costs and availability of insurance coverage.
p) The effects of changes in compensation or benefit plans.
q) Adoptions of new, or changes in, accounting policies and practices and the
application of such policies and practices.
r) Adverse results in significant litigation matters.
The foregoing review of factors pursuant to the Private Litigation
Securities Reform Act of 1995 should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the Company prior to the
effective date of said Act.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A portion of the Company's operations consists of manufacturing and sales
activities in foreign jurisdictions. The Company manufactures its product in the
United States, Ireland and Singapore and sells the products in those markets as
well. As a result, the Company's financial results could be affected by factors
such as changes in foreign currency exchange rates or weak economic conditions
in the foreign markets in which the Company distributes its products. The
Company's functional currency has been determined to be of the United States
dollars since the parent company funds all the capital and start-up costs,
ongoing capital expenditures as well as the operating losses of the foreign
subsidiaries. In addition,
14
<PAGE>
the majority of the sales is also denominated in Unites States dollars. The
Company maintained the books of its Singapore operations in the Unites States
dollar and maintained the books of its Ireland operations in Irish pounds.
Accordingly, the financial statements of the Irish subsidiary are remeasured to
the United States dollars and the translation gains or losses are reflected in
the Company's statement of operations. The Company believes its exposure to
translation gains and losses with respect to its foreign operations in minimal
due to the stability of the foreign markets in which the Company operates.
The Company's interest expense is most sensitive to changes in interest
rates relating primarily to the Company's current and future debt obligations.
The Company is vulnerable, however, to significant fluctuations of interest
rates on its floating rate debt.
The following table provides information about the Company's debt
obligations that are sensitive to changes in interest rates (dollars in
thousands):
<TABLE>
<CAPTION>
FAIR
VALUE
2000 2001 2002 2003 2004 THEREAFTER TOTAL 11/30/99
-------- -------- -------- -------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Line of credit............... $5,600 $5,600 $5,600
Avg. interest rate........... P+1.25
Term loan.................... $ 800 $ 800 $ 800 $2,400 $2,400
Avg. interest rate........... LIBOR LIBOR LIBOR
+2.5 +2.5 +2.5
Conv. Debentures............. $ 405 $ 405 $ 405 $405 $405 $2,025 $2,025
Avg. interest rate........... 7.5% 7.5% 7.5% 7.5% 7.5%
</TABLE>
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Advanced Materials Group, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Materials Group, Inc. and its subsidiaries (the "Company") as of November 30,
1999 and 1998 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended November 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of the
Company for the year ended November 30, 1997 were audited by other auditors
whose report dated January 14, 1998 expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Advanced
Materials Group, Inc. and its subsidiaries at November 30, 1999 and 1998, and
the consolidated results of their operations and their cash flows for the two
years in the period ended November 30, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Orange County, California
January 21, 2000, except for Note 15
as to which the date is February 23, 2000
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Advanced Materials Group, Inc.
We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of Advanced Materials Group, Inc. and its
subsidiaries (the "Company") for the year ended November 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Advanced Materials Group, Inc. and its subsidiaries for the
year ended November 30, 1997 in conformity with generally accepted accounting
principles.
CORBIN & WERTZ
Irvine, California
January 14, 1998
17
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................... $34,798,000 $28,916,000 $28,898,000
Cost of sales (including depreciation of $741,000, $618,000
and $499,000 for the years ended November 30, 1999, 1998
and 1997, respectively)................................... 30,257,000 22,513,000 21,460,000
----------- ----------- -----------
Gross profit................................................ 4,541,000 6,403,000 7,438,000
----------- ----------- -----------
Operating expenses:
Selling, general and administrative....................... 4,528,000 4,027,000 3,554,000
Write-off of start-up costs............................... -- 608,000 --
Write-off of capitalized license.......................... -- 158,000 --
Write-down of goodwill.................................... -- 909,000 --
Depreciation and amortization............................. 220,000 322,000 369,000
----------- ----------- -----------
Total operating expenses................................ 4,748,000 6,024,000 3,923,000
Income (loss) from operations............................... (207,000) 379,000 3,515,000
Other income (expense):
Realized gain on sale of securities....................... -- -- 139,000
Interest expense.......................................... (504,000) (298,000) (211,000)
Foreign exchange loss..................................... (5,000) (44,000) --
Other, net................................................ (158,000) (203,000) (124,000)
----------- ----------- -----------
Total other income (expense)............................ (667,000) (545,000) (196,000)
Income (loss) from continuing operations before income
taxes..................................................... (874,000) (166,000) 3,319,000
Income tax expense.......................................... -- (538,000) (180,000)
----------- ----------- -----------
Income (loss) from continuing operations.................... (874,000) (704,000) 3,139,000
Discontinued operations:
Loss from operations of Condor Utility Products, Inc. (net
of
income tax benefit of $0, $390,000 and $0 for the years
ended
November 30, 1999, 1998 and 1997, respectively)......... -- (1,405,000) (223,000)
Estimated loss on disposal of Condor Utility Products,
Inc. (net of income tax benefit of $148,000)............ -- (222,000) --
----------- ----------- -----------
Net loss from discontinued operations....................... -- (1,627,000) (223,000)
----------- ----------- -----------
Net income (loss)........................................... $ (874,000) $(2,331,000) $ 2,916,000
=========== =========== ===========
Basic earnings (loss) per common share:
Income (loss) from continuing operations.................. $ (0.10) $ (0.08) $ 0.32
Loss from discontinued operations......................... -- (0.16) (0.02)
Estimated loss on disposal of Condor Utility Products,
Inc..................................................... -- (0.03) --
----------- ----------- -----------
Net income (loss) per share............................. $ (0.10) $ (0.27) $ 0.30
=========== =========== ===========
Diluted earnings (loss) per common share:
Income (loss) from continuing operations.................. $ (0.10) $ (0.08) $ 0.29
Loss from discontinued operations......................... -- (0.16) (0.02)
Estimated loss on disposal of Condor Utility Products,
Inc..................................................... -- (0.03) --
----------- ----------- -----------
Net income (loss) per share............................. $ (0.10) $ (0.27) $ 0.27
=========== =========== ===========
Basic weighted average common shares outstanding............ 8,581,630 8,717,609 9,664,513
=========== =========== ===========
Diluted weighted average common shares outstanding.......... 8,581,630 8,717,609 10,622,187
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
18
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 496,000 $ 528,000
Accounts receivable, net of allowance for doubtful
accounts of $100,000 as of November 30, 1999 and 1998,
respectively............................................ 7,238,000 5,188,000
Inventories, net of allowance for obsolescense of $166,000
and $77,000 as of November 30, 1999 and 1998,
respectively............................................ 3,857,000 2,543,000
Income taxes receivable................................... 261,000 199,000
Deferred income taxes..................................... 337,000 526,000
Prepaid expenses and other................................ 172,000 119,000
----------- -----------
Total current assets.................................... 12,361,000 9,103,000
----------- -----------
Property and equipment, net................................. 2,507,000 2,392,000
Goodwill, net of accumulated amortization of $441,000 and
$377,000 as of November 30, 1999 and 1998, respectively... 514,000 578,000
Deferred income taxes....................................... 473,000 504,000
Other assets................................................ 237,000 105,000
----------- -----------
Total assets............................................ $16,092,000 $12,682,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,448,000 $ 2,887,000
Income taxes payable...................................... 308,000 137,000
Accrued liabilities....................................... 1,807,000 1,763,000
Deferred income........................................... 337,000 224,000
Line of credit............................................ 3,823,000 1,800,000
Current portion of long-term obligations.................. 282,000 237,000
----------- -----------
Total current liabilities............................... 11,005,000 7,048,000
----------- -----------
Term loan................................................. 396,000 150,000
Convertible debentures.................................... 405,000 405,000
Deferred compensation, net of current portion of $203,000
and $210,000 at November 30, 1999 and 1998,
respectively............................................ 1,056,000 931,000
Capital lease obligations, net of current portion of
$79,000 and $27,000 at November 30, 1999 and 1998,
respectively............................................ 243,000 31,000
----------- -----------
Total liabilities....................................... 13,105,000 8,565,000
----------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock--$.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common stock--$.001 par value; 25,000,000 shares
authorized; 8,519,055 and 8,729,455 shares issued and
outstanding at November 30, 1999 and 1998,
respectively............................................ 9,000 9,000
Additional paid-in capital................................ 6,987,000 7,243,000
Accumulated deficit....................................... (4,009,000) (3,135,000)
----------- -----------
Total stockholders' equity.............................. 2,987,000 4,117,000
----------- -----------
Total liabilities and stockholders' equity.............. $16,092,000 $12,682,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
19
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITONAL OTHER TOTAL
--------------------- PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT EQUITY INCOME
---------- -------- ----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, November 30,
1996..................... 10,458,742 $10,000 $10,192,000 $ 88,000 $(3,720,000) $6,570,000 $ --
Net income................. -- -- -- -- 2,916,000 2,916,000 2,916,000
Expense recorded in
connection with stock
issued................... 16,877 -- 12,000 -- -- 12,000 --
Stock options exercised.... 95,000 1,000 135,000 -- -- 136,000 --
Stock issued as a result of
conversion of debt, at
$3.59 or $4.37 per
share.................... 34,186 -- 130,000 -- -- 130,000 --
Common stock repurchased by
the Company and
retired.................. (2,000,000) (2,000) (3,498,000) -- -- (3,500,000) --
Consulting expense recorded
as a result of options
granted to a
non-employee............. -- -- 160,000 -- -- 160,000 --
Reclassification adjustment
for realized gain on
available-for-sale
securities included in
net income............... -- -- -- (88,000) -- (88,000) (88,000)
Comprehensive income....... -- -- -- -- -- -- 2,828,000
---------- ------- ----------- -------- ----------- ---------- ----------
Balances, November 30,
1997..................... 8,604,805 9,000 7,131,000 -- (804,000) 6,336,000 --
Net loss................... -- -- -- -- (2,331,000) (2,331,000) --
Stock options exercised.... 154,250 -- 151,000 -- -- 151,000 --
Common stock repurchased by
the Company and
retired.................. (29,600) -- (39,000) -- -- (39,000) --
---------- ------- ----------- -------- ----------- ---------- ----------
Balances, November 30,
1998..................... 8,729,455 9,000 7,243,000 -- (3,135,000) 4,117,000 --
Net loss................... -- -- -- -- (874,000) (874,000) --
Stock options exercised.... 15,000 -- 10,000 -- -- 10,000 --
Common stock repurchased by
the Company and
retired.................. (225,400) -- (266,000) -- -- (266,000) --
---------- ------- ----------- -------- ----------- ---------- ----------
Balances, November 30,
1999..................... 8,519,055 $ 9,000 $ 6,987,000 $ -- $(4,009,000) $2,987,000 $ --
========== ======= =========== ======== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (874,000) $(2,331,000) $ 2,916,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation....................................... 897,000 951,000 729,000
Amortization....................................... 64,000 415,000 313,000
Write-off of capitalized license................... -- 158,000 --
Provision for bad debt............................. -- (2,000) 2,000
Provision for obsolete inventory................... 89,000 (113,000) 98,000
Write-down of goodwill............................. -- 1,523,000 --
Deferred income taxes.............................. 220,000 (619,000) (377,000)
Interest and other on deferred compensation........ 170,000 138,000 (137,000)
Loss on disposal of fixed assets................... -- 5,000 7,000
Expense recorded in connection with stock issued... -- -- 12,000
Consulting expense recorded as a result of options
granted to a non-employee........................ -- -- 160,000
Gain on sale of available-for-sale securities...... -- -- (139,000)
Write-off of note receivable from affiliate........ -- 50,000 --
Discontinued operations (Note 12).................. (71,000) 975,000 --
Changes in operating assets and liabilities:
Accounts receivable--trade....................... (2,050,000) (1,464,000) (990,000)
Income taxes receivable.......................... (62,000) (199,000) 20,000
Inventories...................................... (1,403,000) 36,000 (454,000)
Prepaid expenses and other....................... (53,000) 11,000 60,000
Other assets..................................... (132,000) 22,000 (51,000)
Accounts payable and accrued liabilities......... 1,676,000 1,071,000 386,000
Deferred income.................................. 113,000 224,000 --
Income taxes payable............................. 171,000 (102,000) 185,000
----------- ----------- -----------
Net cash (used in) provided by operating
activities......................................... (1,245,000) 749,000 2,740,000
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................ (1,012,000) (1,315,000) (794,000)
Proceeds from sale of available-for-sale
securities....................................... -- -- 163,000
----------- ----------- -----------
Net cash used in investing activities................ $(1,012,000) $(1,315,000) $ (631,000)
----------- ----------- -----------
</TABLE>
21
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Exercise of common stock options................... $ 10,000 $ 151,000 $ 136,000
Purchase and retirement of common stock............ (266,000) (39,000) (3,500,000)
Net borrowings under line of credit................ 2,023,000 625,000 136,000
Borrowings under term loan......................... 246,000 150,000 --
Proceeds received from capitalized financing....... 323,000 55,000 --
Payments on debt................................... -- -- (988,000)
Payments on capital lease obligations.............. (30,000) (31,000) (79,000)
Payments on deferred compensation.................. (59,000) (123,000) (141,000)
Payments on capitalized financing.................. (22,000) (6,000) --
----------- ----------- -----------
Net cash provided by (used in) financing
activities......................................... 2,225,000 782,000 (4,436,000)
----------- ----------- -----------
Net change in cash and cash equivalents.............. (32,000) 216,000 (2,327,000)
Cash and cash equivalents, beginning of year......... 528,000 312,000 2,639,000
----------- ----------- -----------
Cash and cash equivalents, end of year............... $ 496,000 $ 528,000 $ 312,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................... $ 377,000 $ 222,000 $ 312,000
=========== =========== ===========
Income taxes....................................... $ -- $ 924,000 $ 352,000
=========== =========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During the year ended November 30, 1999, the Company acquired approximately
$323,000 of property and equipment through capitalized financing agreements.
During the year ended November 30, 1998, the Company acquired approximately
$55,000 of property and equipment through capitalized financing agreements.
During the year ended November 30, 1997, the Company issued common stock in
connection with the conversion of certain Convertible debt totaling
$130,000.
See accompanying notes to consolidated financial statements
22
<PAGE>
ADVANCED MATERIALS GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
DEDUCTIONS
UNCOLLECTIBLE
ACCOUNTS
BALANCE AT ADDITIONS WRITTEN OFF, BALANCE AT
BEGINNING OF CHARGES TO NET OF INVENTORY END OF
PERIOD EXPENSES RECOVERIES WRITEN OFF PERIOD
------------ ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended November 30, 1997
Allowance for doubtful accounts........... $ 98,000 $ 2,000 $ -- $ -- $100,000
Allowance for obsolete, discontinue
inventory............................... 92,000 98,000 -- 24,000 166,000
-------- --------- ------- -------- --------
Total................................. $190,000 $ 100,000 $ -- $ 24,000 $266,000
-------- --------- ------- -------- --------
Year Ended November 30, 1998
Allowance for doubtful accounts........... $100,000 $ (2,000) $(2,000) -- $100,000
Allowance for obsolete, discontinue
inventory............................... 166,000 (113,000) -- (24,000) 77,000
-------- --------- ------- -------- --------
Total................................. $266,000 $(115,000) $(2,000) $(24,000) $177,000
-------- --------- ------- -------- --------
Year Ended November 30, 1999
Allowance for doubtful accounts........... $100,000 $ -- $ -- $ -- $100,000
Allowance for obsolete, discontinue
inventory............................... 77,000 89,000 -- -- 166,000
-------- --------- ------- -------- --------
Total................................. $177,000 $ 89,000 $ -- $ -- $266,000
-------- --------- ------- -------- --------
</TABLE>
23
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Advanced Materials Group, Inc. and its subsidiaries ("AMG" or the "Company")
engage in the conversion of specialty materials, including foams, films and
adhesive composites into components and finished products for the computer
peripheral, medical, automotive, aerospace and consumer products markets. The
Company has manufacturing facilities throughout the United States and Ireland,
as well as a strategic manufacturing alliance in Singapore. During 1998 the
Company discontinued the operations of its Condor Utility Products, Inc.
subsidiary. See Note 12, Discontinued Operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company's Ireland subsidiary, Advanced
Materials Ltd., operates under a fiscal year ending October 31. There were no
intervening events from October 31, 1999 to November 30, 1999 that would
materially affect the consolidated financial statements for the year ended
November 30, 1999.
Reclassifications
Certain fiscal 1998 and 1997 amounts in the accompanying consolidated
financial statements have been reclassified to conform to the fiscal 1999
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates in the near term.
Cash and Cash Equivalents
The Company considers highly liquid investments with a remaining maturity of
three months or less when purchased to be cash equivalents. The Company's cash
equivalents at November 30, 1999 consist primarily of investments in a money
market fund.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash equivalents,
accounts receivable and accounts payable approximated fair value at
November 30, 1999 because of the relatively short maturity of these instruments.
The carrying value of debt approximated fair value at November 30, 1999 due to
the Company's ability to obtain financing at similar interest rates from other
lenders.
Inventories
Inventories consist of raw materials, work-in-progress and finished goods
and are stated at the lower of cost (first-in, first-out basis) or market.
24
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over estimated useful lives of three to seven years. Leasehold
improvements are being amortized on a straight-line basis over the lesser of the
useful life of the related improvements or term of the lease. Depreciation
expense was approximately $897,000, $951,000 and $729,000 for the years ended
November 30, 1999, 1998 and 1997, respectively, of which $741,000, $618,000 and
$499,000, respectively, is included in cost of sales in the accompanying
consolidated statements of operations.
Goodwill
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight-line basis over
15 years.
Impairment of Long-Lived Assets
The Company assesses the recoverability of its long-lived and certain
intangible assets, including goodwill, by determining whether the related asset
balance can be recovered through projected undiscounted cash flows. The amount
of impairment, if any, is measured based on projected discounted future cash
flows (fair value) and charged to operations in the period in which impairment
is determined by management. During the year ended November 30, 1998, management
determined that $909,000 of goodwill associated with the Company's purchase of
certain assets of Wilshire Technologies Inc.'s OEM Medical Products Division had
been impaired, as these products have been discontinued and no future cash flow
is anticipated. Accordingly, this amount was charged to operations as reflected
in the accompanying 1998 consolidated statement of operations.
Additionally, approximately $614,000 of goodwill related to the Condor
facility was written-off in 1998 as part of the discontinuation of the
operations of Condor Utility Products, Inc. See Note 12, Discontinued
Operations.
During 1998 the Company wrote-off the net balance of capitalized license
rights, approximately $158,000. The license pertained to a worldwide license to
manufacture, use and sell certain industrial products utilizing proprietary
polymers and processes to be developed by Innovative Technologies ("IT"). IT
never successfully developed such technologies and during 1998 cancelled all
plans to develop such technologies. Based on these events management of the
Company determined that the valuation of capitalized license rights had been
impaired, and accordingly, charged approximately $158,000 to operations as
reflected in the accompanying 1998 consolidated statement of operations.
There were no impairment charges for the years ended November 30, 1999 and
1997.
Revenue Recognition
The Company recognizes revenue upon shipment of product.
25
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were
approximately $23,000, $33,000, and $44,000 for the years ended November 30,
1999, 1998 and 1997, respectively and are included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations.
Concentrations of Credit Risk
CASH AND CASH EQUIVALENTS
At November 30, 1999 and 1998 the Company maintained cash balances at
certain financial institutions in excess of federally insured limits.
ACCOUNTS RECEIVABLE
The Company generally sells its products pursuant to customer orders. The
Company extends credit to customers and performs periodic credit evaluations of
such customers. The Company periodically evaluates its accounts receivable for
collectibility and provides a reserve for losses resulting therefrom.
CUSTOMERS
Hewlett Packard accounted for 41% and 39% of the consolidated revenues for
the years ended November 30, 1999 and 1998, respectively. Hewlett Packard and
Ethicon Endo-Surgery accounted for 39% and 10%, respectively, of the
consolidated revenues for the year ended November 30, 1997. Hewlett Packard
accounted for 29% and 34% of the consolidated accounts receivable as of
November 30, 1999 and 1998, respectively. While the Company has acquired new
customers as well as orders for new products from existing customers, the loss
of one or more of its largest customers or a decline in the economic prospects
of such customers could have a material adverse effect on the Company's
business.
SUPPLIERS
Foamex accounted for 62% of the consolidated purchases for the year ended
November 30, 1999. Foamex and Voltek accounted for 60% and 11%, respectively, of
the consolidated purchases for the year ended November 30, 1998. Foamex and
Voltek accounted for 54% and 16% of the consolidated purchases for the year
ended November 30, 1997. Foamex accounted for 19% of the consolidated accounts
payable at November 30, 1999. Foamex and Voltek accounted for 27% and 15%,
respectively, of the consolidated accounts payable at November 30, 1998.
Management believes that the loss of any of its major suppliers would not have a
material adverse effect on the Company's operations long-term, due to the
availability of other suppliers. However, the loss of a major supplier could
have a material adverse effect on operations in the short-term (estimated by
management to be less than three months).
26
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Risks and Uncertainties
LICENSES AND PROPRIETARY RIGHTS
The Company has secured a patent on a manufacturing process for fabricating
plastic foam sheet material with compound radius. The patent number is 5,939,009
and the date of patent is August 17, 1999. The Company relies on proprietary
know-how, exclusive distribution agreements, and employs various methods to
protect its processes, including employment contracts with key personnel. There
can be no assurance that others will not independently develop similar
processes.
ENVIRONMENTAL REGULATION AND OPERATING CONSIDERATIONS
The Company's operations are subject to a variety of extensive and changing
federal, state and local environmental laws, regulations and ordinances that
govern activities or operations that may have adverse effects on human health or
the environment. Such laws, regulations and ordinances may impose liability for
the cost of remediating, and for certain damages resulting from sites of past
releases of hazardous materials. The Company believes that it currently
conducts, and in the past has conducted, its activities and operations in
substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's consolidated financial condition or results of
operations. There can be no assurance, however, that environmental laws will not
become more stringent in the future or that the Company will not incur costs in
the future in order to comply with such laws.
Foreign Currency Transactions
The functional currency of foreign subsidiaries is considered to be the
United States dollar. Foreign translation gains and losses from remeasurement
are included in the consolidated statements of operations. Foreign exchange loss
for the years ended November 30, 1999 and 1998 was approximately $5,000 and
$44,000, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES"
("SFAS 109"). Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates expected to apply when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to amounts which are more likely than not to be realized. The provision
for income taxes is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
Stock-based Compensation
The Company accounts for stock option grants in accordance with APB Opinion
No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES". The Company adopted the
disclosure requirements of Statement of
27
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION", ("SFAS 123"), which require the disclosure of pro forma net
income and earnings per share as if the Company adopted the fair value-based
method in measuring compensation expense.
Accounting for Start-up Costs
Expenditures directly related to and incurred during the start-up phase of
the Company's foreign manufacturing facility were expensed in the period
incurred. Such costs amounted to approximately $608,000 for the year ended
November 30, 1998.
Earnings per Share
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "EARNINGS PER SHARE" ("SFAS 128"). SFAS 128 requires the
presentation of basic and diluted net income per share. Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
of common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Common share equivalents including stock options, warrants, and convertible
debentures have been excluded for the years ended November 30, 1999 and 1998 as
their effect would be antidilutive.
Basic and Diluted net income per share computed in accordance with SFAS 128
for the years ended November 30 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- ----------
<S> <C> <C> <C>
BASIC EPS:
Net income (loss)........................ $(874,000) $(2,331,000) $2,916,000
Denominator: Weighted average common
shares outstanding..................... 8,581,630 8,717,609 9,664,513
--------- ----------- ----------
Net income (loss) per share--basic....... $ (0.10) $ (0.27) $ 0.30
========= =========== ==========
DILUTED EPS:
Net income (loss)........................ $(874,000) $(2,331,000) $2,916,000
Denominator: Weighted average common
shares outstanding..................... 8,581,630 8,717,609 9,664,513
Common equivalent shares outstanding
(options and warrants)............... -- -- 1,835,272
Hypothetical shares repurchased at
average market price with proceeds of
exercise............................. -- -- (877,598)
--------- ----------- ----------
Total shares............................. 8,581,630 8,717,609 10,622,187
--------- ----------- ----------
Net income (loss) per share--diluted..... $ (0.10) $ (0.27) $ 0.27
========= =========== ==========
</TABLE>
28
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
Effective December 1, 1998, the Company adopted Statement No. 130,
("SFAS 130"), "REPORTING COMPREHENSIVE INCOME". SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose consolidated financial statements. The adoption of
SFAS 130 had no impact upon the Company's net loss. SFAS 130 requires that the
unrealized gains (losses) on available-for-sale securities be included in other
comprehensive income (loss) which is reflected on the consolidated statements of
stockholders' equity.
Segment Disclosure
Effective December 1, 1998, the Company adopted Statement No. 131,
("SFAS 131"), "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION." SFAS 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued to
shareholders. The adoption of SFAS 131 did not affect the results of operations
or financial position of the Company.
NOTE 2--SALE OF SECURITIES
During 1997, the Company sold 50,000 shares of Innovative
Technologies, Inc. resulting in a net realized gain of $139,000 which is
included in the accompanying consolidated statements of operations.
NOTE 3--INVENTORIES
Inventories consist of the following at November 30:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials........................................ $2,700,000 $2,042,000
Work-in-progress..................................... 624,000 313,000
Finished goods....................................... 699,000 265,000
---------- ----------
4,023,000 2,620,000
Less allowance for obsolete inventory................ (166,000) (77,000)
---------- ----------
$3,857,000 $2,543,000
========== ==========
</TABLE>
29
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consists of the following at November 30:
<TABLE>
<CAPTION>
USEFUL
1999 1998 LIFE
---------- ---------- --------
<S> <C> <C> <C>
Machinery and equipment....................... $4,150,000 $3,657,000 7
Furniture and fixtures........................ 956,000 995,000 5
Transportation equipment...................... 203,000 204,000 5
Leasehold improvements........................ 410,000 328,000 5
Construction in progress...................... 364,000 110,000
---------- ----------
6,083,000 5,294,000
Less accumulated depreciation and
amortization................................ (3,576,000) (2,902,000)
---------- ----------
$2,507,000 $2,392,000
========== ==========
</TABLE>
Property and equipment, net at November 30, 1999 and 1998 includes the net
book value of property and equipment relating to the discontinued operations of
$308,000 and $304,000, respectively (Note 13).
NOTE 5--LINE OF CREDIT
The line of credit consists of the following at November 30:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revolving line of credit agreement with a bank which
provides for borrowings up to $4,000,000, as
defined. The line bears interest at prime plus
1.0.% (9.5% at November 30, 1999). The line of
credit is secured by substantially all of the
assets of the Company and expires March 1, 2000.... $3,823,000 $1,800,000
</TABLE>
The line of credit agreement requires the Company to maintain certain
restrictions and financial covenants including maintenance of working capital
and tangible net worth ratios. The Company's financial results for fiscal year
ended November 30, 1999 created certain defaults under the amended credit
agreement. The current lender granted forbearance on the defaults. As a
condition of granting forbearance, the Company and lender agreed to a reduction
in the Company's credit facility from $5,000,000 to $4,000,000 and an increase
in the interest rate to prime +1%. The Company was also in violation of certain
financial covenants in fiscal 1998 and had obtained a waiver from the bank
through the period ended November 30, 1998. The Company subsequently entered
into a new asset based line of credit in the amount of $5,650,000 (Note 15).
Interest expense related to lines of credit totaled approximately $267,000,
$179,000 and $152,000 for the years ended November 30, 1999, 1998 and 1997,
respectively.
30
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 6--TERM LOAN
Advanced Materials Limited, the Company's Ireland subsidiary, is party to a
term loan agreement with a bank which provides for borrowings up to 592,000
Irish Pounds (approximately $786,000 and $869,000 at November 30, 1999 and 1998,
respectively), as defined, and bears interest at 2.5% over 3 month LIBOR (8.0%
and 7.77% at November 30, 1999 and 1998, respectively). The loan facility is
secured by substantially all of the plant and equipment acquired by Advanced
Materials Limited and is additionally guaranteed by Advanced Materials
Group, Inc. for an amount of $800,000 plus accrued interest thereon. The loan
facility expires in October, 2002, at such time the Company intends to repay any
outstanding balance thereon. Interest expense related to the term loan was
approximately $32,000 for the year ended November 30, 1999. Interest expense
related to the term loan was insignificant for the year ended November 30, 1998.
NOTE 7--CONVERTIBLE DEBENTURES
The Company had outstanding covertible debentures totaling $405,000 at
November 30, 1999 and November 30, 1998, respectively. The debentures bear
interest at 7.5% per annum, with interest payable quarterly in arrears. The
debentures were issued in denominations of $1,000, or multiples thereof, and,
together with all then accrued and undeclared interest, are convertible at the
election of the holder at any time after their purchase at a conversion premium
of 125% of the closing bid price of the common stock on the date prior to the
effective date of the original offering (convertible at prices ranging from
$3.59 to $4.37 per share). The debentures mature in March 2004. The debentures
may be prepaid for cash at the option of the Company upon 20 days prior notice,
in whole or in part, at the offering price plus accrued and unpaid dividends to
the prepayment date. If the Company's stock trades at a price equal to 150% of
the closing bid price of its common stock on the date prior to the effective
date of the original offering for 10 consecutive trading days, the Company will
have the right to force conversion. The debentures carry no voting rights. The
common stock underlying the debentures was registered pursuant to a registration
statement that was effective January 17, 1995.
Interest expense related thereto totaled approximately $31,000, $31,000 and
$39,000 for the years ended November 30, 1999, 1998 and 1997, respectively.
NOTE 8--DEFERRED COMPENSATION
The Company is obligated to: (i) make monthly payments beginning
December 1996, of $5,500 (reduced to $3,500 in December 2006) and provide life
insurance to a former employee who is currently a stockholder of the Company and
(ii) make monthly payments beginning December 1995, of $3,500 to a former
employee.
These obligations are based upon the actuarially determined remaining lives
of the obligees, are subject to cost-of-living adjustments based on the Consumer
Price Index (CPI), estimated by management at 3% per annum, and are due until
the later of the death of the obligees or their spouses. These obligations have
been discounted at November 30, 1999.
31
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 8--DEFERRED COMPENSATION (CONTINUED)
The present value of the estimated future non-contingent payments under the
above-mentioned agreements is approximately $1,259,000, net of a discount of
approximately $3,128,000. Estimated future payments are due as follows:
<TABLE>
<CAPTION>
YEARS ENDING
NOVEMBER 30,
- ------------
<S> <C>
2000........................................................ $ 151,000
2001........................................................ 155,000
2002........................................................ 159,000
2003........................................................ 163,000
2004........................................................ 149,000
Thereafter.................................................. 3,610,000
----------
4,387,000
Amount representing interest................................ 3,128,000
----------
$1,259,000
==========
</TABLE>
NOTE 9--COMMITMENTS AND CONTINGENCIES
Leases
The Company and its subsidiaries lease facilities and equipment under
non-cancelable operating leases which expire at various dates through
November 2003. The Company and its subsidiaries also lease certain machinery and
equipment under capital lease obligations which expire in 2004.
Approximate future minimum operating and capital lease obligations at
November 30, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- --------
<S> <C> <C>
2000.................................................. $ 885,000 $100,000
2001.................................................. 525,000 93,000
2002.................................................. 299,000 84,000
2003.................................................. 59,000 81,000
2004.................................................. -- 54,000
---------- --------
Total minimum lease obligations....................... $1,768,000 412,000
==========
Amount representing interest.......................... 90,000
--------
Present value of lease payments....................... 322,000
Current portion....................................... 79,000
--------
Long-term portion..................................... $243,000
========
</TABLE>
Rent expense for the years ended November 30, 1999, 1998 and 1997 was
$774,000, $667,000 and $592,000, respectively.
32
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Interest expense incurred under capital lease obligations was insignificant
for the years ended November 30, 1999, 1998 and 1997.
Employment Contracts
On September 1, 1996, the Company purchased substantially all the assets and
assumed all the liabilities of Gasket and Molded Products, Inc. ("GMP"), a
Colorado corporation. In connection with the acquisition of GMP, the Company
entered into a five year employment contract with one of the prior stockholders
of GMP, which expires August 2001. Under terms of the agreement, the Company is
to pay $66,000 per annum plus a $630 per month auto allowance. The agreement
also specifies incentive bonuses equal to 1% of net sales and 7.5% of operating
profits, as defined, for each of the first two years and for the last three
years of the employment term, respectively. During 1999, 1998 and 1997 such
stockholder was paid an insignificant amount in stock and cash pursuant to this
agreement in connection with incentive bonuses.
The Company has entered into three employment contracts with officers, which
expire through June 2004. Under terms of the agreements, the Company is to pay
base salaries ranging from $137,000 to $235,000 per year.
Approximate minimum future obligations under employment contracts are as
follows as of November 30, 1999:
<TABLE>
<CAPTION>
YEARS ENDING
NOVEMBER 30,
- ------------
<S> <C>
2000........................................................ $ 369,000
2001........................................................ 235,000
2002........................................................ 235,000
2003........................................................ 235,000
2004........................................................ 137,000
----------
$1,211,000
==========
</TABLE>
Purchase Commitment
At November 30, 1999 the Company has outstanding capital equipment purchase
commitments totaling $100,000.
Litigation
In October 1996, the Company, and Wilshire Technologies, Inc. ("WTI"), were
notified that they had been named in a bodily injury lawsuit pending in the
192nd Judicial District Court of Dallas County Texas, involving silicon breast
implants. Such suit alleges that AM supplied certain foam "wipers" which were
incorporated into certain implants by manufacturers also named in the suit,
which had allegedly caused adverse effects to the plaintiffs. The suit asks for
unspecified damages. The Company believes it has no exposure in this case as:
(1) Advanced Materials ("AM") was not incorporated at the time of such implants;
(2) AM has had no involvement with silicone or other breast implants; (3) AM has
never marketed such "wipers"; and, (4) there exists two indemnification
agreements that provide protection to
33
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Company. The Company believes the aforementioned provide several layers of
protection in the event this case progresses. Accordingly, no provision for any
liability has been made in the accompanying consolidated financial statements.
An adverse ruling could, however, have a marked adverse effect on the Company's
financial condition.
The Company's Condor subsidiary has been named in a lawsuit originally filed
in the Superior Court of California, San Joaquin County, on January 24, 1992 by
Vern Auten and Shirley Auten, doing business as Aglo Plastics Company.
Plaintiffs allege that Condor breached a supply contract by obtaining various
molds from a competing supplier, and are seeking damages therefor. Plaintiffs
are also seeking damages based upon an alleged intentional infliction of
emotional distress upon plaintiffs by a Condor employee and by its then owner.
Condor filed a cross-complaint alleging that plaintiffs breached the contract.
Plaintiffs received a non-binding arbitration award of approximately $267,000
plus interest. Condor had requested a trial de novo. Condor subsequently
received notice from an attorney representing the plaintiffs of an alleged
infringement by Condor of a patent held by the plaintiffs.
On October 5, 1998, a jury entered a partial verdict finding that Condor had
breached the supply contract. A judgment in the amount of $382,500 was entered
in favor of the plaintiffs. In response to a motion by the plaintiffs the court,
on December 22, 1998 awarded attorneys' fees in the amount of $266,000. Condor
has recorded a provision in the amount of approximately $975,000, which also
includes estimated interest on the award.
The jury was unable to reach a verdict on the alleged intentional infliction
of emotional distress upon plaintiffs by a Condor employee and by its then
owner. This matter has been remanded back to the Superior Court of California,
San Joaquin County. The jury further found that the plaintiffs had not breached
the supply contract. The jury also found that Condor did not infringe on the
patent held by the plaintiffs.
On July 19, 1999 the Company filed a complaint for declaratory relief
against Vern Auten and Shirley Auten, individually and doing business as Aglo
Plastics Co, in United States District Court, Southern District of California.
The relief sought by the Company is a declaration by the Court that Advanced
Materials Group, Inc., the parent company of Condor Utility Products, Inc., has
no obligation to pay the Condor Judgment. The ultimate outcome of this
litigation cannot presently be determined. In October 1999, the Company was
notified that it and its Condor subsidiary had been named in a lawsuit in the
United States District Court, Central District of California. Such suit alleges
that the Company and its Condor subsidiary and several other parties also named
in the suit maliciously prosecuted Vern and Shirley Auten. The suit seeks
unspecified damages. The ultimate outcome of this litigation cannot presently be
determined.
The sellers of Condor had agreed to indemnify the Company and Condor with
respect to any potential liability from the alleged breach of contract. Condor
has determined that it will be unable to collect against the indemnification
agreement. Since the assets of Condor are not sufficient to pay the full amount
of the award, Condor attempted to reach a settlement with the plaintiffs but was
unable to do so. It is unclear at this time if a settlement can be reached. The
plaintiffs have now indicated in writing that they may assert a claim against
the Company under principles of alter ego and related theories of liability. The
Company would vigorously defend itself against any such claim. An adverse ruling
could, however, have a material adverse effect on the Company's financial
condition.
34
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 10-- STOCKHOLDERS' EQUITY
Common Stock
During 1999 the Company repurchased 225,400 shares of its common stock at
prices ranging from $1.00 to $1.49, for an aggregate price of approximately
$266,000. These shares were subsequently retired.
During 1998 the Company repurchased 29,600 shares of its common stock at
prices ranging from $1.04 to $1.38, for an aggregate purchase price of
approximately $39,000. These shares were subsequently retired.
During 1997 the Company repurchased 2,000,000 shares of its common stock for
cash of $1.75 per share for an aggregate purchase price of $3.5 million. These
shares were subsequently retired.
During 1997, the Company issued 34,186 shares of common stock in connection
with the conversion of an aggregate $130,000 of convertible debentures, at $3.59
and $4.37 per share.
On April 2, 1997 the Company issued an aggregate 16,877 shares of common
stock valued at $0.69 per share. Such shares were issued in connection with
certain provisions contained in the Condor Utility Products, Inc. Stock Purchase
Agreement.
Stock Options
1993 STOCK OPTION PLAN
The 1993 Stock Option Plan ("1993 Plan"), approved by the stockholders of
the Company, authorizes the granting of various options and rights to purchase
1,250,000 shares of common stock of the Company. The 1993 Plan was effectively
completed during 1997.
The 1993 Plan provided for the grant by the Company of options to purchase
common stock to employees, consultants, officers and directors of the Company.
Options granted under the 1993 Plan could be either "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code, or
"non-qualified stock options". Options could be granted for terms of up to
10 years, except for incentive stock options granted to 10% stockholders, which
were limited to 5 years. The exercise price in the case of incentive stock
options granted under the 1993 Plan had to be at least equal to the fair market
value of the common stock as of the date of grant.
During the year ended November 30, 1997, the Company issued options,
pursuant to the 1993 Plan, to purchase 95,217 shares of the Company's common
stock at exercise prices ranging from $0.41 to $1.78 per share. No compensation
expense was recorded in connection with the issuance of these options as they
were issued at the fair market value of the underlying stock at the date of
grant.
1997 STOCK OPTION PLAN
On May 4, 1997, the 1997 Stock Option Plan ("1997 Plan") was adopted,
effective January 1, 1997, and approved by the Board of Directors of the
Company. The 1997 Plan authorized the granting of various options and rights to
purchase up to 1,250,000 shares of common stock of the Company. The 1997 Plan
was terminated on August 25, 1997.
The 1997 Plan provided for the grant by the Company of options to purchase
shares of the Company's common stock to employees, consultants, officers and
directors of the Company. Options granted under
35
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 10-- STOCKHOLDERS' EQUITY (CONTINUED)
the 1997 Plan could only be "non-qualified stock options". No "incentive stock
options", within the meaning of Section 422 of the Internal Revenue Code, could
be granted.
During the year ended November 30, 1997, the Company issued options to
purchase 215,000 shares of the Company's common stock at exercise prices ranging
from $1.28 to $2.22 per share. No compensation expense was recorded in
connection with the issuance of these options as they were issued at the fair
market value of the underlying stock at the date of grant.
1998 STOCK OPTION PLAN
In April, 1998, the stockholders of the Company approved the 1998 Stock
Option Plan ("1998 Plan"). The Plan authorizes the granting of various options
and rights to purchase up to 1,250,000 shares of common stock of the Company.
The 1998 Plan provides for the grant by the Company of options to purchase
shares of the Company's common stock to its officers, directors, employees and
consultants. The 1998 Plan provides that it is to be administered by a committee
consisting of two or more members of the Board of Directors. The Committee has
discretion, subject to the terms of the 1998 Plan, to select the persons
entitled to receive options under the Plan, the terms and conditions on which
options are granted, the exercise price, the time period for vesting such shares
and the number of shares subject thereto.
Options granted under the 1998 Plan may be either "incentive stock options",
within the meaning of Section 422 of the Internal Revenue Code, or
"non-qualified stock options". No incentive stock option may be granted to any
person who is not an employee of the Company at the date of grant. Options may
be granted under the 1998 Plan for terms of up to 10 years, except for incentive
stock options granted to 10% Stockholders, which are limited to 5-year terms.
The exercise price in the case of incentive stock options granted under the 1998
Plan has to be at least equal to the fair market value of the common stock as of
the date of grant.
During the year ended November 30, 1998, the Company issued options under
the 1998 Plan to purchase 115,256 shares of the Company's common stock at
exercise prices ranging from $1.59 to $1.75 per share. No compensation expense
was recorded in connection with the issuance of these options as they were
issued at the fair market value of the underlying stock at the date of grant.
During 1999, the Company issued non-qualifying options to its directors to
purchase 70,000 shares of the Company's common stock under the 1998 plan, at an
exercise price periods up to four years and expiring through January 2004. No
compensation expense was recorded in connection with the issuance of these
options as they were issued at the fair market value of the underlying stock at
the date of grant.
OTHER STOCK OPTIONS
On March 31, 1997, the Company extended the terms of 140,000 options to
expire March 31, 2007. These options were issued outside of the aforementioned
1993, 1997 and 1998 Plans and were originally due to expire in June of 1998.
Pursuant to the provisions of SFAS 123, the fair value for the incremental
benefit received by the option holder was estimated at the date of extension
using the Black Scholes option pricing model. Compensation expense, related to
the fair value of such options, of approximately $100,000
36
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 10-- STOCKHOLDERS' EQUITY (CONTINUED)
was recorded in connection therewith and is included in other expense in the
accompanying 1997 consolidated statement of operations.
On March 31, 1997, the Company issued options to a director for consulting
services, outside of the 1997 Plan, to purchase 50,000 shares of the Company's
common stock at an exercise price of $1.50 per share (fair market value of the
underlying stock at the date of grant), expiring March 2007. Such options were
fully exercisable at the date of grant. Pursuant to the provisions of SFAS 123,
the fair value of these options was estimated at the date of grant using the
Black Scholes option pricing model. Compensation expense, related to the fair
value of such options, of $60,000 was recorded in connection with the issuance
of these options, and is included in other expense in the accompanying 1997
consolidated statement of operations.
During 1997, the Company issued options to purchase 21,388 shares of the
Company's common stock outside of the 1993 and 1997 Plans, at exercise prices
ranging from $2.84 to $3.44 per share, expiring through August 2007. Such
options vest within six months from the date of grant. No compensation expense
was recorded in connection with the issuance of these options as they were
issued at the fair market value of the underlying stock at the date of grant.
During 1998, the Company issued options to purchase 301,000 shares of the
Company's common stock outside of the 1998 Plan, at exercise prices ranging from
$3.38 to $4.00 per share, with vesting periods up to four years and expiring
through December 2008. No compensation expense was recorded in connection with
the issuance of these options as they were issued at the fair market value of
the underlying stock at the date of grant.
The following table summarizes the options granted and outstanding as of
November 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF SHARES AVERAGE
------------------------------------ EXERCISE
EMPLOYEE NON-EMPLOYEE TOTAL PRICE
--------- ------------ --------- --------
<S> <C> <C> <C> <C>
Outstanding, November 30, 1996.... 1,002,000 260,000 1,262,000 $0.99
Granted........................... 332,000 50,000 382,000 1.28
Exercised......................... (45,000) (50,000) (95,000) 1.42
Canceled.......................... (15,000) -- (15,000) 1.00
--------- ------- ---------
Outstanding, November 30, 1997.... 1,274,000 260,000 1,534,000 1.08
Granted........................... 416,000 -- 416,000 3.70
Exercised......................... (84,000) (70,000) (154,000) 0.98
Canceled.......................... (1,000) -- (1,000) 1.00
--------- ------- ---------
Outstanding, November 30, 1998.... 1,605,000 190,000 1,795,000 1.59
Granted........................... -- 70,000 70,000 1.19
Exercised......................... (15,000) -- (15,000) 0.69
Canceled.......................... (74,000) -- (74,000) 2.48
--------- ------- ---------
Outstanding, November 30, 1999.... 1,516,000 260,000 1,776,000 $1.63
========= ======= =========
</TABLE>
37
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 10-- STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth the exercise prices, the number of options
outstanding and exercisable, and the remaining contractual lives of the
Company's stock options at November 30, 1999.
<TABLE>
<CAPTION>
EXERCISE NUMBER OF OPTIONS WEIGHTED AVERAGE
PRICE OUTSTANDING EXERCISABLE CONTRACTUAL LIFE REMAINING
- -------- ----------- ----------- --------------------------
<C> <C> <C> <S>
4.00.. 150,000 50,000 7.0 years
3.69.. 70,000 70,000 3.1
3.44.. 20,000 20,000 4.0
3.38.. 75,000 25,000 8.2
2.84.. 1,000 1,000 7.8
2.22.. 10,000 10,000 2.6
2.06.. 10,000 10,000 2.5
1.97.. 10,000 10,000 2.5
1.75.. 122,000 32,000 8.1
1.65.. 10,000 10,000 7.3
1.59.. 3,000 3,000 8.7
1.50.. 190,000 190,000 7.3
1.28.. 175,000 175,000 7.1
1.27.. 10,000 10,000 1.5
1.23.. 10,000 10,000 1.5
1.19.. 70,000 0 4.1
1.00.. 355,000 355,000 6.8
0.91.. 10,000 10,000 2.6
0.78.. 125,000 125,000 6.4
0.69.. 110,000 110,000 5.9
0.59.. 10,000 10,000 0.2
0.52.. 10,000 10,000 0.6
0.44.. 10,000 10,000 0.5
0.43.. 10,000 10,000 0.5
0.30.. 200,000 200,000 3.1
--------- ---------
1,776,000 1,466,000
========= =========
</TABLE>
SFAS 123 Pro forma Information
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value of these options was estimated at the date of grant using the Black
38
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 10-- STOCKHOLDERS' EQUITY (CONTINUED)
Scholes option pricing model with the following assumptions for the years ended
November 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
YEARS ENDING NOVEMBER 30:
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest rate..................................... 5.50% 5.50% 6.50%
Dividend yield.................................... 0.00% 0.00% 0.00%
Expected life of options (years).................. 5 5 5 and 10
Volatility factor................................. 73.00% 73.00% 100.00%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options granted after December 15, 1995, is amortized to expense over the
options vesting period. Adjustments are made for options forfeited prior to
vesting. The effect on compensation expense, net income (loss), and net income
(loss) per share had compensation costs for the Company's stock option plans
been determined based on the fair value method at the date of grant consistent
with the provisions of SFAS 123, for the years ended November 30:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net income (loss), as reported.......... $ (874,000) $(1,247,000) $2,916,000
=========== =========== ==========
Net income (loss), pro forma............ $(1,247,000) $(2,755,000) $2,102,000
=========== =========== ==========
Earnings (loss) per share, as reported
Basic................................. $ (0.10) $ (0.27) $ 0.30
=========== =========== ==========
Diluted............................... $ (0.10) $ (0.27) $ 0.27
=========== =========== ==========
Earnings (loss) per share, pro forma
Basic................................. $ (0.15) $ (0.32) $ 0.22
=========== =========== ==========
Diluted............................... $ (0.15) $ (0.32) $ 0.20
=========== =========== ==========
</TABLE>
Warrants
On December 22, 1995, in connection with an amendment to a line of credit
agreement with a stockholder, the lender/stockholder was granted a warrant to
purchase 60,000 shares of the Company's common stock exercisable for 5 years at
an exercise price of $0.75 per share.
39
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 11-- INCOME TAXES
Income tax expense (benefit) from continuing operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30:
-------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $(220,000) $427,000 $285,000
State...................................... -- 78,000 272,000
--------- -------- --------
(220,000) 505,000 557,000
Deferred:
Federal.................................... 220,000 66,000 (403,000)
State...................................... -- (33,000) 26,000
--------- -------- --------
220,000 33,000 (377,000)
--------- -------- --------
Total income tax provision................... $ -- $538,000 $180,000
========= ======== ========
</TABLE>
The components of deferred tax assets and liabilities at November 30 are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Deferred tax assets:
Tax over book depreciation........................ $ 48,000 $ --
Accounts receivable............................... 43,000 43,000
Inventory......................................... 139,000 92,000
Accrued expenses.................................. 746,000 801,000
State taxes....................................... -- --
Goodwill and other intangible assets.............. 1,022,000 969,000
Other............................................. 54,000 85,000
----------- ----------
Total deferred tax assets....................... 2,052,000 1,990,000
Less valuation allowance for deferred tax
assets........................................ (1,186,000) (902,000)
----------- ----------
Deferred tax assets................................. 866,000 1,088,000
Deferred tax liabilities:
Tax over book depreciation........................ -- 44,000
State taxes....................................... 56,000 14,000
----------- ----------
Total deferred tax liabilities.................. 56,000 58,000
----------- ----------
Net deferred tax assets............................. $ 810,000 $1,030,000
=========== ==========
</TABLE>
At November 30, 1999 the Company had a valuation allowance of $1,186,000 to
reduce its deferred tax assets to estimated realizable value. Based on the level
of historical taxable income and projections for future taxable income over the
periods in which temporary differences are anticipated to reverse, management
believes it is more likely than not that the Company will realize the benefits
of these deferred tax assets, net of the valuation allowance. However, the
amount of the deferred tax asset considered
40
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 11-- INCOME TAXES (CONTINUED)
realizable could be adjusted in the future if estimates of taxable income are
revised due to changes in circumstances.
United States and foreign income (loss) from continuing operations before
income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30:
----------------------------------
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Pretax income (loss)
Domestic................................. $(714,000) $ 517,000 $3,139,000
Foreign.................................. (160,000) (683,000) --
--------- --------- ----------
Total.................................... $(874,000) $(166,000) $3,139,000
========= ========= ==========
</TABLE>
The reconciliation of the income tax provision (benefit) for continuing
operations to taxes computed at U.S. federal statutory rates is as follows:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30:
---------------------------------
1999 1998 1997
--------- -------- ----------
<S> <C> <C> <C>
Income tax (benefit) at statutory rates..... $(297,000) $(56,000) $1,128,000
Change in federal valuation allowance....... 284,000 326,000 (1,085,000)
Foreign losses recorded without tax
benefit................................... 54,000 232,000 --
Foreign Sales Corporation benefit........... (33,000) -- --
State and local income taxes, net of federal
income tax benefit........................ 1,000 30,000 137,000
Other....................................... (9,000) 6,000 --
--------- -------- ----------
Total....................................... $ -- $538,000 $ 180,000
========= ======== ==========
</TABLE>
NOTE 12--DISCONTINUED OPERATIONS
In November 1998 the Company discontinued the operations of its subsidiary,
Condor Utility Products, Inc. In connection with the closure, the Company
incurred a charge in fiscal 1998 of $1,627,000, net of $538,000 relative to
income taxes. Net sales of Condor Utility Products, Inc. for the year ended
November 30, 1998 and 1997 were $954,000 and $1,144,000, respectively. Net
assets of the discontinued operations at November 30, 1998 were as follows:
<TABLE>
<S> <C>
Accounts receivable, net.................................... $ 280,000
Property, plant and equipment............................... 304,000
Accounts payable............................................ (132,000)
Accrued liabilities......................................... (1,200,000)
-----------
$ (748,000)
===========
</TABLE>
41
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 12--DISCONTINUED OPERATIONS (CONTINUED)
At November 30, 1999 property, plant and equipment includes $308,000
relative to discontinued operations and $986,000 is included in accrued
liabilities for discontinued operations.
NOTE 13--EMPLOYEE BENEFIT PLAN
The Company has a 401(k) retirement plan that covers the majority of the
Company's domestic employees. An employee, at their discretion, can elect to
make voluntary contributions to the plan from 0% to 20% of their compensation,
up to the maximum amount set by the Internal Revenue Service. The plan requires
the Company to make a matching contribution of 33% of the first 6% of the
voluntary employee contribution. The Company may also contribute an additional
amount determined in its sole judgment. Total expense from this plan related to
continuing operations was approximately $51,000, $46,000 and $38,000 for the
years ended November 30, 1999, 1998 and 1997, respectively.
NOTE 14--SEGMENT REPORTING
The Company's foreign operations include both manufacturing and sales. The
manufacturing facility is located in Ireland and the sales joint venture is
located in Singapore. Both facilities began operations in fiscal 1998. All of
their sales are made to unaffiliated customers. The following is a summary of
selected financial information by entities within geographic areas for the years
ended November 30, 1999, 1998 and 1997:
REVENUE:
<TABLE>
<CAPTION>
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
1999.................................. $23,076,000 $ 8,409,000 $3,313,000 $34,798,000
1998.................................. 26,458,000 2,035,000 423,000 28,916,000
1997.................................. 28,898,000 -- -- 28,898,000
</TABLE>
NET INCOME (LOSS):
<TABLE>
<CAPTION>
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
1999.................................. $(1,815,000) $ 1,141,000 $(200,000) $ (874,000)
1998.................................. (2,038,000) 428,000 (721,000) (2,331,000)
1997.................................. 2,916,000 -- -- 2,916,000
</TABLE>
ASSETS
<TABLE>
<CAPTION>
AMI-US OPERATIONS AMI-SINGAPORE AMI IRELAND CONSOLIDATED
----------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
1999.................................. $ 9,953,000 $3,655,000 $2,484,000 $16,092,000
1998.................................. 8,657,000 2,920,000 1,105,000 12,682,000
</TABLE>
42
<PAGE>
ADVANCED MATERIALS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
NOTE 15--SUBSEQUENT EVENT
LINE OF CREDIT
On February 24, 2000 the Company agreed to enter into a new line of credit
(the "Line") with its bank. Such Line allows for borrowings up to $5,650,000, as
defined, and bears initial interest of prime plus 1.25%, as defined. The Line
matures February 22, 2003 and replaces the Company's existing line of credit
(see Note 5). The Company is required to maintain certain financial ratios and
pay certain fees, as defined.
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information for Part III, items 10, 11, 12 and 13 are hereby
incorporated by reference to the Company's Proxy Statement for a meeting to be
held on April 4, 2000, which will be filed with the Commission within (120) one
hundred twenty days of the close of the fiscal year pursuant to Regulation 14A.
ITEM 14. EXHIBIT AND REPORTS ON FORM 8-K.
(a) List of Exhibits:
<TABLE>
<CAPTION>
NO. EXHIBITS
--- --------
<C> <S>
2.1 Agreement and Plan of Reorganization dated April 21, 1993
between Far West Ventures, Inc. (now known as Advanced
Materials Group, Inc.), Wilshire Advanced Materials, Inc.
and the stockholders of Wilshire Advanced Materials, Inc.
(1)
3.1 Articles of Incorporation of Advanced Materials Group, Inc.
(formerly known as Far West Ventures, Inc.). (1)
3.2 Certificate of Amendment of Articles of Incorporation of
Advanced Materials Group, Inc. (1)
3.3 Bylaws, as amended, of Advanced Materials Group, Inc. (1)
10.1 Asset Purchase Agreement dated August 4, 1992 between
Wilshire Advanced Materials, Inc. and Wilshire
Technologies, Inc. (1)
10.2 Amendment to Asset Purchase Agreement dated August 4, 1992
between Wilshire Advanced Materials, Inc. and Wilshire
Technologies, Inc. dated December 2, 1992. (1)
10.3 Stock Purchase Agreement dated October 6, 1993 between
Advanced Materials Group, Inc. and the stockholders of
Condor Utility Products, Inc. (2)
10.4 The 1993 Stock Option Plan of Advanced Materials Group, Inc.
(3)
10.5 Form of Convertible Debenture. (4)
10.6 Promissory Note of the Company dated March 25, 1994 payable
to Michael W. Crow in the amount of $787,618. (5)
10.7 Amended and Restated Promissory Note dated August 16, 1995
between Advanced Material Group, Inc. and Hiram H. Johnson
and Beth A. Johnson. (6)
10.8 Industrial Lease Agreement executed August 31, 1995 between
New York Life Insurance and Annuity Corporation, as
Landlord and Advanced Materials, Inc., as Tenant. (7)
10.9 Form of Equity Warrant between Advanced Materials Group,
Inc. and Trilon Dominion Partners, L.L.C. (8)
10.10 Form of Debt Warrant between Advanced Materials Group, Inc.
and Trilon Dominion Partners, LLC. (9)
10.11 Loan Agreement dated as of November 26, 1996, between
Advanced Materials, Inc. And Wells Fargo National
Association. (10)
10.12 First Amendment to Loan Agreement dated as of September 1,
1996, between Advanced Materials, Inc. and Wells Fargo
National Association. (11)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
NO. EXHIBITS
--- --------
<C> <S>
10.13 Asset Purchase and Sale Agreement dated as of September 1,
1996, between Advanced Materials, Inc. and Gasket and
Molded Products, Inc. and Shareholders. (12)
10.14 Amendment One to Lease dated as of September 27, 1996,
between Advanced Materials Group, Inc. And Riggs National
Bank of Washington, D.C. as Trustee of the Multi-Employer
Property Trust. (13)
10.15 The 1997 Stock Option Plan of Advanced Materials Group, Inc.
(14)
10.16 Industrial sublease agreement executed September 1, 1997
between Advanced Material, Inc. as landlord and S-Line as
tenant. (15)
10.17 Manufacturing agreement dated January 30, 1998 by and
between Advanced Materials FSC Ltd. and Foamtec
(Singapore) Pte. Ltd. (16)
10.18 Form of Warrant Assignment agreement dated September 15,
1997 between Trilon Dominion Partners, LLC. and certain
individuals. (17)
10.19 Credit Agreement dated as of February 27, 1998 between
Advanced Materials Group, Inc. and Wells Fargo Bank,
National Association. (18)
10.20 The 1998 Stock Option Plan of Advanced Materials Group, Inc.
(19)
10.21 Legal settlement with a former employee of Condor Utility
Products, Inc. (13)
10.22 Employment agreement dated September 11, 1998 between
Advanced Materials Group, Inc. and Steve F. Scott, Chief
Executive Officer, President and Director. (16)
10.23 Consulting Agreement dated March 31, 1997 between Advanced
Materials Group, Inc. and Paschall and Company. (16)
10.24 Industrial Lease Agreement executed August 31, 1995 between
Riggs National Bank of Washington, D.C. as Trustee of the
Multi-Employer Property Trust as Landlord and Advanced
Materials, Inc., as Tenant.
10.25 Employment agreement dated August 1, 1999 between Advanced
Materials Group, Inc. and David A. Lasnier, Senior Vice
President, General Manager.
10.26 Employment agreement dated August 1, 1999 between Advanced
Materials Group, Inc. and James Douglas Graven, Vice
President, Chief Financial Officer.
21. List of Subsidiaries.
27. Financial Data Schedule
</TABLE>
- ------------------------
(1) Filed as a like-numbered exhibit to the Company's Registration Statement on
Form SB-2 dated December 6, 1993 (Registration No. 33-72500).
(2) Filed as Exhibit 10.10 to the Company's Registration Statement on Form SB-2
dated December 6, 1993 (Registration No. 33-72500)
(3) Filed as Exhibit 10.18 to Amendment No. 1 dated March 1, 1994 to the
Company's Registration Statement on Form SB-2 dated December 6, 1993
(Registration No. 33-72500)
(4) Filed as Exhibit 10.23 to Amendment No. 2 dated May 6, 1994 to the Company's
Registration Statement on Form SB-2 dated December 6, 1993 (Registration
No. 33-72500)
(5) Filed as Exhibit 10.24 to Amendment No. 2 dated May 6, 1994 to the Company's
Registration Statement on Form SB-2 dated December 6, 1993 (Registration
No. 33-72500)
(6) Filed as Exhibit 10.2 to Form 10-QSB dated August 31, 1995.
(7) Filed as Exhibit 10.3 to Form 10-QSB dated August 31, 1995.
(8) Filed as Exhibit 2.2 to Form 8-K filed January 5, 1996.
(9) Filed as Exhibit 2.3 to Form 8-K filed January 5, 1996.
(10) Filed as Exhibit 10.18 to Form 10-KSB dated November 30, 1996.
45
<PAGE>
(11) Filed as Exhibit 10.19 to Form 10-KSB dated November 30, 1996.
(12) Filed as Exhibit 10.20 to Form 10-KSB dated November 30, 1996.
(13) Filed as Exhibit 10.21 to Form 10-KSB dated November 30, 1996.
(14) Filed as Exhibit 10.21 to Form 10-KSB dated November 30, 1997.
(15) Filed as Exhibit 10.22 to Form 10-KSB dated November 30, 1997.
(16) Filed as Exhibit 10.23 to Form 10-KSB dated November 30, 1997.
(17) Filed as Exhibit 10.24 to Form 10-KSB dated November 30, 1997.
(18) Filed as Exhibit 10.1 to Form 8-K filed February 27, 1998.
(19) Filed as Exhibit A to Form DEF-14A dated April 8, 1998.
(b) Reports on Form 8-K
None.
46
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C> <C>
ADVANCED MATERIALS GROUP, INC.
Dated: February 28, 2000
By: /s/ STEVE F. SCOTT
-----------------------------------------
Steve F. Scott
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
In accordance with the Exchange Act, 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>
<C> <S> <C>
Chief Executive Officer,
/s/ STEVE F. SCOTT President and Director
------------------------------------------- (PRINCIPAL EXECUTIVE February 28, 2000
Steve F. Scott OFFICER)
Vice President/Chief
/s/ J. DOUGLAS GRAVEN Financial Officer and
------------------------------------------- Secretary February 28, 2000
J. Douglas Graven (PRINCIPAL FINANCIAL
OFFICER)
/s/ JOHN L. WATKINS
------------------------------------------- Controller (PRINCIPAL February 28, 2000
John L. Watkins ACCOUNTING OFFICER)
/s/ TIMOTHY R. BUSCH
------------------------------------------- Chairman and Director February 28, 2000
Timothy R. Busch
/s/ MAURICE J. DEWALD
------------------------------------------- Director February 28, 2000
Maurice J. DeWald
/s/ MICHAEL A. LEDEEN
------------------------------------------- Director February 28, 2000
Michael A. Ledeen
/s/ ALLAN H. MELTZER
------------------------------------------- Director February 28, 2000
Allan H. Meltzer
/s/ N. PRICE PASCHALL
------------------------------------------- Director February 28, 2000
N. Price Paschall
</TABLE>
47
<PAGE>
BASIC LEASE INFORMATION
LEASE DATE: June 4, 1999
LANDLORD: RIGGS & COMPANY, a division of Riggs
Bank N.A., as trustee of the Multi-
Employer Property Trust, a trust
organized under 12 C.F.R. Section 9.18
ADDRESS OF LANDLORD: c/o Trammell Crow Company
8930 SW Gemini Drive
Beaverton, Oregon 97008-7123
TENANT: Advanced Materials, Inc.
a California corporation
PREMISES: 9400 S.W. Tualatin Sherwood Road
Tualatin, Oregon 97062
PARAGRAPH 1 "Premises" approximately 14,585 square feet in Building A of
approximately 37,219 square feet (computed from measurements
to the exterior of outside walls of the building and to the
center of interior walls), such premises being shown and
outlined on the plan attached hereto as Exhibit A, and being
part of the real property described in Exhibit B attached
hereto.
PARAGRAPH 1 Lease Term: Commencing on the "Commencement Date" as
hereinafter defined and ending 25 months thereafter except
that in the event the Commencement Date is a date other
than the first day of a calendar month, such term shall
extend for said number of months in addition to the
remainder of the calendar month following the Commencement
Date.
PARAGRAPH 1 Scheduled Term Commencement Date: August 1, 1999
PARAGRAPH 2 Monthly Base Rent: $7,514.00
PARAGRAPH 2B Security Deposit: $4,041.50
PARAGRAPH 4A Tenant's Initial Monthly Escrow Payment
for Taxes, Assessments and Other Charges: $727.00
PARAGRAPH 7 Tenant's Initial Monthly Common Area
Maintenance Charge: $999.00
PARAGRAPH 13B Tenant's Initial Monthly Insurance
Escrow Payment $80.00
Tenant's Initial Monthly Payment Total: $9,320.00
The foregoing Basic Lease Information is hereby incorporated
into and made a part of this Lease. Each reference in this
Lease to any of the Basic Lease Information shall mean the
respective information herein above set forth and shall be
construed to incorporate all of the terms provided under the
particular Lease paragraph pertaining to such Basic Lease
Information. In the event of any conflict between any Basic
Lease Information and this Lease, the former shall control.
1
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between RIGGS BANK N.A.,
as trustee of the Multi-Employer Property Trust, a trust organized under 12
C.F.R. Section 9.18 hereinafter referred to as "Landlord", and Advanced
Materials, Inc., a California corporation, hereinafter referred to as
"Tenant";
WITNESSETH
1. PREMISES AND TERM.
A. In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby demises and leases to Tenant, and
Tenant hereby takes and leases from Landlord those certain Premises as
outlined on Exhibit "A" attached hereto (hereinafter referred to as the
"Premises"), together with all rights, privileges, easements,
appurtenances, and amenities belonging to or in any way appertaining to
the Premises and together with the buildings, sidewalks, curbs,
driveways, and other improvements situated or to be situated upon land
described in Exhibit B attached hereto (the "Project").
B. TO HAVE AND TO HOLD the same for a term commencing on the
"Commencement Date", as hereinafter defined, and ending thereafter as
specified in the Basic Lease Information (the "Lease Term"); provided,
however, that, in the event the "Commencement Date" is a date other than
the first day of a calendar month, such term shall extend for the
number of months in addition to the remainder of the calendar month
following the "Commencement Date".
C. The "Commencement Date" shall be the earlier of: (i) the Scheduled
Term Commencement Date shown in the Basic Lease Information, or (ii) the
date upon which the Premises shall have been substantially completed in
accordance with the plans and specifications described in Exhibit "C"
attached hereto. If the Premises shall not have been substantially
completed by the Scheduled Term Commencement Date and the delay in
substantially completing the Premises is not caused in whole or in part
by any act or omission of Tenant, or Tenant's agents, employees,
contractors or subcontractors, Tenant's obligations to pay rent under
this Lease shall commence on the date the Premises are substantially
completed. In no event shall Landlord be liable to Tenant for any loss or
damage resulting from any delay for any reason whatsoever in the
substantial completion of the Premises. Landlord shall notify Tenant in
writing as soon as Landlord deems the Premises to be substantially
completed and ready for occupancy. If Tenant believes that the Premises
have not in fact been substantially completed, Tenant shall notify
Landlord in writing of Tenant's objections within three (3) days of
Landlord's notice to Tenant that the Premises are substantially
complete. Landlord shall have a reasonable time after delivery of such
notice in which to take such corrective action as Landlord, in its sole
discretion, seems appropriate, and shall notify Tenant in writing as
soon as Landlord deems that such corrective action has been completed so
that the Premises are substantially completed and ready for occupancy.
In the event of any dispute as to the substantial completion of work
required to be performed by Landlord, the certificate of Landlord's
architect or general contractor shall be conclusive. The taking of
possession by Tenant of any portion of the Premises for any reason shall
be deemed conclusively to establish that the Premises have been
substantially completed in accordance with the plans and specifications
and that the Premises are in good and satisfactory condition as of when
possession was so taken. Tenant acknowledges that no representations as
to the condition or repair of the Premises have been made by Landlord,
unless such are expressly set forth in this Lease. After the
Commencement Date, Tenant shall, upon demand, execute and deliver to
Landlord a letter of acceptance of delivery of the Premises, specifying
the Commencement Date.
2. BASE RENT AND SECURITY DEPOSIT:
A. Tenant agrees to pay to Landlord Monthly Base Rent for the Premises,
in advance, without demand, deduction, or set off, for the entire Lease
Term at the rate specified in the Basic Lease Information, and Addendum
A payable in monthly installments. The first monthly installment shall
2
<PAGE>
be due and payable on the date hereof and thereafter monthly
installments of Monthly Base Rent shall be due and payable on the first
day of each calendar month succeeding the Commencement Date during the
Lease Term, except that the payment of Monthly Base Rent for any
fractional calendar month at the commencement or end of this Lease shall
be prorated on the basis of a 30-day month.
B. In addition, Tenant agrees to deposit with Landlord on the date
hereof a security deposit in the amount specified in the Basic Lease
Information, which sum shall be held by Landlord, without obligation for
interest, as security for the performance of Tenant's covenants and
obligations under this Lease, it being expressly understood and agreed
that such deposit is not an advance rental deposit, not the last month's
rent and not a measure of Landlord's damages in the event of Tenant's
default. Upon the occurrence of any default by Tenant under this Lease,
Landlord may, from time to time, without prejudice to any other remedy
provided herein or provided by law, use such deposit to the extent
necessary to make good any arrears of rent or other payment due Landlord
hereunder, and any other damage, injury, expense or liability caused by
such event of default; or to perform any obligation required of Tenant
under this Lease; and Tenant shall pay to Landlord on demand the amount
so applied in order to restore the security deposit to its original
amount. Although the security deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by
Landlord to Tenant within thirty (30) days of the date following the
termination of this Lease that all of Tenant's obligations under this
Lease have been fulfilled. Tenant may not mortgage, assign, transfer or
encumber the Security Deposit and any such act on the part of Tenant
shall be without force or effect. In the event any bankruptcy,
insolvency, reorganization or other creditor-debtor proceedings shall be
instituted by or against Tenant, the Security Deposit shall be deemed to
be applied first to the payment of Monthly Base Rent, Additional Rent
and all other sums payable under this Lease to Landlord for all periods
prior to the institution of such proceedings and the balance, if any,
may be retained by Landlord and applied against Landlord's damages.
3. USE. The Premises shall be used only for THE PURPOSE OF GENERAL OFFICE,
RECEIVING, STORAGE, SHIPPING, ASSEMBLY, LIGHT MANUFACTURING, AND SELLING
(OTHER THAN RETAIL) PRODUCTS, MATERIALS AND MERCHANDISE MADE AND/OR
DISTRIBUTED BY TENANT AND FOR SUCH OTHER LAWFUL PURPOSES AS MAY BE
INCIDENTAL THERETO and for no other purpose whatsoever without Landlord's
prior written consent. Outside storage, including, without limitation,
trucks and other vehicles, is prohibited without Landlord's prior
written consent. Tenant shall at its own cost and expense obtain and
maintain any and all licenses, permits, and other approval necessary or
appropriate for its use, occupation or operation of the Premises.
Tenant's inability to obtain or maintain any such license, permit or
approval necessary or appropriate for its use, occupation or operation
of the Premises shall not relieve it of its obligations under this
Lease, including the obligation to pay Base Rent and additional rent.
Tenant shall comply with all governmental laws, ordinances, rules and
regulations applicable to the use and condition of the Premises, and
shall promptly comply with all governmental orders and directives
including, but not limited to, those regarding the correction,
prevention and abatement of nuisances in or upon, or connected with, the
Premises, all at Tenant's sole expense. Without limiting the generality
of the foregoing, Tenant shall comply with the requirements of the
Americans with Disabilities Act and all other laws, regulations, orders,
codes, ordinances and governmental laws pertaining to the Premises and
Tenant's use thereof at Tenant's sole cost and expense. Tenant shall not
commit or allow to be committed or exist: (a) any waste upon the
Premises, (b) any public or private nuisance, (c) any objectionable or
unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from
the Premises, or (d) any act or condition which disturbs the quiet
enjoyment of any other tenant in the Building, violates any of
Landlord's contracts affecting any or all of the land or Building,
creates or contributes to any work stoppage, strike, picketing, labor
disruption or dispute, interferes in any way with the business of
Landlord or any other tenant in the Building or with the rights or
privileges of any contractors, subcontractors, licensees, agents,
concessionaires, subtenants, servants, employees, customers, guests,
invitees or visitors or any other persons lawfully in and upon the land
or Building, or causes any impairment or reduction of the good will or
reputation of the land or Building. In addition to any other remedies
Landlord may have for a breach by Tenant of the terms of this Paragraph
3, Landlord shall have the right to have Tenant evicted from the
Premises. Without Landlord's prior written consent, Tenant shall not
receive, store or otherwise handle any product, material or merchandise
which is explosive, highly inflammable, hazardous or a pollutant.
Tenant will not permit the Premises to be used for any purpose or in any
manner (including, without limitation, any method of storage) which
would render the insurance thereon void or the insurance risk more
hazardous or cause the State Board of Insurance or other insurance
authority to disallow any sprinkler credits. In the event Tenant's use of
3
<PAGE>
Premises shall result in an increase in insurance premiums, Tenant shall
be solely responsible for such increase.
4. TAXES AND OTHER CHARGES.
A. Tenant agrees to pay its proportionate share of any and all real and
personal property taxes, regular and special assessments (including, but
not limited to, local improvement district assessments to finance the
costs of streets, sewers, traffic lights and other utilities), license
fees and other charges of any kind and nature whatsoever, payable as a
result of any public or quasi-public authority, private party, or
owner's association levy, assessment or imposition against, or arising
out of Landlord's ownership of or interest in, the Project, together
with the building and the grounds, parking areas, driveways, roads, and
alleys around the building in which the Premises are located, or any
part thereof (hereinafter collectively referred to as the "Charges").
During each month of the Lease Term, Tenant shall make a monthly escrow
deposit with Landlord (the "Escrow Payment") equal to 1/12 of its
proportionate share of the Charges which Landlord estimates will be due
and payable for that particular calendar year. Tenant authorizes
Landlord to use the funds deposited by Tenant with Landlord under this
Paragraph 4 to pay the Charges. Each Escrow Payment shall be due and
payable, as additional rent, at the same time and in the same manner as
the payment of Monthly Base Rent as provided herein. The amount of the
initial monthly Escrow Payment will be specified in the Base Lease
Information. The initial Escrow Payment is based upon Tenant's
proportionate share of the estimated Charges for the year in question,
and the monthly Escrow Payment is subject to increase or decrease as
determined by Landlord to reflect an accurate escrow of Tenant's
estimated proportionate share of the Charges. The Escrow Payment account
of Tenant shall be reconciled annually. If the Tenant's total Escrow
Payments are less than Tenant's actual proportionate share of the
Charges, Tenant shall pay to Landlord upon demand the difference; if the
Tenant's total Escrow Payments are more than Tenant's actual
proportionate share of the Charges, Landlord shall retain such excess
and credit it to Tenant's Escrow Payment account for the successive
year's Charges. Tenant's proportionate share of the Charges shall be
computed by multiplying the Charges by a fraction, the numerator of
which shall be the number of gross leasable square feet of floor space
in the Premises and the denominator of which shall be the total
applicable gross leasable square footage or such other equitable
apportionment as Landlord may adopt.
B. If Tenant should fail to pay any Escrow Payments, taxes,
assessments, licensee fees or other charges required to be paid by
Tenant hereunder, in addition to any other remedies provided herein,
Landlord may, if it so elects, pay such Escrow Payments or taxes,
assessments, license fees and other charges. Any sums so paid by
Landlord shall be deemed to be additional rental owing by Tenant to
Landlord and due and payable upon demand as additional rental together
with interest at the rate of eighteen percent (18%) per annum from the
date of payment by Landlord until repaid by Tenant.
C. (1) If at any time during the Lease Term, the present method of
taxation shall be changed so that in lieu of the whole or any part of
any taxes, assessments, fees or charges levied, assessed or imposed on
real estate and the improvements thereon, there shall be levied,
assessed or imposed on Landlord a capital levy or other tax directly on
the rents received therefrom and/or a franchise tax, assessment, levy or
charge measured by or based, in whole or in part, upon such rents or the
present or any future building or buildings, then all such taxes,
assessments, fees or charges, or the part thereof so measured or based,
shall be deemed to be included within the term "Charges" for the
purposes of this Lease.
(2) Tenant may, at its sole cost and expense, in its own name,
dispute and contest any Charges by appropriate proceedings diligently
conducted in good faith, but only after Tenant in such contest has
deposited with Landlord the amount so contested and unpaid, which shall
be held by Landlord without obligation for interest until the
termination of the proceedings, at which time the amount(s) deposited
shall be applied by Landlord toward the payment of the items held valid
(plus any court costs, interest, penalties and other liabilities
associated with the proceedings), and Tenant's share of any excess shall
be returned to Tenant. Tenant further agrees to pay to Landlord upon
demand all court costs, interest, penalties and other liabilities
relating to such proceedings. Tenant agrees to indemnity, protect,
defend and hold harmless the Indemnified Parties (as defined below) from
and against any claims, liabilities, costs, damages or expenses
(including attorneys' fees) in connection with any such proceedings.
(3) Any payment to be made pursuant to this Paragraph 4 with
respect to the calendar year in which this Lease commences or terminates
shall bear the same ratio to the
4
<PAGE>
payment which would be required to be made for the full calendar year as
that part of such calendar year covered by the Lease Term bears to a
full calendar year.
D. Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by Tenant in the Premises. If any
such taxes are levied against Landlord or Landlord's property and if
Landlord elects to pay the same or if the assessed value of Landlord's
property is increased by inclusion of personal property and trade
fixtures placed by Tenant in the Premises and Landlord elects to pay
the taxes based on such increase, Tenant shall pay to Landlord upon
demand that part of such taxes for which Tenant is primarily liable
hereunder.
5. TENANT'S MAINTENANCE.
A. Tenant shall at its own cost and expense keep and maintain all parts
of the Premises (except those for which Landlord is expressly
responsible under the terms of this Lease) in good condition, promptly
making all necessary or prudent repairs and replacements, including, but
not limited to, windows, glass and plate glass, doors, any special
office entry, interior walls and finish work, floor and floor covering,
downspouts, gutters, heating and air conditioning systems, dock boards,
truck doors, dock bumpers, paving, and plumbing work and fixtures.
Tenant shall also perform termite and pest extermination, regularly
remove trash and debris, keep the parking areas, driveways, alleys and
the whole of the Premises in a clean and sanitary condition, replace
light fixtures and bulbs and, in all other respects, maintain the
Premises in good working order and condition. Tenant shall repair all
wind damage to glass.
B. Tenant shall not damage any wall or disturb the integrity and
support provided by any wall and shall, at its sole cost and expense,
promptly repair any damage or injury to any wall caused by Tenant or its
employees, agents, licensees or invitees.
C. Tenant and its employees, agents, licensees and invitees shall have
the right to use the parking areas, if any, as may be designated by
Landlord in writing, subject to such reasonable rules and regulations as
Landlord may from time to time prescribe and subject to rights of
ingress and egress of other tenants. Landlord shall not be responsible
for enforcing any exclusive parking rights granted to against any third
parties. If Tenant can be clearly identified as being responsible for
obstructions or stoppage of a common sanitary sewage line, then Tenant
shall pay the cost of repairing such sewage line, upon demand as
additional rent.
D. Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all heating and air conditioning systems and
equipment within the Premises.
E. If Tenant fails to maintain or repair the Premises in accordance
with this paragraph, then Landlord may, but shall not be required to,
enter the Premises upon two (2) business days prior written notice to
Tenant (or immediately without any notice in the case of an emergency)
to perform such maintenance or repair at Tenant's sole cost and expense.
Tenant shall pay to Landlord the cost of such maintenance or repair plus
a fifteen percent (15%) administration fee within ten (10) business days
of written demand from Landlord.
6. LANDLORD'S REPAIRS. After written notice from Tenant, Landlord shall
use commercially reasonable efforts to make such repairs to the roof,
exterior walls and foundations as Landlord deems necessary, and Tenant
shall pay its proportionate share of the costs of such repairs as
provided in Paragraph 7. Tenant shall repair and pay for any damage to
such items to be maintained by Landlord caused by any act, omission or
negligence of Tenant, or Tenant's employees, agents, licensees or
invitees, or caused by Tenant's default hereunder. The term "walls" as
used herein shall not include windows, glass or plate glass, doors,
special store fronts or office entries. Tenant shall immediately give
Landlord written notice of any defect or any need for repairs, after
which Landlord shall have a reasonable opportunity and time to repair
same or cure such defect. Landlord's liability with respect to any
defects, repairs or maintenance for which Landlord is responsible under
any of the provisions of this Lease shall be limited solely to the cost
of such repairs or maintenance or the curing of such defect. In no event
will Landlord be responsible for paying incidental or consequential
damages resulting from Landlord's failure to cure such defects.
7. MONTHLY COMMON AREA MAINTENANCE CHARGE. Tenant agrees to pay, as an
additional charge each month, its proportionate share of the cost of the
operation, maintenance, improvement, repair and replacement of the
"Common Area", which shall be defined from time to time by Landlord. The
term Common Area may include any property not owned by Landlord which is
located beyond the boundaries of the Project to the extent
5
<PAGE>
Landlord is obliged to pay certain costs of operation and maintenance or
to contribute to the cost of operation and maintenance. Common Area
costs which may be incurred by Landlord at its discretion, may include,
but shall not be limited to those costs incurred for lighting, water,
sewage, trash removal, exterior painting, exterior window cleaning,
sweeping, management, accounting, policing, inspecting, sewer lines,
plumbing, paving, landscape maintenance, plant material replacement and
other like charges, and Landlord's fee for supervision and
administration of the items set forth in this Paragraph, currently at
10%. The proportionate share to be paid by Tenant of the cost of
operation, maintenance, improvement, repair and replacement of the
Common Area shall be computed on the ratio that the gross leasable
square footage of the Premises bears to the total applicable gross
leasable square footage or such other equitable apportionment as
Landlord may adopt. Landlord shall make monthly or other periodic
charges based upon the estimated annual cost of operation and
maintenance of the Common Area, payable in advance but subject to
adjustment after the end of the year on the basis of the actual cost for
such year. Any such periodic charges shall be due and payable upon
delivery of notice thereof. The initial Common Area Maintenance Charge,
subject to adjustment as provided herein, shall be due and payable, as
additional rent, at the same time and in the same manner as the time and
manner of the payment of Monthly Base Rent as provided herein. The
amount of the initial monthly Common Area Maintenance Charge shall be as
specified in the Basic Lease Information.
8. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises (including, but not limited to, roof and
wall penetrations or alterations, additions or improvements affecting
building, mechanical or electrical systems or equipment) without the
prior written consent of Landlord, which consent may be withheld in its
sole discretion or may be conditioned on, among other things, proof of
insurance coverage, payment and performance bonds, in forms, amounts
and by companies acceptable to Landlord, and Landlord's review of
Tenant's plans and specifications, Tenant's contractor and Tenant's
building permit. Tenant may, without the consent of Landlord, but at its
own cost and expense and in a good workmanlike manner erect such
shelves, bins, machinery and trade fixtures as it may deem advisable,
without altering the basic character of the building or improvements and
without overloading or damaging such building or improvements, and in
each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. All alterations, additions,
improvements and partitions erected by Tenant shall be and remain the
property of Tenant during the Term of this Lease and Tenant shall,
unless Landlord otherwise elects as hereinafter provided, remove all
alterations, additions, improvements and partitions erected by Tenant
and restore the Premises to their original condition by the date of
termination of this Lease or upon earlier vacating of the Premises;
provided, however, that if Landlord so elects prior to termination of this
Lease or upon earlier vacating of the Premises, such alterations,
additions, improvements and partitions shall become the property of
Landlord as of the date of termination of this Lease or upon earlier
vacating of the Premises and shall be delivered up to the Landlord with
the Premises. All shelves, bins, machinery and trade fixtures installed by
Tenant may be removed by Tenant prior to the termination of this Lease if
Tenant so elects, and shall be removed by the date of termination of this
Lease or upon earlier vacating of the Premises if required by Landlord;
upon any such removal Tenant shall restore the Premises to their original
condition. All such removals and restoration shall be accomplished in good
workmanlike manner so as not to damage the buildings and other
improvements situated on the Premises. Landlord shall have the right at
any time and from time to time to make changes or alterations to any
portion of the Project other than the Premises and Landlord shall not be
subject to any liability with respect to such alterations.
9. SIGNS. Tenant shall not install signs upon the Premises without
Landlord's prior written approval, and any such signage shall be subject
to any applicable governmental laws, ordinances, regulations and other
requirements. Tenant shall remove all such signs by the expiration or
sooner termination of this Lease. Such installations and removals shall
be made in such a manner as to avoid injury or defacement of the
building and other improvements, and Tenant shall repair any injury or
defacement, including, without limitation, discoloration, caused by such
installation and/or removal.
10. INSPECTION/SURRENDER OF POSSESSION.
A. Landlord and Landlord's agents and representatives shall have the
right to enter and inspect the Premises at any reasonable time during
business hours, for the purpose of ascertaining the condition of the
Premises or in order to make such repairs as may be required or permitted
to be made by Landlord under the terms of this Lease or for any other
lawful purpose. During the period that is six (6) months prior to the end
of the Term hereof,
6
<PAGE>
Landlord and Landlord's agents and representatives shall have the right
to enter the Premises at any reasonable time during business hours for
the purpose of showing the Premises and shall have the right to erect on
the Premises a suitable sign indicating the Premises are available.
B. Tenant shall, at the expiration or earlier termination of this
Lease, surrender and deliver the Premises to Landlord in as good
condition as when received by Tenant from Landlord or as later improved,
reasonable use and wear excepted.
C. Tenant shall give written notice to Landlord at least thirty (30)
days prior to vacating the Premises and shall arrange to meet with
Landlord for a joint inspection of the Premises prior to vacating. In
the event of Tenants's failure to give such notice or arrange such joint
inspection, Landlord's inspection at or after Tenant's vacating the
Premises shall be conclusively deemed correct for purposes of
determining Tenant's responsibility for restoring the Premises to the
condition required hereunder.
11. UTILITIES. Landlord agrees to provide at its cost water, electricity
and gas service connections into the Premises; but Tenant shall pay for
all water, gas, heat, light, power, telephone, sewer, sprinkler charges
and other utilities and services used on or from the Premises, together
with any taxes, penalties, surcharges or the like pertaining thereto and
any maintenance charges for utilities and shall furnish all electric
light bulbs and tubes. If any such services are not separately metered
to Tenant, Tenant shall pay a reasonable proportion as determinded by
Landlord of all charges jointly metered with other Premises. Landlord
shall not be liable for any loss, injury, damage to property, or other
consequences caused by or resulting from any variation, interruption, or
failure of utilities ore services in the Building due to any cause
whatsoever. However, in the event of such variation, interruption or
failure, Landlord shall use reasonable diligence to restore such service
to a normal operating condition. No temporary interruption, variance, or
failure of such services incident to the making or repairs, strike,
extreme weather conditions, or the conditions or events beyond
Landlord's reasonable control shall be deemed an eviction of Tenant or
relieve Tenant from any of Tenant's obligations hereunder.
12. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not have the right, voluntarily or involuntarily, to
assign, convey, transfer, mortgage or sublet the whole or any part of
the Premises under this Lease without the prior written consent of
Landlord. If Tenant is a partnership, corporation or limited liability
company, the transfer, assignment, sale or other change in ownership
interest in excess of 33% (in the aggregate) shall be deemed an
assignment within the meaning of this Paragraph. In the event Tenant
applies to Landlord for consent to assign, convey, transfer or sublet
the Premises, Landlord may condition such consent on, among other
things, the right to receive one-half of the profit, if any, which
Tenant may realize on account of such assignment, conveyance, transfer
or sublease of the Premises or any other condition. For purposes of this
paragraph, "profit" shall mean any sum which the assignee, sublessee or
transferee is required to pay, or which is credited to Tenant as rent in
excess of the rents required to be paid by Tenant to Landlord under this
Lease. Landlord also reserves the right to recapture the Premises or
applicable portion thereof in lieu of responding to Tenant's transfer
request by notice of Landlord's exercise of its recapture right given to
Tenant within twenty (20) days after receipt of Tenant's written
request for assignment or subletting. Such recapture shall terminate
this Lease as to the applicable space effective on the prospective date
of assignment or subletting, which shall be the last day of a calendar
month and not earlier than sixty (60) days after receipt of Tenant's
request hereunder. Nothing contained in this Lease shall prohibit
Landlord from entering into a new lease with Tenant's proposed assignee
or sublessee. In the event that Landlord shall not elect to recapture
the Premises or the applicable portion thereof, Tenant shall pay
Landlord a reasonable fee, not to exceed $500.00, to reimburse Landlord
for processing costs incurred in connection with considering whether to
consent to Tenant's sublease or assignment request, and shall also
reimburse Landlord for Landlord's reasonable attorneys' fees.
B. Notwithstanding any permitted assignment or subletting, Tenant shall
at all times remain directly, primarily and fully responsible and liable
for the payment of the rent and all other charges under this Lease and
for compliance with all of its other obligations under the terms,
provisions and covenants of this Lease. Upon the occurrence of an "event
of default" as hereinafter defined, if the Premises or any part thereof
are then assigned or sublet, Landlord, in addition to any other remedies
herein provided, or provided by law, may at its option collect directly
from such assignee or subtenant all rents becoming due to Tenant under
such assignment, transfer or sublease and apply such rent against any
sums due to
7
<PAGE>
Landlord from Tenant hereunder, and no such collection shall be
construed to constitute a novation or a release of Tenant from the
further performance of Tenant's obligations here under.
13. INSURANCE, FIRE AND CASUALTY DAMAGE.
A. Landlord shall maintain casualty insurance covering the building of
which the Premises are a part in an amount equal to the "replacement
cost" thereof, insuring against the perils covered by the extended
coverage policy and any other perils elected to be covered by the
Landlord. Coverages and endorsements shall be as selected by the Landlord
and such insurance shall be for the sole benefit of Landlord and all
insurance proceeds shall remain under its sole control. Such insurance
may be effectuated, in whole or in part, by a blanket policy covering
the building in which the Premises are located and other buildings. In
the event the insurance policy is subject to a deductible, Tenant shall
be liable for and shall pay all or its proportionate share, as
appropriate, of any deductible withheld from insurance proceeds or
payables under the terms of the insurance policy procured by Landlord in
the event of a claim or insured loss with respect to the building in
which the Premises are located. Landlord may, in its discretion, require
that Tenant, at its sole cost and expense, maintain on all of its
personal property, tenant improvements and alterations in, or on about
the Premises a policy of casualty insurance to the extent of the full
replacement value without any deduction for depreciation.
B. Tenant shall pay its proportionate share of Landlord's costs of
procuring and maintaining: (i) the insurance coverage described in
Subparagraph 13A, (ii) liability insurance with respect to the Project
and the operations thereon, and (iii) any other insurance coverage
procured by Landlord and pertaining or relating to the Premises in any
way. In the event any insurance coverage is on a blanket basis, the
premium shall be equitably apportioned to the buildings and improvements
located within the Project before determining Tenant's proportionate
share. During each month of the term of this Lease, Tenant shall make a
monthly escrow deposit with Landlord (the "Insurance Escrow Payment")
equal to one-twelfth of its proportionate share of Landlord's cost of
procuring and maintaining the insurance described in Subparagraphs 13A
and 13B which will be due and payable for that particular year. Tenant
authorizes Landlord to use the funds deposited by Tenant with Landlord
under this paragraph to pay the cost of such insurance. Each Insurance
Escrow Payment shall be due and payable, as additional rent, at the same
time and manner of the payment of the Monthly Base Rent as provided
herein. The initial monthly Insurance Escrow Payment is subject to
increase or decrease as determined by Landlord to reflect an accurate
monthly escrow of Tenant's estimated proportionate share of this
insurance. The Insurance Escrow Payment account of Tenant shall be
reconciled annually. If the Tenant's total Insurance Escrow Payments are
less than Tenant's actual proportionate responsibility for such
insurance, Tenant shall pay to Landlord upon demand the difference; if the
total Insurance Escrow Payments of Tenant are more than Tenant's actual
proportionate responsibility for such insurance, Landlord shall retain
such excess and credit it to the next monthly payment payable by Tenant
or if this Lease has expired, refund such excess to Tenant. Tenant's
cost of insurance shall be computed by multiplying the cost of Insurance
by a fraction, the numerator of which shall be the number of gross
leasable square feet of floor space in the Premises and the denominator
of which shall be the total applicable gross leasable square footage.
The amount of the initial monthly Insurance Escrow Payment will be as
specified in the Basic Lease Information.
C. Tenant shall, throughout the Lease Term, at its own expense, procure
and maintain in full force and effect: (a) A policy of comprehensive
general liability insurance, including a contractual liability
endorsement covering Tenant's obligations under the paragraph captioned
"Indemnification", insuring against claims of bodily injury and death
or property damage or loss with a combined single limit at the
Commencement Date of this Lease of not less than Three Million Dollars
($3,000,000.00), which limit shall be reasonably increased during the
Lease Term at Landlord's request to reflect both increases in liability
exposure arising from inflation as well as from changing use of the
Premises or changing legal liability standards, which policy shall be
payable on an "occurrence" rather than a "claim made" basis, and which
policy names Landlord and manager and, at Landlord's request Landlord's
mortgage lender(s) or investment advisors, as additional insureds;
(b) A policy of extended property insurance (which is commonly called
"at risk") covering Tenant Improvements, Tenant Alterations, and any
and all furniture, fixtures, equipment, inventory, improvements and
other property in or about the Premises which is not owned by Landlord,
for one hundred percent (100%) of the then current replacement value of
such property; and (c) Business interruption insurance in an amount
sufficient to cover costs, damages, lost income, expenses, Base Rent,
additional
8
<PAGE>
rent and all other sums payable under this Lease, should any or all of
the Premises not be usable for a period of up to twelve (12) months. All
insurance policies required under this paragraph shall be with companies
reasonably approved by Landlord authorized to do business in the State
of Oregon and each policy shall provide that it is not subject to
cancellation or reduction in coverage except after thirty (30) days'
written notice to Landlord. Tenant shall deliver to Landlord and, at
Landlord's request Landlord's mortgage lender(s), prior to the
Commencement Date and from time to time thereafter, certificates
evidencing the existence and amounts of all such policies. If Tenant fails
to acquire or maintain any insurance or provide any certificate required
by this paragraph, Landlord may, but shall not be required to, obtain such
insurance or certificates and the costs associated with obtaining such
insurance or certificates shall be payable by Tenant to Landlord on
demand. Such policies shall be primary insurance (and not "excess over"
or contributory with any other valid, existing and applicable insurance
in force for or on behalf of Landlord) and such policies shall not
eliminate cross-liability and shall contain a severability of interest
clause. Certified copies of such policies, together with receipt
evidencing payment of premiums therefor, shall be delivered to Landlord
prior to the commencement date of this Lease. Not less than fifteen (15)
days prior to the expiration date of any such policies, certified copies
of the renewals thereof (bearing notations evidencing the payment of
renewal premiums) shall be delivered to Landlord.
D. If the building of which the Premises are a part should be damaged
or destroyed by fire, tornado or other casualty, Tenant shall give
immediate written notice thereof to Landlord.
E. If the building of which the Premises are a part should be totally
destroyed by fire, tornado or other casualty, or if it should be so
damaged thereby that rebuilding or repairs cannot in Landlord's
estimation be completed within two hundred (200) days after the date
upon which Landlord is notified by Tenant of such damage, this Lease
shall, at the option of Landlord, terminate and the rent shall be abated
during the unexpired portion of this Lease, effective upon the date of
the occurrence of such damage. Landlord shall give notice to Tenant in
writing of its determination to terminate this Lease within ninety (90)
days following the date of the occurrence of such damage.
F. If the building of which the Premises are a part should be damaged
only to such extent that rebuilding or repairs can in Landlord's
estimation be completed within two hundred (200) days after the date
upon which Landlord is notified by tenant of such damage, this Lease
shall not terminate, and Landlord shall at its sole cost and expense
(but only to the extent of insurance proceeds received by Landlord)
thereupon proceed with reasonable diligence to rebuild and repair such
building to substantially the condition in which it existed prior to
such damage, except that Landlord shall not be required to rebuild,
repair or replace any part of the partition, fixtures, additions, and
other improvements which may have been placed in, or about the Premises
by Tenant. If the Premises are untenantable in whole or in part
following such damage, the rent payable hereunder during the period in
which they are untenantable shall be reduced to such extent the Premises
are unusable.
G. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that the insurance proceeds be applied to
such indebtedness, the Landlord shall have the right to terminate this
Lease by delivering written notice of termination to Tenant within
fifteen (15) days after such requirement is made by any such holder,
whereupon all rights and obligations hereunder shall cease and
terminate, except that Tenant shall remain liable to Landlord for the
payment of any rents or other charges already accrued.
H. Each of Landlord and Tenant hereby releases the other from any loss
or damage to property caused by fire or any other perils insured through
or under them by way of subrogation or otherwise for any loss or damage
to property caused by fire or any other perils insured in policies of
insurance covering such property, even if such loss or damage shall have
been caused by the fault or negligence of the other party, or anyone for
whom such party may be responsible; provided, however, that this release
shall be applicable and in force and effect only with respect to loss or
damage occurring during such times as the releaser's policies shall
contain a clause or endorsement to the effect that any such release
shall not adversely affect or impair said policies or prejudice the
right of the releaser to recover there under and then only to the extent
of the insurance proceeds payable under such policies. Each of the
Landlord and Tenant agrees that it will request its insurance carriers
to include in its policies such a clause or endorsement. If extra cost
shall be charged therefor, each party shall advise the other thereof and
of the amount of the extra cost, and the other party, at its election,
may pay the same, but shall not be obligated to do so.
9
<PAGE>
14. LIABILITY. Landlord shall not be liable to Tenant or Tenant's
employees, agents, servants, guests, invitees, incensees, or
visitors, or to any other person whomsoever, for any injury to person or
damage to property on or about the Premises, resulting from and/or
caused in part or whole by the act, omission, negligence or misconduct
of Tenant, its employees, agents, servants, guests, invitees, licenses,
or visitors, or of any other person entering upon the Premises, or
caused by the building and improvements located on the premises becoming
out of repair, or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Premises, or due to any cause whatsoever,
and Tenant hereby covenants and agrees that it will at all times
indemnify, protect, defend and hold safe and harmless the property, the
Landlord (including, without limitation, the trustee and beneficiaries
if Landlord is a trust), Landlord's employees, agents, servants, guests,
invitees, licensees and visitors (collectively, the "indemnified
parties") from any loss, liability, claims, suits, costs, expenses,
including, without limitation, attorneys' fees, and damages, both real
and alleged, arising out of: (a) the use or occupancy of the Premises,
(b) any failure of Tenant to comply with the terms of this Lease, and
(c) the acts of omissions or Tenant and its employees, agents, servants,
guests, invitees, licensees and visitors; except injury to person or
damage to property the sale cause of which is the gross negligence of
Landlord. In no event shall the Indemnified Parties be liable for
consequential damages. If and to the extent that Tenant is obligated to
indemnify, defend or hold harmless Landlord and Landlord's agents from any
claims arising from its use of the Premises or any act or failure to act
by Tenant or Tenant's Agents or otherwise, Tenant expressly waives, to and
in favor of Landlord and Landlord's agents, its statutory
workers compensation act employers immunity relative to any injury to an
employee or employees of Tenant.
15. CONDEMNATION.
A. If the whole or any substantial part of the Premises should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in
lieu thereof and the taking would prevent or materially interfere with
the use of the Premises for the purpose for which they are being used as
determined by Landlord, this Lease shall terminate and the rent shall be
abated during the unexpired portion of this Lease, effective when the
physical taking of said Premises shall occur.
B. If part of the premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or
by right of eminent domain, or by private purchase in lieu thereof, and
this Lease is not terminated as provided in Subparagraph 15(A), this
Lease shall not terminate but the rent payable hereunder during the
unexpired portion of this Lease shall be reduced to such extent as the
premises are not useable.
C. In the event of any such taking or private purchase in lieu thereof,
Landlord shall be entitled to receive the entire award, Tenant shall be
entitled to make a claim for a separate award for Tenant's relocation
expenses in any condemnation proceedings so long as Tenant's claim does
not reduce the amount of Landlord's award.
16. HOLDING OVER. Tenant will, at the termination of this Lease by lapse of
time of otherwise, yield up immediate possession to Landlord. If
Landlord agrees in writing that Tenant may hold over after the
expiration or termination of this Lease, unless the parties hereto
otherwise agree in writing on the terms of such holding over, the hold
over tenancy shall be subject to termination by Landlord at any time
upon not less than five (5) days advance written notice, or by Tenant at
any time upon not less than thirty (30) days advance written notice, and
all of the other terms and provisions of this Lease shall be applicable
during that period, except that Tenant shall pay Landlord from time to
time upon demand, as rental for the period of any hold over, an amount
equal to one and one-half (1-1/2) the Monthly Base Rent in effect on the
termination date, plus all additional rental as defined herein, computed
on a daily basis for each day of the hold over period. No holding over
by Tenant, whether with or without consent of Landlord, shall operate to
extend this Lease except as otherwise expressly provided. The preceding
provision of this Paragraph 16 shall not be construed as Landlord's
consent for Tenant to hold over.
17. QUIET ENJOYMENT. In the event this Lease is a sublease, then Tenant
agrees to take the Premises subject to the provisions of the prior
leases. Landlord covenants that Tenant, upon paying the rental herein
set forth and performing its other covenants and agreements herein set
forth, shall peaceably and quietly have, hold and enjoy the Premises for
the term hereof without hindrance from Landlord, subject to the terms
and provisions of this Lease.
Please Initial
---------------------
ILLEGIBLE ILLEGIBLE
--------- ---------
Tenant Landlord
10
<PAGE>
18. EVENTS OF DEFAULT. The following events shall be deemed to be events of
default by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any payment with respect to taxes hereunder when due, or
any other payment or reimbursement to Landlord required herein when due,
and such failure shall continue for a period of five (5) days from the
date such payment was due.
B. Insolvency of Tenant; an assignment by Tenant for the benefit or
creditors; the filing by Tenant of a voluntary petition in bankruptcy;
an adjudication that Tenant is bankrupt or the appointment of a receiver
of the properties of Tenant; the filing of an involuntary petition of
bankruptcy and failure of Tenant to secure a dismissal of the petition
within thirty (30) days after filing; attachment of or the levying of
execution on the leasehold interest and failure of Tenant to secure
discharge of the attachment or release of the levy of execution within
ten (10) days. If Tenant consists of two or more individuals or
business entities, the events of default specified in this Paragraph 18
shall apply to each individual unless within ten (10) days after the
event of default occurs, the remaining individuals produce evidence
satisfactory to Landlord that they have unconditionally acquired the
interest of the one causing the default. If this Lease has been
assigned, the events of default so specified shall apply only with
respect to the one then exercising the rights of Tenant under this Lease.
C. Tenant shall vacate or abandon any substantial portion of the
Premises. Failure of Tenant for ten (10) days or more to occupy the
Premises for one or more of the purposes permitted under this Lease,
unless such failure is excused under other provisions of this Lease,
shall be an abandonment of the property.
D. If any information furnished by or on behalf of Tenant to Landlord
in connection with the entry of this Lease is determined to have been
materially false, misleading or incomplete when made.
E. Tenant shall fail to comply with any term, provision, condition or
covenant of this Lease (other than the foregoing in this Paragraph 18),
and shall not cure such failure within twenty (20) days after written
notice thereof to Tenant. If the default is of such a nature that it
cannot be completely remedied within the 20-day period, this provision
shall be complied with if Tenant begins correction of the default
within the 20-day period and thereafter proceeds with reasonable
diligence and in good faith to effect the remedy as soon as practicable.
Landlord shall not be required to give such written notice more than
once during any single twelve (12) month period for the failure to
perform the same covenant and upon the second failure, Landlord may, at
this option, deem such failure as an automatic event of default, without
notice to Tenant.
19. REMEDIES. Upon the occurrence of any such events of default described
in Paragraph 18 hereof, Landlord shall have the option to pursue any one
or more of the following remedies without any notice or demand whatsoever.
A. Landlord may accelerate all rent payments due hereunder, the present
value of which shall then become immediately due and payable.
B. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails so to do,
Landlord may, without prejudice to any other remedy which it may have
for possession or rearranges in rent, enter upon and take possession of
the Premises and expel or remove Tenant and any other person who may be
occupying such Premises or any part thereof, by force if necessary,
without being liable for prosecution or any claim of damages therefor,
and Tenant shall pay to Landlord on demand the amount of all-loss and
damage which Landlord may suffer by reason of such termination, whether
through inability to relet the Premises on satisfactory terms or
otherwise. Landlord's right to any and all damages shall survive
termination of the lease.
C. Enter upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying such Premises or any
part thereof, by force if necessary, without being liable for prosecution
or any claim for damages therefor, and relet the Premises for such terms
ending before, on or after the expiration date of the Lease Term, at such
rentals and upon such other conditions (including concessions and prior
occupancy periods) as Landlord in its sole discretion may determine, and
receive the rental therefor; and Tenant agrees to pay to the Landlord on
demand any deficiency that may arise by reason of such reletting
together with all costs incurred by Landlord in connection with such
reletting. Landlord shall have no obligation to relet the Premises or
any part thereof in advance of any
Please Initial
---------------------
ILLEGIBLE ILLEGIBLE
--------- ---------
Tenant Landlord
11
<PAGE>
other available space controlled by Landlord and shall not be liable
refusal or failure to relet or in the event of reletting for refusal or
failure to collect any rent due upon such reletting. In the event
Landlord is successful in reletting the Premises at a rental in excess
of that agreed to be paid by Tenant pursuant to the terms of this Lease,
Landlord and Tenant each mutually agree that Tenant shall not be
entitled, under any circumstances, to such excess rental, and Tenant
does hereby specifically waive any claim to such excess rental.
D. Enter upon the Premises, by force if necessary, without being liable
for prosecution or any claim for damages therefor, and do whatever
Tenant is obligated to do under the terms of this Lease; and Tenant
agrees to reimburse Landlord on demand for any expenses which Landlord
may incur in thus effecting compliance with Tenant's obligations under
this Lease, and Tenant further agrees that Landlord shall not be liable
for any damages resulting to the Tenant from such action, whether cause
by the negligence of Landlord or otherwise.
E. Whether or not Landlord retakes possession or relets the Premises,
Landlord shall have the right to recover unpaid rent and all damages
caused by Tenant's default, including attorney's fees. Damage shall
include, without limitation: all rentals lost; all legal expenses and
other related costs incurred by Landlord following Tenant's default; all
costs incurred by Landlord in restoring the Premises for reletting; all
costs, including, without limitation, any brokerage commissions; and the
value of Landlord's time; plus interest thereon at the rate of eighteen
percent (18%) per annum from date of expenditure until fully repaid.
F. In the event Tenant fails to pay any installment of rent, additional
rent or other charges hereunder as and when such installment is due, to
help defray the additional cost to Landlord for processing such late
payments Tenant shall pay to Landlord on demand a late charge in an
amount equal to five percent (5%) of such installment. The provision
for such late charge shall be in addition to all of Landlord's other
rights and remedies hereunder or at law and shall not be construed as
liquidated damages or as limiting Landlord's remedies in any manner.
The parties agree that such late charge is a reasonable amount to defray
Landlord's costs arising out of Tenant's late payment.
G. Landlord may sue periodically to recover damages during the period
corresponding to the remainder of the Lease Term, and no action for
damages shall bar a later action for damages subsequently occurring.
H. Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies
provided by law, such remedies being cumulative and nonexclusive, nor
shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing
to Landlord by reason of the violation of any of the terms, provisions,
conditions, and covenants herein contained. No act or thing done by
Landlord or its agents shall be deemed a termination of this Lease or an
acceptance of the surrender of the Premises, and no agreement to
terminate this Lease or accept a surrender of the Premises shall be
valid unless in writing signed by Landlord. No waiver by Landlord of
any violation or breach of any of the terms, provisions and covenants
herein contained shall be deemed or construed to constitute a waiver of
any other violation or breach of any of the terms, provision,
conditions, and covenants herein contained. Landlord's acceptance of
the payments of rental or other payments hereunder after the occurrence
of an event of default shall not be construed as a waiver of such
default, unless Landlord so notifies Tenant in writing. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an
event of default shall not be deemed or construed to constitute a waiver
of such default or of Landlord's right to enforce any such remedies with
respect to such default or any subsequent default.
20. ATTORNEY'S FEES. In the event it becomes necessary for either party to
enforce any rights incident to this Lease, in a court of law or equity,
the prevailing party shall be entitled to recover reasonable attorney's
fees (including those on appeal) in additional to damages or other
appropriate relief. If Landlord places any amounts owing under this
Lease in the hands of an attorney or other party for collection or
enforcement of the covenants contained herein, as a consequence of a
default, as defined herein, the party in default agrees to pay
reasonable fees and expenses so incurred, even though no suit or action
is instituted.
21. LANDLORD'S LIEN. In addition to any statutory lien for rent in
Landlord's favor, Landlord shall have and Tenant hereby grants to
Landlord a continuing security interest for all rentals and other sums
of money becoming due hereunder from Tenant, upon all goods, wares,
equipment, fixtures, furniture, inventory, accounts, contract rights,
chattel paper and other personal property of Tenant situated on the
Premises, and such property shall not be removed
Please Initial
---------------------
ILLEGIBLE ILLEGIBLE
--------- ---------
Tenant Landlord
12
<PAGE>
therefrom without the consent of Landlord until all arrearages in rent
as well as any and all other sums of money then due to Landlord
hereunder shall first have been paid and discharged. In the event of a
default under this Lease, Landlord shall have, in addition to any other
remedies provided herein or by law, all rights and remedies under the
Uniform Commercial Code or other applicable law, including, without
limitation, the right to sell the property described in this Paragraph
21 at public or private sale. Tenant hereby agrees to execute such
financing statements and other instruments necessary or desirable in
Landlord's discretion to perfect the security interest hereby created.
Any statutory lien for rent is not hereby waived, the express contractual
lien herein granted being in addition and supplementary thereto.
22. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgage(s) and/or deed(s) of trust now or at any time hereafter
constituting a lien or charge upon the Premises or the improvements
situated thereon; provided, however, that if the mortgagee, trustee, or
holder of any such mortgage or deed of trust elects to have Tenant's
interest in this Lease superior to any such instrument, then by notice
to Tenant from such mortgagee, trustee or holder, this Lease shall be
deemed superior to such lien, whether this Lease was executed before or
after said mortgage or deed of trust. This provision shall be self
operative, and no further instrument of subordination shall be necessary.
In confirmation thereof, Tenant shall at any time hereafter on demand
execute any instruments, releases or other documents which may be
required by any mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage and confirming
such other information as such mortgagee may reasonably require. Upon
written request, Tenant shall provide Landlord with financial statements
certified by Tenant as accurate and up to date, showing with reasonable
detail Tenant's financial condition.
23. BROKER'S COMMISSIONS. Except for _________________________("Tenant's
Broker"), Tenant represents and warrants that it has not engaged any
broker, agent or finder who would be entitled to any commission or fee
in connection with the negotiation and execution of this Lease. Tenant
shall indemnify, protect, defend and hold the Indemnified Parties
harmless against any and all claims for any brokerage commissions and all
costs, expenses and liabilities in connection therewith, including
attorneys' fees and expenses arising out of any charge or claim for a
commission or fee by any broker, agent or finder on the basis of any
agreements made or alleged to have been made by or on behalf of Tenant
except for Tenant's Broker and any brokers with whom Landlord has an
express written brokerage agreement.
24. CONSTRUCTION LIENS. Tenant shall have no authority, express or implied,
to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing
with Tenant, including those who may furnish materials or perform labor
for any construction or repairs. Tenant covenants and agrees that it
will pay or cause to by paid all sums legally due and payable by it on
account of any labor performed or materials furnished in connection with
any work performed on the Premises on which any lien is or can be
validly and legally asserted against its leasehold interest in the
Premises or the improvements thereon and that it will indemnify,
protect, defend and hold the Indemnified Parties harmless from any and
all claims, liabilities, losses, costs or expenses (including attorneys'
fees) based on or arising out of asserted claims or liens against the
right, title and interest of the Landlord in the Premises or under the
terms of this Lease.
25. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with
reference to the sending, mailing or delivery of any notice or the
making of any payment by Landlord to Tenant or with reference to the
sending, mailing or delivery of any notice or the making of any payment
by Tenant to Landlord shall be deemed to be compiled with when and if
the following steps are taken:
A. All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address herein
below set forth or at such other address as Landlord may specify from
time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay rent and any other amounts to Landlord under
the terms of this Lease shall not be deemed satisfied until such rent
and other amounts have been actually received by Landlord.
B. All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address herein below set forth, or at
such other address within the continental United States as Tenant may
specify from time to time by written notice delivered in accordance
herewith.
13
<PAGE>
C. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or
not when deposited in the United States Mail, postage prepaid, Certified
or Registered Mail, addressed to the parties hereto at the respective
addresses set out below, or at such other address as they have
theretofore specified by written notice delivered in accordance herewith:
LANDLORD: TENANT:
RIGGS & COMPANY, a division of Advanced Materials, Inc.
RIGGS BANK N.A., as trustee of 9400 S.W. Tualatin Sherwood Road
the Multi-Employer Property Trust Tualatin, Oregon 97062
c/o Trammell Crow Company
8930 SW Gemini Drive
Beaverton, Oregon 97008-7123
If and when included within the term "Landlord", as used in this
instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such
a notice specifying some individual at a specific address for the
receipt of notices and payments to Landlord. If and when included within
the term "Tenant", as used in this instrument, there are more than one
person, firm or corporation, all shall jointly arrange among themselves
for their joint execution of such a notice specifying some individual at
a specific address within the continental United States for the receipt of
notices and payments to Tenants. All parties included within the terms
"Landlord" and "Tenant", respectively, shall be bound by notices given in
accordance with the provisions of this paragraph to the same effect as if
each had received such notice.
26. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held
to include the plural, unless the context otherwise requires.
B. The terms, provisions and covenants and conditions contained in this
Lease shall apply to, inure to the benefit of, and be binding upon,
the parties hereto and upon their respective heirs, legal
representatives, successors and permitted assigns, except as otherwise
herein expressly provided. Landlord shall have the right to assign any
of its rights and obligations under this Lease.
C. Each party agrees to furnish to the other, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of such
party to enter into this Lease. If Tenant is a partnership, company,
corporation or other entity, each individual executing this Lease on
behalf of Tenant represents and warrants to Landlord that he or she is
duly authorized to so execute and deliver this Lease and that all
partnership, company, corporation or other entity actions and consents
required for execution of this Lease have been given, granted or
obtained.
D. The captions inserted in this Lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this
Lease, or any provision hereof, or in any way affect the interpretation
of this Lease.
E. Tenant agrees from time to time within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, the
date to which rent has been paid, the unexpired term of this Lease and
such other matters pertaining to this Lease as may be requested by
Landlord, Landlord's lender, a prospective lender or a prospective
purchaser. It is understood and agreed that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material
inducement for Landlord's execution of this Lease. If Tenant fails to
respond within ten (10) business days of its receipt of a written request
by Landlord as provided in this paragraph, such shall be a breach of
this Lease and Tenant shall be deemed to have admitted the accuracy of
any information supplied by Landlord to a prospective purchaser,
mortgagee or assignee. The estoppel certificate Tenant shall be required
to execute may be in, but is not limited to, the form attached hereto as
Exhibit D.
(a) the date this Lease was executed and the date it expires; (b) the
date Tenant entered into occupancy of the Premises; (c) the amount of
monthly Base Rent and Additional Rent and the date to which such Base
Rent and Additional Rent have been paid; and (d) certifying that (1)
14
<PAGE>
this Lease is in full force and effect and has not been assigned,
modified, supplemented or amended in any way (or specifying the date of
the agreement so affecting this Lease); (2) Landlord is not in breach of
this Lease (or, if so, a description of each such breach) and that in no
event, omission or condition has occurred which would result, with the
giving of notice or the passage of time, in a breach of this Lease by
Landlord; (3) this Lease represents the entire agreement between the
parties with respect to the Premises; (4) all required contributions by
Landlord to Tenant on account of Tenant Improvements have been
received;(5) on the date of execution, there exist no defenses or
offsets which the Tenant has against the enforcement of this Lease by
the Landlord; (6) no Base Rent, Additional Rent or other sums payable
under this Lease have been paid in advance except for Base Rent and
Additional Rent for the then current month; (7) no security has been
deposited with Landlord (or, if so, the amount of such security); (8) it
is intended that any Tenant's statement may be relied upon by
a prospective purchaser or mortgagee of Landlord's interest or an
assignee of any such mortgagee; (9) the representations in the paragraph
captioned "ERISA REPRESENTATIONS" remain true and correct; and (10) such
other information as may be reasonably requested by Landlord.
F. This Lease may not be altered, changed, modified or amended except
by an instrument in writing signed by both parties hereto.
Notwithstanding anything contained in the Lease to the contrary, including
without limitation, Landlord's agents, only officers of Riggs Bank N.A.,
are authorized to amend, renew or terminate this Lease, or to compromise
any of Landlord's claims under this Lease or to bind Landlord in any
manner. Without limiting the effect of the previous sentence, no
property manager or broker shall be considered an authorized agent of
Landlord to amend, renew or terminate this Lease or to compromise any of
Landlord's claims under this Lease or to bind Landlord in any manner.
G. All indemnity obligations and all other obligations of Tenant
hereunder not fully performed as of the expiration or earlier
termination of the term of this Lease shall survive the expiration or
earlier termination of the Term hereof, including, without limitation, all
payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the Premises. Upon the
expiration or earlier termination of the Term hereof, and prior to
Tenant vacating the Premises, Tenant shall pay to Landlord any amount
reasonably estimated by Landlord as necessary to put the Premises,
including, without limitation, all heating and air conditioning systems
and equipment therein, in good condition and repair pursuant to
Paragraph 10(B) hereof. Tenant shall also, prior to vacating the
Premises, pay to Landlord the amount, as estimated by Landlord, of
Tenant's obligation hereunder for real estate taxes and insurance
premiums for the year in which the Lease expires or terminates. All such
amounts shall be used and held by Landlord for payment of such
obligations of Tenant hereunder, with Tenant being liable for any
additional costs therefor upon demand by Landlord, or with any excess
to be returned to Tenant after all such obligations have been determined
and satisfied, as the case may be. Any security deposit held by Landlord
shall be credited against the amount payable by Tenant under this
Paragraph 26(G).
H. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term of
this Lease, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby,
and it is also the intention of the parties to this Lease that in lieu of
each clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added as part of this Lease contract a clause or
provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
I. Because the Premises are on the open market and are presently being
shown, this Lease shall be treated as an offer with the Premises being
subject to prior lease and such offer subject to withdrawal or
non-acceptance by Landlord or to other use of the Premises without
notice, and this Lease shall not be valid or binding unless and until
accepted by Landlord in writing and a fully executed copy delivered to
both parties hereto.
J. All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time,
on which all parties hereto have executed this Lease.
K. Tenant represents to Landlord that with the exception of this Lease,
neither the Tenant nor any affiliate of the Tenant is a tenant under a
lease or any other tenancy arrangement (1) with (a) Riggs & Company, a
division of Riggs Bank N.A., as trustee of the Multi-Employer Property
Trust; (b) The Riggs Bank N.A., as trustee of the Multi-Employer
Property Trust; (c) the Multi-Employer Property Trust; (d) the National
Bank of Washington Multi-Employer Property Trust, the previous name of
the Multi-Employer Property Trust; (e) The Riggs National Bank of
Washington, D.C., as trustee of the Multi-Employer Property Trust; (f)
15
<PAGE>
Alameda Industrial Properties Joint Venture; (g) Harman International
Business Campus Joint Venture; (h) Beaverton-Redmond Tech Properties;
(i) Corporate Drive Corporation as trustee of the Corporate Drive
Nominee Realty Trust; (j) Goldbelt Place Joint Venture; (k) BOCA 1515, a
joint venture; (l) Arboretum Lakes-I, L.L.C., a Delaware limited
liability company; (m) Village Green of Rochester Hills Associates,
L.L.C.; (n) Pine Street Development, L.L.C.; or (o) MEPT Realty LLC; or
(2) involving any property in which any one or more of the entities
named in clauses (1)(a) through (d) are known by the Tenant to have an
ownership interest.
L. Tenant shall not, and shall not cause or allow any other party to,
construct, use, deposit, store, dispose, place, or locate on or about
the Premises or the Project any hazardous substances (as later defined)
without the prior written consent of Landlord, which shall not be
unreasonably withheld as long as Tenant demonstrates to Landlord's
reasonable satisfaction that: (a) the nature and quality of any
hazardous material is necessary, useful, and appropriate to Tenant's
business conducted at the Premises; (b) the hazardous material will be
used, kept, and stored with the highest degree of care and in a manner
that complies with all governmental laws, ordinances, regulations,
orders, and policies regulating any such hazardous material so brought
upon or used or kept in or about the Premises; (c) such hazardous
substances are disposed of off the Premises and the Project, in a
disposal site licensed or designated for such hazardous substances, with
the utmost care and caution and in a manner consistent with applicable
governmental laws, ordinances, regulations, orders and policies; (d)
Tenant pays as additional rent any increase in the premiums charged
Landlord for insurance coverage by reason of Tenant's storage,
placement, location, or use of hazardous substances or any premiums for
additional insurance coverages deemed appropriate by Landlord because of
the presence of such hazardous substances; and (e) Tenant procures any
insurance coverages demanded by Landlord and naming the Landlord and
such other parties as Landlord requires as additional insureds.
Tenant shall indemnify, defend, and hold the Indemnified Parties
harmless from any and all claims, judgments, damages, penalties, fines,
costs, liabilities, or losses (including, without limitation, diminution
in value of the Premises, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Premises, damages
arising from any adverse impact on marketing of space, and sums paid in
settlement of claims, attorneys' fees, consultant fees, and expert fees)
which arise during or after the Lease Term as a result of contamination
to the Premises by hazardous substance during the term of this Lease or
to the Property as a result of an act or omission of Tenant, and
Tenant's agents or employees. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state, or local governmental
agency or political subdivision because of hazardous substances present
in the soil or ground water on or under the Premises. Without limiting
the foregoing, if the presence of any hazardous substances on the
Premises occurs during the term of this Lease, Tenant shall promptly
take all actions at its sole expense as are necessary to return the
Premises to the condition existing prior to the release of any such
hazardous substances to the Premises, provided that Landlord's approval
of such actions shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have
any material adverse long-term or short-term effect on the Premises. The
foregoing indemnity shall survive the expiration or earlier termination
of this Lease.
The term "hazardous substances" shall include (a) any chemical,
material, element, compound, solution, mixture, substance, or other
matter of any kind whatsoever which is a hazardous substance as defined
in, or related by the Federal Comprehensive Environmental Response
Compensation and Liability Act, 42 USC Section 9601 et seq., as amended;
the regulations promulgated from time to time thereunder; the wastes
listed in the United States Department of Transportation Hazardous
Materials Table (49 CFR 172.101); the United States Environmental
Protection Agency Hazardous Substances (40 CFR Part 302), and amendments
thereto; environmental laws and regulations administered by the
Environmental Protection Agency or its delegees, similar laws and
regulations of the State of Oregon, City of Tualatin, or any state or
local governmental organization or agency, or additional or substitute
laws or regulations with respect to the same subject matter enacted or
promulgated by the federal, state, local, or quasi-governmental
organization or agency; and (b) asbestos or materials containing
asbestos, petroleum products, or such other substances, materials, and
wastes that are or become regulated under the applicable local, state,
or federal laws, whether or not within clause (a). The above
notwithstanding, Tenant shall not be liable for hazardous substances
contamination of the Premises occuring prior to the Commencement Date of
the Lease. The Landlord represents and warrants to its actual knowledge
that the Premises are not contaminated by any hazardous substances as of
the Commencement Date.
M. This Lease shall be governed by and construed in accordance with the
laws of the State of Oregon.
16
<PAGE>
N. For any litigation, action or dispute arising out of or in
connection with the agreement, the matter shall be tried and determined
by a judge alone, WITHOUT A JURY. All parties shall submit to the
jurisdiction of an appropriate court in the State of Oregon, with venue
in the County of Washington. Tenant irrevocably consents to the service
of process of any action or proceeding at the address of the Premises.
O. If Tenant fails to perform any obligation under this Lease, Landlord
shall have the option to do so after thirty (30) days written notice to
Tenant. All of Landlord's expenditures to correct the default shall be
reimbursed by Tenant on demand with interest at a rate of one and
one-half percent (1-1/2%) per month from the date of expenditure by
Landlord.
P. If Tenant shall request Landlord's consent under this Lease and
Landlord shall fail or refuse to give such consent, Tenant shall not be
entitled to any damages for any withholding by Landlord of its consent.
Tenant's sole remedy shall be an action for specific performance or
injunction and that remedy shall be available only in those instances
where Landlord has expressly agreed in writing not to unreasonably
withhold Landlord's consent.
Q. This Lease shall not be recorded without the consent in writing of
Landlord. If Landlord consents, Landlord shall execute and acknowledge a
memorandum of this Lease in a form suitable for recording, and Tenant
may record the memorandum.
R. This Lease contains the entire agreement between the parties
concerning the subject matter and supersedes any prior agreements or
understandings related thereto. There are merged herein all prior and
collateral representations, promises, and conditions in connection with
the subject matter hereof. This Lease supersedes and is in lieu of all
existing agreements or arrangements between the parties relating to the
Premises identified herein.
S. No payment by Tenant or receipt by Landlord of an amount less than
the Base Rent or additional rent or any other sum due and payable under
this Lease shall be deemed to be other than a payment on account of the
Base Rent, additional rent or other such sum, nor shall any endorsement
or statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, nor preclude Landlord's
right to recover the balance of any amount payable or Landlord's right
to pursue any other remedy provided in this Lease or at law.
T. The waiver by Landlord of any covenant or condition contained in
this Lease shall not be deemed to be a waiver of any subsequent breach
of such covenant or condition nor shall any custom or practice which may
develop between the parties in the administration of this Lease be
construed to waive or lessen the rights of Landlord to insist on the
strict performance by Tenant of all of the covenants and conditions of
this Lease. No act or thing done by Landlord or Landlord's Agents during
the Lease Term shall be deemed an acceptance or a surrender of the
Premises, and no agreement to accept a surrender of the Premises shall
be valid unless made in writing and signed by Landlord. The mention in
this Lease of any particular remedy shall not preclude Landlord from any
other remedy it might have, either under this Lease or at law, nor shall
the waiver of or redress for any violation of any covenant or condition
in this Lease or in any of the rules or regulations attached to this
Lease or later adopted by Landlord, prevent a subsequent act, which
would have originally constituted a violation, from having all the force
and effect of an original violation. The receipt by Landlord of Base
Rent, additional rent or any other sum payable under this Lease with
knowledge of a breach of any covenant or condition in this Lease shall
not be deemed a waiver of such breach. The failure of Landlord to
enforce any of the rules and regulations attached to this Lease or later
adopted, against Tenant or any other tenant in the Building, shall not
be deemed a waiver. Any waiver by Landlord must be in writing and signed
by Landlord to be effective.
U. In the event that Landlord shall be delayed, hindered in or
prevented from the performance of any act or obligation required under
this Lease by reason of acts of God, strikes, lockouts, labor troubles
or disputes, inability to procure or shortage of materials or labor,
failure of power or utilities, delay in transportation, fire, vandalism,
accident, flood, severe weather, other casualty, governmental
requirements (including mandated changes in the Plans and Specifications
or the Tenant Improvements resulting from changes in pertinent
governmental requirements or interpretations thereof), riot,
insurrection, civil commotion, sabotage, explosion, war, natural or
local emergency, acts or omissions of others, including Tenant, or other
reasons of a similar or dissimilar nature not solely the fault of, or
under the exclusive control of, Landlord, then performance of such act
or obligation shall be excused for the period of the delay
17
<PAGE>
and the period for the performance of any such act or obligation shall
be extended for the period equivalent to the period of such delay.
V. Time is of the essence with respect to the performance of every
covenant and condition of this Lease.
27. LIABILITY OF LANDLORD. Landlord has executed this Lease by its trustee
signing solely in a representative capacity. Notwithstanding anything
contained in this Lease to the contrary, Tenant confirms that the
covenants of Landlord are made and intended, not as personal covenants
of the trustee, or for the purpose of binding the trustee personally,
but solely in the exercise of the representative powers conferred upon
the trustee by its principal. Liability with respect to the entry and
performance of this Lease by or on behalf of Landlord, however it may
arise, shall be asserted and enforced only against the Landlord's estate
and interest in the Building and Landlord shall have no personal
liability in the event of any claim against Landlord arising out of or
in connection with this Lease, the relationship of Landlord and Tenant
or Tenant's use of the Premises. Further, in no event whatsoever shall
any Landlord's Agent have any liability or responsibility whatsoever
arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Premises. Any and all
personal liability, if any, beyond that which may be asserted under this
paragraph, is expressly waived and released by Tenant and by all persons
claiming by, through or under Tenant.
28. ACCESS LAWS.
A. As used in this Paragraph, the term "Access Laws" shall mean the
Americans with Disabilities Act of 1990 (including the Americans with
Disabilities Act Accessibility Guidelines for Buildings and Facilities),
the Fair Housing Amendments Act of 1988, all state and local laws or
ordinances related to handicapped access, or any statute, rule,
regulation, ordinance, order of governmental bodies or regulatory
agencies, or order or decree of any court adopted or enacted with
respect to any of the foregoing. The term Access Laws shall include all
Access Laws now in existence or hereafter enacted, adopted or applicable.
B. Landlord makes no representations regarding the compliance of the
Premises or the Project with Access Laws; provided that, if any
improvements or alterations constructed by Landlord do not comply with
Access Laws, Landlord shall be responsible for correcting such defects
if and to the extent required by law.
C. Tenant agrees to notify Landlord immediately if Tenant becomes aware
of: (i) any condition or situation in or on the Premises which would
constitute a violation of any Access Laws, or (ii) any threatened or
actual lien, action or notice of the Premises not being in compliance
with any Access Laws. Tenant shall inform Landlord of the nature of any
such condition, situation, lien, action or notice and of the action
Tenant proposes to take in response thereto.
D. Tenant shall not alter or permit any assignee or subtenant or any
other person to alter the Premises in any manner which would violate any
Access Laws or increase Landlord's responsibilities for compliance with
Access Laws, without the prior approval of the Landlord. In connection
with any such approval, Landlord may require a certificate of compliance
with Access Laws from an architect, engineer or other person acceptable
to Landlord. Tenant agrees to pay the reasonable fees incurred by such
architect, engineer or other third party in connection with the issuance
of such certificate of compliance. Landlord's consent to any proposed
Tenant alteration shall (a) not relieve Tenant of its obligations or
indemnities contained in this paragraph or this Lease or (b) be
construed as a warranty that such proposed alternation complies with any
Access Law.
E. Tenant shall be solely responsible for all costs and expenses
relating to or incurred in connection with bringing the Premises, the
building in which the Premises are located and the common areas of the
Project into compliance with the Access Laws if and to the extent such
costs and expenses arise out of or relate to Tenant's use of the
Premises or Tenant's modifications, improvements or alterations to the
Premises after the date of this Lease.
F. Tenant agrees to indemnify, defend, protect and hold the Indemnified
Parties harmless from and against any and all claims, demands, damages,
losses, liens, liabilities, penalties, fines, lawsuits, and other
proceedings and costs and expenses (including attorneys' fees) arising
directly or indirectly from or out of, or in any way connected with, any
activity on or use of the Premises or the Project by Tenant, its agents,
employees, contractors, invitees, or any subtenant or concessionaire put
into possession of all or any part of the Premises by Tenant, which
activity or use results in the Premises violating any applicable Access
Laws.
18
<PAGE>
G. The provisions in this Paragraph shall supersede any other
provisions in this Lease regarding Access Laws to the extent
inconsistent with the provisions of this Paragraph. The provisions in
this Paragraph shall survive the expiration of the Term or the
termination of this Lease for any other reason whatsoever.
29. ADDITIONAL PROVISIONS.
Paragraph 30, attached hereto, is by this reference incorporated herein.
LANDLORD:
RIGGS & COMPANY, a division of RIGGS BANK N.A.,
as trustee of the Multi-Employer Property Trust, a trust organized
under 12 C.F.R. Section9.18
By: /s/ Leanne Tobias
----------------------
Name: Leanne Tobias
Title: Managing Director
Date: 6/30/99
TENANT:
ADVANCED MATERIALS, INC., a California corporation
9400 S.W. Tualatin Sherwood Road
Tualatin, Oregon 97062
By: /s/ David A. Lasnier
--------------------
Name: David A. Lasnier
Title: Sr. Vice President
Date: 6/21/99
19
<PAGE>
TENANT ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
SS.
County of Los Angeles )
BE IT REMEMBERED, That on this 21st day of JUNE, 1999, before me, the
undersigned a Notary Public in and for said County and State, personally
appeared the within name DAVID A. LASNIER known to me to be SENIOR VICE
PRESIDENT, ADVANCED MATERIALS who executed the within instrument and
acknowledged to me that he executed the same freely and voluntarily.
IN TESTIMONY WHEREOF, I hereunto set my hand and affixed
my official seal the day and year last above written.
[SEAL] /s/ SUZANNE COOLEY
----------------------------------------
Notary Public for CALIFORNIA
My commission expires SEPTEMBER 21, 2001
LANDLORD ACKNOWLEDGEMENT
DISTRICT OF COLUMBIA )
SS.
BE IT REMEMBERED, That on this 30th day of JUNE, 1999, before me, the
undersigned a Notary Public in and for said County and State, personally
appeared the within name, LEANNE TOBIAS known to me to be MANAGING DIRECTOR
who executed the within instrument and acknowledged to me that he executed
the same freely and voluntarily.
IN TESTIMONY WHEREOF, I hereunto set my hand and affixed
my official seal the day and year last above written.
[SEAL] /s/ DENISE HART-GAMBLE
-------------------------------------------
Notary Public for DISTRICT OF COLUMBIA
My commission expires MARCH 31, 2003
<PAGE>
ADDENDAS AND ADDITIONAL PROVISIONS TO LEASE AGREEMENT
DATED JUNE 4, 1999
BETWEEN
RIGGS & COMPANY,
A DIVISION OF RIGGS BANK N.A., AS TRUSTEE OF THE MULTI-EMPLOYER PROPERTY TRUST
("LANDLORD")
AND
ADVANCED MATERIALS, INC.
A CALIFORNIA CORPORATION
("TENANT")
__________________________________________________
ADDENDUM TO PARAGRAPH 2 - MONTHLY BASE RENT. The Monthly Base Rent as
provided for in Paragraph 2 of the Lease shall be as follows:
<TABLE>
<CAPTION>
Months $/Month
------ -------
<S> <C>
1 $7,514.00
2-8 $7,715.00
9-25 $8,083.00
</TABLE>
ADDITIONAL PARAGRAPH 30, OPTION TO EXTEND. While this Sublease is in full
force and effect, provided that Tenant is not in material default of any of
the terms, covenants and conditions thereof, Landlord grants to Tenant one
(1) option to extend the term of the Sublease for a period of three (3)
years, commencing upon the termination of the original Lease term,
exercisable by giving Landlord notice in writing not later than one hundred
eighty days (180) days prior to the commencement date of the applicable
option term. Such extension or renewal of the term shall be on the same
terms, convenants or conditions as provided for in the original or
immediately preceding term except that the monthly base rent during the
extended term shall be at the fair market rental then in effect on equivalent
properties, of equivalent size, in equivalent areas determined in the manner
set forth below.
Landlord shall provide Tenant with written notification of Landlord's
determination of such fair market rental within thirty (30) days after
Tenant's extension notice. For purposes of this Paragraph 30, in the event
Landlord and Tenant are unable to agree upon the fair market rental within
thirty (30) days thereafter ("Negotiation Period"), the fair market rental
shall be established as follows: Within ten (10) days after the expiration of
the Negotiation Period, Landlord shall, in writing, designate an appraiser.
Within ten (10) days after the date of Landlord's written designation, Tenant
shall either accept Landlord's appraiser or shall provide Landlord with the
name of a second appraiser. If Tenant designates a second appraiser, the two
designated appraisers shall designate a third appraiser within ten (10) days
thereafter. The three appraisers shall then each determine fair market rental
within ten (10) days following the designation of the third appraiser (or
Tenant's acceptance of the appraiser designated by Landlord). For purposes of
this Paragraph 30, fair market rental shall be the average of the two closest
determinations by such appraisers. Tenant shall have ten (10) days following
determination of fair market rental to rescind its extension notice. Any
appraiser designated pursuant to this Paragraph 30 shall be an MAI appraiser
with at least five (5) years' experience in valuing commercial real estate
rental values in the Greater Portland area. All costs in connection with the
appraisal described in this Paragraph 30 shall be shared equally by the
parties. However, in no event shall the rental in the renewal term be below
the rental in the primary term of the Lease. In the event the demised
Premises is sublet or assigned this renewal option will be null and void and
of no further effect.
<PAGE>
EXHIBIT A
PREMISES
[GRAPH]
________________________________________________________________________________
[GRAPH]
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
A tract of land situated in the S.W. 1/4 of Section 23, T.2S., R.1W., W.M.,
City of Tualatin, Washington County, Oregon, being more particularly
described as follows:
Commencing at the south 1/4 corner of said Section 23; thence, along the east
line of the southeast quarter of the southwest quarter of said Section 23,
North 0 degrees 15'13" West, 32.89 feet to the true point of beginning;
thence, along the south line of that tract of land conveyed to Earl J. Itel,
recorded July 16, 1969, in book 750, Page 279, South 89 degrees 37'46" West,
1292.79 feet to the southwest corner of said Itel tract: thence, along the
west line of said Itel tract, North 0 degrees 01'38" East, 141.35 feet to a
point on the southerly right-of-way line of the Burlington Northern Railroad
(formerly Spokane, Portland, and Seattle Railroad); thence, along said
southerly right-of-way, being 25.00 feet from the centerline of the tracks,
when measured at right angles, North 56 degrees 01'15" East, 48.57 feet;
thence, continuing along said right-of-way and along the arc of a 165.0 foot
offset spiral curve to the right, offset 25.0 southerly, having a centerline
angle of 2 degrees 28'30", (chord bears North 57 degrees 01'09" East, 163.90
feet) to a point of spiral to curve; thence, continuing along said
right-of-away and along the arc of a 1884.86 foot radius curve to the right,
through a central angle of 20 degrees 33'00" (chord bears North 68 degrees
46'15" East, 672.42 feet) a distance of 676.03 feet to a point of curve to
spiral; thence, along the arc of a 165.0 foot offset spiral curve to the
right, offset 25.0 feet southerly, having a centerline spiral angle of 2
degrees 28'30" (chord bears North 80 degrees 31'21" East, 163.90 feet), to a
point of spiral; thence, North 81 degrees 31'15" East, 48.67 feet to a point
on the east line of that tract of land conveyed by deed to Earl J. Itel,
recorded in Book 750, Page 279, Washington County Deed Records; thence, along
the east line of said Itel tract, South 0 degrees 07'32" West, 100.00 feet to
the southeast corner thereof; thence, along the south line of said Itel
tract, North 89 degrees 52'28" West, 85.12 feet to a point on the east line
of the southeast quarter of the southwest quarter of said Section 23; thence,
along said east line, South 0 degrees 15'13" East, 593.31 feet; thence, South
44 degrees 17'29" East, 107.89 feet to a point that is 30.00 feet, when
measured at right angles, from the south line of said 1/4 said Section 23;
thence, parallel with the south line of said N.E. 1/4, South 89 degrees
29'45" West, 75.00 feet to a point on the west line of said N.E. 1/4; thence,
along said West line, North 0 degrees 15'13" West, 2.89 feet to the true
point of beginning.
Contains 677,845 square feet (15.56 acres).
<PAGE>
EXHIBIT C
PLANS AND SPECIFICATIONS
This Exhibit C is intentionally left blank
<PAGE>
EXHIBIT D
TUALATIN CORPORATE CENTER
TENANT'S ESTOPPEL CERTIFICATE
TO: Riggs & Company, a division of Riggs Bank, N.A., as Trustee of the
Multi-Employer Property Trust
c/o Kennedy Associates Real Estate Counsel, Inc.
2400 Financial Center Building
Seattle, Washington 98161
THIS IS TO CERTIFY:
1. That the undersigned is the Tenant under that certain Lease
dated __________________, and, if applicable, amended on ___________________,
by and between ____________________, a __________________________ limited
partnership ("Landlord") and the undersigned ("Tenant") covering those certain
premises located as shown on the drawing made part of the Lease (the
"Premises").
2. That said Lease is in full force and effect and, except as noted in
Paragraph 1, above, has not been modified, changed, altered or amended in any
respect, and is the only lease or agreement (oral or written) between the
Tenant and Landlord affecting the Premises.
3. To the best of Tenant's knowledge, the information set forth below
is true and correct:
(a) Square footage of the Premises: _______________
(b) Annual rent as of the commencement of Lease: $_______________
(c) Current annual rent (if different than at
commencement): $_______________
(d) Lease term commenced:______________
(e) Lease termination date: ______________
(f) Rent is paid to and including: _____________
(g) Security Deposit: $______________
(h) Prepaid rent for and in amount of: $_____________
(i) Amount of current monthly Escrow payment obligations with
respect to taxes and other charges under Paragraph 4 of the
Lease and with respect to insurance under Paragraph 13 of the
Lease:
Taxes: $_______________
Insurance: $_______________
(j) Amount of current monthly payments due under Paragraph 7 of the
Lease with respect to Common Area Maintenance
charges: $_______________
(k) Dates through which Tenant has paid monthly Escrow Payments and
Common Area Maintenance charges:
Escrow Payment for Taxes:_______________
Escrow Payment for Insurance: _______________
Common Area Maintenance: _______________
4. The Tenant, unless otherwise stated in Exhibit A, now occupies the
Premises, accepts the Premises in their current condition subject only to
those punch list items shown on Exhibit A, if any, and is not aware of any
defect in the Premises except as shown on Exhibit A, if any. No rent has
been collected in the current month other than as disclosed in Paragraph 3.
No free rent or other concessions, benefits, or inducements other than as
specified in the Lease have been granted to Tenant or undertaken by the named
Landlord. All required contributions by Landlord to Tenant on account of
tenant improvements have been made or received as applicable.
5. The Tenant has not been granted any renewal, expansion or purchase
options and has not been granted any rights of first refusal except as
disclosed in writing in the Lease.
<PAGE>
6. Neither Tenant nor Landlord is in default under the Lease and there
has not occurred any event, which by notice or lapse of time or both or
otherwise, will result in any default. As of the date hereof and except as
set forth in the Lease, the undersigned is entitled to no credit, offset or
deduction in the rent. Tenant knows of no liabilities or obligations of
Landlord which have accrued but are unsatisfied under the Lease as of the
date of this Certificate.
7. Tenant is required, under Paragraph 7 of the Lease, to pay a
proportionate share of certain costs associated with the "Common Area which
shall be defined from time to time by Landlord."
8. To the best of Tenant's knowledge, there are no actions, whether
voluntary or otherwise, pending against the undersigned under the bankruptcy
laws or other laws for the relief of debtors of the United States or any
state thereof.
9. No party-in-interest relationship exists between one or more of the
pension plans identified in Section 26K of the Lease and the Tenant such that
the Lease will become a non-exempt, prohibited transaction under ERISA on
purchase of the Premises by the addressee.
10. The term "party-in-interest" shall have the meaning assigned to it
in Section 3(14) of ERISA. ERISA shall mean the Employee Retirement Income
Security Act 0f 1974, as amended.
DATED this 21st day of June, 1999
TENANT: /s/ [ILLEGIBLE]
-------------------------------
<PAGE>
EXHIBIT E
LIST OF APPLICABLE EMPLOYEE BENEFIT PLANS
Participants whose holdings in the Multi-Employer Property Trust constitute
5% or more of net assets, as of 1/1/90:
- NATIONAL AUTOMATIC SPRINKLER INDUSTRY PENSION FUND
- PLUMBERS AND PIPEFITTERS NATIONAL PENSION FUND
<PAGE>
EMPLOYMENT AGREEMENT
Agreement made this 01st day of August, 1999 between Advanced Materials Group,
Inc., a Nevada corporation (the "Company") and David A. Lasnier, Laguna Niguel,
California ("Employee").
WITNESSETH:
WHEREAS, the parties acknowledge that Employee has abilities and expertise that
are unique and valuable to the Company; and
WHEREAS, in view of such abilities and expertise, the Company desire to retain
Employee as Senior Vice President/General Manager; and
WHEREAS, the Company and Employee have determined that such engagement of
Employee be subject to a mutually acceptable written agreement;
NOW THEREFORE, in consideration of the mutual agreements contained herein and
intending to be legally bound, the parties hereto agree as follows:
1. SERVICES
(a) The Company hereby employs Employee and Employee hereby accepts
such employment on the terms and conditions set forth herein. In
this regard, Employee shall perform and discharge well and
faithfully the duties and responsibilities that are commensurate
with his position.
(b) Employee is not and shall not be engaged directly or indirectly
in any other business activity, or previously have contracted to
perform such activity at a future date which would prevent the
performance of the obligations hereunder or involve activities
which would result in a breach of any provision of this
Agreement.
2. TERM
(a) The term of this Agreement shall begin on the date hereof and
shall cease and terminate upon the earliest of (i) the close of
business on the 1st day of August, 2001, (ii) the death of
Employee; (iii) termination by the Company, at its option, for
"cause" as defined in subdivision (b) of this Section 2; or (iv)
termination by mutual agreement between the parties.
(b) As used in this Section, "cause" shall mean and be limited to
gross negligence or willful misconduct of Employee in the
performance of his duties, or conviction of a felony or a crime
involving moral turpitude.
(c) In the event of a permanent disability, the contract will remain
in effect until the start of long-term disability insurance
coverage (3 months).
<PAGE>
3. COMPENSATION
(a) The Company shall pay to Employee a base salary of $135,000 per
year, payable in weekly installments.
(b) During the term of his employment, Employee shall be entitled to
participate in employee benefit plans or programs of the Company,
if any, to the extent his position, tenure, salary, age, health
and other qualifications makes him eligible to participate,
subject to the rules and regulations applicable thereto, which
plans or programs will include, without limitation, health
insurance benefits, performance-based options, an appropriate
automobile allowance, and bonus programs, consistent with the
reasonable past practices of the Company.
(c) The Company reserves the right to increase the compensation of
the Employee, specified in this instrument, at any time or times
hereafter and no such increase or adjustment shall operate as a
cancellation of this Agreement, but merely as an amendment to
Section 3, and all the other terms, provision, and conditions of
this Agreement shall continue in force and effect as herein
provided.
(d) The Company will review this contract for consideration of a one
(1) year extension when contract is 60 days from expiration.
4. EXPENSES
The Company will reimburse Employee for direct out-of-pocket expenses
properly incurred by him in his performance of this Agreement and
provided that a written accounting is made to the Company by Employee.
5. CONFIDENTIALITY AND NON-COMPETITION
(a) Employee acknowledges that as a consequence of his relationship
with the Company, he has been and will continue to be given
access to confidential information which may include the
following types information: financial statements and related
financial information with respect to the Company, trade secrets,
computer programs, certain methods of operation, procedures,
improvements, systems, customer lists, supplier lists and
specifications, and other private and confidential materials
concerning the Company's business (collectively, "Confidential
Information"). Employee agrees that he shall maintain any
Confidential Information in strictest confidence and shall not
disclose any Confidential information to third parties during the
terms of this agreement and after the termination hereof, however
such termination shall occur, unless previously approved by the
President or Chairman of AMG in writing.
Notwithstanding the foregoing, nothing herein shall be construed
as prohibiting Employee from disclosing any Confidential
Information
<PAGE>
(a) which, at the time of disclosure, Employee can demonstrate either
was in the public domain and generally available to the public or
thereafter became a part of the public domain and generally available
to the public by publication or otherwise through no act of Employee;
(b) which Employee can establish was independently developed by a third
party who developed it without the use of the Confidential Information
and who did not acquire it directly or indirectly from Employee under
an obligation of confidence; (c) which Employee can show was received
by him after the termination of this Agreement from a third party who
did not acquire it directly or indirectly from the Company under an
obligation of confidence; or (d) to the extent that Employee can
reasonably demonstrate such disclosure is required by law or in any
legal proceeding, governmental investigation, or other similar
proceeding.
(b) Employee covenants and agrees that, in order to protect the company's
interest in its business, operations and assets during the term of
this Agreement and for a period of one (1) year following the
termination of this Agreement, however the same shall occur, he will
not, without prior written consent of the Company, directly or
indirectly:
(i) engage anywhere in the United States, whether by virtue of
stock ownership, management responsibilities or otherwise,
in companies, business, organizations and/or ventures which
are directly or indirectly competitive with the business of
the Company as presently conducted or contemplated (the
"Business"); or
(ii) become interested, directly or indirectly, whether as
principal, owner, stockholder, partner, agent, officer,
director, employee, salesman, joint venture, consultant,
advisor, independent contractor or otherwise, in any person,
firm, partnership, association, venture, corporation or
entity engaging anywhere in the United State in the Business
or directly or indirectly in competition with the Company.
6. INVENTIONS
(a) Employee hereby sells, transfers and assigns to the Company, or to
any person or entity designated by the Company, all of the entire right,
title and interest of Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and
copyrightable materials, made or conceived by Employee, solely or
jointly, or in whole or in part, during or before the term hereof which
(i) relate to methods, apparatus, designs, products, processes or
devices sold, leased, used or under construction or development by the
Company, or (ii) otherwise relate, pertain or are useful to the
business, functions or operations of the Company as presently conducted
or to be conducted by the Company, or (iii) arise (wholly or partly)
from the efforts of Employee since 16th of August, 1991 or otherwise
during the term hereof.
<PAGE>
(b) Employee shall communicate promptly and disclose to the Company, in
such form as the Company requested, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and whether during the term hereof or thereafter,
Employee shall execute and deliver to the company such formal transfers
and assignments and such other papers and documents as may be required
of the Employee to permit the company or any person or entity
designated by the Company to file and prosecute the patent applications
and, as to copyrightable material, to obtain copyright thereon. Any
invention by Employee within one year following the termination of this
Agreement shall be deemed to fall within the provisions of this
paragraph unless proved by Employee to have been first conceived and
made following such termination.
7. NO WAIVER
The failure of any party to insist upon the strict performance of
any of the terms, conditions or provisions of this Agreement shall not
be construed as a waiver of relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in
full force and effect. No interpretation, changes, modifications,
terminations or waivers of any of the provisions of this Agreement
shall be binding upon the Company or Employee unless in writing and
signed by the person to be bound.
8. RIGHTS, OBLIGATIONS AND ASSIGNMENT
The rights and obligations of the Company under this Agreement
shall inure to the benefit of, and shall be binding upon, its
successors and assigns. The duties of Employee to any such successor
entity shall not be greater than duties performed for the Company
prior to such succession. Employee is prohibited from making any
assignment of this Agreement.
9. ENTIRE AGREEMENT
This Agreement and the exhibits hereto embody the entire understanding
between the parties hereto pertaining to the subject matter hereto and
supersedes all prior agreements and understanding of the parties in
connection therewith.
10. SEVERABILITY
If any of the provisions of this Agreement shall for any reason be
adjudged by any court of competent jurisdiction to be invalid or
unenforceable, such judgement shall not affect, impair, or invalidate
the remainder of this Agreement, but shall be confined in its
operations to the provision of this Agreement directly involved in the
controversy in which such judgment shall have been rendered.
<PAGE>
11. NOTICES
Notices, other communications or deliveries required or permitted
under this Agreement shall be in writing directed as follows:
(a) TO THE COMPANY AT:
Advanced Materials Group, Inc.
20211 South Susana Road
Rancho Dominguez, CA 90221
Attn: Steve Scott
(b) TO EMPLOYEE:
David A. Lasnier
30042 Happy Sparrow Lane
Laguna Niguel, CA 92677
WITH A COPY TO:
None
The Parties may designate by notice to each other any new address
for the purpose of this Agreement. Useless otherwise specified in this
Agreement, all notices shall be effective when mailed postage prepaid
by registered or certified mail, return receipt requested.
12. APPLICABLE LAW
This Agreement shall be enforced and construed in accordance with
the laws of the State of California.
13. DISPUTES
In the event any party brings legal proceedings to resolve a dispute
hereunder, the prevailing party shall have the right to recover
reasonable attorneys' fees and costs from the other. The term "legal
proceedings" shall include appeals from the lower court judgment.
14. PAYMENT ON TERMINATION
If the Company terminates this Agreement other than for cause as
defined in Section 2(b) of this Agreement, it shall pay Employee an
amount equal to the amount set forth in Section 3(a) as an annual
base salary divided by twelve and multiplied by the number of months
remaining until the 1st day of August, 2001.
<PAGE>
15. HEADINGS
The captions and headings contained in this Employment Agreement are
for reference purposes only and shall not affect the interpretation or
meaning of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the date and year first above written.
ADVANCED MATERIALS GROUP, INC.
By: /s/ Steve Scott
-------------------------------------
Steve Scott
EMPLOYEE
By: /s/ David A. Lasnier
------------------------------------
David A. Lasnier
<PAGE>
EMPLOYMENT AGREEMENT
Agreement made this 01st day of August, 1999 between Advanced Materials
Group, Inc., a Nevada corporation (the "Company") and James Douglas Graven,
Huntington Beach, California ("Employee").
WITNESSETH:
WHEREAS, the parties acknowledge that Employee has abilities and expertise
that are unique and valuable to the Company; and
WHEREAS, in view of such abilities and expertise, the Company desires to
retain Employee as Vice President/Chief Financial Officer; and
WHEREAS, the Company and Employee have determined that such engagement of
Employee be subject to a mutually acceptable written agreement;
NOW THEREFORE, in consideration of the mutual agreements contained herein and
intending to be legally bound, the parties hereto agree as follows:
1. SERVICES
(a) The Company hereby employs Employee and Employee hereby accepts such
employment on the terms and conditions set forth herein. In this
regard, Employee shall perform and discharge well and faithfully the
duties and responsibilities that are commensurate with his position.
(b) Employee is not and shall not be engaged directly or indirectly in
any other business activity, or previously have contracted to
perform such activity at a future date which would prevent the
performance of the obligations hereunder or involve activities which
would result in a breach of any provision of the Agreement.
2. TERM
(a) The term of this Agreement shall begin on the date hereof and shall
cease and terminate upon the earliest of (i) the close of business on
the 1st day of August 2000, (ii) the death of Employee; (iii)
termination by the Company, at its option, for "cause" as defined in
subdivision (b) of this Section 2; or (iv) termination by mutual
agreement between the parties.
(b) As used in this Section, "cause" shall mean and be limited to gross
negligence or willful misconduct of Employee in the performance of
his duties, or conviction of a felony or a crime involving moral
turpitude.
(c) In the event of a permanent disability, the contract will remain in
effect until the start of long-term disability insurance coverage
(3 months).
<PAGE>
3. COMPENSATION
(a) The Company shall pay to Employee a base salary of $110,000 per
year, payable in weekly installments.
(b) During the term of his employment, Employee shall be entitled to
participate in employee benefit plans or programs of the Company, if
any, to the extent his position, tenure, salary, age, health and
other qualifications makes him eligible to participate, subject to
the rules and regulations applicable thereto, which plans or programs
will include, without limitation, health insurance benefits,
performance-based options, an appropriate automobile allowance, and
bonus programs, consistent with the reasonable past practices of the
Company.
(c) The Company reserves the right to increase the compensation of the
Employee, specified in this instrument, at any time or times
hereafter and no such increase or adjustment shall operate as a
cancellation of this Agreement, but merely as an amendment to Section
3, and all the other terms, provision, and conditions of this
Agreement shall continue in force and effect as herein provided.
(d) The Company will review this contract for consideration of a one (1)
year extension when contract is 60 days from expiration.
4. EXPENSES
The Company will reimburse Employee for direct out-of-pocket expenses
properly incurred by him in his performance of this Agreement and
provided that a written accounting is made to the Company by
Employee.
5. CONFIDENTIALITY AND NON-COMPETITION
(a) Employee acknowledges that as a consequence of his relationship with
the Company, he has been and will continue to be given access to
confidential information which may include the following types
information: financial statements and related financial information
with respect to the Company, trade secrets, computer programs,
certain methods of operation, procedures, improvements, systems,
customer lists, supplier lists and specifications, and other private
and confidential materials concerning the Company's business
(collectively, "Confidential Information"). Employee agrees that he
shall maintain any Confidential Information in strictest confidence
and shall not disclose any Confidential information to third parties
during the terms of this agreement and after the termination hereof,
however such termination shall occur, unless previously approved by
the President or Chairman of AMG in writing.
Notwithstanding the foregoing, nothing herein shall be construed as
prohibiting Employee from disclosing any Confidential Information
<PAGE>
(a) which, at the time of disclosure, Employee can demonstrate either
was in the public domain and generally available to the public or
thereafter became a part of the public domain and generally available
to the public by publication or otherwise through no act of the
Employee; (b) which Employee can establish was independently developed
by a third party who developed it without the use of the Confidential
Information and who did not acquire it directly or indirectly from
Employee under an obligation of confidence; (c) which Employee can
show was received by him after the termination of this Agreement from
a third party who did not acquire it directly or indirectly from the
Company under an obligation of confidence; or (d) to the extent that
Employee can reasonable demonstrate such disclosure is required by law
or in any legal proceeding, governmental investigation, or other
similar proceeding.
(b) Employee covenants and agrees that, in order to protect the company's
interest in its business, operations and assets during the term of
this Agreement and for a period of one (1) year following the
termination of this Agreement, however the same shall occur, he will
not, without prior written consent of the Company, directly or
indirectly:
(i) engage anywhere in the United States, whether by virtue of
stock ownership, management responsibilities or otherwise,
in companies, business, organizations and/or ventures which
are directly or indirectly competitive with the business of
the Company as presently conducted or contemplated (the
"Business"); or
(ii) become interested, directly or indirectly, whether as
principal, owner, stockholder, partner, agent, officer,
director, employee, salesman, joint venture, consultant,
advisor, independent contractor or otherwise, in any person,
firm, partnership, association, venture, corporation or
entity engaging anywhere in the United State in the Business
or directly or indirectly in competition with the Company.
6. INVENTIONS
(a) Employee hereby sells, transfers and assigns to the Company, or to any
person or entity designated by the Company, all of the entire right,
title and interest of Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and
copyrightable materials, made or conceived by Employee, solely or
jointly, or in whole or in part, during or before the term hereof
which (i) relate to methods, apparatus, designs, products, processes
or devices sold, leased, used or under construction or development by
the Company, or (ii) otherwise relate, pertain or are useful to the
business, functions or operations of the Company as presently
conducted or to be conducted by the company, or (iii) arise (wholly
<PAGE>
or partly) from the efforts of the Employee since the 20th day of
February 1996 or otherwise during the term hereof.
(b) Employee shall communicate promptly and disclose to the Company, in
such form as the Company requested, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and whether during the term hereof or thereafter,
Employee shall execute and deliver to the company such formal
transfers and assignments and such other papers and documents as may
be required of the Employee to permit the company or any person or
entity designated by the Company to file and prosecute the patent
applications and, as to copyrightable material, to obtain copyright
thereon. Any invention by Employee within one year following the
termination of this Agreement shall be deemed to fall within the
provisions of this paragraph unless proved by Employee to have been
first conceived and made following such termination.
7. NO WAIVER
The failure of any party to insist upon the strict performance of any
of the terms, conditions or provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in
full force and effect. No interpretation, changes, modifications,
terminations or waivers of any of the provisions of this Agreement
shall be binding upon the Company or Employee unless in writing and
signed by the person to be bound.
8. RIGHTS, OBLIGATIONS AND ASSIGNMENT
The rights and obligations of the Company under this Agreement shall
inure to the benefit of, and shall be binding upon, its successors and
assigns. The duties of Employee to any such successor entity shall not
be greater than duties performed for the Company prior to such
succession. Employee is prohibited from making any assignment of this
Agreement.
9. ENTIRE AGREEMENT
This Agreement and the exhibits hereto embody the entire understanding
between the parties hereto pertaining to the subject matter hereto and
supersedes all prior agreements and understanding of the parties in
connection therewith.
10. SEVERABILITY
If any of the provisions of this Agreement shall for any reason be
adjudged by any court of competent jurisdiction to be invalid or
unenforceable, such judgment shall not affect, impair or invalidate
the remainder of this Agreement, but shall be confined in its
operations to the provision of this
<PAGE>
Agreement directly involved in the controversy in which such judgment shall
have been rendered.
11. NOTICE
Notices, other communications or deliveries required or permitted under
this Agreement shall be in writing directed as follows:
(a) TO THE COMPANY AT:
Advanced Materials Group, Inc.
20211 South Susana Road
Rancho Dominiguez, CA 90221
Attn: Steve Scott
(b) TO EMPLOYEE:
Doug Graven
7211 Slater Ave
Huntington Beach, CA 92647
WITH A COPY TO:
None
The parties may designate by notice to each other any new address
for the purpose of this Agreement. Unless otherwise specified in this
Agreement, all notices shall be effective when mailed postage
prepaid by registered or certified mail, return receipt requested.
12. APPLICABLE LAW
This Agreement shall be enforced and construed in accordance with
the laws of the State of California.
13. DISPUTES
In the event any party brings legal proceedings to resolve a dispute
hereunder, the prevailing party shall have the right to recover
reasonable attorneys' fees and costs from the other. The term
"legal proceedings" shall include appeals from the lower court
judgment.
14. PAYMENT ON TERMINATION
If the Company terminates this Agreement other than for cause as
defined in Section 2(b) of this Agreement, it shall pay Employee
an amount equal to the amount set forth in Section 3(a) as an annual
base salary divided by twelve and multiplied by the number of months
remaining until the 1st day of August, 2000.
<PAGE>
15. HEADINGS
The captions and headings contained in this Employment Agreement are
for reference purposes only and shall not affect the interpretation
or meaning of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the date and year first above written.
ADVANCED MATERIALS GROUP, INC.
By: /s/ Steve Scott
-------------------------------
Steve Scott
EMPLOYEE
By: /s/ James Douglas Graven
-------------------------------
James Douglas Graven
<PAGE>
LIST OF SUBSIDIARIES
Advanced Materials, Inc.
20211 S. Susana Rd
Rancho Dominguez, CA 90221
Advanced Materials Foreign Sales Corporation
37 Reid Street, 2nd Floor
Hamilton HM AX, Bermuda
Advanced Materials Ltd.
Toughers Industrial Park
Newhall, Naas
Co. Kildare Ireland
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1
<CASH> 496,000
<SECURITIES> 0
<RECEIVABLES> 7,338,000
<ALLOWANCES> 100,000
<INVENTORY> 3,857,000
<CURRENT-ASSETS> 12,361,000
<PP&E> 2,948,000
<DEPRECIATION> 441,000
<TOTAL-ASSETS> 16,092,000
<CURRENT-LIABILITIES> 11,005,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> 2,978,000
<TOTAL-LIABILITY-AND-EQUITY> 16,092,000
<SALES> 34,798,000
<TOTAL-REVENUES> 34,798,000
<CGS> 18,766,000
<TOTAL-COSTS> 30,257,000
<OTHER-EXPENSES> 4,728,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504,000
<INCOME-PRETAX> (874,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (874,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (874,000)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
