<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-25520
THRUSTMASTER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1040330
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7175 N.W. EVERGREEN PARKWAY #400, HILLSBORO OR 97124-5839
(Address of principal executive offices, including zip code)
(503) 615-3200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. ( X )
As of March 10, 1997, the aggregate market value of voting stock held by
non-affiliates of the Registrant based on the last sales price as reported by
The NASDAQ National Market was $18,869,250.
As of March 10, 1997, the Registrant had 4,253,964 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1996 are incorporated by reference into Part III.
The index to Exhibits appears on page 34.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
ThrustMaster, Inc. (the "Company") designs, develops, manufactures and
markets interactive control devices which allow players using personal computer
entertainment software to interact realistically in a simulated environment. The
Company's products are generally purchased by serious computer game enthusiasts
who constitute the Company's core consumer constituency. The Company's principal
products include: automobile racing control devices; a family of flight
simulation controls, consisting of flight sticks, rudder pedals, and throttle
devices which replicate those on military aircraft; and sports and
action/adventure game controllers, including joysticks, a game pad and other
peripherals.
The Company cooperates with entertainment software developers and
publishers, in conjunction with its core user base, to incorporate the latest
technological advances and maintain its favorable position with serious computer
game enthusiasts and developers and publishers of computer entertainment
software. The Company believes that the compatibility of its products with a
wide variety of computer games is essential to the success of its products,
particularly lower-priced products that do not have programming capability.
Certain developers of computer entertainment software have designed their
programs to support use of ThrustMaster controls, and some have introduced
additional complexity in their games to take advantage of ThrustMaster control
capabilities. The Company also has entered into "bundling" and cooperative
marketing arrangements with software developers for joint marketing of their
respective products.
INDUSTRY BACKGROUND
The evolution over the past decade of the market for increasingly
sophisticated computer entertainment software has created a market for the
Company's interactive game control devices. An increasingly popular category of
personal computer entertainment software is automobile racing. Automobile
racing games allow multiple users to race against each other, select the
technical settings on the automobile components, perform pit stops, and control
other features of the race. Features of the automobile racing games require
high-quality graphics, sound effects, and other features provided by multimedia
personal computers.
Another significant category of entertainment software, flight simulation
games, places computer users in a simulated flight environment and allows them
to pilot private or military aircraft. Military flight games simulate
historical battle settings, in which the users "fly" missions in selected
aircraft and experience the visual and sound effects of aerial combat. Computer
networks allow multiple users to play against each other in "dogfights," which
highlights the relative effectiveness of competing brands of control products.
Action/adventure and sports games represent the largest categories of
interactive entertainment software. Action/adventure games rely on multimedia
personal computers, utilizing high-quality graphics, animation, sound effects
and text to create interactive stories similar to animated films. In sports
games, the user either plays a simulated round or game, or controls a team or
team member in a simulated game of the designated sport. The Company believes
that these categories present significant opportunities for its joystick and
game pad products.
2
<PAGE>
PRODUCTS
The Company produces a variety of interactive control devices that are used
with entertainment software. The Company's principal products include: auto
racing controllers; a family of flight simulation controls, consisting of flight
sticks, rudder pedals, and throttle devices, which replicate those on military
aircraft; and sports and action/adventure game controllers, including joysticks,
a game pad and other peripherals. The Company's products are available in
versions for use with IBM compatible personal computers. Versions of certain of
the Company's products have also been designed for use with Macintosh computers.
The Company's principal products as of the date hereof are briefly described
below.
AUTOMOBILE RACING
FORMULA T2. The Formula T2 Driving Control features a steering console
with gear shift knob, and separate accelerator and brake unit for use with
driving and racing simulation software. Mounting devices are provided to allow
users to temporarily convert their computer desktops into driving consoles.
GRAND PRIX 1. The Grand Prix 1 Driving Control features a steering
console with variable control levers on the back of the steering wheel for
acceleration and braking. Shift buttons are located on the front of the wheel.
FLIGHT SIMULATION
F-16 FLIGHT CONTROL SYSTEM. The F-16 Flight Control System, modeled after
the U.S. military's F-16 Falcon flight stick, features multiple four-way
switches, a dual action trigger and four-function buttons. The product plugs
into both joystick and keyboard ports, includes a microprocessor and can be
programmed by the user to control approximately 300 game functions.
F-22 PRO. The Company believes that the F-22 Pro is the most sophisticated
and multi-functional joystick available to flight simulation enthusiasts. The
F-22 Pro takes advantage of the ergonomic design perfected by the U.S. military
in the F-16 Fighting Falcon flight stick, and contains the most popular features
of the Company's F-16 Flight Control System. Additionally, the F-22 features a
heavy cast metal base, heavier springs for increased stick tension, and enhanced
microprocessing capabilities.
WEAPONS CONTROL SYSTEM. The Weapons Control System, a throttle device
that plugs into a personal computer's game port and keyboard port, contains a
three-way switch and six buttons which can be programmed or mapped to duplicate
keyboard strokes based on a microprocessor included in the control device. The
Weapons Control System is ergonomically designed for left handed control while
the right hand controls a joystick.
THE F-16 THROTTLE QUADRANT SYSTEM. The F-16 Throttle Quadrant System is a
replica of the actual throttle quadrant found in the U.S. military's F-16/Mod 50
Fighting Falcon, and compliments the Company's F-22 Pro and F-16 Flight Control
System. Moving the handle fore and aft provides thrust control. Detents exist
to indicate idle and afterburner entry. This device features a targeting cursor
control, antenna and range dials, two three-position switches and one four-way
switch. It is user configurable, providing the operator enhanced flexibility
in setting up all the dials, switches, and throttle input.
3
<PAGE>
RUDDER CONTROL SYSTEM. The Company's Rudder Control System complements
the Company's flight sticks and throttle devices by allowing the flight
simulation enthusiast to control the yaw axis in flight simulation games by
means of pedals.
SPORTS AND ACTION/ADVENTURE CONTROLS, JOYSTICKS AND PERIPHERALS
PHAZER PAD -TM-. The Phazer Pad is a full-featured game pad designed for
sports and action/adventure personal computer games. It has an ergonomic
design, eight-way directional pad, six buttons, two triggers, and a throttle
wheel. The Phazer Pad also features unique optic-based technology and provides
both digital and analog power to the game player.
TOP GUN -TM-. The Top Gun joystick features a handle similar to the
military B-8 grip found on the F-4 Phantom and other military aircraft. It
plugs into a computer's joystick port or into the Company's Weapons Control
System. This product has a weighted base, proprietary four-way viewing switch,
trigger and three function buttons which are programmable when used with the
Weapons Control System. The Company has acquired from Paramount Pictures the
exclusive world-wide rights for use of the Top Gun name with this product.
X-FIGHTER. The X-Fighter joystick features a full scale military B-8
grip, geared potentiometers, and a large weighted base for stability. This
product plugs into a computer's joystick port or into the Company's Weapons
Control System and has additional features similar to those of the Top Gun
joystick.
ACM GAME CARD. The ACM Game Card is an expansion card that can be
installed in IBM compatible personal computers to establish an interface for
joysticks and other control devices. The ACM Game Card permits manual
adjustment of game card speed to control drift in computer games, features two
dual port game connections on one card, and can be used in today's most powerful
personal computers.
PRODUCT DEVELOPMENT
The Company's product development efforts are currently focused on the
expansion of the Company's automobile racing, sports and action/adventure and
flight simulation product lines, as well as the development of other computer
entertainment peripherals. The Company believes that its future growth will
depend on its ability to develop and introduce new products and features that
are attractive to users of computer games, particularly the serious enthusiasts
who are the trend setters for use of the products. The Company has at times
experienced delays in the development and introduction of new products, and
there can be no assurance that the Company will successfully complete the
development or introduction of new products on a timely basis, if at all, or
that any proposed products will achieve market acceptance.
United States Government contractors and subcontractors occasionally engage
the Company to design and manufacture flight stick and other controls for
certain of the government's personal computer-based space vehicle simulators and
other defense related simulators. The Company expects that some of the designs
and technology generated in these government projects may be used in future
personal computer simulation products sold commercially to the public.
The Company devotes significant resources to product enhancements and new
product development. During 1994, 1995 and 1996, the Company's research and
engineering expenses were $1,115,000, $1,845,000 and $2,105,000, respectively.
4
<PAGE>
MARKETING, SALES AND DISTRIBUTION
The Company's marketing efforts are designed to enhance the Company's
reputation as a leading developer of high-quality, innovative control devices
for the personal computer enthusiast. The Company's marketing activities
include extensive use of its Web site, advertising in industry publications,
participation in trade shows and software user conventions, cooperative
advertising with retailers, and cooperative marketing activities with
entertainment software developers and publishers.
The Company believes that its emphasis on innovation has allowed it to
develop cooperative relationships with many of the leading developers and
publishers of certain entertainment software. Through such relationships, the
Company seeks to encourage software developers to write new entertainment
software that is compatible with ThrustMaster products and that fully utilizes
features provided by certain of the Company's products. Most automobile racing
and flight simulation software is compatible with the Company's corresponding
products. Several developers of automobile racing and flight simulation software
identify the Company's products as compatible control devices in their software
setup menus, software manuals and help files. Some publishers of flight
simulation software have referenced the Company or its products on their flight
simulation product packaging, typically identifying their products as
"ThrustMaster-compatible."
The Company also engages in "bundling" and cooperative marketing
relationships with entertainment software publishers. During 1996, the Company
bundled its Grand Prix 1 driving control with Sierra's NASCAR and certain of its
joystick products with Electronic Arts' U. S. NAVY FIGHTERS. In addition, the
Company occasionally includes advertising inserts in new software titles
released by certain automobile racing and flight simulation software
publishers.
The Company distributes its products primarily through distributors,
independent sales representatives and original equipment manufacturing ("OEM")
arrangements. The distributors purchase the Company's products on a wholesale
basis for resale to retail outlets. The sales representatives market the
Company's products primarily to major retail chains that purchase them directly
from the Company. During the last half of 1996, the Company entered into its
first OEM arrangements with two computer manufacturers. These manufacturers
include ThrustMaster game pads and joysticks with certain of their high-end,
multi-media personal computers. Although currently accounting for a relatively
minor portion of the Company's revenues, the Company believes that OEM sales
will account for an increasing percentage of its revenues in the future.
ThrustMaster products are currently distributed in the United States
through seven distributors, ten independent sales representative organizations
and the OEM arrangements. The Company's products are carried by many of the
leading United States retailers of entertainment software, personal computers
and peripherals. Through these retailers, the Company's products currently
appear in over 2,000 retail outlets in the United States.
ThrustMaster products currently are distributed in over thirty countries
outside the United States through international distributors of computer and
consumer electronic products. During 1996, the Company opened its own
distribution facility in the U.K. and contracted with an independent sales
representative to market its products to major retailers in Germany. The
Company intends to continue to enhance its presence in foreign markets by
entering into relationships with additional distributors and sales
representatives when deemed appropriate.
5
<PAGE>
The Company's agreements with independent distributors and sales
representatives are nonexclusive and may be terminated by either party without
cause. The Company's distributors and sales representatives are not within the
control of the Company, are not obligated to purchase products from the Company
and may represent other lines of products. There can be no assurance that these
distributors and sales representatives will not give higher priority to the sale
of other products, which could include products of competitors.
The Company anticipates that a significant portion of its revenues will be
accounted for by a limited number of key customers, the identity of which may
vary from year to year. During 1996, no one customer accounted for more than
10% of the Company's revenues. Because the Company's customers generally place
orders on an as-needed basis, the Company typically does not have a significant
backlog at any given time.
Sales of the Company's products are seasonal, related to a significant
extent to the Christmas season. Accordingly, revenues in the fourth quarter of
each calendar year historically have been higher than those for each of the
preceding three quarters.
MANUFACTURING
The Company's products incorporate electronic components, mold-injected
plastic and fabricated metal parts. Prior to September 1994, all of the
Company's products were assembled in Oregon. In the fourth quarter of 1994, the
Company began shipping products that were manufactured and assembled in Taiwan
and China by an independent contractor. The Company continues to assemble
certain of its products at the Company's facilities in Hillsboro, Oregon, and
contracts with third parties in Oregon for the assembly of certain other
products. The Company also performs quality control testing and packages
certain products at its Hillsboro, Oregon facility.
The Company's products incorporate a number of commercially available
electronic components, including potentiometers and microprocessors. The
Company currently obtains substantially all of the components used in its
products from sole suppliers located in Taiwan and China. The Company believes
such supply arrangements are not uncommon in its industry. The Company's
reliance on a sole or limited group of suppliers involves several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over pricing and timely delivery of components
and finished products. Use of offshore suppliers is subject to customary risks
of doing business abroad, including political instability. Any reduction or
interruption of or delay in supply could materially adversely affect the
Company. The Company believes that it could obtain alternative sources of most
of the components without significant delay if needed.
Customer Service
Ongoing support of its products is an important element of the Company's
business strategy. The Company provides free technical support to the end users
of its products by telephone and through the Internet and bulletin boards on
many of the major computer on-line network services. In addition, the Company
uses the Internet and bulletin board services to provide product information and
to disseminate software updates to its customers. The Company believes that
these customer support services enhance the Company's reputation with users and
its ability to identify customers' requirements and desires.
6
<PAGE>
COMPETITION
The markets in which the Company participates are highly competitive, and
the Company expects that it will face increased competition as new companies
enter such markets. As of the date hereof, the Company is aware of at least ten
competitors that market computer game control devices for use with personal
computer-based entertainment games, including Microsoft, Inc., Advanced Gravis
Computer Technology Ltd., CH Products, and Logitech. Many of the Company's
competitors have substantially greater financial, technical and marketing
resources than the Company.
The Company believes that price is a significant competitive factor in the
market for computer game control devices. Other principal competitive factors
include product features, ease of use, realism, reputation and compatibility
with computer games. Historically, the Company has sought to compete primarily
based on realism and product features. To date this strategy has been
successful and has resulted in a following by serious driving and flight
simulator enthusiasts. Certain of the Company's competitors have introduced
multifunction control devices for use with entertainment software that carry
suggested retail prices that are less than those of the Company's products and
have endeavored to add realism to certain of these devices. As a result of
increasing competition, the Company has begun to experience price and margin
pressures. The Company believes that its future growth will depend principally
on its ability to develop and introduce competitively priced new products and
features that are attractive to computer games users.
PROPRIETARY RIGHTS
The Company regards certain aspects of its products as proprietary and
relies on a combination of copyright and trademark laws, patents, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company holds numerous utility patents and design patents and has
filed additional patent applications covering certain aspects of the Company's
proprietary technology. The issued patents expire during the period from
October 2009 to October 2012. There can be no assurance that any patent
applications will result in issued patents or that any patents now or hereafter
issued will not be challenged, invalidated or circumvented by others. The
Company has provided notice to certain control device manufacturers that certain
of their products incorporate features which the Company believes infringe upon
the technology that is covered by the Company's patents. There can be no
assurance that these patents will not be found to be invalid or non-infringed in
judicial or administrative proceedings should a dispute arise. Additionally,
although the Company believes that its products, processes and trademarks do not
infringe on the rights of third parties, there can be no assurance that third
parties will not assert infringement or other related claims against the Company
in the future. Any infringement claim or related litigation against the
Company, or any challenge to the validity of the Company's own intellectual
property rights, and the expense and effort of defending the same, could
materially adversely effect the Company and its ability to market any infringing
products.
Although the Company believes that obtaining patent protection may provide
some benefits to the Company, the Company believes that its product development
and marketing capabilities are of greater importance to the Company's business
than patent protection. Accordingly, the Company does not believe that its
business is dependent on obtaining patent protection or successfully defending
any such patents that may be obtained against infringement by others.
7
<PAGE>
The continuing development of the Company's technology is dependent, in
part, on the knowledge and skills of certain of its employees. To protect its
rights to its proprietary information, the Company requires certain employees,
consultants and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to persons unaffiliated with
the Company. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's technology or other confidential
information in the event of any unauthorized use or disclosure.
The Company has obtained several trademark registrations and additional
trademark applications are pending in the United States with respect to names
used by the Company. The applications may not result in trademark registrations.
GOVERNMENT REGULATION
The Federal Communications Commission (the "FCC") regulates the emission of
radio frequency energy by various devices, including computers and computer
peripherals, under Part 15 of its rules promulgated pursuant to the Federal
Communications Act of 1934, as amended. Certain of the Company's products emit
radio frequency energy and are subject to authorization and assignment of an
identifier by the FCC prior to the sale of the devices. Government agencies in
certain foreign countries have also established rules which regulate the
electronic emissions of the Company's products.
The Company believes that it has complied with the requirements of the FCC
and foreign governmental regulations in countries where its products are sold in
respect of its current products and has instituted procedures to ensure
compliance with respect to future products.
EMPLOYEES
As of January 31, 1997, the Company had a total of 99 full-time employees.
The Company relies on the use of temporary employees to supplement its
manufacturing and assembly operations. In the fourth quarter of each year,
temporary employees historically have constituted a substantial percentage of
the Company's employees. None of the Company's employees are represented by a
labor union. The Company has not experienced any work stoppages and considers
its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's facilities are located in Hillsboro, Oregon on approximately
47,000 square feet of leased space under two leases expiring in September 2003.
The Company believes that these facilities are adequate for its immediately
foreseeable needs and that suitable additional or alternative space will be
available on commercially reasonable terms if needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings in which it is a
defendant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on The NASDAQ National Market under
the symbol TMSR. The Company's initial public offering was completed March 3,
1995. The public offering price was $6.50. The following table sets forth the
high and low closing prices for the Common Stock for each quarter as reported on
The NASDAQ National Market for the years ending December 31, 1995 and 1996:
1995 1996
------------------------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First quarter......... $10 1/4 $7 3/4 $7 5/8 $3 5/8
Second quarter........ 9 1/2 6 1/2 7 1/8 4 1/8
Third quarter......... 9 3/8 6 3/4 5 3/4 3 3/4
Fourth quarter........ 8 7/8 5 5/8 9 1/8 5 1/2
The Company has not paid cash dividends on its Common Stock, other than for
the payment of its shareholders' income tax liabilities which arose under its S
Corporation status which terminated December 31, 1994. The Company currently
intends to retain any future earnings to finance the expansion and development
of its business and does not presently anticipate paying cash dividends to the
holders of Common Stock. On January 21, 1997, the Company's board of directors
declared a 3% stock dividend payable to shareholders of record on February 14,
1997.
As of March 10, 1997, there were approximately 90 holders of record of the
Company's Common Stock.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following statements of income data for each of the five years ended
December 31, 1996 and the selected balance sheet data as of December 31, 1992
through 1996, as set forth below, were derived from the Company's consolidated
financial statements audited by Coopers & Lybrand L.L.P. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's audited
consolidated financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................................. $ 2,655 $ 8,214 $ 13,582 $ 19,415 $ 30,821
Cost of goods sold....................... 1,438 4,290 8,007 11,815 19,592
------- ------- -------- -------- --------
Gross profit............................. 1,217 3,924 5,575 7,600 11,229
Total operating expenses................. 687 2,581 3,804 5,956 8,066
------- ------- -------- -------- --------
Income from operations................... 530 1,343 1,771 1,644 3,163
Interest income.......................... -- -- -- 404 466
------- ------- -------- -------- --------
Income before income taxes............... $ 530 $ 1,343 $ 1,771 $ 2,048 $ 3,629
------- ------- -------- -------- --------
------- ------- -------- -------- --------
PRO FORMA STATEMENTS OF INCOME DATA (1):
Income before income taxes............... $ 530 $ 1,343 $ 1,771 $ 2,048 $ 3,629
Provision for income taxes............... 169 456 633 687 1,370
------- ------- -------- -------- --------
Net income............................... $ 361 $ 887 $ 1,138 $ 1,361 $ 2,259
------- ------- -------- -------- --------
------- ------- -------- -------- --------
COMMON STOCK INFORMATION (2):
Net income per share .................... $ 0.25 $ 0.33 $ 0 .38 $ 0 .32 $ 0 .49
------- ------- -------- -------- --------
------- ------- -------- -------- --------
Weighted average shares outstanding...... 1,431 2,686 2,957 4,293 4,647
------- ------- -------- -------- --------
------- ------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $485 $1,022 $1,873 $12,276 $14,806
Total assets............................. 965 2,905 4,575 15,102 21,261
Total liabilities........................ 303 1,574 1,885 1,791 5,363
Total shareholders' equity............... 662 1,331 2,690 13,311 15,898
</TABLE>
________________________________________
(1) The Company was treated for federal and state income tax purposes as an S
corporation from January 1, 1991 through December 31, 1994. The unaudited pro
forma financial information reflects a provision for income taxes as if the
Company had been a C corporation during such period. Under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," issued by the Financial Accounting Standards Board, the Company was
required to provide for deferred taxes, arising from the cumulative temporary
differences between financial and tax reporting, by recording a provision for
income taxes for such deferred taxes in its consolidated statement of income for
1995.
(2) Weighted average shares and net income per share have been restated for all
periods presented to reflect the effect of a 3% stock dividend declared on
January 21, 1997.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops, manufactures and markets personal computer
control devices for use with interactive entertainment games and simulation
software. The Company's primary products are automobile racing controllers; a
family of flight simulation controls, consisting of flight sticks, rudder
pedals, and throttle devices which replicate those on military aircraft; and
sports and action/adventure game controllers, including joysticks, a game pad,
and other peripherals.
The Company has experienced increases in revenues and gross profit each
year since commercial production commenced and has maintained profitable
operations since 1992. Such increases and profitability may not continue in the
future. The Company attributes its growth, in large part, to the proliferation
of personal computers in the home and to increasingly sophisticated computer
entertainment software. The core users of the Company's products are
enthusiasts who demand a high level of realism in computer simulation games.
The Company initially derived almost all of its revenues from sales of the
Company's flight simulation products. Largely as a result of the increasing
popularity of automobile racing games and the Company's entry into such market,
sales of automobile racing controllers currently account for a majority of the
Company's revenues.
The Company typically ships its products within 15 days of receipt of
customer orders and, consequently, substantially all of the Company's revenues
in any quarter result from orders received in that quarter. Accordingly, the
Company generally does not have significant backlog and believes that its
backlog at any given time generally is not a reliable indicator of future
revenues or earnings.
The following table sets forth, for the periods indicated, the percentages
of revenues represented by certain items included in the Company's Consolidated
Statements of Income included elsewhere herein:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------------
1994 1995 1996
----- ----- ----
<S> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0%
Cost of goods sold........................ 59.0 60.9 63.6
----- ----- -----
Gross profit ............................. 41.0 39.1 36.4
----- ----- -----
Operating expenses:
Research and engineering ............. 8.2 9.5 6.8
Selling, general and administrative .. 19.8 21.1 19.3
----- ----- -----
Total operating expenses.................. 28.0 30.6 26.1
----- ----- -----
Income from operations ................... 13.0 8.5 10.3
Interest income ......................... -- 2.0 1.5
----- ----- -----
Income before income taxes ............... 13.0 10.5 11.8
Pro forma provision for taxes on income (1) 4.6 3.5 4.5
----- ----- -----
Net income................................ 8.4% 7.0% 7.3%
----- ----- -----
----- ----- -----
</TABLE>
(1) See Note 12 of Notes to Consolidated Financial Statements.
11
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues for 1996 were $30,821,000, an increase of $11,406,000, or 58.7%,
compared to $19,415,000 for 1995. Revenues increased primarily due to
significantly increased sales of the Company's products in Europe, higher sales
in the United States and the introduction of new personal computer game
peripherals.
Gross profit for 1996 was $11,229,000, an increase of $3,629,000, or 47.8%,
compared to $7,600,000 for 1995. As a percentage of revenues, the gross profit
margin percentage was 36.4% for 1996, compared to 39.1% for 1995. The gross
profit margin percentage declined primarily because the Company's more recent
product offerings generally have a lower gross margin percentage than the
Company's other products, and the Company incurred higher than normal amounts of
air freight in expediting delivery of certain products to meet fourth quarter
demand.
Total operating expenses for 1996 were $8,066,000, an increase of
$2,110,000, or 35.4%, compared to $5,956,000 for 1995. As a percentage of
revenues, total operating expenses declined to 26.1% of revenues in 1996,
compared to 30.6% in 1995.
Research and engineering expenses were $2,105,000 for 1996, an increase of
$260,000, or 14.1%, compared to $1,845,000 in 1995. The increase resulted
primarily from additional expenses incurred in development of the Company's new
products. As a percentage of revenues, research and engineering expenses
decreased to 6.8% in 1996, compared to 9.5% in 1995.
Selling, general and administrative expenses were $5,961,000 for 1996, an
increase of $1,850,000, or 45.0%, compared to $4,111,000 for 1995. The increase
resulted primarily from higher sales and marketing expenses. Sales and
marketing expenses increased due to higher amounts of selling expenses
associated with greater revenues, and increases in other merchandising and
marketing expenses. As a percentage of revenues, selling, general and
administrative expenses decreased to 19.3% of revenues in 1996, compared to
21.1% in 1995.
Interest income of $466,000 for 1996 and $404,000 for 1995 was derived from
the investment of the cash balances of the Company.
The provision for income taxes for 1996 reflects an effective tax rate of
37.8%. This compares to a pro forma tax rate of 33.5% for 1995. The increase
in the effective tax rate was due primarily to a higher effective state tax rate
for the Company in 1996 which resulted from a one-time state tax credit in 1995.
See Note 12 of Notes to Consolidated Financial Statements.
As a result of the foregoing, net income for 1996 was $2,259,000, an
increase of $898,000, or 66.0%, compared to pro forma net income of $1,361,000
in 1995. In 1996, net income was 7.3% of revenues compared to 7.0% in 1995.
12
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues for 1995 were $19,415,000, an increase of $5,833,000, or 42.9%,
compared to $13,582,000 in 1994. Revenues increased primarily due to greater
retail sales of the Company's products and introduction of new personal computer
game peripherals.
Gross profit for 1995 was $7,600,000, an increase of $2,025,000, or 36.3%,
compared to $5,575,000 in 1994. As a percentage of revenues, gross profit was
39.1% in 1995, and 41.0% for 1994. The gross profit margin percentage declined
primarily because the Company's later product offerings, which comprise an
increasing percentage of total revenues, generally had a lower gross margin
percentage than the Company's earlier products.
Total operating expenses for 1995 were $5,956,000, an increase of
$2,152,000, or 56.6%, compared to $3,804,000 in 1995. As a percentage of
revenues, total operating expenses increased to 30.6% of revenues in 1995,
compared to 28.0% in 1994. The increase resulted primarily from the hiring of
additional personnel to support growth as well as additional expenses incurred
as a result of being a public company.
Research and engineering expenses for 1995 were $1,845,000, an increase of
$730,000, or 65.5%, compared to $1,115,000 in 1994. The increase resulted
primarily from additional expenses incurred in developing new products and
enhancements to existing products as well as the hiring of additional personnel.
Research and engineering expenses were 9.5 % of revenues in 1995, compared to
8.2 % in 1994.
Selling, general and administrative expenses for 1995 were $4,111,000, an
increase of $1,422,000, or 52.9%, compared to $2,689,000 in 1994. As a
percentage of revenues, selling, general and administrative expenses were 21.1%
in 1995, compared to 19.8% in 1995. For 1995, selling, general and
administrative expenses increased primarily due to additional advertising and
merchandising programs with certain major retail customers. The Company also
increased its marketing and sales personnel, in order to support the Company's
growth, and its reliance on commission-based independent sales representatives.
Additionally, certain selling, general and administrative expenses increased for
1995 as a result of becoming a public company.
Interest income for 1995 was derived from the investment of the remaining
proceeds of the public offering which closed March 3, 1995.
The pro forma provision for income taxes for 1995 reflects an effective tax
rate of 33.5%. This compares to a pro forma tax rate of 35.7% for 1994. The
decrease resulted from a reduction in the state income tax rate applicable to
the Company due to a one-time state tax credit. See Note 12 of Notes to
Consolidated Financial Statements.
As a result of the items mentioned above, pro forma net income for 1995 was
$1,361,000, an increase of $223,000, or 19.6%, compared to pro forma net income
of $1,138,000 in 1994. As a percentage of revenues, pro forma net income was
7.0% in 1995, compared to 8.4% in 1994.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date with a combination of cash
flow from operations, borrowed funds and sales of equity securities. In
October 1994, the Company completed a private placement of 176,000 shares of
Common Stock, resulting in net proceeds to the Company of $510,000. In March
1995, the Company completed an initial public offering of 1,552,500 shares of
its Common Stock at a price of $6.50 per share, resulting in net proceeds to the
Company of approximately $8,739,000.
Since September 1992, the Company has maintained a revolving line of credit
with United States National Bank of Oregon. Under the present terms of the line
of credit, the Company may borrow up to the lesser of $1,000,000 or 75% of
certain eligible accounts receivable collateralizing the line of credit. The
Company is also permitted to borrow up to $200,000 to finance up to 80% of the
cost of certain equipment. The line of credit, which expires in June 1997,
requires the Company to maintain a specified level of working capital and
certain debt to net worth ratios. At December 31, 1996, the Company had no
borrowings outstanding and was in compliance with all loan covenants. See Note
6 of Notes to Consolidated Financial Statements.
Cash used in operations was $941,000 in 1996. Cash provided from
operations was $59,000 in 1995 and $1,235,000 in 1994. Net income is a major
component of cash flow from operations. For the year ended December 31, 1996,
increases in accounts receivable of $6,923,000, inventories of $1,034,000,
payables and accruals of $3,857,000, and a decrease in prepaids and other assets
of $286,000 were the primary components of changes in working capital. For the
year ended December 31, 1995, increases in accounts receivable of $784,000,
inventories of $1,572,000, payables and accruals of $325,000, and a decrease in
prepaids and other assets of $346,000 were the primary components of changes in
working capital. For the year ended December 31, 1994, increases in accounts
receivable of $507,000, inventories of $52,000, and prepaids and other assets of
$66,000, and a decrease in accounts payable and accruals of $109,000 were the
primary components of changes in working capital.
At December 31, 1996, the Company had cash and cash equivalents of
$6,420,000 and working capital of $14,806,000.
Capital expenditures for 1996 were $789,000, compared to $753,000 in 1995
and $493,000 in 1994. Capital expenditures for 1996 were primarily for new
product tooling, manufacturing equipment and computer equipment.
The Company does not presently intend to pay cash dividends to the holders
of Common Stock and intends to retain future earnings to finance the expansion
and development of its business.
Although no current understandings or negotiations exist with respect
thereto, the Company may in the future enter into joint ventures or make
acquisitions in connection with the development and marketing of its products,
and may require additional funds in connection therewith, depending upon the
circumstances.
The Company believes that available funds and expected cash flow to be
generated from operations, together with borrowings under its line of credit
will be adequate to meet the Company's anticipated cash needs through 1997. If
the cash flow from such sources is insufficient, if the Company enters into a
joint venture or makes an acquisition, or if working capital requirements are
14
<PAGE>
greater than anticipated, the Company could be required to raise additional
funds. If the Company has insufficient funds for its needs, there can be no
assurance that the Company will be able to raise additional funds on favorable
terms, if at all, or that it will be able to do so on a timely basis.
FORWARD LOOKING INFORMATION
This report on Form 10-K, including the foregoing discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contains forward looking statements (as defined in Section 21E of
the Securities Exchange Act of 1934, as amended) which reflect management's
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the following:
PRODUCT COMMERCIALIZATION AND TECHNOLOGICAL CHANGE. The Company believes
that its success will depend on its ability to develop and introduce new
products that keep pace with technological developments, maintain and enhance
its existing product line, respond to evolving customer preferences and
requirements, and achieve market acceptance of its products. The failure by the
Company to anticipate or respond adequately to technological developments or
customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company. The Company
occasionally has experienced, and may in the future experience, delays in the
development and introduction of new products. The success of new products and
product enhancements depends on a variety of factors, including product
selection and specification, timely and efficient completion of product design,
cost effective implementation of manufacturing and assembly processes, and
effective sales and marketing efforts through the Company's distribution
channels. The Company may not be successful in achieving such factors, which
could have a material adverse effect on the Company. Additionally, the
Company's products, once developed, may not be successfully manufactured or
commercially successful or may become obsolete within a short time after their
development.
LIMITED OPERATING HISTORY; FINANCIAL NEEDS. The Company was incorporated
in 1990 and has a limited history of operations. Accordingly, the Company is
subject to the risks inherent in a new business enterprise, including the
absence of a lengthy operating history, limited liquidity and financial
resources, and competition from more established businesses. Although the
Company has had profitable operations since 1992, there can be no assurance that
the Company will achieve sustained profitability. The Company's operations
consume substantial amounts of cash. In the past, the Company has primarily
financed its growth and operations through cash flow from operations and private
placements and a public offering of equity securities. The Company anticipates
that available funds and expected cash flow from operations, together with any
borrowings under its line of credit, will be adequate to meet the Company's cash
needs through 1997. However, if the cash flow from such sources is
insufficient, if the Company enters into a joint venture or makes an
acquisition, or if working capital requirements are greater than anticipated,
the Company could be required to raise additional financing by means of borrowed
funds or sales of securities. If additional funds are raised by issuing equity
securities, further dilution to shareholders may result. If the Company has
insufficient funds for its needs, there can be no assurance that additional
funds can be obtained on acceptable terms, if at all. Failure to obtain
additional funds when needed could materially adversely affect the Company.
COMPETITION. The markets in which the Company participates are highly
competitive, and the Company expects that it will face increased competition as
additional companies enter
15
<PAGE>
such markets. As of the date hereof, the Company is aware of at least ten
competitors that market computer game control devices for use with personal
computer-based entertainment games. The Company believes that price is a
significant competitive factor in the market for computer game control devices.
Other principal competitive factors include product features, ease of use,
realism, reputation and compatibility with computer games. New product
introductions or product announcements by the Company's competitors, many of
which have substantially greater financial, technical and marketing resources
than the Company, could hinder sales and market acceptance of the Company's
products. Moreover, increased competitive pressure could lead to intensified
price-based competition, which could result in margin pressures and have a
material adverse effect on the Company. The Company's competitors may succeed
in developing products that are as or more appealing to consumers than the
Company's products or which could render the Company's technology and products
obsolete or noncompetitive. The Company may not be able to compete successfully
in the market, which would have a material adverse effect on the Company.
DEPENDENCE ON SOFTWARE DEVELOPERS AND PUBLISHERS. A key element of the
Company's business strategy is to encourage leading developers of computer game
software to include the Company's products in game set-up menus and to utilize
the features of the Company's products in their computer game software.
Although the programmability of certain of the Company's products allows such
products to be used with the game software even if not included in the set-up
menus, the failure of software developers to include the Company's products in
game set-up menus or to utilize the features of ThrustMaster products in game
software could materially adversely affect sales of the Company's products and
have a material adverse effect on the Company. Additionally, the Company is
dependent on developers and publishers of computer software for cooperation in
the development and marketing of new products. The failure of such developers
and publishers to cooperate with the Company, or a determination by such
developers and publishers to cooperate exclusively with the Company's
competitors, could adversely affect the Company's product development and
marketing efforts and have a material adverse effect on the Company.
VARIABILITY IN PERIODIC OPERATING RESULTS. The Company is likely to
experience significant fluctuations in future periodic operating results due to
a number of factors including, among others, the size or timing of customer
orders, delays in product enhancements and new product introductions by the
Company, quality control difficulties, market acceptance of new products,
product returns, customer order deferrals in anticipation of new products or
enhancements, reduction in demand for existing products as a result of new
product introductions by others, and general economic conditions. While the
effect of these factors on the Company's operating results has been largely
obscured to date by the Company's growth, any of these factors could cause
quarterly or other periodic operating results to vary significantly from prior
periods. The Company's customers generally order on an as-needed basis, and the
Company does not typically have a significant order backlog at the beginning of
each quarter. Because quarterly revenues are dependent largely on the volume
and timing of orders received during such quarter, which may be difficult to
forecast, and the Company's operating expenses are based in part on its estimate
of future revenues, the Company may be unable to adjust its spending in a timely
manner to compensate for a shortfall in revenues. Any significant decrease in
customer orders for any reason would have an immediate adverse effect on the
Company's results of operations and its ability to maintain profitability.
SEASONALITY. The Company's business is seasonal. The Company's revenues
in the fourth quarter are typically higher than during the first three quarters
of each year, related, to a
16
<PAGE>
significant extent, to the holiday season. The Company relies on the use of
temporary employees to supplement its manufacturing and assembly operations. In
the fourth quarter of each year, temporary employees historically have
constituted a substantial percentage of the Company's employees. Although the
Company has been successful in obtaining adequate numbers of qualified temporary
employees in the past, it may not be able to do so in future periods, which
could have a material adverse effect on the Company.
CUSTOMER CONCENTRATION. The Company anticipates that a significant portion
of the Company's revenues and accounts receivable will be accounted for by a
limited number of key customers, the identity of which may vary from year to
year. Although no single customer accounted for more than 10% of the Company's
revenues in 1996, the loss of one or more of its key customers or any
significant reduction in orders by such customers could have a material adverse
effect on the Company's revenues and results of operations.
DEPENDENCE UPON KEY PERSONNEL. The Company's future success depends to a
significant extent on the continued service of its key research and development,
management and marketing and sales personnel and on its ability to continue to
attract, motivate and retain highly qualified employees. The Company does not
have employment or non-competition agreements with any of its employees.
PROPRIETARY RIGHTS. The Company regards certain aspects of its products as
proprietary and relies on a combination of copyright and trademark laws,
patents, trade secrets and confidentiality procedures and agreements to protect
its proprietary rights. Despite the Company's efforts to safeguard its
proprietary rights, it may not be successful in doing so or the Company's
competitors may independently develop or patent technologies that are
substantially equivalent or superior to or otherwise circumvent the Company's
proprietary rights. Additionally, the confidentiality agreements may not
provide meaningful protection for the Company's trade secrets or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such information. Although the Company believes that its
products, processes and trademarks do not infringe on the rights of third
parties, third parties may assert infringement or other related claims against
the Company in the future. Any infringement claim or related litigation against
the Company, or any challenge to the validity of the Company's own intellectual
property rights, and the expense of defending the same, could materially
adversely effect the Company and its ability to market any infringing products.
OFFSHORE MANUFACTURING. Prior to September 1994, all of the Company's
products were assembled in Oregon. In the fourth quarter of 1994, the Company
began shipping products manufactured in Taiwan and China by an independent
contractor. The Company's use of offshore manufacturing is subject to the
customary risks of doing business abroad, including fluctuations in the value of
currencies, tariffs, export duties, quotas, restrictions on the transfer of
funds, work stoppages and, in certain parts of the world, political instability.
The use of an independent contractor to assemble products offshore has required
the Company to increase production lead times and has reduced the Company's
ability to adjust production in response to short term market conditions. As a
result, the failure of the Company to adequately forecast demand for products
manufactured offshore could adversely affect its sales and results of
operations. In addition, although the Company seeks to control the quality of
its products manufactured offshore, quality problems may arise that are beyond
the Company's direct control.
DEPENDENCE UPON SOLE OR LIMITED SUPPLIERS. The Company is dependent on
suppliers for components. Certain key components used in the Company's products
are obtained by the
17
<PAGE>
Company from sole suppliers. The Company's reliance on a sole or limited group
of suppliers involves several risks, including a potential inability to obtain
an adequate supply of required components and reduced control over pricing and
timely delivery of components and finished products. Any reduction or
interruption of or delay in supply could materially adversely affect the
Company. The Company has in the past encountered, and may in the future
encounter, shortages of supplies and delays in deliveries of necessary
components. Substantially all of the components used in the Company's products
are purchased from sources located outside the United States. Trading policies
adopted by the United States or foreign governments could restrict the
availability of components or increase the Company's cost of obtaining them.
Any significant increase in component prices or decrease in component
availability could materially adversely affect the Company.
DEPENDENCE UPON INDEPENDENT DISTRIBUTORS AND SALES REPRESENTATIVES. The
Company's agreements with independent distributors and sales representatives are
nonexclusive and may be terminated by either party without cause. The Company's
distributors and sales representatives are not controlled by the Company, are
not obligated to purchase products from the Company and may represent other
lines of products. These distributors and sales representatives may give higher
priority to the sale of other products, including products of competitors.
INTERNATIONAL SALES. The Company expects to focus an increasing amount of
its sales efforts in international markets. The Company expects that any
international sales will be subject to the normal risks of foreign sales, such
as protective tariffs, export and import controls, transportation delays and
interruptions, and changes in demand resulting from fluctuating exchange rates.
Although most of the Company's international revenues are earned in U.S.
dollars, a portion is earned in other currencies, primarily German marks. To
the extent revenues are earned in currencies other than U.S. dollars, net income
may fluctuate due to changes in the value of the U.S. dollar relative to such
other currencies.
LACK OF INDUSTRY DIVERSIFICATION. The Company intends to derive revenues
from the sale of products within the personal computer game industry. Failure
of anticipated market demand for computer game controllers to materialize could
have a material adverse effect on the Company.
GOVERNMENTAL REGULATION. Certain of the Company's products intentionally
transmit radio signals as part of their normal operation. These products are
subject to regulatory approval, restrictions on the use of certain frequencies
and the creation of interference, and other requirements by the Federal
Communications Commission and corresponding authorities in countries in which
the products are marketed. Regulatory changes could significantly impact the
Company's operations.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
----
Report of Independent Accountants 20
Consolidated Balance Sheets--As of December 31, 1995 and 1996 21
Consolidated Statements of Income--For each of the three years
in the period Ended December 31, 1996 22
Consolidated Statements of Cash flows--For each of the three years
in the Period ended December 31, 1996 23
Consolidated Statements of Changes in Shareholders' Equity--
For each of the Three years in the period ended
December 31, 1996 24
Notes to Consolidated Financial Statements 25
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts--
For each of the three years in the period ended
December 31, 1996 36
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
ThrustMaster, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of ThrustMaster, Inc. and Subsidiary listed in the index on
page 19 of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 ThrustMaster,
Inc. and Subsidiary as of December 31, 1995 and 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 24, 1997
20
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-----------------------
1995 1996
---------- --------
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 8,090 $ 6,420
Accounts receivable, net ..................... 2,897 9,820
Inventories ................................... 2,526 3,560
Prepaid expenses and other ................... 402 109
Deferred income taxes ......................... 104 239
-------- --------
Total current assets ........................ 14,019 20,148
Plant and equipment, net ....................... 1,058 1,081
Other ........................................... 25 32
-------- --------
Total assets ................................ $ 15,102 $21,261
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 1,203 $ 3,021
Accrued liabilities ........................... 529 2,311
Current portion - long-term debt .............. 11 10
-------- --------
Total current liabilities ................... 1,743 5,342
Long-term debt .................................. 10 --
Deferred income taxes ........................... 38 21
-------- --------
Total liabilities ........................... 1,791 5,363
-------- --------
-------- --------
Commitments (Notes 9 and 11)
Shareholders' equity:
Preferred stock, no par value, 5,000,000
shares authorized; none issued or outstanding -- --
Common stock, no par value, 25,000,000 shares
authorized; 3,952,796 and 4,240,403 shares
issued and outstanding....................... 11,877 13,301
Retained earnings ............................. 1,434 2,597
-------- --------
Total shareholders' equity .................. 13,311 15,898
-------- --------
Total liabilities and shareholders' equity... $ 15,102 $21,261
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- -------- -------
Revenues....................................... $13,582 $ 19,415 $30,821
Cost of goods sold............................. 8,007 11,815 19,592
------- -------- -------
Gross profit................................. 5,575 7,600 11,229
------- -------- -------
Operating expenses:
Research and engineering..................... 1,115 1,845 2,105
Selling, general and administrative.......... 2,689 4,111 5,961
------- -------- -------
Total operating expenses.................. 3,804 5,956 8,066
------- -------- -------
Income from operations......................... 1,771 1,644 3,163
Interest income................................ -- 404 466
------- -------- -------
Income before income taxes..................... 1,771 2,048 3,629
Provision for income taxes..................... -- 614 1,370
------- -------- -------
Net income................................ $ 1,771 $ 1,434 $ 2,259
------- -------- -------
------- -------- -------
UNAUDITED PRO FORMA INFORMATION
-------------------------------
Income before income taxes..................... $1,771 $2,048
Provision for income taxes..................... 633 687
------ ------
Net income..................................... $1,138 $1,361
------ ------
------ ------
Net income per share (Note 2).................. $ 0.38 $ 0.32 $ 0.49
------ ------ -------
------ ------ -------
Weighted average shares outstanding (Note 2)... 2,957 4,293 4,647
------ ------ -------
------ ------ -------
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended December 31,
--------------------------
1994 1995 1996
------ ------ ------
Cash flows from operations:
Net income $1,771 $1,434 $2,259
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 198 376 766
Deferred income taxes -- (66) (152)
Changes in assets and liabilities:
Accounts receivable (507) (784) (6,923)
Inventories (52) (1,572) (1,034)
Prepaid expenses and other assets (66) 346 286
Payables and accrued liabilities (109) 325 3,857
------ ------ ------
Net cash provided by (used in) operating
activities 1,235 59 (941)
------ ------ ------
Cash flows from investing activities:
Purchases of plant and equipment (493) (753) (789)
------ ------ ------
Cash flows from financing activities:
Payments on long-term debt (20) (56) (11)
Proceeds from issuance of common stock 510 8,851 71
Deferred offering costs. (167) -- --
Cash dividends (521) (556) --
------ ------ ------
Net cash provided by (used in) financing
activities (198) 8,239 60
------ ------ ------
Net increase (decrease) in cash and
cash equivalents 544 7,545 (1,670)
Cash and cash equivalents, beginning of year 1 545 8,090
------ ------ ------
Cash and cash equivalents, end of year $ 545 $8,090 $6,420
------ ------ ------
------ ------ ------
Supplemental cash flow information:
During 1994, the Company acquired equipment in exchange for notes payable
of $38.
Cash paid during the year for:
1994 1995 1996
---- ---- ----
Interest.................... $39 $ 3 $ 1
Income taxes................ -- 376 47
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
THRUSTMASTER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS
------- ------- -------
Balance, January 1, 1994........................ 2,016 $ 365 $ 966
Proceeds from issuance of common stock........ 176 510 --
Dividends..................................... -- -- (922)
Net income.................................... -- -- 1,771
----- ------- -------
Balance, December 31, 1994...................... 2,192 875 1,815
Reclassification of S corporation earnings.... -- 1,660 (1,660)
Proceeds from issuance of common stock........ 1,761 8,851 --
Tax benefits from stock options exercised..... -- 491 --
Dividends..................................... -- -- (155)
Net income.................................... -- -- 1,434
----- ------- -------
Balance, December 31, 1995...................... 3,953 11,877 1,434
Proceeds from issuance of common stock........ 164 71 --
Tax benefits from stock options exercised..... -- 257 --
Stock dividend declared (Note 2)............. 123 1,096 (1,096)
Net income ................................... -- -- 2,259
----- ------- -------
Balance, December 31, 1996...................... 4,240 $13,301 $2,597
----- ------- -------
----- ------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
THRUSTMASTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--THE COMPANY
The consolidated financial statements include the accounts of
ThrustMaster, Inc., (the "Company"), an Oregon corporation, and its wholly-owned
subsidiary, ThrustMaster Foreign Sales Corporation. The Company was
incorporated on July 31, 1990. The Company designs, develops, manufactures and
markets a variety of game controllers, primarily for personal computers, and
related equipment.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION. Revenue is recognized at the time of product shipment.
All products have a warranty for one year from date of sale covering product
defects. Certain sales agreements provide the right to return on unsold
merchandise. The Company provides for estimated costs of warranty and returns
when products are shipped.
CASH AND CASH EQUIVALENTS. Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less. The
Company's cash equivalents are in high quality securities placed with
institutions with high credit ratings. This investment policy limits the
Company's exposure to concentrations of credit risk.
INVENTORIES. Inventories are stated at the lower of cost or market on a
first-in, first-out basis. Finished goods are costed using standard cost, which
approximates the first-in, first-out method of accounting.
PLANT AND EQUIPMENT. Plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives (three to seven
years). Replacements and improvements which extend the useful life are
capitalized. Maintenance and repairs and routine replacements are expensed as
incurred. Upon disposal, costs and related accumulated depreciation of the
assets are removed from the accounts and resulting gains and losses are
reflected in operations.
RESEARCH AND ENGINEERING EXPENSE. Research and engineering costs are charged to
operations as incurred.
PER SHARE DATA. Net income per share is computed using the weighted average
number of shares of common stock and common stock equivalents outstanding during
the periods presented. Common stock equivalents include common stock to be
issued upon the exercise of the common stock options and warrants discussed in
Note 10. On January 21, 1997, the Company's board of directors declared a 3%
stock dividend payable to shareholders of record on February 14, 1997. Share,
per share, common stock, stock option and warrant amounts have been restated to
reflect the effect of this stock dividend.
UNAUDITED PRO FORMA FINANCIAL INFORMATION AND INCOME TAXES. As more fully
described in Note 12, the Company was treated as a Small Business Corporation
(S corporation) for income tax purposes from January 1, 1991 through December
31, 1994. The unaudited pro forma financial
25
<PAGE>
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES, CONTINUED;
information reflects an estimate of the Company's financial results that would
have been reported had the Company been a C corporation for all periods
presented.
RECLASSIFICATIONS. Certain operating expense categories for the years ended
December 31, 1994 and 1995 on the Consolidated Statements of Income have been
reclassified in order to conform to the 1996 presentation. These changes had no
impact on previously reported results of operations or shareholders' equity.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3--CONCENTRATION OF CREDIT RISK, FOREIGN OPERATIONS, AND MAJOR CUSTOMER
INFORMATION
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company's accounts receivable are primarily from a small number of
computer wholesale distributors and software specialty stores located in the
United States, Canada, and western Europe. Management believes that any risk of
loss is significantly reduced by its ongoing credit evaluations of its
customer's financial condition.
In 1995 product sales to two customers each accounted for approximately 10%
of revenues. In 1994 and 1996, no customer individually accounted for more than
10% of revenues.
The Company operates in a single industry segment comprising interactive
control devices for use with personal computer entertainment software. Certain
of the Company's products are manufactured and assembled in Taiwan and China by
an independent contractor. Products manufactured and assembled by this vendor
approximated 37.6% and 74.3% of total products in 1995 and 1996, respectively.
Net revenue by geographic region and as a percentage of total revenue for
each region outside the United States that constituted more than 10% of the
Company's total revenue is as follows:
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
---- ---- ----
Net revenue by geographic region:
Europe..................... $1,361 $2,489 $10,225
Asia....................... 1,435 1,580 1,634
Net revenue as a percentage of total
Revenue:
Europe..................... 10.0% 12.8% 33.2%
Asia....................... 10.6 8.1 5.3
26
<PAGE>
NOTE 4--Inventories
Inventories are as follows:
DECEMBER 31,
---------------------
1995 1996
------ ------
Raw materials........................ $1,493 $ 762
Work-in-progress..................... 244 90
Finished goods....................... 789 2,708
------ ------
$2,526 $3,560
------ ------
------ ------
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
----------------
1995 1996
------ ------
Computers and other equipment....... $ 752 $1,075
Tooling............................. 858 1,209
Furniture and fixtures.............. 115 230
------ ------
1,725 2,514
Accumulated depreciation............ (667) (1,433)
------ ------
$1,058 $1,081
------ ------
------ ------
NOTE 6--ANK LINE OF CREDIT
At December 31, 1996, the Company had a revolving line of credit with a
bank which provides for borrowings up to the lesser of one million dollars or
75% of eligible receivables. The Company also may borrow up to two hundred
thousand dollars to finance up to 80% of the cost of certain equipment. No
amounts were outstanding under this line at December 31, 1996. Interest is at
the bank's prime lending rate which was 8.25% at December 31, 1996. Borrowings
under the agreement are collateralized by substantially all of the Company's
assets. Loan covenants under the agreement include maintaining a defined level
of working capital and maximum debt to tangible net worth ratio. At December
31, 1996, the Company had no borrowings outstanding.
NOTE 7--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
----------------
1995 1996
----- ------
Accrued payroll and payroll liabilities....... $103 $ 132
Accrued bonuses ............................. 129 460
Warranty reserve.............................. 192 365
Federal and state income taxes................ -- 977
Other liabilities............................. 105 377
----- ------
$529 $2,311
----- ------
----- ------
27
<PAGE>
NOTE 7--ACCRUED LIABILITIES, CONTINUED;
A portion of the compensation paid by the Company to certain officers is
determined based upon the Company's revenues and net income for the year. The
Company recorded expense of $99 in 1994, $118 in 1995, and $251 in 1996
related to such amounts.
NOTE 8--LONG-TERM DEBT
Long-term debt is comprised of a note payable to an equipment manufacturer
payable in monthly installments of $1 with interest at 9%. The note is
collateralized by the related equipment and matures in November 1997.
NOTE 9--COMMITMENTS
The Company leases facilities under non-cancelable operating leases with
escalation clauses. The Company also leases equipment under operating leases.
The following is a schedule by years, through expiration of the lease, of future
minimum lease payments required under these leases as of December 31, 1996:
1997........................................... $366
1998........................................... 368
1999........................................... 348
2000........................................... 345
2001........................................... 352
Under the agreements for the lease of its office, production, and
distribution facilities, the Company is obligated to the lessor for its share of
certain expenses related to the use, operation, maintenance and insurance of the
property. These expenses, payable monthly in addition to the base rent, are not
included in the amounts shown above. Rental expense totaled $148, $239, and
$236 for the years ended December 31, 1994, 1995, and 1996.
NOTE 10--COMMON AND PREFERRED STOCK
INITIAL PUBLIC OFFERING. In March, 1995, the Company completed an initial
public offering of 1,552,500 shares of Common Stock which generated net proceeds
of $8,739.
STOCK DIVIDEND. In January, 1997, the Company declared a 3% stock dividend.
See Note 2.
STOCK OPTION PLANS. In July 1994, the Company adopted a new stock option plan
for employees (the "1994 Stock Option Plan") and a separate option plan for
directors (the "Directors' Stock Option Plan"). The Company reserved 400,000
shares for the 1994 Stock Option Plan and 160,000 shares for the Director's
Stock Option Plan. The 1994 Stock Option Plan provides for incentive stock
option and nonqualified options to be granted. The Company had previously made
grants under a nonqualified plan adopted in 1990 in which 1,200,000 shares had
been reserved. In July 1994, any ungranted options and any future forfeitures
under the 1990 option plan were transferred to the 1994 Stock Option Plan.
The stock option plans generally require the price of options to be at the
estimated fair market value of the stock at the date of grant. Options have a
maximum duration of ten years (five
28
<PAGE>
NOTE 10--COMMON AND PREFERRED STOCK, CONTINUED;
years under certain circumstances) and may be exercised in varying amounts over
the vesting periods.
The following table summarizes stock option transactions:
NUMBER OF SHARES
-------------------
UNDER AVAILABLE
OPTION FOR GRANT
-------- ---------
Balance, December 31, 1993......................... 768,000 180,000
Authorization of additional shares................. -- 560,000
Granted ($3.00 per share).......................... 32,000 (32,000)
Exercised ($0.25 to $0.28 per share)............... (896) --
Canceled........................................... (31,904) 31,904
-------- ---------
Balance, December 31, 1994......................... 767,200 739,904
Granted ($8.75 to $8.875).......................... 126,500 (126,500)
Exercised ($ 0.25 to $ 2.50 per share)........... (207,400) --
Canceled........................................... (6,100) 6,100
-------- ---------
Balance, December 31, 1995........................ 680,200 619,504
Granted ($4.125 to $7.625)......................... 331,000 (331,000)
Exercised ($ 0.25 to $ 0.75 per share)........... (164,100) --
Canceled........................................... (134,500) 134,500
Effect of 3% stock dividend declared (See Note 2).. 1,378 (1,378)
-------- ---------
Balance, December 31, 1996........................ 713,978 421,626
-------- ---------
-------- ---------
The exercise price of the outstanding options at December 31, 1996 ranged
between $0.24 and $8.62 per share. The weighted average exercise price of
outstanding options was $2.69 at December 31, 1996.
During 1995, warrants to purchase 139,050 shares were granted at a price of
$7.57 per share after giving effect to the stock dividend discussed in Note 2.
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for grants
of options under the stock option plans. Had compensation cost for the
Company's two stock option plans been determined based on the fair value at the
grant date for awards in 1995 and 1996 consistent with the provisions of SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31,
------------------------
1995 1996
------ ------
Net income - as reported................. $1,361 $2,259
Net income - pro forma................... 1,304 2,173
Net income per share - as reported....... 0.32 0.49
Net income per share - pro forma......... 0.30 0.47
29
<PAGE>
NOTE 11--CONSULTING AGREEMENT
In December 1993, the Company entered into a consulting agreement with a
company owned entirely by a shareholder and former chief executive officer. .
The agreement terminated in February, 1996. Under the agreement, services
included providing product concepts and consulting and assistance on product
design. Payments of $189, $205, and $36 were made pursuant to the agreement in
1994, 1995, and 1996
NOTE 12--INCOME TAXES
Prior to January 1, 1991, the Company was treated for federal and state
income tax purposes as a C corporation. From January 1, 1991 through December
31, 1994, the Company was treated for federal income tax purposes as an
S corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended, and was treated as an S corporation for state income tax purposes under
comparable state tax laws. As a result, the Company's earnings from January 1,
1991 through December 31, 1994 have been, for federal and certain state income
tax purposes, taxed directly to the Company's shareholders, at their individual
federal and state income tax rates, rather than to the Company. Effective
January 1, 1995 (the "Termination Date"), the Company's S corporation status was
terminated. Subsequent to the Termination Date, the Company is no longer
treated as an S corporation and, accordingly, is subject to federal and state
income taxes on its earnings.
Under the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (Statement 109) issued by the Financial
Accounting Standards Board, the Company was required to provide for deferred
taxes, arising from the cumulative temporary differences between financial
reporting and tax reporting, by recording a benefit for income taxes for such
deferred taxes in its statement of income in the period in which the Termination
Date occurred. The amount of this benefit during the year ended December 31,
1995 was $73.
The provision for income taxes computed in accordance with Statement 109 is
as follows.
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
(UNAUDITED PRO FORMA INFORMATION)
Current payable:
Federal.................................. $533 $613 $1,256
State.................................... 121 67 266
---- ----- ------
Total current............................ 654 680 1,522
---- ----- ------
Deferred:
Federal.................................. (17) 6 (126)
State.................................... (4) 1 (26)
---- ----- ------
Total deferred........................... (21) 7 (152)
---- ----- ------
Total................................. $633 $687 $1,370
---- ----- ------
---- ----- ------
30
<PAGE>
NOTE 12--INCOME TAXES, CONTINUED;
A reconciliation of the statutory federal income tax rate to the Company's
pro forma effective income tax rate is as follows:
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
(UNAUDITED PRO
FORMA INFORMATION)
Federal statutory rate ............................. 34.0% 34.0% 34.0%
State income taxes, net of federal
income tax benefit................................ 4.4 2.2 4.4
Effect of research and development
tax credit and other.............................. (2.7) (2.7) (.6)
---- ---- ----
Pro forma effective income tax rate ................ 35.7% 33.5% 37.8%
---- ---- ----
---- ---- ----
Deferred income taxes result from items of income or expense being reported
for income tax purposes in different periods than they are reported for
financial reporting purposes. The primary temporary differences that give rise
to significant portions of the deferred tax assets and liabilities are as
follows:
YEARS ENDED
DECEMBER 31,
------------------
1995 1996
------ ------
Deferred tax asset:
Warranty reserve, inventory reserve,
and other accrued liabilities. . . . . . . . . . . . $(274) $(624)
Deferred tax liability:
Excess tax over book depreciation
and amortization . . . . . . . . . . . . . . . . . 100 28
31
<PAGE>
NOTE 13--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected unaudited and pro forma financial information for each of the
quarters is as follows. Pro forma net income per share and net income per share
data has been adjusted to reflect the stock dividend discussed in Note 2.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1994
Revenues..................................... $2,570 $2,608 $3,327 $ 5,077
Cost of goods sold........................... 1,544 1,522 1,854 3,087
Operating expenses........................... 822 828 939 1,215
Net income................................... 204 258 534 775
Pro forma net income......................... 129 163 335 511
Pro forma net income per share. $ 0.05 $ 0.06 $ 0.12 $ 0.17
1995
Revenues..................................... $3,701 $4,277 $5,033 $ 6,404
Cost of goods sold........................... 2,222 2,499 2,943 4,151
Operating expenses........................... 1,254 1,418 1,512 1,772
Pro forma net income......................... 173 307 475 406
Pro forma net income per share............... $ 0.05 $ 0.07 $ 0.10 $ 0.09
1996
Revenues..................................... $4,564 $4,250 $6,931 $15,076
Cost of goods sold........................... 2,970 2,615 4,142 9,865
Operating expenses........................... 1,538 1,564 1,930 3,034
Net income................................... 101 111 626 1,421
Net income per share......................... $ 0.02 $0 .02 $0 .14 $ 0.30
</TABLE>
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is hereby incorporated herein by
reference to the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1996, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated herein by
reference from the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1996, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated herein by
reference from the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1996, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated herein by
reference from the Registrant's definitive Proxy Statement for the fiscal year
ended December 31, 1996, which Proxy Statement will be filed with the Securities
and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this report.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE:
See index on page 19.
(2) EXHIBITS
Number Description
- ------ -----------
*3.1 Articles of Incorporation, dated July 23, 1990; Articles of
Amendment, dated December 15, 1990; Articles of Amendment, dated
July 7, 1992; Articles of Amendment, dated July 7, 1993; Articles
of Amendment , dated December 14, 1994
3.2 Amended and Restated Bylaws
*4.1 Description of Capital Stock contained in the Articles of
Incorporation and Amendments thereto (See Exhibit 3.1)
4.2 Description of Rights of Security Holders contained in the Amended
and Restated Bylaws (See Exhibit 3.2)
*4.3 Form of Certificate for Shares of Common Stock
*4.4 Form of Representatives' Warrant Agreement among the Company,
Cruttenden Roth and Black & Company, Inc.
*10.1 Consulting Agreement, dated December 1, 1993, between the Company
and BOCAR, Inc.
*10.2 1994 Incentive Compensation Plan, dated December 21, 1993
*10.3 Directors' Nonqualified Stock Option Plan, dated July 19, 1994
*10.4 1994 Stock Option Plan, dated July 19, 1994
- -------------------
* Incorporated by reference to the same exhibit number from the Registration
Statement on Form SB-2 filed on January 5, 1995, as amended on February 7, 1995,
and February 24, 1995 (File No. 33-88252-LA).
34
<PAGE>
10.5 Letter agreement, dated May 16, 1996 from United States National
Bank of Oregon to the Company regarding a revolving line of credit
*10.6 Voicecom Development Agreement, dated November 4, 1994, between the
Company and Advanced Protocol Systems, Inc.
10.7 1990 Stock Option Plan (incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-8 filed on June 5, 1995 (File
No. 33-93082))
10.8 Leases, dated March 13, 1996, between Pacific Realty Associates,
L.P. and the Company, as amended
10.9 Summary of 1997 Bonus Program
11.1 Statement Regarding Computation of Per Share Earnings
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
- --------------------------
* Incorporated by reference to the same exhibit number from the Registration
Statement on Form SB-2 filed on January 5, 1995, as amended on February 7, 1995,
and February 24, 1995 (File No. 33-88252-LA).
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the last quarter of 1996.
35
<PAGE>
Schedule II
THRUSTMASTER, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
BEGINNING CHARGES TO DEDUCTIONS ENDING
YEAR BALANCE EXPENSE WRITE-OFFS BALANCE
---- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1996 $ 7 $122 $(115) $ 14
1995 -- 8 (1) 7
1994 -- 11 (11) --
Reserve for warranty
expense and sales returns:
1996 192 173 -- 365
1995 229 -- (37) 192
1994 166 63 -- 229
</TABLE>
36
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THRUSTMASTER, INC.
Date: March 20, 1997
By /s/ KENT E. KOSKI
------------------------
Kent E. Koski
Vice President--Finance and Administration
Chief Financial Officer and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ C. Norman Winningstad Chairman of the Board March 20, 1997
- ---------------------------
C. Norman Winningstad
/s/ Stephen A. Aanderud President, Chief Executive March 20, 1997
- --------------------------- Officer, and Director
Stephen A. Aanderud
/s/ Robert L. Carter Director March 20, 1997
- ---------------------------
Robert L. Carter
/s/ Graham Dorland Director March 20, 1997
- ---------------------------
Graham Dorland
/s/ Merrill A. McPeak Director March 20, 1997
- ---------------------------
Merrill A. McPeak
/s/ G. Gerald Pratt Director March 20, 1997
---------------------------
G. Gerald Pratt
/s/ Milton R. Smith Director March 20, 1997
- ---------------------------
Milton R. Smith
/s/ Frederick M. Stevens Director March 20, 1997
- ---------------------------
Frederick M. Stevens
/s/ Kent E. Koski Vice President--Finance March 20, 1997
- --------------------------- and Administration,
Kent E. Koski Chief Financial Officer
and Secretary
37
<PAGE>
AMENDED AND
RESTATED
BYLAWS
OF
THRUSTMASTER, INC.
Originally adopted on: January 21, 1997
Amendments are listed on page i
<PAGE>
AMENDMENTS
----------
- --------------------------------------------------------------------------------
Section Effect of Amendment Date of Amendment
TABLE OF AMENDMENTS Page i
<PAGE>
CONTENTS
SECTION 1. OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Annual Meeting; Procedures . . . . . . . . . . . . . . . . 1
2.1.1 Annual Meeting . . . . . . . . . . . . . . . . . 1
2.1.2 Business To Be Conducted At Annual Meeting . . . 1
2.2 Special Meetings . . . . . . . . . . . . . . . . . . . . . 2
2.3 Place of Meeting . . . . . . . . . . . . . . . . . . . . . 2
2.4 Conduct of Meeting . . . . . . . . . . . . . . . . . . . . 2
2.5 Notice of Meeting . . . . . . . . . . . . . . . . . . . . . 3
2.6 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . 3
2.7 Fixing of Record Date for Determining Shareholders . . . . 3
2.8 Shareholders' List . . . . . . . . . . . . . . . . . . . . 4
2.9 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Manner of Acting . . . . . . . . . . . . . . . . . . . . . 5
2.11 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Voting of Shares . . . . . . . . . . . . . . . . . . . . . 5
2.13 Voting for Directors . . . . . . . . . . . . . . . . . . . 6
2.14 Action by Shareholders Without a Meeting . . . . . . . . . 6
2.15 Voting of Shares by Corporations . . . . . . . . . . . . . 6
2.15.1 Shares Held by Another Corporation . . . . . . . 6
2.15.2 Shares Held by the Corporation . . . . . . . . . 6
2.16 Acceptance or Rejection of Shareholder Votes, Consents,
Waivers and Proxy Appointments . . . . . . . . . . . . . . 7
2.16.1 Documents Bearing Name of Shareholders . . . . . 7
2.16.2 Documents Bearing Name of Third Parties . . . . . 7
TABLE OF CONTENTS Page i
<PAGE>
2.16.3 Rejection of Documents . . . . . . . . . . . . . 7
SECTION 3. BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 8
3.1 General Powers . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Number and Classification; Procedure for Nomination . . . . 8
3.2.1 Number and Classification . . . . . . . . . . . . 8
3.2.2 Procedure for Nomination . . . . . . . . . . . . 8
3.3 Annual and Regular Meetings . . . . . . . . . . . . . . . . 9
3.4 Special Meetings . . . . . . . . . . . . . . . . . . . . . 9
3.5 Meetings by Telecommunications . . . . . . . . . . . . . . 10
3.6 Notice of Special Meetings . . . . . . . . . . . . . . . . 10
3.6.1 Personal Delivery . . . . . . . . . . . . . . . . 10
3.6.2 Delivery by Mail . . . . . . . . . . . . . . . . 10
3.6.3 Delivery by Telegraph . . . . . . . . . . . . . . 10
3.6.4 Oral Notice . . . . . . . . . . . . . . . . . . . 10
3.6.5 Notice by Facsimile Transmission . . . . . . . . 11
3.6.6 Notice by Private Courier . . . . . . . . . . . . 11
3.7 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . 11
3.7.1 Written Waiver . . . . . . . . . . . . . . . . . 11
3.7.2 Waiver by Attendance . . . . . . . . . . . . . . 11
3.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.9 Manner of Acting . . . . . . . . . . . . . . . . . . . . . 11
3.10 Presumption of Assent . . . . . . . . . . . . . . . . . . . 12
3.11 Action by Board or Committees Without a Meeting . . . . . . 12
3.12 Resignation . . . . . . . . . . . . . . . . . . . . . . . 12
3.13 Removal . . . . . . . . . . . . . . . . . . . . . . . 12
3.14 Vacancies . . . . . . . . . . . . . . . . . . . . . . . 13
3.15 Minutes . . . . . . . . . . . . . . . . . . . . . . . 13
3.16 Executive and Other Committees . . . . . . . . . . . . . . 14
TABLE OF CONTENTS Page ii
<PAGE>
3.16.1 Creation of Committees . . . . . . . . . . . . . 14
3.16.2 Authority of Committees . . . . . . . . . . . . . 14
3.16.3 Minutes of Meetings . . . . . . . . . . . . . . . 14
3.16.4 Resignation . . . . . . . . . . . . . . . . . . . 14
3.17 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Number . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Appointment and Term of Office . . . . . . . . . . . . . . 15
4.3 Resignation . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Removal . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Chair of the Board . . . . . . . . . . . . . . . . . . . . 16
4.7 President . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Vice President . . . . . . . . . . . . . . . . . . . . . . 16
4.9 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS . . . . . . . . . . . . 18
5.1 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Loans to the Corporation . . . . . . . . . . . . . . . . . 18
5.3 Loans to Directors . . . . . . . . . . . . . . . . . . . . 18
5.4 Checks, Drafts, Etc. . . . . . . . . . . . . . . . . . . . 18
5.5 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 6. CERTIFICATES FOR SHARES AND THEIR
TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Issuance of Shares . . . . . . . . . . . . . . . . . . . . 19
6.2 Escrow for Shares . . . . . . . . . . . . . . . . . . . . . 19
6.3 Certificates for Shares . . . . . . . . . . . . . . . . . . 19
TABLE OF CONTENTS Page iii
<PAGE>
6.4 Stock Records . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Restriction on Transfer . . . . . . . . . . . . . . . . . . 20
6.5.1 Securities Laws . . . . . . . . . . . . . . . . . 20
6.5.2 Other Restrictions . . . . . . . . . . . . . . . 20
6.6 Transfer of Shares . . . . . . . . . . . . . . . . . . . . 20
6.7 Lost or Destroyed Certificates . . . . . . . . . . . . . . 20
6.8 Transfer Agent and Registrar . . . . . . . . . . . . . . . 20
6.9 Officer Ceasing to Act . . . . . . . . . . . . . . . . . . 21
6.10 Fractional Shares . . . . . . . . . . . . . . . . . . . . . 21
SECTION 7. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 9. SEAL . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 21
10.1 Directors and Officers . . . . . . . . . . . . . . . . . . . . 21
10.2 Employees and Other Agents . . . . . . . . . . . . . . . . . . 21
10.3 No Presumption of Bad Faith . . . . . . . . . . . . . . . . . 21
10.4 Advances of Expenses . . . . . . . . . . . . . . . . . . . . . 22
10.5 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.6 Nonexclusivity of Rights . . . . . . . . . . . . . . . . . . . 23
10.7 Survival of Rights . . . . . . . . . . . . . . . . . . . . . . 23
10.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.9 Amendments to Law . . . . . . . . . . . . . . . . . . . . . . 23
10.10 Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . 23
10.11 Certain Definitions . . . . . . . . . . . . . . . . . . . . . 24
SECTION 11. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 25
TABLE OF CONTENTS Page iv
<PAGE>
BYLAWS
OF
THRUSTMASTER, INC.
SECTION 1. OFFICES
The principal office of the Corporation shall be located at the
principal place of business or such other place as the Board of Directors
(the "Board") may designate. The Corporation may have such other offices,
either within or without the State of Oregon, as the Board may designate or
as the business of the Corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING; PROCEDURES
2.1.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held the fourth
Thursday of May in each year, or on such other day as shall be fixed by
resolution of the Board, at the principal office of the Corporation or such
other place as fixed by the Board, for the purpose of electing Directors and
transacting such other business as may properly come before the meeting. If
the day fixed for the annual meeting is a legal holiday at the place of the
meeting, the meeting shall be held on the next succeeding business day.
2.1.2 BUSINESS TO BE CONDUCTED AT ANNUAL MEETING
Only such business shall be conducted at an annual meeting of
shareholders as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before
the meeting by a shareholder. For business to be properly brought before an
annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal office of
the corporation not less than 60 days nor more than 90 days prior to the
meeting; provided, that in the
BYLAWS Page 1
<PAGE>
event that less than 70 days' notice of the date of the meeting is given to
the shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the seventh day following the day on
which such notice of the date of the meeting was mailed. A shareholder's
notice to the Secretary shall set forth (a) as to each matter the shareholder
proposes to bring before the annual meeting, a brief description of the
business proposed to be brought before the annual meeting, the language of
the proposal, if appropriate, and the reasons for conducting such business at
the annual meeting, (b) the name and address, as they appear on the
corporation's books, of the shareholder proposing such business, (c) a
representation that the shareholder is entitled to vote at such meeting and a
statement of the class and number of shares of the corporation which are
beneficially owned by the shareholder, (d) any material interest of the
shareholder in such business, and (e) a representation that the shareholder
intends to appear in person or by proxy at the meeting to present the
business specified in the notice. Notwithstanding anything in these Bylaws
to the contrary, no business shall be conducted at any annual meeting except
in accordance with the procedures set forth in this Section 2.1.2. The Chair
of the meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 2.1.2, and, if he or she
should so determine, the Chair shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
2.2 SPECIAL MEETINGS
The Board, the President or the Chair of the Board may call special
meetings of the shareholders for any purpose. The holders of not less than
one-tenth of all the outstanding shares of the Corporation entitled to vote
on any issue proposed to be considered at a proposed special meeting may
request that a special meeting of the shareholders be called, if they date,
sign and deliver to the Corporation's Secretary a written demand for a
special meeting describing the purpose(s) for which it is to be held.
2.3 PLACE OF MEETING
All meetings shall be held at the principal office of the Corporation
or at such other place as designated by the Board.
2.4 CONDUCT OF MEETING
The Chair of the meeting shall have the authority to adopt such rules
for the conduct of any annual or special meeting of shareholders as he or she
may deem necessary or appropriate to facilitate orderly meetings.
BYLAWS Page 2
<PAGE>
2.5 NOTICE OF MEETING
(a) The Corporation shall cause to be delivered to each shareholder
entitled to notice of or to vote at an annual or special meeting of
shareholders, either personally or by mail, not less than ten (10) nor more
than sixty (60) days before the meeting, written notice stating the date,
time and place of the meeting and, in the case of a special meeting, the
purpose(s) for which the meeting is called.
(b) Notice to a shareholder of an annual or special shareholder
meeting shall be in writing. Such notice, if in comprehensible form, is
effective (a) when mailed, if it is mailed postpaid and is correctly
addressed to the shareholder's address shown in the Corporation's
then-current record of shareholders, or (b) when received by the shareholder,
if it is delivered by telegraph, facsimile transmission or private courier.
(c) If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date,
time, or place if the new date, time, or place is announced at the meeting
before adjournment, unless a new record date for the adjourned meeting is or
must be fixed under Section 2.6(a) of these bylaws or the Oregon Business
Corporation Act.
2.6 WAIVER OF NOTICE
(a) Whenever any notice is required to be given to any shareholder
under the provisions of these Bylaws, the Articles of Incorporation or the
Oregon Business Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, and delivered to the Corporation for inclusion in the minutes
for filing with the corporate records, shall be deemed equivalent to the
giving of such notice.
(b) The attendance of a shareholder at a meeting waives objection to
lack of, or defect in, notice of such meeting or of consideration of a
particular matter at the meeting, unless the shareholder, at the beginning of
the meeting or prior to consideration of such matter, objects to holding the
meeting, transacting business at the meeting, or considering the matter when
presented at the meeting.
2.7 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
(a) For the purpose of determining shareholders entitled to notice
of, or to vote at, any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in order to make
a determination of shareholders for any other purpose, the Board may fix in
advance a date as the record
BYLAWS Page 3
<PAGE>
date for any such determination. Such record date shall be not more than
seventy (70) days, and in case of a meeting of shareholders, not less than
ten (10) days, prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting,
or to receive payment of a dividend, the date on which the notice of meeting
is mailed or on which the resolution of the Board declaring such dividend is
adopted, as the case may be, shall be the record date for such determination.
Such determination shall apply to any adjournment of the meeting, provided
such adjournment is not set for a date more than 120 days after the date
fixed for the original meeting.
(b) The record date for the determination of shareholders entitled to
demand a special shareholder meeting shall be the date the first shareholder
signs the demand.
2.8 SHAREHOLDERS' LIST
(a) Beginning two (2) business days after notice of a meeting of
shareholders is given, a complete alphabetical list of the shareholders
entitled to notice of such meeting shall be made, arranged by voting group,
and within each voting group by class or series, with the address of and
number of shares held by each shareholder. This record shall be kept on file
at the Corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held. On written demand, this
record shall be subject to inspection by any shareholder at any time during
normal business hours. Such record shall also be kept open at such meeting
for inspection by any shareholder.
(b) A shareholder may, on written demand, copy the shareholders' list
at such shareholder's expense during regular business hours, provided that:
(i) Such shareholder's demand is made in good faith and for a
proper purpose;
(ii) Such shareholder has described with reasonable
particularity such shareholder's purpose in the written demand; and
(iii) The shareholders' list is directly connected with such
shareholder's purpose.
2.9 QUORUM
A majority of the votes entitled to be cast on a matter at a meeting by
a voting group, represented in person or by proxy, shall constitute a quorum
of that voting
BYLAWS Page 4
<PAGE>
group for action on that matter at a meeting of the shareholders. If a
quorum is not present for a matter to be acted upon, a majority of the shares
represented at the meeting may adjourn the meeting from time to time without
further notice. If the necessary quorum is present or represented at a
reconvened meeting following such an adjournment, any business may be
transacted that might have been transacted at the meeting as originally
called. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
2.10 MANNER OF ACTING
(a) If a quorum exists, action on a matter (other than the election
of Directors) by a voting group is approved if the votes cast within the
voting group favoring the action exceed the votes cast opposing the action,
unless the affirmative vote of a greater number is required by these Bylaws,
the Articles of Incorporation or the Oregon Business Corporation Act.
(b) If a matter is to be voted on by a single group, action on that
matter is taken when voted upon by that voting group. If a matter is to be
voted on by two or more voting groups, action on that matter is taken only
when voted upon by each of those voting groups counted separately. Action
may be taken by one voting group on a matter even though no action is taken
by another voting group entitled to vote on such matter.
2.11 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes at the meeting. A proxy shall become invalid eleven (11) months after
the date of its execution, unless otherwise expressly provided in the proxy.
A proxy for a specified meeting shall entitle the holder thereof to vote at
any adjournment of such meeting but shall not be valid after the final
adjournment thereof.
2.12 VOTING OF SHARES
Each outstanding share entitled to vote shall be entitled to one vote
upon each matter submitted to a vote at a meeting of shareholders.
Page 5
<PAGE>
2.13 VOTING FOR DIRECTORS
Each shareholder may vote, in person or by proxy, the number of
shares owned by such shareholder that are entitled to vote at an election of
Directors, for as many persons as there are Directors to be elected and for
whose election such shares have a right to vote. Unless otherwise provided
in the Articles of Incorporation, Directors are elected by a plurality of the
votes cast by shares entitled to vote in the election at a meeting at which a
quorum is present.
2.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action which could be taken at a meeting of the shareholders may
be taken without a meeting if a written consent setting forth the action so
taken is signed by all shareholders entitled to vote with respect to the
subject matter thereof. The action shall be effective on the date on which
the last signature is placed on the consent, or at such earlier or later time
as is set forth therein. Such written consent, which shall have the same
force and effect as a unanimous vote of the shareholders, shall be inserted
in the minute book as if it were the minutes of a meeting of the
shareholders.
2.15 VOTING OF SHARES BY CORPORATIONS
2.15.1 SHARES HELD BY ANOTHER CORPORATION
Shares standing in the name of another corporation may be voted by
such officer, agent or proxy as the bylaws of such other corporation may
prescribe, or, in the absence of such provision, as the board of directors of
such corporation may determine; provided, however, such shares are not
entitled to vote if the Corporation owns, directly or indirectly, a majority
of the shares entitled to vote for directors of such other corporation.
2.15.2 SHARES HELD BY THE CORPORATION
Authorized but unissued shares shall not be voted or counted for
determining whether a quorum exists at any meeting or counted in determining
the total number of outstanding shares at any given time. Notwithstanding
the foregoing, shares of its own stock held by the Corporation in a fiduciary
capacity may be counted for purposes of determining whether a quorum exists,
and may be voted by the Corporation.
Page 6
<PAGE>
2.16 ACCEPTANCE OR REJECTION OF SHAREHOLDER VOTES, CONSENTS, WAIVERS AND
PROXY APPOINTMENTS
2.16.1 DOCUMENTS BEARING NAME OF SHAREHOLDERS
If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the Secretary or other agent
authorized to tabulate votes at the meeting may, if acting in good faith,
accept such vote, consent, waiver or proxy appointment and give it effect as
the act of the shareholder.
2.16.2 DOCUMENTS BEARING NAME OF THIRD PARTIES
If the name signed on a vote, consent, waiver or proxy appointment does
not correspond to the name of its shareholder, the Secretary or other agent
authorized to tabulate votes at the meeting may nevertheless, if acting in
good faith, accept such vote, consent, waiver or proxy appointment and give
it effect as the act of the shareholder if:
(a) The shareholder is an entity and the name signed purports to be
that of an officer or an agent of the entity;
(b) The name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if the
Secretary or other agent requests, acceptable evidence of fiduciary status
has been presented;
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder, and, if the Secretary or other agent requests,
acceptable evidence of this status has been presented;
(d) The name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact of the shareholder and, if the Secretary or other
agent requests, acceptable evidence of the signatory's authority to sign has
been presented; or
(e) Two or more persons are the shareholder as cotenants or
fiduciaries and the name signed purports to be the name of at least one of
the co-owners and the person signing appears to be acting on behalf of all
co-owners.
2.16.3 REJECTION OF DOCUMENTS
The Secretary or other agent authorized to tabulate votes at the
meeting is entitled to reject a vote, consent, waiver or proxy appointment if
such agent, acting in
Page 7
<PAGE>
good faith, has reasonable basis for doubt about the validity of the
signature on it or about the signatory's authority to sign for the
shareholder.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
The business and affairs of the Corporation shall be managed by the
Board, except as may be otherwise provided in these Bylaws, the Articles of
Incorporation or the Oregon Business Corporation Act.
3.2 NUMBER AND CLASSIFICATION; PROCEDURE FOR NOMINATION
3.2.1 NUMBER AND CLASSIFICATION
The Board of Directors shall consist of eight Directors divided into
three classes, hereby designated classes A, B, and C. At the 1997 annual
meeting of Shareholders, the Directors of class A shall be elected for a term
expiring at the annual meeting of shareholders in 1998; the Directors of
class B shall be elected for a term expiring at the annual meeting of
shareholders in 1999; and the Directors of class C shall be elected for a
term expiring at the annual meeting of shareholders in 2000. Commencing in
1998 at each annual meeting of shareholders thereafter, the successors to the
class of Directors whose terms expire at that meeting shall be elected to
hold office for a term of three years, so that the term of office of one
class of directors shall expire in each year.
The number of Directors may at any time be increased or decreased by
the shareholders or by the Board of Directors at any annual or special
meeting, but no decrease in the number of Directors shall shorten the term of
any incumbent Director. All of the Directors of the Corporation shall hold
office until death or removal from office and until their successors are
elected and qualified, or until there is a decrease in the number of
Directors. Directors need not be shareholders of the Corporation or
residents of the State of Oregon.
3.2.2 PROCEDURE FOR NOMINATION
Only persons who are nominated in accordance with the procedures set
forth in this Section 3.2.2 shall be eligible for election as Directors by
the shareholders. Nominations of persons for election to the Board may be
made at a meeting of shareholders by or at the direction of the Board or by
any shareholder of the corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedure set forth in
this Section 3.2.2. Such nominations, other than
Page 8
<PAGE>
those made by or at the direction of the Board, shall be made pursuant to
timely notice in writing to the Secretary. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal
executive office of the corporation not less than 60 days nor more than 90
days prior to the meeting; provided, that in the event that less than 70
days' notice of the date of the meeting is given to shareholders, notice by
the shareholder to be timely must be so received not later than the close of
business on the seventh day following the day on which such notice of the
date of the meeting was mailed. Such shareholder's notice shall set forth
(a) as to each person whom the shareholder proposes to nominate for election
as a Director, (i) the name, age, business and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the corporation that are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and (b) as
to the stockholder giving the notice (i) the name and address, as they appear
on the corporation's books, of such shareholder, (ii) a representation that
the shareholder is entitled to vote at such meeting and statement of the
class and number of shares of the corporation that are beneficially owned by
such shareholder and (iii) a representation that the shareholder intends to
appear in person or by proxy at the meeting to make the nomination specified
in the notice. At the request of the Board, any person nominated by the
Board for election as a Director shall furnish to the Secretary that
information required to be set forth in a shareholder's notice of nomination.
The Chair of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, and, if he or she should so determine,
he or she shall so declare to the meeting and the defective nomination shall
be disregarded.
3.3 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without further notice
immediately preceding and at the same place as the annual meeting of
shareholders.
By resolution the Board, or any committee thereof, may specify the
time and place for holding regular meetings thereof without other notice than
such resolution.
Page 9
<PAGE>
3.4 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chair of the Board, or the
President or by one-third of the Directors then in office and, in the case of
any special meeting of any committee designated by the Board, by the Chair
thereof. The person or persons authorized to call special meetings may fix
any place either within or without the State of Oregon as the place for
holding any special Board or committee meeting called by them.
3.5 MEETINGS BY TELECOMMUNICATIONS
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by use of any means of
communication by which all persons participating may simultaneously hear each
other during the meeting. Participation by such means shall be deemed
presence in person at the meeting.
3.6 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the date, time
and place of the meeting shall be given to a Director in writing or orally by
telephone or in person as set forth below. Neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in
the notice of such meeting.
3.6.1 PERSONAL DELIVERY
If delivery is by personal service, the notice shall be effective if
delivered at such address at least one day before the meeting.
3.6.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective
if deposited in the official government mail at least two days before the
meeting properly addressed to a Director at his or her address shown on the
records of the Corporation with postage prepaid.
3.6.3 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be deemed
effective if the content thereof is delivered to the telegraph company by
such time that the telegraph company guarantees delivery at least one day
before the meeting.
Page 10
<PAGE>
3.6.4 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice
shall be effective if personally given to a Director at least one day before
the meeting.
3.6.5 NOTICE BY FACSIMILE TRANSMISSION
If notice is delivered by facsimile transmission, the notice shall be
deemed effective if the content thereof is transmitted to the office of a
Director, at the facsimile number shown on the records of the Corporation, at
least one day before the meeting, and receipt is either confirmed by
confirming transmission equipment or acknowledged by the receiving office.
3.6.6 NOTICE BY PRIVATE COURIER
If notice is delivered by private courier, the notice shall be deemed
effective if delivered to the courier, properly addressed and prepaid, by
such time that the courier guarantees delivery at least one day before the
meeting.
3.7 WAIVER OF NOTICE
3.7.1 WRITTEN WAIVER
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Oregon
Business Corporation Act, a waiver thereof in writing, executed at any time,
specifying the meeting for which notice is waived, signed by the person or
persons entitled to such notice, and filed with the minutes or corporate
records, shall be deemed equivalent to the giving of such notice.
3.7.2 WAIVER BY ATTENDANCE
The attendance of a Director at a Board or committee meeting shall
constitute a waiver of notice of such meeting, unless the Director, at the
beginning of the meeting, or promptly upon such Director's arrival, objects
to holding the meeting or transacting any business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
Page 11
<PAGE>
3.8 QUORUM
A majority of the number of Directors fixed by or in the manner
provided by these Bylaws shall constitute a quorum for the transaction of
business at any Board meeting.
3.9 MANNER OF ACTING
The act of the majority of the Directors present at a Board or
committee meeting at which there is a quorum shall be the act of the Board or
committee, unless the vote of a greater number is required by these Bylaws,
the Articles of Incorporation or the Oregon Business Corporation Act.
3.10 PRESUMPTION OF ASSENT
A Director of the Corporation present at a Board or committee meeting
at which action on any corporate matter is taken shall be deemed to have
assented to the action taken unless such Director objects at the beginning of
the meeting, or promptly upon such Director's arrival, to holding the meeting
or transacting business at the meeting; or such Director's dissent is entered
in the minutes of the meeting; or such Director delivers a written notice of
dissent or abstention to such action with the presiding officer of the
meeting before the adjournment thereof; or such Director forwards such notice
by registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. A Director who voted in favor of such action may
not thereafter dissent or abstain.
3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any
committee appointed by the Board may be taken without a meeting if a written
consent setting forth the action so taken is signed by each Director or by
each committee member. The action shall be effective when the last signature
is placed on the consent, unless the consent specifies an earlier or later
date. Such written consent, which shall have the same effect as a unanimous
vote of the Directors or such committee, shall be inserted in the minute book
as if it were the minutes of a Board or committee meeting.
3.12 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chair of the Board, the Board, or to the registered office of the
Corporation. Such resignation shall take effect at the time specified in the
notice, or if no time is specified, upon delivery. Unless otherwise
specified therein, the acceptance of such
Page 12
<PAGE>
resignation shall not be necessary to make it effective. Once delivered, a
notice of resignation is irrevocable unless revocation is permitted by the
Board.
3.13 REMOVAL
One or more members of the Board (including the entire Board) may be
removed at a meeting of shareholders called expressly for that purpose,
provided that the notice of such meeting states that the purpose, or one of
the purposes, of the meeting is such removal. A member of the Board may be
removed with or without cause, unless the Articles of Incorporation permit
removal for cause only, by a vote of the holders of a majority of the shares
then entitled to vote on the election of the Director(s). A Director may be
removed only if the number of votes cast to remove the Director exceeds the
number of votes cast to not remove the Director. If a Director is elected by
a voting group of shareholders, only the shareholders of that voting group
may participate in the vote to remove such Director.
3.14 VACANCIES
Any vacancy occurring on the Board, including a vacancy resulting from
an increase in the number of Directors, may be filled by the shareholders, by
the Board, by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board, or by a sole remaining Director. A
Director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office; except that the term of a Director elected
by the Board to fill a vacancy expires at the next shareholders' meeting at
which Directors are elected. Any Directorship to be filled by reason of an
increase in the number of Directors may be filled by the affirmative vote of
a majority of the number of Directors fixed by the Bylaws prior to such
increase for a term of office continuing only until the next election of
Directors by the shareholders. Any Directorship not so filled by the
Directors shall be filled by election at the next annual meeting of
shareholders or at a special meeting of shareholders called for that purpose.
If the vacant Directorship is filled by the shareholders and was held by a
Director elected by a voting group of shareholders, then only the holders of
shares of that voting group are entitled to vote to fill such vacancy. A
vacancy that will occur at a specific later date by reason of a resignation
effective at such later date or otherwise may be filled before the vacancy
occurs, but the new Director may not take office until the vacancy occurs. A
Director elected to fill a vacancy becomes a member of the same class as his
predecessor. The term of a Director elected by the Board of Directors to
fill a vacancy shall expire at the next meeting of Shareholders at which
Directors are elected. The Board of Directors shall take appropriate steps,
by designation of short terms or otherwise, to return the
Page 13
<PAGE>
rotation of election of directors for each class to the original, staggered,
three-year terms established by these Bylaws.
3.15 MINUTES
The Board shall keep minutes of its meetings and shall cause them to be
recorded in books kept for that purpose.
3.16 EXECUTIVE AND OTHER COMMITTEES
3.16.1 CREATION OF COMMITTEES
The Board, by resolution, may appoint standing or temporary
committees, including an Executive Committee, from its own number and
consisting of no less than two (2) Directors. The Board may invest such
committee(s) with such powers as it may see fit, subject to such conditions
as may be prescribed by the Board, these Bylaws, the Articles of
Incorporation and the Oregon Business Corporation Act.
3.16.2 AUTHORITY OF COMMITTEES
Except as otherwise provided by law, each committee shall have and may
exercise all of the authority of the Board to the extent provided in the
resolution of the Board designating the committee and any subsequent
resolutions pertaining thereto and adopted in like manner.
3.16.3 MINUTES OF MEETINGS
All committees so appointed shall keep regular minutes of their
meetings and shall cause them to be recorded in books kept for that purpose.
3.16.4 RESIGNATION
Any member of any committee may resign at any time by delivering
written notice thereof to the Board, the Chair of the Board or the
Corporation. Any such resignation shall take effect at the time specified in
the notice, or if no time is specified, upon delivery. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary
to make it effective. Once delivered, a notice of resignation is irrevocable
unless revocation is permitted by the Board.
3.17 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a
fixed sum for
Page 14
<PAGE>
attendance at each Board or committee meeting, or a stated salary as Director
or a committee member, or a combination of the foregoing. No such payment
shall preclude any Director or committee member from serving the Corporation
in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 NUMBER
The Officers of the Corporation shall be a President and a Secretary,
each of whom shall be appointed by the Board. One or more Vice Presidents, a
Treasurer and such other Officers and assistant Officers, including a Chair
of the Board, may be appointed by the Board; such Officers and assistant
Officers to hold office for such period, have such authority and perform such
duties as are provided in these Bylaws or as may be provided by resolution of
the Board. Any Officer may be assigned by the Board any additional title
that the Board deems appropriate. The Board may delegate to any Officer or
agent the power to appoint any such subordinate Officers or agents and to
prescribe their respective terms of office, authority and duties. Any two or
more offices may be held by the same person.
4.2 APPOINTMENT AND TERM OF OFFICE
The Officers of the Corporation shall be appointed annually by the
Board at the Board meeting held immediately prior to the annual meeting of
the shareholders. If the appointment of Officers is not made at such
meeting, such appointment shall be made as soon thereafter as a Board meeting
conveniently may be held. Unless an Officer dies, resigns, or is removed
from office, he or she shall hold office until the next annual meeting of the
Board or until his or her successor is appointed.
4.3 RESIGNATION
Any Officer may resign at any time by delivering written notice to the
Corporation. Any such resignation shall take effect at the time specified in
the notice, or if no time is specified, upon delivery. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary
to make it effective. Once delivered, a notice of resignation is irrevocable
unless revocation is permitted by the Board.
4.4 REMOVAL
Any Officer or agent appointed by the Board may be removed by the
Board, with or without cause, but such removal shall be without prejudice to
the contract
Page 15
<PAGE>
rights, if any, of the person so removed. Appointment of an Officer or agent
shall not of itself create contract rights.
4.5 VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled
by the Board for the unexpired portion of the term, or for a new term
established by the Board. If a resignation is made effective at a later
date, and the Corporation accepts such future effective date, the Board may
fill the pending vacancy before the effective date, if the Board provides
that the successor does not take office until the effective date.
4.6 CHAIR OF THE BOARD
If appointed, the Chair of the Board shall perform such duties as shall
be assigned to him or her by the Board from time to time and shall preside
over meetings of the Board and shareholders unless another Officer is
appointed or designated by the Board as Chair of such meeting.
4.7 PRESIDENT
The President shall be the chief executive Officer of the Corporation
unless some other Officer is so designated by the Board, shall preside over
meetings of the Board and shareholders in the absence of a Chair of the Board
and, subject to the Board's control, shall supervise and control all of the
assets, business and affairs of the Corporation. The President shall have
authority to sign deeds, mortgages, bonds, contracts, or other instruments,
except when the signing and execution thereof have been expressly delegated
by the Board or by these Bylaws to some other Officer or agent of the
Corporation, or are required by law to be otherwise signed or executed by
some other Officer or in some other manner. In general, the President shall
perform all duties incident to the office of President and such other duties
as are prescribed by the Board from time to time.
4.8 VICE PRESIDENT
In the event of the death of the President or his or her inability to
act, the Vice President (or if there is more than one Vice President, the
Vice President who was designated by the Board as the successor to the
President, or if no Vice President is so designated, the Vice President first
appointed to such office) shall perform the duties of the President, except
as may be limited by resolution of the Board, with all the powers of and
subject to all the restrictions upon the President. Vice Presidents shall
Page 16
<PAGE>
have, to the extent authorized by the President or the Board, the same powers
as the President to sign deeds, mortgages, bonds, contracts or other
instruments. Vice Presidents shall perform such other duties as from time to
time may be assigned to them by the President or by the Board.
4.9 SECRETARY
The Secretary shall (a) prepare and keep the minutes of meetings of the
shareholders and the Board in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions of
these Bylaws or as required by law; (c) be responsible for custody of the
corporate records and seal of the corporation; (d) keep registers of the post
office address of each shareholder and Director; (e) have general charge of
the stock transfer books of the Corporation; and (f) in general perform all
duties incident to the office of Secretary and such other duties as from time
to time may be assigned to him or her by the President or by the Board. In
the absence of the Secretary, an Assistant Secretary may perform the duties
of the Secretary.
4.10 TREASURER
If required by the Board, the Treasurer shall give a bond for the
faithful discharge of his or her duties in such amount and with such surety
or sureties as the Board shall determine. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the
name of the Corporation in banks, trust companies or other depositories
selected in accordance with the provisions of these Bylaws; and in general
perform all of the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him or her by the President or
by the Board. In the absence of the Treasurer, an Assistant Treasurer may
perform the duties of the Treasurer.
4.11 SALARIES
The salaries of the Officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No Officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the Corporation.
Page 17
<PAGE>
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any Officer or Officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation. Such authority may be general or confined
to specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to
specific instances.
5.3 LOANS TO DIRECTORS
The Corporation shall not lend money to or guarantee the obligation of
a Director unless (a) the particular loan or guarantee is approved by a
majority of the votes represented by the outstanding voting shares of all
classes, voting as a single voting group, excluding the votes of the shares
owned by or voted under the control of the benefited Director; or (b) the
Board determines that the loan or guarantee benefits the Corporation and
either approves the specific loan or guarantee or a general plan authorizing
the loans and guarantees. The fact that a loan or guarantee is made in
violation of this provision shall not affect the borrower's liability on the
loan.
5.4 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation shall
be signed by such Officer or Officers, or agent or agents, of the Corporation
and in such manner as is from time to time determined by resolution of the
Board.
5.5 DEPOSITS
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Board may select.
Page 18
<PAGE>
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the Corporation shall be issued unless authorized by the
Board, which authorization shall include the maximum number of shares to be
issued and the consideration to be received for each share. Before the
Corporation issues shares, the Board shall determine that the consideration
received or to be received for such shares is adequate. Such determination
by the Board shall be conclusive insofar as the adequacy of consideration for
the issuance of shares relates to whether the shares are validly issued,
fully paid and nonassessable.
6.2 ESCROW FOR SHARES
The Board may authorize the placement in escrow of shares issued for a
contract for future services or benefits or a promissory note, or may
authorize other arrangements to restrict the transfer of shares, and may
authorize the crediting of distributions in respect of such shares against
their purchase price, until the services are performed, the note is paid or
the benefits received. If the services are not performed, the note is not
paid, or the benefits are not received, the Board may cancel, in whole or in
part, such shares placed in escrow or restricted and such distributions
credited.
6.3 CERTIFICATES FOR SHARES
Certificates representing shares of the Corporation shall be in such
form as shall be determined by the Board. Such certificates shall be signed
by any two of the following officers: the Chair of the Board, the President,
any Vice President, the Treasurer, the Secretary or any Assistant Secretary.
Any or all of the signatures on a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Corporation itself or an employee of the Corporation. All
certificates shall be consecutively numbered or otherwise identified.
6.4 STOCK RECORDS
The stock transfer books shall be kept at the registered office or
principal place of business of the Corporation or at the office of the
Corporation's transfer agent or registrar. The name and address of each
person to whom certificates for shares are issued, together with the class
and number of shares represented by each such certificate and the date of
issue thereof, shall be entered on the stock transfer books of the
Corporation. The person in whose name shares stand on the books of the
Page 19
<PAGE>
Corporation shall be deemed by the Corporation to be the owner thereof for
all purposes.
6.5 RESTRICTION ON TRANSFER
6.5.1 SECURITIES LAWS
Except to the extent that the Corporation has obtained an opinion of
counsel acceptable to the Corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates
representing shares of the Corporation shall bear conspicuously on the front
or back of the certificate a legend or legends describing the restriction or
restrictions.
6.5.2 OTHER RESTRICTIONS
In addition, the front or back of all certificates shall include
conspicuous written notice of any further restrictions which may be imposed
on the transferability of such shares.
6.6 TRANSFER OF SHARES
Transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer,
or by his or her attorney-in-fact authorized by power of attorney duly
executed and filed with the Secretary of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificates for a like number
of shares shall have been surrendered and canceled.
6.7 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
Corporation as the Board may prescribe.
6.8 TRANSFER AGENT AND REGISTRAR
The Board may from time to time appoint one or more Transfer Agents and
one or more Registrars for the shares of the Corporation, with such powers
and duties as the Board shall determine by resolution.
Page 20
<PAGE>
6.9 OFFICER CEASING TO ACT
In case any officer who has signed or whose facsimile signature has
been placed upon a stock certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with
the same effect as if the signer were such officer at the date of its
issuance.
6.10 FRACTIONAL SHARES
The Corporation shall not issue certificates for fractional shares.
SECTION 7. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and Board and such other records as may be necessary or advisable.
SECTION 8. FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year, provided
that if a different fiscal year is at any time selected for purposes of
federal income taxes, the fiscal year shall be the year so selected.
SECTION 9. SEAL
The seal of the Corporation, if any, shall consist of the name of the
Corporation and the state of its incorporation.
SECTION 10. INDEMNIFICATION
10.1 DIRECTORS AND OFFICERS
The Corporation shall indemnify its directors and officers to the
fullest extent not prohibited by law.
10.2 EMPLOYEES AND OTHER AGENTS
The Corporation shall have the power to indemnify its officers,
employees and other agents to the fullest extent not prohibited by law.
Page 21
<PAGE>
10.3 NO PRESUMPTION OF BAD FAITH
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which the person reasonably believed to be in or not opposed to the
best interests of this Corporation, or, with respect to any criminal
proceeding, that the person had reasonable cause to believe that the conduct
was unlawful.
10.4 ADVANCES OF EXPENSES
The expenses incurred by a director or officer in any proceeding shall
be paid by the Corporation in advance at the written request of the director
or officer, if the director or officer:
(A) Furnishes the Corporation a written affirmation of such person's
good faith belief that such person is entitled to be indemnified by the
Corporation; and
(B) Furnishes the Corporation a written undertaking to repay such
advance to the extent that it is ultimately determined by a court that such
person is not entitled to be indemnified by the Corporation. Such advances
shall be made without regard to the person's ability to repay such expenses
and without regard to the person's ultimate entitlement to indemnification
under this Bylaw or otherwise.
10.5 ENFORCEMENT
Without the necessity of entering into an express contract, all rights
to indemnification and advances under this Bylaw shall be deemed to be
contractual rights and be effective to the same extent and as if provided for
in a contract between the Corporation and the director or officer who serves
in such capacity at any time while this Bylaw and any other applicable law,
if any, are in effect. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of
the person holding such right in any court of competent jurisdiction if
(a) the claim for indemnification or advances is denied, in whole or in part,
or (b) no disposition of such claim is made within ninety (90) days of request
thereof. The claimant in such enforcement action, if successful in whole or
in part, shall be entitled to be also paid the expense of prosecuting the
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any
proceeding in advance of its final disposition when the required affirmation
and undertaking have been tendered to the Corporation) that the claimant has
not met the standards of conduct which makes it
Page 22
<PAGE>
permissible under the law for the Corporation to indemnify the claimant, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because the claimant has met the applicable standard of
conduct, nor an actual determination by the Corporation (including its Board
of Directors, independent legal counsel or its shareholders) that the
claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
10.6 NONEXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Bylaw shall not be exclusive
of any other right which such person may have or hereafter acquire under any
statute, provision of articles of incorporation, bylaws, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in
the person's official capacity and as to action in another capacity while
holding office. The Corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or
agents respecting indemnification and advances to the fullest extent not
prohibited by law.
10.7 SURVIVAL OF RIGHTS
The rights conferred on any person by this Bylaw shall continue as to a
person who has ceased to be a director, officer, employee or other agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person.
10.8 INSURANCE
To the fullest extent not prohibited by law, the Corporation, upon
approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.
10.9 AMENDMENTS TO LAW
For purposes of this Bylaw, the meaning of "law" within the phrase "to
the fullest extent not prohibited by law" shall include, but not be limited
to, the Oregon Business Corporation Act, as the same exists on the date
hereof or as it may be amended; provided, however, that in the case of any
such amendment, such amendment shall apply only to the extent that it permits
the Corporation to provide
Page 23
<PAGE>
broader indemnification rights than the Act permitted the Corporation to
provide prior to such amendment.
10.10 SAVINGS CLAUSE
If this Bylaw or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, the Corporation shall indemnify each
director, officer or other agent to the fullest extent permitted by any
applicable portion of this Bylaw that shall not have been invalidated, or by
any other applicable law.
10.11 CERTAIN DEFINITIONS
For the purposes of this Section, the following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed
action, suit or proceeding, whether brought in the right of the Corporation
or otherwise and whether civil, criminal, administrative or investigative, in
which the director or officer may be or may have been involved as a party or
otherwise by reason of the fact that the director or officer is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
(b) The term "expenses" shall be broadly construed and shall include,
without limitation, all costs, charges and expenses (including fees and
disbursements of attorneys, accountants and other experts) actually and
reasonably incurred by a director or officer in connection with any
proceeding, all expenses of investigations, judicial or administrative
proceedings or appeals, and any expenses of establishing a right to
indemnification under these Bylaws, but shall not include amounts paid in
settlement, judgments or fines.
(c) "Corporation" shall mean THRUSTMASTER, INC. and any successor
corporation thereof.
(d) Reference to a "director," "officer," "employee" or "agent" of the
Corporation shall include, without limitation, situations where such person
is serving at the request of the Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(e) References to "other enterprises" shall include employee benefit
plans. References to "fines" shall include any excise taxes assessed on a
person with respect
Page 24
<PAGE>
to any employee benefit plan. References to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries. A person who acted in good faith
and in a manner the person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Bylaw.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board at any regular or special meeting of the Board. The
shareholders may also make, alter, amend and repeal the Bylaws of the
Corporation. The shareholders, in amending or repealing a particular Bylaw,
may provide expressly that the Board may not amend or repeal that Bylaw. All
Bylaws made by the Board may be amended, repealed, altered or modified by the
shareholders.
The foregoing Amended and Restated Bylaws were adopted by the Board of
Directors of the Corporation on January 21, 1997.
/s/ Kent E. Koski
-------------------------
Secretary
Page 25
<PAGE>
[LOGO]
WEST METRO BUSINESS
BANKING CENTER
8625 S.W. Cascade Avenue, Suite 400
Beaverton, OR 97005
Exhibit 10.5
May 16, 1996
Mr Kent Koski
Vice President Finance & Administration
Thrustmaster, Inc.
10150 SW Nimbus Ave
Portland, Oregon 97223
Dear Kent,
I am pleased to advise you that United States National Bank of Oregon has
approved your request for a revolving line of credit subject to the following
terms and conditions:
BORROWER: Thrustmaster, Inc.
OPERATING LINE OF CREDIT
MAXIMUM LOAN AMOUNT: $1,000,000.
PURPOSE: General corporate purposes and to support letters
of credit.
INTEREST RATE: OPTION 1
Fully floating variable interest rate equal to U.S.
Bank's prime rate.
OPTION 2
IBOR plus 250 basis points. 1,2,3 or 6 month terms.
Minimum advance amount $250,000. No prepayment is
allowed on IBOR indexed loans.
Borrower is advised the Bank's IBOR rate is the
rate per annum determined by Bank as the average
rate offered to Bank for U.S. dollar deposits in the
Eurodollar market selected by Bank (adjusted for
required reserves, if any).
<PAGE>
2
Bank's IBOR rates are established as of approximately
8:00 a.m. and 10:00 a.m. each business day, and
interest rate quotes may be obtained from Bank
between 8:00 a.m. and 12:00 noon. Quotes based on
rates set as of 8:00 a.m. must be accepted before
10:00 a.m.; quotes based on rates set as of
10:00 a.m. must be accepted by 12:00 noon. IBOR
indexed rate quotes are for rates which are to
become effective two business days later.
All interest under both options shall be computed on
the basis of a 360-day year and the actual number of
days elapsed.
MATURITY DATE: Payable on demand.
REPAYMENT: Principal and interest payable on demand. Interest
payable monthly in absence of demand.
LOAN FEE: Non-refundable upfront annual loan fee of 1/8%
($1,250).
COLLATERAL: Perfected first priority security interest in all of
Borrower's now owned and hereafter acquired accounts
receivable, inventory and equipment.
OPERATING REQUIREMENTS
1. 75% advance against eligible A/R to 30 days past due.
2. Definition of Ineligible A/R includes (but is not limited to) the
following:
* All invoices aged beyond 30 days past due.
* Cash or "COD" sales.
* Progress billings.
* Down payments.
* Pre-billings.
* Sales on consignment.
* Inter or related company sales.
* Datings
* Employee sales.
<PAGE>
3
* Sales exceeding debtor credit limits established by Bank at its
sole discretion on concentration accounts which equal or exceed
$250,000.
* Foreign accounts. Eligible foreign accounts will be considered on a
case by case basis. Canadian accounts are eligible without support
by Letters of Credit up to $100,000.
* Sales to U.S. Federal Government Agencies, with the exception of
Army and Airforce Exchange Services.
* Account debtor aging (calculated monthly). If 10% or more of a debtor
balance is beyond the defined eligible period, than debtor's entire
balance is deemed ineligible.
3. Borrower's certificates are to be provided to U.S. Bank on a monthly
basis, as of month end.
4. Summary account receivable agings and accounts payable aging to be
provided to U.S. Bank on monthly basis.
5. Collateral exam may be required annually.
6. Account debtor address listing to be provided annually.
IF THERE ARE NO FUNDS BORROWED DURING THE MONTH OR IF LETTERS OF CREDIT DO
NOT EXCEED $1,000,000, NO BORROWER'S CERTIFICATE, A/R OR A/P AGING WILL BE
REQUIRED AT MONTH END.
NON REVOLVING TERM LOAN COMMITMENT
EQUIPMENT AND VEHICLE PURCHASE LINE
BORROWING LIMIT: $200,000.00
PURPOSE: To assist in the purchase of equipment and vehicles.
TERMS: Individual notes written for up to 60 months,
fully amortizing. Maximum advance 80% of invoice.
INTEREST RATE: The initial interest rate will be fixed for the
first 3 or 5 years of the Loan at 2.25% per annum in
excess of the Index of the same matching term
(described below), rounded to the nearest one eighth
of one percent. The index is the mean average of the
four most recent weekly average yields on U.S.
Government Securities, Treasury Constant Maturities
of 3 or 5 years, as reported in the most current
available Federal Reserve System H-15 Reports, 15
days prior to each Interest Change Date.
<PAGE>
4
For example, the 4 week average of 3 Year Treasuries
as of 5/3/96 was 6.17, so the current rate would be
6.17 + 2.25 = 8.42, rounded to the nearest 1/8% =
8.375%. This rate would be fixed for the first 3
years of the loan.
Interest is calculated on a 360 day year and the
actual number of days elapsed.
FEE: The greater of 1/2% or $150.00 on each advance.
COLLATERAL: 1st lien position on equipment, and/or vehicle
purchased. Blanket filing on accounts receivable,
inventory and equipment as overriding collateral.
FINANCIAL REPORTING
1. Annual CPA audited financial statement within 120 days after the end of
each fiscal year.
2. Quarterly company prepared financial statements, within 30 days after
the end of each calendar quarter.
GENERAL TERMS AND CONDITIONS
1. PRIME RATE: U.S. Bank's prime rate is the rate of interest which U.S.
Bank from time to time establishes as its prime rate and is not, for
example, the lowest rate of interest which U.S. Bank collects from any
borrower or class of borrowers.
2. LOAN ADVANCES: Advances may be requested by Borrower from time to time
in accordance with the terms of the promissory note. All advances shall
be made at the sole option of U.S. Bank. U.S. Bank may decline to make
any advance and may terminate the availability of advances at any time.
3. INSURANCE: Borrower shall maintain insurance in such amounts and
covering such risks as U.S. Bank shall require.
4. FINANCIAL REPORTING: At any time requested by U.S. Bank, Borrower shall
furnish any additional information regarding Borrower's financial
condition and business operations that U.S. Bank requests. This
information may include, but is not limited to, financial statements,
tax returns, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets and forecasts.
<PAGE>
5
5. LOAN DOCUMENTATION: Borrower shall deliver to U.S. Bank duly executed
promissory notes, deeds of trust, mortgages, security agreements,
financing statements, loan agreements, guaranties, borrower
authorizations, attorney opinion letters and other documents ("Loan
Documents") as required by U.S. Bank in form and substance satisfactory
to U.S. Bank and its counsel.
6. NON-ASSIGNABLE: This credit accommodation may not be assigned by Borrower.
No guarantor or any third party is intended as a third-party beneficiary
or has any right to rely hereon.
7. ARBITRATION: Borrower and U.S. Bank hereby agree to be bound by the terms
of the Arbitration clause attached hereto as Exhibit A.
8. EXPENSES: Borrower shall reimburse U.S. Bank for all out-of-pocket
expenses incurred in connection with this credit accommodation upon
demand, whether or not this transaction closes or is funded. Such
expenses shall include, without limitation, attorney fees, title
insurance fees, travel costs, examination expenses, and filing fees.
9. EXPIRATION DATE: This offer will expire on May 31, 1996.
10. ACCESS LAWS: Without limiting the generality of any provision of this
agreement requiring Borrower to comply with applicable laws, rules and
regulations, Borrower agrees that it will at all times comply with
applicable laws relating to disabled access including, but not limited
to, all applicable titles of the Americans with Disabilities Act of 1990.
This letter summarize certain principal terms and conditions relating to the
loan and supersedes all prior oral or written negotiations, understandings,
representations and agreements with respect to the loan. However, the Loan
Documents will include additional terms, conditions, covenants,
representations, warranties and other provisions which U.S. Bank customarily
includes in similar transactions or which U.S. Bank determines to be
appropriate to this transaction. Except to the extent modified by any other
agreement, all terms, condition, covenants and other provisions of this
letter shall remain in effect until the revolving line of credit (including
any renewals, extensions or modifications) is terminated and the loan balance
is paid in full, and by signing below, Borrower agrees to comply with all
such provisions.
In addition to the events of default in any Loan Document, any failure to
comply with any term, condition or obligation in this letter shall constitute
an event of default under each of the Loan Documents. The provisions of this
letter shall survive the closing of the loan and the execution and delivery
of the Loan Documents. In the event of a conflict between this letter and the
Loan Documents, the terms of the Loan Documents shall control.
<PAGE>
6
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDER
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE
NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED
BY THE LENDER TO BE ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
If the above terms and conditions are acceptable to you, please sign, date
and return the acknowledgement copy of this letter on or before the
Expiration Date.
Sincerely
/s/ Debbie Sidley
-----------------
Debbie Sidley
VP & Commercial Account Officer
526-6018
Borrower hereby accepts U.S. Bank's offer to extend credit on terms and
conditions stated above. Borrower hereby agrees to the Arbitration clause set
forth in Exhibit A attached hereto.
Thrustmaster, Inc.
By: /s/ Kent E. Koski
--------------------------------
Title: VP - Finance
--------------------------
Date: 5/17/95
--------------------------
<PAGE>
7
EXHIBIT A
ARBITRATION. U.S. Bank and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this letter or the revolving line of credit or otherwise,
including without limitation contract and tort disputes, shall be arbitrated
pursuant to the Rules of the American Arbitration Association, upon request
of either party. No act to take or dispose of any collateral securing any
loan shall constitute a waiver of this arbitration agreement or be prohibited
by this arbitration agreement. This includes, without limitation, obtaining
injunctive relief or a temporary restraining order; foreclosing by notice and
sale under any deed of trust or mortgage; obtaining a writ of attachment or
imposition of a receiver; or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Code. Any
disputes, claims, or controversies concerning the lawfulness or reasonableness
or any act, or exercise of any right, concerning any collateral securing any
loan, including any claim to rescind, reform, or otherwise modify any
agreement relating to the collateral securing any loan, shall also be
arbitrated, provided however that no arbitrator shall have the right or
other power to enjoin or restrain any act of any party. Judgement upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing herein shall preclude any party from seeking equitable
relief from a court of competent jurisdiction. The stature of limitations,
estoppel, waiver, laches, and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The
Federal Arbitration Act shall apply to the construction, intrepration, and
enforcement of this arbitration provision.
<PAGE>
EXHIBIT 10.8
LEASE AMENDMENT
DATED: OCTOBER 22, 1996
BETWEEN: PACIFIC REALTY ASSOCIATES, L.P.,
A DELAWARE LIMITED PARTNERSHIP LANDLORD
AND: THRUSTMASTER, INC.,
AN OREGON CORPORATION TENANT
By written lease dated March 13, 1996, Tenant leased from landlord
approximately 22,551 square feet of warehouse and office space located in
Building E, Evergreen Business Park, 7205 N.W. Evergreen Parkway, Suite 900,
Hillsboro, Oregon 97124 (hereinafter referred to as the "Premises"). Such
document is hereinafter referred to as the "Lease." The Lease expires
September 30, 2003.
Tenant now wishes to lease an additional approximately 7,500 square
feet of warehouse space adjacent to and immediately east of the Premises
(hereinafter referred to as the "First Additional Space") and as further
described on the attached Exhibit A.
NOW, THEREFORE, the parties agree as follows:
1. The First Additional Space shall become subject to the terms of the
Lease upon occupancy by Tenant, which is estimated to be November 1, 1996.
Tenant's total leased area shall increase from approximately 22,551 to 30,051
square feet of warehouse and office space.
2. Base rent shall be according to the following schedule:
<TABLE>
<CAPTION>
BASE RENT PER MONTH
------------------------------------------------
PERIOD 1ST ADD'L SP PREMISES TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
November 1, 1996 through April 30, 1997 $1,388.00 $11,720.00 $13,108.00
- --------------------------------------------------------------------------------------------
May 1, 1997 through September 30, 2001 $2,775.00 $11,720.00 $14,495.00
- --------------------------------------------------------------------------------------------
October 1, 2001 through September 30, 2003 $2,775.00 $12,895.00 $15,670.00
- --------------------------------------------------------------------------------------------
</TABLE>
3. Landlord shall, at Tenant's sole cost and expense, remove and
relocate the existing demising wall between the Premises and the First
Additional Space. Tenant shall reimburse Landlord the cost of the relocation
of the demising wall, not to exceed $4,800.00, within ten (10) days of
Tenant's receipt of a statement from Landlord stating the total cost of the
relocation of the demising wall.
4. Except as expressly modified hereby, all terms of the Lease shall
remain in full force and effect and shall continue through the existing term.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the respective dates set opposite their signatures below, but this
Agreement on behalf of such party shall be deemed to have been dated as of
the date first above written.
LANDLORD:
PACIFIC REALTY ASSOCIATES, L.P.,
a Delaware limited partnership
By: PacTrust Realty, Inc.,
a Delaware corporation,
its General Partner
Date: 10/23 , 1996 By: /s/ Sam K. Briggs
-----------------------
Sam K. Briggs
Marketing Director
TENANT:
THRUSTMASTER, INC.,
an Oregon corporation
Date: 10/23/96, 1996 By: /s/ Kent E. Koski
--------------------
Name: Kent E. Koski
--------------------
Title: VP - Finance
--------------------
<PAGE>
EXHIBIT A
[FLOOR PLAN]
<PAGE>
LEASE
DATED: MARCH 13, 1996
BETWEEN: PACIFIC REALTY ASSOCIATED, L.P.,
A DELAWARE LIMITED PARTNERSHIP LANDLORD
AND: THRUSTMASTER, INC.,
AN OREGON CORPORATION TENANT
Tenant wishes to lease from Landlord the following described property,
hereinafter referred to as "the Premises":
Approximately 16,617 square feet of office space located in Building D,
Evergreen Business Park, 7175 N.W. Evergreen Parkway, Suite 400, Hillsboro,
Oregon 97124 and as further described on the attached Exhibits A, B, C and D.
If the Premises consist of a portion but not all of a building, the
building housing the Premises is hereinafter referred to as "the Building."
Landlord leases the Premises to Tenant for a term of 86 months commencing
August 1, 1996 and continuing through September 30, 2003. No base rent shall
be due for the first two (2) months of the lease term, but Tenant shall be
obligated to pay for all other charges, taxes and expenses to be paid to
Landlord specified in paragraphs 3 and 4 of this lease. Base rent shall be
according to the following schedule:
Base Rent
Period Per Month
------------------------------------------ ----------
August 1, 1996 through September 30, 1996 $ 0.00
October 1, 1996 through September 30, 2001 $11,632.00
October 1, 2001 through September 30, 2003 $12,795.00
Rent for the month of October 1996, shall be paid on October 1, 1996.
Provided, however, that such rent shall not be due if the Premises are not
available for occupancy. All rent, including base rent together with the
charges, taxes and expenses to be paid to Landlord specified in paragraphs 3
and 4 of this lease, is payable in advance on the first day of each calendar
month. If Landlord consents, Tenant may occupy the Premises prior to such
commencement date upon payment of rent on a prorated basis and compliance
with all terms of this lease.
Delivery of possession shall occur when the Premises are occupied by
Tenant or are ready to be occupied by Tenant with all work to be performed by
Landlord substantially completed. No notice shall be required from Landlord
if the Premises are ready on the date set for commencement of the term or on
the first business day thereafter. If Landlord is unable to deliver
possession of the Premises to Tenant because of strikes, acts of God, or any
other cause beyond Landlord's control, then Tenant may take possession when
Landlord notifies Tenant that the Premises are ready for possession, and the
term of this lease shall commence on the first day of the first month
following such date and continue for the specified number of months
thereafter, notwithstanding the commencement and termination dates stated
above. Tenant shall owe no rent until the Premises are ready for possession.
Landlord shall have no liability for such delays in delivery of possession,
and neither party shall have the right to terminate except that Landlord may
cancel this Lease without liability if permission to construct, use, or
furnish necessary utilities to the Premises is denied or revoked by any
governmental agency or public utility with such authority.
This lease is subject to the following additional terms to which the
parties agree:
Page 1 of 10
<PAGE>
1. USE OF THE PREMISES.
(a) Tenant shall use the Premises only for the purpose of
conducting the following business:
General office, production and warehousing.
If such use is prevented by any law or governmental regulation, Tenant may
use the Premises for other reasonable uses.
(b) In connection with its use, Tenant shall, at its expense,
comply with all applicable laws, ordinances, and regulations of any public
authority, including those requiring alteration of the Premises because of
Tenant's specific use; shall create no nuisance nor allow any objectionable
liquid, odor, or noise to be emitted from the Premises; shall store
no gasoline or other highly combustible materials on the Premises which would
violate any applicable fire code or regulation nor conduct any operation that
will increase Landlord's fire insurance rates for the Premises; and shall not
overload the floors or electrical circuits of the Premises. Landlord shall
have the right to approve the installation of any power-driven machinery by
Tenant and may select a qualified electrician whose opinion will control
regarding electrical circuits and a qualified engineer or architect whose
opinion will control regarding floor loads. Allowable ground floor load shall
be 300 pounds per square foot.
(c) Tenant may erect a 24-inch, non-illuminated, rigid foam,
plexiglass-faced, individual letter sign stating its name, business, and
product after first securing Landlord's written approval of the color,
design, wording, and location, and all necessary governmental approvals. No
signs shall be painted on the Building or exceed the height of the Building.
All signs installed by Tenant shall be removed upon termination of this lease
with the sign location restored to its former state.
(d) Tenant shall make no alterations, additions, or improvements to
the Premises or change the color of the exterior without Landlord's prior
written consent and without a valid building permit issued by the appropriate
governmental agency. Upon termination of this lease, any such alterations,
additions, or improvements (including without limitation all electrical,
lighting, plumbing, heating and air-conditioning equipment, doors, windows,
partitions, drapery, carpeting, shelving, counters, and physically attached
fixtures) shall at once become part of the realty and belong to Landlord
unless the terms of the applicable consent provide otherwise, or Landlord
requests that part or all of the additions, alterations, or improvements be
removed. In such case, Tenant shall at its sole cost and expense promptly
remove the specified additions, alterations, or improvements and repair and
restore the Premises to its original condition.
(e) Tenant shall, at its expense, comply with all applicable
provisions of Title I of the Americans with Disabilities Act of 1990 ("the
Act") related to its specific use of the Premises, and Landlord shall have no
responsibility for compliance with the provisions of Title I of the Act.
Landlord shall, at its expense, cause the Building to comply with, during the
terms of this lease and any extensions thereof, applicable provisions of
Title III of the Americans with Disabilities Act of 1990 which relate to
architectural barriers and communication barriers which are structural in
nature so long as such compliance is readily achievable, as the term readily
achievable is defined in the Act.
2. SECURITY DEPOSIT.
Tenant has deposited with Landlord the sum of $12,795.00,
hereinafter referred to as "the Security Deposit," to secure the faithful
performance by Tenant of each term, covenant, and condition of this lease. If
Tenant shall at any time fail to make any payment or fail to keep or perform
any term, covenant, and condition on its part to be made or performed or kept
under this lease, Landlord may, but shall not be obligated to and without
waiving or releasing Tenant from any obligation under this lease, use, apply
or retain the whole or any part of the Security Deposit (i) to the extent of
any sum due to Landlord; or (ii) to make any required payment on Tenant's
behalf; or (iii) to compensate Landlord for any loss, damage, attorneys'
fees, or expense sustained by Landlord due to Tenant's default. In such
event, Tenant shall, within 5 days of written demand by Landlord, remit to
Landlord sufficient funds to restore the Security Deposit to its original
sum; Tenant's failure to do so shall be a material breach of this lease.
Landlord shall not be required to keep the Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on such deposit.
Should Tenant comply with all of the terms, covenants, and conditions of this
lease, then the Security Deposit, less any sums owing to Landlord, shall be
returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interests hereunder) after a period of 12 months from occupancy of
the Premises.
Page 2 of 10
<PAGE>
3. UTILITY CHARGES; MAINTENANCE.
(a) Tenant shall pay when due all charges for electricity, natural
gas, water, garbage collection, janitorial service, sewer, and all other
utilities of any kind furnished to the Premises during the lease term. If
charges are not separately metered or stated, Landlord shall apportion the
utility charges on a prorata per square foot basis. Landlord shall have no
liability resulting from any interruption of utility services caused by fire
or other casualty, strike, riot, vandalism, the making of necessary repairs
or improvements, or any other cause beyond Landlord's reasonable control.
Tenant shall control the temperature in the Premises to prevent freezing of
any sprinkler system.
(b) Landlord shall repair and maintain the roof, gutters,
downspouts, exterior walls, building structure, foundation, exterior paved
areas, and curbs of the Premises in good condition. Except for such
obligations of Landlord, Tenant shall keep the Premises neatly maintained and
in good order and repair. Tenant's responsibility shall include maintenance
and repair of the electrical system, plumbing, drainpipes to sewers,
air-conditioning and heating systems, overhead and personnel doors, and the
replacement of all broken or cracked glass with glass of the same quality.
Tenant shall refrain from any discharge that will damage the septic tank or
sewers serving the Premises. It shall be Tenant's responsibility to utilize
chair pads in all areas where chairs or other rolling equipment may damage
floorcovering.
(c) If the Premises have a separate entrance, Tenant shall keep the
sidewalks abutting the Premises or the separate entrance free and clear of
snow, ice, debris, and obstructions of every kind.
4. TAXES, ASSESSMENTS, AND OPERATING EXPENSES.
(a) In conjunction with monthly rent payments, Tenant shall each
month pay a sum representing Tenant's proportionate share of real property
taxes and operating expenses for the Premises. Such amount shall annually be
estimated by Landlord in good faith to reflect actual or anticipated costs.
Tenant's share of taxes and operating expenses shall not exceed 14 CENTS per
square foot per month for the calendar year 1997. Upon termination of this
lease or at periodic intervals during the term hereof, Landlord shall compute
its actual costs for such expenses during such period. Any overpayment by
Tenant shall be credited to Tenant against the next rental payment when due,
and any deficiency shall be paid by Tenant within 15 days after receipt of
Landlord's statement. Landlord's records of expenses for taxes and operating
expenses may be inspected by Tenant at reasonable times and intervals. In the
event Landlord's allocations are in error by an amount exceeding five percent
(5%) of the correct allocations, Landlord shall pay Tenant's reasonable costs
of conducting the inspection. Tenant may, at its option, and expense,
challenge to the appropriate governmental agencies any tax assessments
affecting Tenant's property and the allocation of taxes hereunder, and shall
be entitled to its proportionate share of the refund resulting from a
successful challenge made either by Tenant or Landlord. In the event Tenant's
challenge of real estate taxes in an increased assessment, then Tenant shall
be responsible for such increase.
(b) Tenant's proportionate share of real property taxes shall mean
that percentage of the total assessment affecting the Premises which is the
same as the percentage which the rentable area of the Premises bears to the
total rentable area of all buildings covered by the tax statement. Tenant's
proportionate share share of operating expenses for the Building shall be
computed by dividing the rentable area of the Premises by the total rentable
area of the Building.
(c) Real property taxes charged to Tenant hereunder shall include
all general real property taxes assessed against the Premises or payable
during the lease term, installment payments in Bancrofted special
assessments, and any rent tax, tax on Landlord's interest under this lease,
or any tax in lieu of the foregoing, whether or not any such tax is now in
effect. Tenant shall not, however, be obligated to pay any tax based upon
Landlord's net income.
(d) Operating expenses charged to Tenant hereunder shall include all
usual and necessary costs of operating and maintaining the Premises, Building,
and any surrounding common areas including, but not limited to, the cost of
all utilities or services not paid directly by Tenant, property insurance,
property management, maintenance and repair of landscaping, parking areas,
and any other common facilities. Operating expenses shall not include roof
replacement or correction of structural deficiencies of the Building.
Increases in operating expenses shall not exceed five percent (5%) annually
on a cumulative basis.
Page 3 of 10
<PAGE>
5. PARKING AND STORAGE AREAS.
(a) Tenant, its employees, and customers shall have the exclusive
right to use 66 private parking spaces in the parking area serving the
Premises. Tenant shall control the use of such parking spaces so that there
will be no unreasonable interference with the normal traffic flow, and shall
permit no parking on any landscaped or unpaved surface. Under no
circumstances shall trucks serving the Premises be permitted to block streets.
(b) Tenant shall not store any materials, supplies, or equipment
outside in any unapproved or unscreened area. If Tenant erects any visual
barriers for storage areas, Landlord shall have the right to approve the
design and location. Trash and garbage receptacles shall be kept covered at
all times.
6. TENANT'S INDEMNIFICATION; LIABILITY INSURANCE.
(a) Tenant shall not allow any liens to attach to the Premises as a
result of its activities. Tenant shall indemnify and defend Landlord from any
claim, liability, damage, or loss arising out of any activity on the Premises
by Tenant, its agents, or invitees or resulting from Tenant's failure to
comply with any term of this lease.
(b) Tenant shall carry general liability insurance on an occurrence
basis with combined single limits of not less than $1,000,000. Such insurance
shall be provided by an insurance carrier reasonably acceptable to Landlord
and shall be evidenced by a certificate delivered to Landlord stating that
the coverage will not be canceled or materially altered without 10 days'
advance written notice to Landlord. Landlord shall be named as an additional
insured on such policy.
7. PROPERTY DAMAGE; SUBROGATION WAIVER.
(a) If fire or other casualty causes damage to the Building or the
Premises in an amount exceeding 30 percent of the full
construction-replacement cost of the Building or Premises, respectively,
Landlord or Tenant may elect to terminate this lease as of the date of the
damage by notice in writing to the other party within 30 days after such
date. Otherwise, Landlord shall promptly repair the damage and restore the
Premises to their former condition as soon as practicable. Rent shall be
reduced during the period to the extent the Premises are not reasonably
usable in Landlord's estimation for the use permitted by this lease because
of such damage and required repairs.
(b) Landlord shall be responsible for insuring the Building, and
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises.
(c) Neither party shall be liable to the other for any loss or damage
caused by water damage, sprinkler leakage, or any of the risks covered by a
standard fire insurance policy with extended coverage and sprinkler leakage
endorsements, and there shall be no subrogated claim by one party's insurance
carrier against the other party arising out of any such loss.
8. CONDEMNATION.
If a condemning authority takes the entire Premises or a portion
sufficient to render the remainder unsuitable for Tenant's use, in Tenant's
estimation, then either party may elect to terminate this lease effective on
the date that title passes to the condemning authority. Otherwise, Landlord
shall proceed as soon as practicable to restore the remaining Premises to a
condition comparable to that existing at the time of the taking. Rent shall
be abated during the period of restoration to the extent the Premises are not
reasonably usable by Tenant, and rent shall be reduced for the remainder of
the term in an amount equal to the reduction in rental value of the Premises
caused by the taking. All condemnation proceeds shall belong to Landlord,
except for any such proceeds awarded by the condemning authority for the
value of the Tenant's improvements, moving expenses, and any other items of
the award specifically associated with Tenant's occupancy.
Page 4 of 10
<PAGE>
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign its interest under this lease nor sublet
the Premises without first obtaining Landlord's consent in writing, which
shall not be unreasonably withheld, subject to Paragraph 19(f) of this lease.
This provision shall apply to all transfers by operation of law or through
mergers and changes in control of Tenant. No assignment shall relieve Tenant
of its obligation to pay rent or perform other obligations required by this
lease and no one assignment or subletting shall be a consent to any further
assignment or subletting. Provided, however, that Tenant may assign its
interest to any party acquiring substantially all the assets of Tenant, or to
an entity the majority of interest of which is owned by Tenant. In addition,
any transfer of interest in the corporation by reason of transfers of the
Stock of the corporation shall not be deemed to be a transfer requiring the
consent of Landlord.
(b) Subject to the above limitations on transfer of Tenant's
interest, this lease shall bind and inure to the benefit of the parties,
their respective heirs, successors, and assigns.
10. DEFAULT.
Any of the following shall constitute a default by Tenant under this
lease:
(a) Tenant's failure to pay rent or any other charge under this lease
within 10 days after Landlord's written notice that a payment is due and
unpaid, or failure to comply with any other term or condition within 30 days
following written notice from Landlord specifying the noncompliance. If such
noncompliance cannot be cured within the 30-day period, this provision shall
be satisfied if Tenant commences correction within such period and thereafter
proceeds in good faith and with reasonable diligence to effect compliance as
soon as possible.
(b) Tenant's insolvency; assignment for the benefit of its creditors;
Tenant's voluntary petition in bankruptcy or adjudication as bankrupt, or the
appointment of a receiver for Tenant's properties.
11. REMEDIES FOR DEFAULT.
In case of default as described in paragraph 10 above, Landlord shall
have the right to the following remedies which are intended to be cumulative
and in addition to any other remedies provided under applicable law:
(a) Terminate this lease without relieving Tenant from its obligation
to pay damages.
(b) Retake possession of the Premises by summary proceedings or
otherwise, in which case Tenant's liability to Landlord for damages shall
survive the tenancy. Landlord may, after such retaking of possession, relet
the Premises upon any reasonable terms. No such reletting shall be construed
as an acceptance of a surrender of Tenant's leasehold interest.
(c) Recover damages caused by Tenant's default which shall include
reasonable attorneys' fees at trial and on any appeal therefrom. Landlord may
sue periodically to recover damages as they occur throughout the lease term,
and no action for accrued damages shall bar a later action for damages
subsequently accruing. Landlord may elect in any one action to recover
accrued damages plus damages attributable to the remaining term of the lease
equal to the difference between the rent under this lease and the reasonable
rental value of the Premises for the remainder of the term, discounted to the
time of judgment at the rate of 6 percent per annum.
(d) Make any payment or perform any obligation required of Tenant so
as to cure Tenant's default, in which case Landlord shall be entitled to
recover all amounts so expended from Tenant, plus interest at the rate of 10
percent per annum from the date of the expenditure.
Page 5 of 10
<PAGE>
12. SURRENDER ON TERMINATION.
(a) On expiration or early termination of this lease, Tenant shall
deliver all keys to Landlord, have final utility readings made on the date of
move out, and surrender the Premises clean and free of debris inside and out,
with all mechanical, electrical, and plumbing systems in good operating
condition, all signing removed and defacement corrected, and all repairs
called for under this lease completed. The Premises shall be delivered in the
same condition as at the commencement of the term, subject only to
depreciation and wear from ordinary use. Tenant shall remove all of its
furnishings and trade fixtures that remain its property and restore all
damage resulting from such removal. Failure to remove said property shall be
an abandonment of same, and Landlord may dispose of it in any manner without
liability.
(b) If Tenant fails to vacate the Premises when required, including
failure to remove all its personal property, Landlord may elect either: (i)
to treat Tenant as a tenant from month to month, subject to all provisions of
this lease except the provision for term and at a base rental of 115 percent
of that specified in this lease; or (ii) to eject Tenant from the Premises
and recover damages caused by wrongful holdover. Notwithstanding, Tenant
shall have the right to hold over for a period of not more than three (3)
months following expiration of the initial lease term at a base rental not to
exceed 115% of the last month's rent.
13. LANDLORD'S LIABILITY.
(a) Landlord warrants that so long as Tenant complies with all terms
of this lease it shall be entitled to peaceable and undisturbed possession of
the Premises free from any eviction or disturbance by Landlord or persons
claiming through Landlord.
(b) All persons dealing with Pacific Realty Associates, L.P.
("Partnership") must look solely to the property and assets of Partnership
for the payment of any claim against Partnership or for the performance of
any obligation of Partnership as neither the general partner, limited
partners, employees, nor agents of Partnership assume any personal liability
for obligations entered into on behalf of Partnership (or its predecessors in
interest) and their respective properties shall not be subject to the claims
of any person in respect of any such liability or obligation. As used herein,
the words "property and assets of partnership" exclude any rights of
Partnership for the payment of capital contributions or other obligations to
it by the general partner or any limited partner in such capacity.
14. MORTGAGE OR SALE BY LANDLORD; ESTOPPEL CERTIFICATES.
(a) This lease is and shall be prior to any mortgage or deed of trust
("Encumbrance") recorded after the date of this lease and affecting the
Building and the land upon which the Building is located. However, if any
lender holding an Encumbrance secured by the Building and the land underlying
the Building requires that this lease be subordinate to the Encumbrance, then
Tenant agrees that this lease shall be subordinate to the Encumbrance if the
holder thereof agrees in writing with Tenant that so long as Tenant performs
its obligations under this lease no foreclosure, deed given in lieu of the
foreclosure, or sale pursuant to the terms of the Encumbrance, or other steps
or procedures taken under the Encumbrance shall affect Tenant's rights under
this lease. If the foregoing condition is met, Tenant shall execute the
written agreement and any other documents required by the holder of the
Encumbrance to accomplish the purposes of this paragraph.
(b) If the Building is sold as a result of foreclosure of any
Encumbrance thereon or otherwise transferred by Landlord or any successor,
Tenant shall attorn to the purchaser or transferee.
(c) Either party shall within 20 days after notice from the other
execute and deliver to the other party a certificate stating whether or not
this lease has been modified and is in full force and effect and specifying
any modifications or alleged breaches by the other party. The certificate
shall also state the amount of monthly base rent, the dates to which rent has
been paid in advance, and the amount of any security deposit or prepaid rent.
Failure to deliver the certificate within the specified time shall be
conclusive upon the party of whom the certificate was requested that the
lease is in full force and effect and has not been modified except as may be
represented by the party requesting the certificate.
Page 6 of 10
<PAGE>
15. DISPUTES -- ATTORNEYS' FEES.
In the event of any litigation arising out of this lease, the
prevailing party shall be entitled to recover from the other party, in
addition to all other relief provided by law or judgement, its reasonable
costs and attorneys' fees incurred both at and in preparation for trial and
any appeal or review, such amount to be as determined by the court(s) before
which the matter is heard. Disputes between the parties which are to be
litigated shall be tried before a judge without a jury.
16. SEVERABILITY.
If any provision of this lease is held to be invalid, unenforceable or
illegal the remaining provisions shall not be affected and shall be enforced
to the fullest extent permitted by law.
17. INTEREST AND LATE CHARGES.
Rent not paid within 10 days of when due shall bear interest from the
date due until paid at the rate of 10 percent per annum. Landlord may at its
option impose a late charge of $.05 for each $1.00 of rent for rent payments
made more than 10 days late in addition to interest and other remedies
available for default.
18. GENERAL PROVISIONS.
(a) Waiver by either party of strict performance of any provision of
this lease shall not be a waiver of nor prejudice the party's right otherwise
to require performance of the same provision or any other provision.
(b) Subject to the limitations on transfer of Tenant's interest, this
lease shall bind and inure to the benefit of the parties, their respective
heirs, successors, and assigns.
(c) Landlord shall have the right to enter upon the Premises with
reasonable prior notice (except in the case of an emergency) to determine
Tenant's compliance with this lease, to make necessary repairs to the
Building or the Premises, or to show the Premises to any prospective tenant
or purchasers. During the last two months of the term, Landlord may place and
maintain upon the Premises notices for leasing or sale of the Premises.
(d) If this lease commences or terminates at a time other than the
beginning or end of one of the specified rental periods, then the rent
(including Tenant's share of real property taxes, if any) shall be prorated
as of such date, and in the event of termination for reasons other than
default all prepaid rent shall be refunded to Tenant or paid on its account.
(e) Notices between the parties relating to this lease shall be in
writing, effective when delivered, or if mailed, effective on the second day
following mailing, postage prepaid, to the address for the party stated in
this lease or to such other address as either party may specify by notice to
the other. Rent shall be payable to Landlord at the same address and in the
same manner.
19. ENVIRONMENTAL.
(a) DEFINITIONS. The term "Environmental Law" shall mean any federal,
state or local statute, regulation or ordinance or any judicial or other
governmental order pertaining to the protection of health, safety or the
environment. The term "Hazardous Substance" shall mean any hazardous, toxic,
infectious or radioactive substance, waste and material as defined or listed
by any Environmental Law and shall include, without limitation, petroleum oil
and its fractions.
Page 7 of 10
<PAGE>
(b) USE OF HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any
Hazardous Substance to be spilled, leaked, disposed of or otherwise released
on or under the Premises. Tenant may use and sell on the Premises only those
Hazardous Substances typically used and sold in the prudent and safe
operation of the business permitted by Section 1 of this lease. Tenant may
store such Hazardous Substances on the Premises, but only in quantities
necessary to satisfy Tenant's reasonably anticipated needs. Tenant shall
comply with all Environmental Laws and exercise the highest degree of care in
the use, handling and storage of Hazardous Substances and shall take all
practicable measures to minimize the quantity and toxicity of Hazardous
Substances used, handled or stored on the Premises.
(c) NOTICES. Tenant shall immediately notify Landlord upon becoming
aware of the following: (a) any spill, leak, disposal or other release of a
Hazardous Substance on, under or adjacent to the Premises; (b) any notice or
communication from a governmental agency or any other person relating to any
Hazardous Substance on, under or adjacent to the Premises; or (c) any
violation of any Environmental Law with respect to the Premises or Tenant's
activities on or in connection with the Premises.
(d) SPILLS AND RELEASES. In the event of a spill, leak, disposal or
other release of a Hazardous Substance on or under the Premises caused by
Tenant or any of its contractors, agents or employees or invitees, or the
suspicion or threat of the same, Tenant shall (i) immediately undertake all
emergency response necessary to contain, cleanup and remove the released
Hazardous Substance, (ii) promptly undertake all investigatory, remedial,
removal and other response action necessary or appropriate to ensure that any
Hazardous Substances contamination is eliminated to Landlord's reasonable
satisfaction, and (iii) provide Landlord copies of all correspondence with
any governmental agency regarding the release (or threatened or suspected
release) or the response action, a detailed report documenting all such
response action, and a certification that any contamination has been
eliminated. All such response action shall be performed, all such reports
shall be prepared and all such certifications shall be made by an
environmental consultant reasonably acceptable to Landlord.
(e) CONDITION UPON TERMINATION. Upon expiration of this lease or
sooner termination of this lease for any reason, Tenant shall remove all
Hazardous Substances and facilities used for the storage or handling of
Hazardous Substances from the Premises and restore the affected areas by
repairing any damage caused by the installation or removal of the facilities.
Following such removal, Tenant shall certify in writing to Landlord that all
such removal is complete. The foregoing obligation shall not apply to any
pre-existing contamination.
(f) ASSIGNMENT AND SUBLETTING. Notwithstanding the provisions of
paragraph 9 of this lease, it shall not be unreasonable for Landlord to
withhold its consent to any assignment, sublease or other transfer of the
Tenant's interest in this lease if a proposed transferee's anticipated use of
the Premises involves the generation, storage, use, sale, treatment, release
or disposal of any Hazardous Substance.
(g) INDEMNITY.
(i) BY TENANT. Tenant shall indemnify, defend and hold harmless
Landlord, its employees and agents, any persons holding a security interest
in the Premises, and the respective successors and assigns of each of them
from and against any and all claims, demands, liabilities, damages, fines,
losses, costs (including without limitation the cost of any investigation,
remedial, removal or other response action required by Environmental Law) and
expenses (including without limitation attorney's fees and expert fees in
connection with any trial, appeal, petition for review or administrative
proceeding) arising out of or in any way relating to the use, treatment,
storage, generation, transport, release, leak, spill, disposal or other
handling of Hazardous Substances on the Premises by Tenant or any of its
contractors, agents or employees or invitees. Tenant's obligations under this
section shall survive the expiration or termination of this lease for any
reason. Landlord's rights under this section are in addition to and not in
lieu of any other rights or remedies to which Landlord may be entitled under
this agreement or otherwise.
Page 8 of 10
<PAGE>
(ii) BY LANDLORD. Landlord shall indemnify, defend and hold
harmless Tenant and its employees and agents and the respective successors
and assigns of each of them from and against any and all claims, demands,
liabilities, damages, fines, losses, costs (including without limitation the
cost of any investigation, remedial, removal or other response action
required by Environmental Law) and expenses (including without limitation
attorneys' fees and expert fees in connection with any trial, appeal,
petition for review or administrative proceeding) arising out of or in any
way relating to the actual or alleged use, treatment, storage, generation,
transport, release, leak, spill, disposal or other handling of Hazardous
Substances on the Premises by Landlord, or any of its contractors, agents or
employees or by Landlord's previous tenants of the Premises. Landlord's
obligations under this section shall survive the expiration or termination of
this lease for any reason. Tenant's rights under this section are in addition
to and not in lieu of any other rights or remedies to which Tenant may be
entitled under this Agreement or otherwise.
20. RENEWAL OPTION.
If not then in default, Tenant shall have the option to renew this
lease for one additional five-year term immediately following expiration of
the initial lease term by giving Landlord 180 days' advance written notice of
its intent to extend. All provisions of this lease shall apply during the
extended term, except that rent for the renewal period shall be an amount
determined on a fair market value basis and agreed upon by parties at least
90 days prior to commencement of the renewal period, but in no case less than
that of the preceding term.
21. RIGHT OF FIRST NOTICE.
Landlord shall notify Tenant of the availability of adjacent space
within the Building. Tenant shall have ten (10) business days after such
notification to decide whether or not it wishes to exercise its right to take
such space. If Tenant does not so exercise, Landlord will have the
unrestricted right to lease such space to others.
22. SIGNAGE.
Tenant may install monument and/or building signage, subject to
mutually acceptable size and location.
23. TENANT IMPROVEMENTS.
Landlord shall provide Tenant with a tenant improvement allowance
of $392,825.00 ($23.64 per square foot). Said improvements shall be
constructed by Landlord's contractor in accordance with the plans and
specifications attached hereto as Exhibit C and D and are subject to
applicable building codes as interpreted by the City of Hillsboro. Any
unspent tenant improvement dollars shall be credited against the initial
month's rent. Any additional tenant improvements up to $3.00 per square foot
shall be amortized at eleven percent (11%) interest over the term of this
lease.
24. EXISTING LEASE OBLIGATION.
At the commencement of this lease, Tenant's total existing lease
obligation to Forum Properties will total $50,984.50 (the "Existing Space").
Any leasing activity with regard to the Existing Space that reduces Tenant's
lease obligation below $40,000.00 shall be credited to Landlord.
Notwithstanding, Landlord's reimbursement to Tenant shall not be less than
$20,000.00.
Page 9 of 10
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of the
parties have executed this lease as of the day and year first written above.
PACIFIC REALTY ASSOCIATES, L.P., THRUSTMASTER, INC.,
A DELAWARE LIMITED PARTNERSHIP AN OREGON CORPORATION
BY PACTRUST REALTY, INC., A DELAWARE
CORPORATION, ITS GENERAL PARTNER
By /s/ Sam K. Briggs By /s/ Kent E. Koski
-------------------------------- ---------------------
Sam K. Briggs Name Kent E. Koski
Marketing Director ---------------------
Title VP-Finance
---------------------
By
---------------------
Name
---------------------
Title
---------------------
ADDRESS FOR NOTICES/RENT PAYMENTS TO LANDLORD: Address for Legal Notices
15350 S.W. Sequoia Parkway, Suite 300 to Tenant:
Portland, Oregon 97224
---------------------------
---------------------------
---------------------------
Address for invoices to
Tenant:
---------------------------
---------------------------
---------------------------
Page 10 of 10
<PAGE>
EXHIBIT A
[MAP]
<PAGE>
EXHIBIT B
[FLOOR PLAN]
<PAGE>
EXHIBIT C
[FLOOR PLAN]
<PAGE>
EXHIBIT D
THRUSTMASTER, INC.
BUILDING D, EVERGREEN BUSINESS PARK
TENANT IMPROVEMENT SPECIFICATIONS
MARCH 13, 1996
GENERAL
The cost of standard tenant improvement work described below shall be covered
under the tenant improvement allowance.
ARCHITECTURE AND ENGINEERING: Architecture and engineering required to
obtain a building permit are included for standard office and warehouse
occupancy classifications.
PERMITS/FEES: Building permits, plan check fees, fire and life safety review
charges, sewer connection fees and SDC's, and traffic impact fees are
included for the "manufacturing" occupancy classification.
EXCLUSIONS: Items noted as "excluded" are items which Landlord will consider
for inclusion but are not included in a typical improvement and do not
generally fit within a "building standard" tenant improvement allowance.
EXTERIOR AND BUILDING SHELL
EXTERIOR: Modifications to sitework and exterior building shell to
accommodate unusual tenant needs are excluded. This would include patios;
equipment pads; noise or special visual screening; modifications to exterior
building walls, windows, or doors; and upgrading of electrical, storm sewer
or sanitary sewer systems. Exterior fencing is excluded.
TENANT ENTRIES AND MAN-DOORS: Tenant entry shall include a single storefront
door in the aluminum storefront system. Exit doors shall be provided per code
requirements. Exterior man-doors into warehouse areas shall be 3' x 7' hollow
metal with Schlage "D" series lever locks. Special access systems, card lock
entries, and unusual hardware items are excluded.
OVERHEAD DOORS: Exterior overhead doors shall be uninsulated steel sectional
type, manually operated, vertical or high lift configuration.
- 1 -
<PAGE>
ELECTRICAL: Building shell electrical system includes the main electrical
service (1200 Amp, 277/480 Volt, 3-phase) to be shared by building tenants
and "house" panels for exterior lighting and common area power requirements.
Tenant improvement electrical service includes distribution of power from the
main building service to tenant subpanels and the addition of any tenant
subpanels within the tenant space. Generators and UPS systems are excluded.
WAREHOUSE AREAS
DEMISING WALLS: Demising walls shall extend from floor level to the
underside of the building roof structure. Demising walls in buildings with
clear height less than 18 feet shall be constructed using metal studs with
5/8" sheetrock each side. Fiberglass batt insulation shall be provided in
metal stud demising walls from floor to 9 feet high.
Demising walls in 18' to 24' clear height buildings shall be constructed
using wood studs spaced approximately 4 feet on center and a single layer of
5/8" plywood connected to studs with wood "stops". Wood demising walls are
uninsulated.
EXTERIOR WALLS: Exterior walls within warehouse areas shall remain
unpainted, exposed concrete. Insulation for exterior walls within warehouse
areas is excluded.
CEILINGS/ROOF STRUCTURE: Finished ceilings within warehouse areas are
excluded. Roof structure is insulated with R-19 insulation and shall remain
exposed. Painting of roof structure and supporting elements is excluded.
FLOORING: Warehouse floor shall be exposed, sealed concrete.
PLUMBING: Special plumbing such as process water and waste systems are
excluded under standard tenant improvements.
FIRE PROTECTION: Building shell fire protection includes service to the
building and overhead sprinkler piping and heads. Upgrading of fire
protection systems for special hazard uses, rack sprinkling, and hose
stations are excluded. Modifications to the overhead system shall be provided
if required to accommodate demising wall layout.
H.V.A.C.: Gas fired unit heaters shall provide heating in warehouse areas
for freeze protection of overhead water piping only. Special production area
H.V.A.C. and special structural supports for mechanical equipment are
excluded.
ELECTRICAL: Warehouse lighting shall be provided using fluorescent fixtures
to approximately 10 - 15 foot-candles measured 30" above floor; warehouse
lights to be switched from a location near the office. Except for unit heater
connections and a single duplex outlet near tenant's phone board, power
connections and outlets within warehouse areas are excluded.
- 2 -
<PAGE>
IMPROVED OFFICE AREAS
CONCRETE: Existing concrete slab on grade shall be sawcut, removed, and
poured back for underslab utilities as necessary.
EXTERIOR WALLS: Exterior concrete walls within improved office areas shall
receive metal stud furring, insulation, and 5/8" smooth finished sheetrock.
Exterior framed walls within improved office areas shall receive thermal
insulation and 5/8" smooth finished sheetrock from floor to 9 feet high.
OFFICE/WAREHOUSE SEPARATION WALLS: Walls separating improved office areas
and warehouse shall extend from floor level to 12 feet above floor. Such
walls shall be constructed using metal studs, fiberglass batt insulation from
floor to 9 feet high, and 5/8" sheetrock each side. Sheetrock shall extend
from floor to top of framing on the office side of the wall.
INTERIOR PARTITIONS: Interior partitions shall extend from floor level to
the underside of ceiling grid. Interior partitions shall be constructed using
3-1/2" metal studs at 24" on center and 5/8" smooth finished sheetrock each
side. Batt insulation shall be provided in walls surrounding toilet and
conference rooms.
INTERIOR DOORS: Interior doors shall be nominal 3'-0" by 7'0" solid core oak
with light Watco finish ("Building Standard Finish") in Timely door frames,
factory pre-painted in standard off-white color ("Building Standard Frame").
Door hardware to include 1-1/2 pair butts, Schlage "AL" series lever latch,
and wall stop for each door. Door hardware finish to be polished chrome.
FOLDING PARTITION: Folding partitions are excluded in Building D.
RELITES: Relites are excluded for standard tenant improvements. When used,
relites shall include 1/4" tempered glass in Building Standard Frame.
CABINETS AND MILLWORK: Plastic laminate covered countertops shall be
provided with counter-mounted lavatories in each toilet room. Cabinets to be
constructed to A.W.I. standards with plastic laminate covered tops, fronts,
and sides. Cabinet interiors shall be constructed of melamine or standard low
pressure laminate on particle board substrate. Concealed hinges, heavy-duty
drawer hardware, and wire pulls shall be included for all drawers or doors.
One 4' by 4' plywood mounting board is included for tenant's phone equipment.
Cabinets other than those listed above, wall paneling, wood base, shelving,
and other special millwork items are excluded.
ACOUSTICAL CEILINGS: Acoustical ceiling to be 2' by 2' tegular edge ceiling
tile (Armstrong Minatone #705 Fissured) in standard suspended grid. Ceiling
height to be approximately 9 feet.
- 3 -
<PAGE>
FLOOR COVERINGS: Floor covering colors shall be selected by Tenant from
Landlord's standard finish options. Carpet shall be cut pile or loop as
selected by Tenant. Cut pile carpet shall be installed on carpet pad. VCT
shall be installed in lunch rooms, copy rooms, storage rooms, and other
appropriate locations. Sheet vinyl flooring shall be provided in toilet
rooms. Rubber base shall be 4" high in continuous lengths. 6" high rubber
base shall be used in toilet rooms. Coved base to be used in areas with
resilient flooring; flat base to be used in carpeted areas. Quarry or ceramic
tiles, wood flooring, raised computer floors, and other special floor
finishes are excluded.
PAINTING AND WALL COVERING: All interior walls in improved office areas shall
receive primer and two coats of finish paint. Paint color is to be selected
from Landlord's standard color options. Plastic laminate wainscot shall be
provided on "wet" walls within toilet rooms. Vinyl, fabric, and other wall
coverings are excluded.
WINDOW COVERINGS: Exterior windows shall be covered with vertical blinds
(solid plastic slats), in building standard color.
APPLIANCES: Appliances such as dishwashers, refrigerators, garbage disposers,
and microwave ovens; and vending machines, coffee makers or other similar
equipment are excluded.
FURNITURE AND ACCESSORIES: Toilet room accessories include one toilet paper
holder and one seat cover dispenser for each water closet, one paper towel
dispenser for each toilet room, and grab bars where required by code. All
toilet accessories shall be surface mounted units. One counter mounted soap
dispenser shall be provided for each toilet room lavatory. Furniture, coat
hooks, desk partitions, tack boards, white boards, projection screens, fire
extinguishers and cabinets, lockers, and other miscellaneous accessories are
excluded.
PLUMBING: Plumbing shall be provided within the tenant area to serve
necessary toilet facilities, a Lunch Room sink, and drinking fountain if
required by code. Special plumbing work such as showers and vending machine
connections are excluded.
FIRE PROTECTION: Existing overhead fire protection system shall be modified
as required for tenant improvement ceiling and wall layout. Fire protection
work includes the addition of "drops" to ceilings and chrome, semi-recessed
sprinkler heads.
H.V.A.C.: Roof-top gas/electric packaged HVAC units shall provide heating and
cooling to finished office areas. Typical office cooling to be approximately
400 square feet per ton. Maximum roof top unit size to be 7.5 ton. Each zone
to be thermostatically controlled. Special production or clean room H.V.A.C.,
special computer room mechanical work, and special structural support of
mechanical equipment are excluded. Ceiling mounted or roof-top mounted
(Landlord's option) exhaust fans shall be provided for toilet room locations.
-4-
<PAGE>
LEASE
ELECTRICAL: Office area electrical work includes furnishing and installation
of lighting, power outlets, mud rings with pull strings for phone/data
locations, and power connections to HVAC equipment. Electrical devices to be
intermediate grade with wiring systems to meet code. Generators and UPS
systems are excluded.
Office lighting shall be provided using 2' by 4' florescence light fixtures
with standard acrylic lenses. Wattage available for lighting for each tenant
space is governed by the Oregon Energy Code.
Current (**) limitations are as follows:
Under 1,000 square feet - 2 watts per square foot
1,000 - 5,999 square feet - 2,000 watts plus 1.6 watts per
square foot for area over 1,000
square feet
6,000 square feet and up - 10,000 watts plus 1.2 watts per
square foot for area over 6,000
square feet
** NOTE: AS OF 1996, ENERGY CODE REQUIREMENTS ARE UNDER REVISION AND WILL
BE MORE RESTRICTIVE THAN LISTED LIMITATIONS.
Special architectural lighting (track lighting, spot lighting, down lights,
wall sconces, etc.) is excluded. Dual level light switching is excluded.
Lighting lamps, ballasts, and controls shall meet electrical energy
consumption code requirements.
Power supply for Tenant desk partitions to be provided at wall, floor, or
power pole locations only; connection to Tenant's power poles or partition
system and wiring within desk partitions are excluded. Mud rings with pull
strings to the area above ceiling shall be provided 1 each per 240 square
feet of improved office area for Tenant installed telephone and data wiring.
Cover plates and receptacles for telephone and data wiring and unused mud
rings shall be provided by the Tenant's phone or data wiring vendor.
Special electrical shall include the following items only:
1. Open Office Areas: One (1) above ceiling electrical supply location
for Tenant's power poles to supply four (4) workstations. Power poles to
be supplied by Tenant.
2. Work Copy Area: One (1) fax, duplex every 8 feet on center.
3. Coffee Areas: Two (2) duplex above countertop.
4. Rest Rooms: One (1) G.F.I. each room.
5. Conference Rooms: Three (3) duplex, one (1) phone/data each room.
6. Board Room: Four (4) duplex, one (1) phone data.
7. Reception Area: Three (3) duplex, two (2) fax, one (1) phone/data.
8. File Storage: Three (3) duplex.
9. Drinking Fountains: Dedicated duplex.
-5-
<PAGE>
Special electrical (cont.):
10. Prototype: One (1) duplex every 8 feet, and two (2) 220 volt.
11. Data Room: Two (2) four-plex outlets and two (2) phone/data.
12. Machine Shop: 110 volt outlets every 8 feet along perimeter
walls; one (1) 110 volt dedicated outlet for computer; two (2)
208-220, 3-phase, 30 amp outlets; two (2) 208-220, 3-phase,
20 amp outlets.
FIRE ALARM: Fire Alarm and smoke detection systems shall be provided if
required by the local governing jurisdictions.
SECURITY SYSTEMS: Security systems are excluded.
TELEPHONE AND COMPUTER SYSTEMS: Telephone, data, and computer system
equipment and wiring are excluded. Tenant phone equipment shall be provided
by tenant and located within the tenant area.
-6-
<PAGE>
LEASE
DATED: March 13, 1996
BETWEEN: PACIFIC REALTY ASSOCIATES, L.P.,
a Delaware limited partnership LANDLORD
AND: THRUSTMASTER, INC.,
an Oregon corporation TENANT
Tenant wishes to lease from Landlord the following described property,
hereinafter referred to as "the Premises":
Approximately 22,551 square feet of warehouse and office space located
in Building E, Evergreen Business Park, 7205 N.W. Evergreen Parkway, Suite
900, Hillsboro, Oregon 97124 and as further described on the attached
Exhibits A, B, C and D.
If the Premises consist of a portion but not all of a building, the
building housing the Premises is hereinafter referred to as "the Building."
Landlord leases the Premises to Tenant for a term of 86 months
commencing August 1, 1996 and continuing through September 30, 2003. No base
rent shall be due for the first two (2) months of the lease term, but Tenant
shall be obligated to pay for all other charges, taxes and expenses to be
paid to Landlord specified in paragraphs 3 and 4 of this lease. Base rent
shall be according to the following schedule:
Base Rent
Period Per Month
------ ----------
August 1, 1996 through September 30, 1996 $ 0.00
October 1, 1996 through September 30, 2001 $11,720.00
October 1, 2001 through September 30, 2003 $12,895.00
Rent for the month of October 1996, shall be paid on October 1, 1996. All
rent, including base rent together with the charges, taxes and expenses to be
paid to Landlord specified in paragraphs 3 and 4 of this lease, is payable in
advance on the first day of each calendar month. If Landlord consents, Tenant
may occupy the Premises prior to such commencement date upon payment of rent
on a prorated basis and compliance with all terms of this lease.
Delivery of possession shall occur when the Premises are occupied by
Tenant or are ready to be occupied by Tenant with all work to be performed by
Landlord substantially completed. No notice shall be required from Landlord
if the Premises are ready on the date set for commencement of the term or on
the first business day thereafter. If Landlord is unable to deliver
possession of the Premises to Tenant because of strikes, acts of God, or any
other cause beyond Landlord's control, then Tenant may take possession when
Landlord notifies Tenant that the Premises are ready for possession, and the
term of this lease shall commence on the first day of the first month
following such date and continue for the specified number of months
thereafter, notwithstanding the commencement and termination dates stated
above. Tenant shall owe no rent until the Premises are ready for possession.
Landlord shall have no liability for such delays in delivery of possession,
and neither party shall have the right to terminate except that Landlord may
cancel this lease without liability if permission to construct, use, or
furnish necessary utilities to the Premises is denied or revoked by any
governmental agency or public utility with such authority.
This lease is subject to the following additional terms to which the
parties agree:
Page 1 of 9
<PAGE>
1. USE OF THE PREMISES.
(a) Tenant shall use the Premises only for the purpose of
conducting the following business:
General office, production and warehousing.
If such use is prevented by any law or governmental regulation, Tenant may
use the Premises for other reasonable uses.
(b) In connection with its use, Tenant shall, at its expense,
comply with all applicable laws, ordinances, and regulations of any public
authority, including those requiring alteration of the Premises because of
Tenant's specific use; shall create no nuisance nor allow any objectionable
liquid, odor, or noise to be emitted from the Premises; shall store no
gasoline or other highly combustible materials on the Premises which would
violate any applicable fire code or regulation nor conduct any operation that
will increase Landlord's fire insurance rates for the Premises; and shall not
overload the floors or electrical circuits of the Premises. Landlord shall
have the right to approve the installation of any power-driven machinery by
Tenant and may select a qualified electrician whose opinion will control
regarding electrical circuits and a qualified engineer or architect whose
opinion will control regarding floor loads. Allowable ground floor load shall
be 300 pounds per square foot.
(c) Tenant may erect a 24-inch, non-illuminated, rigid foam,
plexiglass-faced, individual letter sign stating its name, business, and
product after first securing Landlord's written approval of the color,
design, wording, and location, and all necessary governmental approvals. No
signs shall be painted on the Building or exceed the height of the Building.
All signs installed by Tenant shall be removed upon termination of this lease
with the sign location restored to its former state.
(d) Tenant shall make no alterations, additions, or improvements to
the Premises or change the color of the exterior without Landlord's prior
written consent and without a valid building permit issued by the appropriate
governmental agency. Upon termination of this lease, any such alterations,
additions, or improvements (including without limitation all electrical,
lighting, plumbing, heating and air-conditioning equipment, doors, windows,
partitions, drapery, carpeting, shelving, counters, and physically attached
fixtures) shall at once become part of the realty and belong to Landlord
unless the terms of the applicable consent provide otherwise, or Landlord
requests that part or all of the additions, alterations, or improvements be
removed. In such case, Tenant shall at its sole cost and expense promptly
remove the specified additions, alterations, or improvements and repair and
restore the Premises to its original condition.
(e) Tenant shall, at its expense, comply with all applicable
provisions of Title I of the Americans with Disabilities Act of 1990 ("the
Act") related to its specific use of the Premises, and Landlord shall have no
responsibility for compliance with the provisions of Title I of the Act.
Landlord shall, at its expense, cause the Building to comply with, during the
term of this lease and any extensions thereof, applicable provisions of Title
III of the Americans with Disabilities Act of 1990 which relate to
architectural barriers and communication barriers which are structural in
nature so long as such compliance is readily achievable, as the term readily
achievable is defined in the Act.
2. SECURITY DEPOSIT.
Tenant has deposited with Landlord the sum of $12,895.00, hereinafter
referred to as "the Security Deposit," to secure the faithful performance by
Tenant of each term, covenant, and condition of this lease. If Tenant shall
at any time fail to make any payment or fail to keep or perform any term,
covenant, and condition on its part to be made or performed or kept under
this lease, Landlord may, but shall not be obligated to and without waiving
or releasing Tenant from any obligation under this lease, use, apply or
retain the whole or any part of the Security Deposit (i) to the extent of any
sum due to Landlord; or (ii) to make any required payment on Tenant's behalf;
or (iii) to compensate Landlord for any loss, damage, attorneys' fees, or
expense sustained by Landlord due to Tenant's default. In such event, Tenant
shall, within 5 days of written demand by Landlord, remit to Landlord
sufficient funds to restore the Security Deposit to its original sum;
Tenant's failure to do so shall be a material breach of this lease. Landlord
shall not be required to keep the Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such deposit. Should
Tenant comply with all of the terms, covenants, and conditions of this lease,
then the Security Deposit, less any sums owing to Landlord, shall be returned
to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interests hereunder) after a period of 12 months from occupancy of the
Premises.
Page 2 of 9
<PAGE>
3. UTILITY CHARGES; MAINTENANCE.
(a) Tenant shall pay when due all charges for electricity, natural
gas, water, garbage collection, janitorial service, sewer, and all other
utilities of any kind furnished to the Premises during the lease term. If
charges are not separately metered or stated, Landlord shall apportion the
utility charges on a prorata per square foot basis. Landlord shall have no
liability resulting from any interruption of utility services caused by fire
or other casualty, strike, riot, vandalism, the making of necessary repairs
or improvements, or any other cause beyond Landlord's reasonable control.
Tenant shall control the temperature in the Premises to prevent freezing of
any sprinkler system.
(b) Landlord shall repair and maintain the roof, gutters,
downspouts, exterior walls, building structure, foundation, exterior paved
areas, and curbs of the Premises in good condition. Except for such
obligations of Landlord, Tenant shall keep the Premises neatly maintained and
in good order and repair. Tenant's responsibility shall include maintenance
and repair of the electrical system, plumbing, drainpipes to sewers,
air-conditioning and heating systems, overhead and personnel doors, and the
replacement of all broken or cracked glass with glass of the same quality.
Tenant shall refrain from any discharge that will damage the septic tank or
sewers serving the Premises. It shall be Tenant's responsibility to utilize
chair pads in all areas where chairs or other rolling equipment may damage
floorcovering.
(c) If the Premises have a separate entrance, Tenant shall keep the
sidewalks abutting the Premises or the separate entrance free and clear of
snow, ice, debris, and obstructions of every kind.
4. TAXES, ASSESSMENTS, AND OPERATING EXPENSES.
(a) In conjunction with monthly rent payments, Tenant shall each
month pay a sum representing Tenant's proportionate share of real property
taxes and operating expenses for the Premises. Such amount shall annually be
estimated by Landlord in good faith to reflect actual or anticipated costs.
Tenant's share of taxes and operating expenses shall not exceed 14 Cents per
square foot per month for the calendar year 1997. Upon termination of this
lease or at periodic intervals during the term hereof, Landlord shall
compute its actual costs for such expenses during such period. Any
overpayment by Tenant shall be credited to Tenant against the next rental
payment when due, and any deficiency shall be paid by Tenant within 15 days
after receipt of Landlord's statement. Landlord's records of expenses for
taxes and operating expenses may be inspected by Tenant at reasonable times
and intervals. In the event Landlord's allocations are in error by an amount
exceeding five percent (5%) of the correct allocations, Landlord shall pay
Tenant's reasonable costs of conducting the inspection. Tenant may, at its
option, and expense, challenge to the appropriate governmental agencies any
tax assessments affecting Tenant's property and the allocation of taxes
hereunder, and shall be entitled to its proportionate share of the refund
resulting from a successful challenge made either by Tenant or Landlord. In
the event Tenant's challenge of real estate taxes results in an increased
assessment, then Tenant shall be responsible for such increase.
(b) Tenant's proportionate share of real property taxes shall mean
that percentage of the total assessment affecting the Premises which is the
same as the percentage which the rentable area of the Premises bears to the
total rentable area of all buildings covered by the tax statement. Tenant's
proportionate share of operating expenses for the Building shall be computed
by dividing the rentable area of the Premises by the total rentable area of
the Building.
(c) Real property taxes charged to Tenant hereunder shall include
all general real property taxes assessed against the Premises or payable
during the lease term, installment payments on Bancrofted special
assessments, and any rent tax, tax on Landlord's interest under this lease,
or any tax in lieu of the foregoing, whether or not any such tax is now in
effect. Tenant shall not, however, be obligated to pay any tax based upon
Landlord's net income.
(d) Operating expenses charged to Tenant hereunder shall include all
usual and necessary costs of operating and maintaining the Premises,
Building, and any surrounding common areas including, but not limited to, the
cost of all utilities or services not paid directly by Tenant, property
insurance, property management, maintenance and repair of landscaping,
parking areas, and any other common facilities. Operating expenses shall not
include roof replacement or correction of structural deficiencies of the
Building. Increases in operating expenses shall not exceed five percent (5%)
annually on a cumulative basis.
Page 3 of 9
<PAGE>
5. PARKING AND STORAGE AREAS.
(a) Tenant, its employees, and customers shall have the exclusive
right to use 47 private parking spaces in the parking area serving the
Premises. Tenant shall control the use of such parking spaces so that there
will be no unreasonable interference with the normal traffic flow, and shall
permit no parking on any landscaped or unpaved surface. Under no
circumstances shall trucks serving the Premises be permitted to block streets.
(b) Tenant shall not store any materials, supplies, or equipment
outside in any unapproved or unscreened area. If Tenant erects any visual
barriers for storage areas, Landlord shall have the right to approve the
design and location. Trash and garbage receptacles shall be kept covered at
all times.
6. TENANT'S INDEMNIFICATION; LIABILITY INSURANCE.
(a) Tenant shall not allow any liens to attach to the Premises as a
result of its activities. Tenant shall indemnify and defend Landlord from any
claim, liability, damage, or loss arising out of any activity on the Premises
by Tenant, its agents, or invitees or resulting from Tenant's failure to
comply with any term of this lease.
(b) Tenant shall carry general liability insurance on an occurrence
basis with combined single limits of not less than $1,000,000. Such insurance
shall be provided by an insurance carrier reasonably acceptable to Landlord
and shall be evidenced by a certificate delivered to Landlord stating that
the coverage will not be canceled or materially altered without 10 days'
advance written notice to Landlord. Landlord shall be named as an additional
insured on such policy.
7. PROPERTY DAMAGE; SUBROGATION WAIVER.
(a) If fire or other casualty causes damage to the Building or the
Premises in an amount exceeding 30 percent of the full
construction-replacement cost of the Building or Premises, respectively,
Landlord or Tenant may elect to terminate this lease as of the date of the
damage by notice in writing to the other party within 30 days after such
date. Otherwise, Landlord shall promptly repair the damage and restore the
Premises to their former condition as soon as practicable. Rent shall be
reduced during the period to the extent the Premises are not reasonably
usable in Landlord's estimation for the use of permitted by this lease
because of such damage and required repairs.
(b) Landlord shall be responsible for insuring the Building, and
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises.
(c) Neither party shall be liable to the other for any loss or
damage caused by water damage, sprinkler leakage, or any of the risks covered
by a standard fire insurance policy with extended coverage and sprinkler
leakage endorsements, and there shall be no subrogated claim by one party's
insurance carrier against the other party arising out to any such loss.
8. CONDEMNATION.
If a condemning authority takes the entire Premises or a portion
sufficient to render the remainder unsuitable for Tenant's use, in Tenant's
estimation, then either party may elect to terminate this lease effective on
the date that title passes to the condemning authority. Otherwise, Landlord
shall proceed as soon as practicable to restore the remaining Premises to a
condition comparable to that existing at the time of the taking. Rent shall
be abated during the period of restoration to the extent the Premises are not
reasonably usable by Tenant, and rent shall be reduced for the remainder of
the term in an amount equal to the reduction in rental value of the Premises
caused by the taking. All condemnation proceeds shall belong to Landlord,
except for any such proceeds awarded by the condemning authority for the
value of the Tenant's improvements, moving expenses, and any other items of
the award specifically associated with Tenants occupancy.
Page 4 of 9
<PAGE>
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign its interest under this lease nor sublet
the Premises without first obtaining Landlord's consent in writing, which
shall not be unreasonably withheld, subject to Paragraph 19(f) of this lease.
This provision shall apply to all transfers by operation of law or through
mergers and changes in control of Tenant. No assignment shall relieve Tenant
of its obligation to pay rent or perform other obligations required by this
lease and no one assignment or subletting shall be a consent to any further
assignment or subletting. Provided, however, that Tenant may assign its
interest to any party acquiring substantially all the assets of Tenant, or to
an entity the majority of interest of which is owned by Tenant. In addition,
any transfer of interest in the corporation by reason of transfers of the
Stock of the corporation shall not be deemed to be a transfer requiring the
consent of the Landlord.
(b) Subject to the above limitations on transfer of Tenant's
interest, this lease shall bind and inure to the benefit of the parties,
their respective heirs, successors, and assigns.
10. DEFAULT.
Any of the following shall constitute a default by Tenant under this
lease:
(a) Tenant's failure to pay rent or any other charge under this
lease within 10 days after Landlord's written notice that a payment is due and
unpaid, or failure to comply with any other term or condition within 30 days
following written notice from Landlord specifying the noncompliance. If such
noncompliance cannot be cured within the 30-days period, this provision shall
be satisfied if Tenant commences correction within such period and thereafter
proceeds in good faith and with reasonable diligence to effect compliance as
soon as possible.
(b) Tenant's insolvency; assignment for the benefit of its
creditors; Tenant's voluntary petition in bankruptcy or adjudication as
bankrupt, or the appointment of a receiver for Tenant's properties.
11. REMEDIES FOR DEFAULT.
In case of default as described in paragraph 10 above, Landlord
shall have the right of the following remedies which are intended to be
cumulative and in addition to any other remedies provided under applicable
law:
(a) Terminate this lease without relieving Tenant from its
obligation to pay damages.
(b) Retake possession of the Premises by summary proceedings or
otherwise, in which case Tenant's liability to Landlord for damages shall
survive the tenancy. Landlord may, after such retaking of possession, relet
the Premises upon any reasonable terms. No such reletting shall be construed
as an acceptance of a surrender of Tenant's leasehold interest.
(c) Recover damages caused by Tenant's default which shall include
reasonable attorneys' fees at trial and on any appeal therefrom. Landlord may
sue periodically to recover damages as they occur throughout the lease term,
and no action for accrued damages shall bar a later action for damages
subsequently accruing. Landlord may elect in any one action to recover
accrued damages plus damages attributable to the remaining term of the lease
equal to the difference between the rent under this lease and the reasonable
rental value of the Premises for the remainder of the term, discounted to the
time of judgment at the rate of 6 percent per annum.
(d) Make any payment or perform any obligation required of Tenant so
as to cure Tenant's default, in which case Landlord shall be entitled to
recover all amounts so expended from Tenant, plus interest at the rate of 10
percent per annum from the date of the expenditure.
Page 5 of 9
<PAGE>
12. SURRENDER ON TERMINATION.
(a) On expiration or early termination of this lease, Tenant shall
deliver all keys to Landlord, have final utility readings made on the date of
move out, and surrender the Premises clean and free of debris inside and out,
with all mechanical, electrical, and plumbing systems in good operating
condition, all signing removed and defacement corrected, and all repairs
called for under this lease completed. The Premises shall be delivered in the
same condition as at the commencement of the term, subject only to
depreciation and wear from ordinary use. Tenant shall remove all of its
furnishings and trade fixtures that remain its property and restore all
damage resulting from such removal. Failure to remove said property shall be
an abandonment of same, and Landlord may dispose of it in any manner without
liability.
(b) If Tenant fails to vacate the Premises when required, including
failure to remove all its personal property, Landlord may elect either: (i)
to treat Tenant as a tenant from month to month, subject to all provisions of
this lease except the provision for term and at a base rental of 115 percent
of that specified in this lease; or (ii) to eject Tenant from the Premises
and recover damages caused by wrongful holdover. Notwithstanding, Tenant
shall have the right to hold over for a period of not more than three (3)
months following expiration of the initial lease term at a base rental not to
exceed 115% of the last month's rent.
13. LANDLORD'S LIABILITY.
(a) Landlord warrants that so long as Tenant complies with all terms
of this lease it shall be entitled to peaceable and undisturbed possession of
the Premises free from any eviction or disturbance by Landlord or persons
claiming through Landlord.
(b) All persons dealing with Pacific Realty Associates, L.P.
("Partnership") must look solely to the property and assets of Partnership
for the payment of any claim against Partnership or for the performance of
any obligation of Partnership as neither the general partner, limited
partners, employees, nor agents or Partnership assume any personal liability
for obligations entered into on behalf of Partnership (or its predecessors in
interest) and their respective properties shall not be subject to the claims
of any person in respect of any such liability or obligation. As used herein,
the words "property and assets of partnership" exclude any rights of
Partnership for the payment of capital contributions or other obligations to
it by the general partner or any limited partner in such capacity.
14. MORTGAGE OR SALE BY LANDLORD; ESTOPPEL CERTIFICATES.
(a) This lease is and shall be prior to any mortgage or deed of
trust ("Encumbrance") recorded after the date of this lease and affecting the
Building and the land upon which the Building is located. However, if any
lender holding an Encumbrance secured by the Building and the land
underlying the Building requires that this lease be subordinate to the
Encumbrance, then Tenant agrees that this lease shall be subordinate to the
Encumbrance if the holder thereof agrees in writing with Tenant that so long
as Tenant performs its obligations under this lease no foreclosure, deed
given in lieu of the foreclosure, or sale pursuant to the terms of the
Encumbrance, or other steps or procedures taken under the Encumbrance shall
affect Tenant's rights under this lease. If the foregoing condition is met,
Tenant shall execute the written agreement and any other documents required
by the holder of the Encumbrance to accomplish the purposes of this paragraph.
(b) If the Building is sold as a result of foreclosure of any
Encumbrance thereon or otherwise transferred by Landlord or any successor,
Tenant shall attorn to the purchaser or transferee.
(c) Either party shall within 20 days after notice from the other
execute and deliver to the other party a certificate stating whether or not
this lease has been modified and is in full force and effect and specifying
any modifications or alleged breaches by the other party. The certificate
shall also state the amount of monthly base rent, the dates to which rent has
been paid in advance, and the amount of any security deposit or prepaid rent.
Failure to deliver the certificate within the specified time shall be
conclusive upon the party of whom the certificate was requested that the
lease is in full force and effect and has not been modified except as may be
represented by the party requesting the certificate.
Page 6 of 9
<PAGE>
15. DISPUTES - ATTORNEYS' FEES.
In the event of any litigation arising out of this lease, the
prevailing party shall be entitled to recover from the other party, in
addition to all other relief provided by law or judgement, its reasonable
costs and attorneys' fees incurred both at and in preparation for trial and
any appeal or review, such amount to be as determined by the court(s) before
which the matter is heard. Disputes between the parties which are to be
litigated shall be tried before a judge without a jury.
16. SEVERABILITY.
If any provision of this lease is held to be invalid, unenforceable
or illegal the remaining provisions shall not be affected and shall be
enforced to the fullest extent permitted by law.
17. INTEREST AND LATE CHARGES.
Rent not paid within 10 days of when due shall bear interest from
the date due until paid at the rate of 10 percent per annum. Landlord may at
its option impose a late charge of $.05 for each $1.00 of rent for rent
payments made more than 10 days late in addition to interest and other
remedies available for default.
18. GENERAL PROVISIONS.
(a) Waiver by either party of strict performance of any provision of
this lease shall not be a waiver of nor prejudice the party's right otherwise
to require performance of the same provision or any other provision.
(b) Subject to the limitations on transfer of Tenant's interest,
this lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns.
(c) Landlord shall have the right to enter upon the Premises with
reasonable prior notice (except in the case of an emergency) to determine
Tenant's compliance with this lease, to make necessary repairs to the
Building or the Premises, or to show the Premises to any prospective tenant
or purchasers. During the last two month of the term, Landlord may place and
maintain upon the Premises notices for leasing or sale of the Premises.
(d) If this lease commences or terminates at a time other than the
beginning or end of one of the specified rental periods, then the rent
(including Tenant's share of real property taxes, if any) shall be prorated
as of such date, and in the event of termination for reasons other than
default all prepaid rent shall be refunded to Tenant or paid on its account.
(e) Notices between the parties relating to this lease shall be in
writing, effective when delivered, or if mailed, effective on the second day
following mailing, postage prepaid, to the address for the party stated in
this lease or to such other address as either party may specify by notice to
the other. Rent shall be payable to Landlord at the same address and in the
same manner.
19. ENVIRONMENTAL.
(a) DEFINITIONS. The term "Environmental Law" shall mean any
federal, state or local statute, regulation or ordinance or any judicial or
other governmental order pertaining to the protection of health, safety or
the environment. The term "Hazardous Substance" shall mean any hazardous,
toxic, infectious or radioactive substance, waste and material as defined or
listed by any Environmental Law and shall include, without limitation,
petroleum oil and its fractions.
(b) USE OF HAZARDOUS SUBSTANCES. Tenant shall not cause or permit
any Hazardous Substance to be spilled, leaked, disposed of or otherwise
released on or under the Premises. Tenant may use and sell on the Premises
only those Hazardous substances typically used and sold in the prudent and
safe operation of the business permitted by Section 1 of this lease. Tenant
may store such Hazardous Substances on the Premises, but only in quantities
necessary to satisfy Tenant's reasonably
Page 7 of 9
<PAGE>
anticipated needs. Tenant shall comply with all Environmental Laws and
exercise the highest degree of care in the use, handling and storage of
Hazardous Substances and shall take all practicable measures to minimize the
quantity and toxicity of Hazardous Substances used, handled or stored on the
Premises.
(c) NOTICES. Tenant shall immediately notify Landlord upon becoming
aware of the following: (a) any spill, leak, disposal or other release of a
Hazardous Substance on, under or adjacent to the Premises; (b) any notice or
communication from a governmental agency or any other person relating to any
Hazardous Substance on, under or adjacent to the Premises; or (c) any
violation of any Environmental Law with respect to the Premises or Tenant's
activities on or in connection with the Premises.
(d) SPILLS AND RELEASES. In the event of a spill, leak, disposal or
other release of a Hazardous Substance on or under the Premises caused by
Tenant or any of its contractors, agents or employees or invitees, or the
suspicion or threat of the same, Tenant shall (i) immediately undertake all
emergency response necessary to contain, cleanup and remove the released
Hazardous Substance, (ii) promptly undertake all investigatory, remedial,
removal and other response action necessary or appropriate to ensure that any
Hazardous Substances contamination is eliminated to Landlord's reasonable
satisfaction, and (iii) provide Landlord copies of all correspondence with
any governmental agency regarding the release (or threatened or suspected
release) or the response action, a detailed report documenting all such
response action, and a certification that any contamination has been
eliminated. All such response action shall be performed, all such reports
shall be prepared and all such certifications shall be made by an
environmental consultant reasonably acceptable to Landlord.
(e) CONDITION UPON TERMINATION. Upon expiration of this lease or sooner
termination of this lease for any reason, Tenant shall remove all Hazardous
Substances and facilities used for the storage or handling of Hazardous
Substances from the Premises and restore the affected areas by repairing any
damage caused by the installation or removal of the facilities. Following
such removal, Tenant shall certify in writing to Landlord that all such
removal is complete. The foregoing obligation shall not apply to any
pre-existing contamination.
(f) ASSIGNMENT AND SUBLETTING. Notwithstanding the provisions of
paragraph 9 of this lease, it shall not be unreasonable for Landlord to
withhold its consent to any assignment, sublease or other transfer of the
Tenant's interest in this lease if a proposed transferee's anticipated use of
the Premises involves the generation, storage, use, sale, treatment, release
or disposal of any Hazardous Substance.
(g) INDEMNITY.
(i) BY TENANT. Tenant shall indemnify, defend and hold harmless
Landlord, its employees and agents, any persons holding a security interest
in the Premises, and the respective successors and assigns of each of them
from and against any and all claims, demands, liabilities, damages, fines,
losses, costs (including without limitation the cost of any investigation,
remedial, removal or other response action required by Environmental Law) and
expenses (including without limitation attorneys' fees and expert fees in
connection with any trial, appeal, petition for review or administrative
proceeding) arising out of or in any way relating to the use, treatment,
storage, generation, transport, release, leak, spill, disposal or other
handling of Hazardous Substances on the Premises by Tenant or any of its
contractors, agents or employees or invitees. Tenant's obligations under this
section shall survive the expiration or termination of this lease for any
reason. Landlord's rights under this section are in addition to and not in
lieu of any other rights or remedies to which Landlord may be entitled under
this agreement or otherwise.
(ii) BY LANDLORD. Landlord shall indemnify, defend and hold
harmless Tenant and its employees and agents and the respective successors
and assigns of each of them from and against any and all claims, demands,
liabilities, damages, fines, losses, costs (including without limitation the
cost of any investigation, remedial, removal or other response action
required by Environmental Law) and expenses (including without limitation
attorneys' fees and expert fees in connection with any trial, appeal,
petition for review or administrative proceeding) arising out of or in any
way relating to the actual or alleged use, treatment, storage, generation,
transport, release, leak, spill, disposal or other handling of Hazardous
Substances on the Premises by Landlord, or any of its contractors, agents or
employees or by Landlord's previous tenants of the Premises. Landlord's
obligations under this section shall survive the expiration or termination of
this lease for any reason. Tenant's rights under this section are in addition
to and not in lieu of any other rights or remedies to which Tenant may be
entitled under this Agreement or otherwise.
Page 8 or 9
<PAGE>
20. RENEWAL OPTION.
If not then in default, Tenant shall have the option to renew this lease
for one additional five-year term immediately following expiration of the
initial lease term by giving Landlord 180 days' advance written notice of its
intent to extend. All provisions of this lease shall apply during the
extended term, except that rent for the renewal period shall be an amount
determined on a fair market value basis and agreed upon by parties at least
90 days prior to commencement of the renewal period, but in no case less than
that of the preceding term.
21. RIGHT OF FIRST NOTICE.
Landlord shall notify Tenant of the availability of adjacent space
within the Building. Tenant shall have ten (10) business days after such
notification to decide whether or not it wishes to exercise its right to take
such space. If Tenant does not so exercise, Landlord will have the
unrestricted right to lease such space to others.
22. SIGNAGE.
Tenant may install monument and/or building signage, subject to mutually
acceptable size and location.
23. TENANT IMPROVEMENTS.
Landlord shall provide Tenant with a tenant improvement allowance of
$317,067.00 ($14.06 per square foot). Said Improvements shall be constructed
by Landlord's contractor in accordance with plans and specifications attached
hereto as Exhibit C and D and are subject to applicable building codes as
interpreted by the City of Hillsboro. Any unspent tenant improvement dollars
shall be credited against the initial month's rent. Any additional tenant
improvements up to $3.00 per square foot shall be amortized at eleven percent
(11%) interest over the term of this lease.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this lease as of the day and year first written above.
PACIFIC REALTY ASSOCIATES, L.P., THRUSTMASTER, INC.,
A DELAWARE LIMITED PARTNERSHIP AN OREGON CORPORATION
BY PACTRUST REALTY, INC., A DELAWARE
CORPORATION, ITS GENERAL PARTNER
By /s/ Sam K. Briggs By /s/ Kent E. Koski
----------------------------- ------------------------------
Sam K. Briggs Name Kent E. Koski
Marketing Director ------------------------------
Title Vice President-Finance
------------------------------
By
------------------------------
Name
------------------------------
Title
------------------------------
ADDRESS FOR NOTICES/RENT PAYMENTS TO LANDLORD:
15350 S.W. Sequoia Parkway, Suite 300
Portland, Oregon 97224
ADDRESS FOR LEGAL NOTICES TO TENANT:
------------------------------------
------------------------------------
------------------------------------
ADDRESS FOR INVOICES TO TENANT:
------------------------------------
------------------------------------
------------------------------------
Page 9 of 9
<PAGE>
EXHIBIT A
[MAP]
<PAGE>
EXHIBIT B
[FLOOR PLAN]
<PAGE>
EXHIBIT C
[FLOOR PLAN]
<PAGE>
EXHIBIT D
THRUSTMASTER, INC.
BUILDING E, EVERGREEN BUSINESS PARK
TENANT IMPROVEMENT SPECIFICATIONS
MARCH 13, 1996
GENERAL
The cost of standard tenant improvement work described below shall be covered
under the tenant improvement allowance.
ARCHITECTURE AND ENGINEERING: Architecture and engineering required to obtain
a building permit are included for standard office and warehouse occupancy
classifications.
PERMITS/FEES: Building permits, plan check fees, fire and life safety review
charges, sewer connection fees and SDC's, and traffic impact fees are
included for the "manufacturing" occupancy classification.
EXCLUSIONS: Items noted as "excluded" are items which Landlord will consider
for inclusion but are not included in a typical improvement and do not
generally fit within a "building standard" tenant improvement allowance.
EXTERIOR AND BUILDING SHELL
EXTERIOR: Modifications to sitework and exterior building shell to
accommodate unusual tenant needs are excluded. This would include patios;
equipment pads; noise or special visual screening; modifications to exterior
building walls, windows, or doors; and upgrading of electrical, storm sewer
or sanitary sewer systems. Exterior fencing is excluded.
TENANT ENTRIES AND MAN-DOORS: Tenant entry shall include a single storefront
door in the aluminum storefront system. Exit doors shall be provided per code
requirements. Exterior man-doors into warehouse areas shall be 3' x 7' hollow
metal with Schlage "D" series lever locks. Special access systems, card lock
entries, and unusual door hardware items are excluded.
OVERHEAD DOORS: Exterior overhead doors shall be uninsulated steel sectional
type, manually operated, vertical or high lift configuration.
-1-
<PAGE>
ELECTRICAL: Building shell electrical system includes the main electrical
service (1200 Amp, 277/480 Volt, 3-phase) to be shared by building tenants
and "house" panels for exterior lighting and common area power requirements.
Tenant improvement electrical service includes distribution of power from the
main building service to tenant subpanels and the addition of any tenant
subpanels within the tenant space. Generators and UPS systems are excluded.
WAREHOUSE AREAS
DEMISING WALLS: Demising walls shall extend from floor level to the underside
of the building roof structure. Demising walls in buildings with clear height
less than 18 feet shall be constructed using metal studs with 5/8" sheetrock
each side. Fiberglass batt insulation shall be provided in metal stud
demising walls from floor to 9 feet high.
Demising walls in 18' to 24' clear height buildings shall be constructed
using wood studs spaced approximately 4 feet on center and a single layer of
5/8" plywood connected to studs with wood "stops". Wood demising walls are
uninsulated.
EXTERIOR WALLS: Exterior walls within warehouse areas shall remain
unpainted, exposed concrete. Insulation for exterior walls within warehouse
areas is excluded.
CEILINGS/ROOF STRUCTURE: Finished ceilings within warehouse areas are
excluded. Roof structure is insulated with R-19 insulation and shall remain
exposed. Painting of roof structure and supporting elements is excluded.
FLOORING: Warehouse floor shall be exposed, sealed concrete.
PLUMBING: Special plumbing such as process water and waste systems are
excluded under standard tenant improvements.
FIRE PROTECTION: Building shell fire protection system includes service to
the building and overhead sprinkler piping and heads. Upgrading of fire
protection systems for special hazard uses, rack sprinkling, and hose
stations are excluded. Modifications to the overhead system shall be provided
if required to accommodate demising wall layout.
H.V.A.C.: Gas fired unit heaters shall provide heating in warehouse areas for
freeze protection of overhead water piping only. Special production area
H.V.A.C. and special structural supports for mechanical equipment are
excluded.
ELECTRICAL: Warehouse lighting shall be provided using fluorescent fixtures
to approximately 10 - 15 foot-candles measured 30'' above floor; warehouse
lights to be switched from a location near the office. Warehouse area
electrical shall include: Two (2) 200 volt, 3-phase outlets and one (1)
general convenience outlet. Production area (50' x 87.5') electrical shall
include a 12-foot square power grid with one (1) 110 volt drop at each
intersection.
-2-
<PAGE>
IMPROVED OFFICE AREAS
CONCRETE: Existing concrete slab on grade shall be sawcut, removed and
poured back for underslab utilities as necessary.
EXTERIOR WALLS: Exterior concrete walls within improved office areas shall
receive metal stud furring, insulation, and 5/8" smooth finished sheetrock.
Exterior framed walls within improved office areas shall receive thermal
insulation and 5/8" smooth finished sheetrock from floor to 9 feet high.
OFFICE/WAREHOUSE SEPARATION WALLS: Walls separating improved office areas
and warehouse areas shall extend from floor level to 12 feet above floor.
Such walls shall be constructed using metal studs, fiberglass batt insulation
from floor to 9 feet high, and 5/8" sheetrock each side. Sheetrock shall
extend from floor to top of framing on the warehouse side of the wall and
from floor to ceiling level on the office side of the wall.
INTERIOR PARTITIONS: Interior partitions shall extend from floor level to
the underside of ceiling grid. Interior partitions shall be constructed
using 3-1/2" metal studs at 24" on center and 5/8" smooth finished sheetrock
each side. Batt insulation shall be provided in walls surrounding toilet and
conference rooms.
INTERIOR DOORS: Interior doors shall be nominal 3'-0" by 7'-0" solid core
oak with light Watco finish ("Building Standard Finish") in Timely door
frames, factory pre-painted in standard off-white color ("Building Standard
Frame"). Door hardware to include 1-1/2 pair butts, Schlage "AL" series
lever latch, and wall stop for each door. Door hardware finish to be
polished chrome.
FOLDING PARTITION: An allowance of $14,000 has been included for a folding
partition and supporting structural system.
RELITES: Relites are excluded for standard tenant improvements. When used,
relites shall include 1/4" tempered glass in Building Standard Frame.
CABINETS AND MILLWORK: Plastic laminate covered countertops shall be
provided with counter-mounted lavatories in each toilet room. Cabinets to be
constructed to A.W.I. standards with plastic laminate covered tops, fronts,
and sides. Cabinet interiors shall be constructed of melamine or standard
low pressure laminate on particle board substrate. Concealed hinges,
heavy-duty drawer hardware, and wire pulls shall be included for all drawers
or doors. One 4' by 4' plywood mounting board is included for tenant's phone
equipment. Cabinets other than those listed above, wall paneling, wood base,
shelving, and other special millwork items are excluded.
ACOUSTICAL CEILINGS: Acoustical ceiling to be 2' by 2' tegular edge ceiling
tile (Armstrong Minatone #705 Fissured) in standard suspended grid. Ceiling
height to be approximately 9 feet.
-3-
<PAGE>
FLOOR COVERINGS: Floor covering colors shall be selected by Tenant from
Landlord's standard finish options. Carpet shall be cut pile or loop as
selected by Tenant. Cut pile carpet shall be installed on carpet pad. VCT
shall be installed in lunch rooms, copy rooms, storage rooms, and other
appropriate locations. Sheet vinyl flooring shall be provided in toilet
rooms. Rubber base shall be 4" high in continuous lengths. 6" high rubber
base shall be used in toilet rooms. Coved base to be used in areas with
resilient flooring; flat base to be used in carpeted areas. Quarry or
ceramic tiles, wood flooring, raised computer floors, and other special floor
finishes are excluded.
PAINTING AND WALL COVERING: All interior walls in improved office areas
shall receive primer and two coats of finish paint. Paint color is to be
selected from Landlord's standard color options. Plastic laminate wainscot
shall be provided on "wet" walls within toilet rooms. Vinyl, fabric, and
other wall coverings are excluded.
WINDOW COVERINGS: Exterior windows shall be covered with vertical blinds
(solid plastic slats), in building standard color.
APPLIANCES: Appliances such as dishwashers, refrigerators, garbage disposers,
and microwave ovens; and vending machines, coffee makers or other similar
equipment are excluded.
FURNITURE AND ACCESSORIES: Toilet room accessories include one toilet paper
holder and one seat cover dispenser for each water closet, one paper towel
dispenser for each toilet room, and grab bars where required by code. All
toilet accessories shall be surface mounted units. One counter mounted soap
dispenser shall be provided for each toilet room lavatory. Furniture, coat
hooks, desk partitions, tack boards, white boards, projection screens, fire
extinguishers and cabinets, lockers, and other miscellaneous accessories are
excluded.
PLUMBING: Plumbing shall be provided within the tenant area to serve
necessary toilet facilities, a Lunch Room sink, and drinking fountain if
required by code. Special plumbing work such as showers and vending machine
connections are excluded.
FIRE PROTECTION: Existing overhead fire protection system shall be modified
as required for tenant improvement ceiling and wall layout. Fire protection
work includes the addition of "drops" to ceilings and chrome, semi-recessed
sprinkler heads.
H.V.A.C.: Roof-top gas/electric packaged HVAC units shall provide heating and
cooling to finished office areas. Typical office cooling to be approximately
400 square feet per ton. Maximum roof top unit size to be 7.5 ton. Each zone
to be thermostatically controlled. Special production or clean room H.V.A.C.,
special computer room mechanical work, and special structural support of
mechanical equipment are excluded. Ceiling mounted or roof-top mounted
(Landlord's option) exhaust fans shall be provided for toilet room locations.
-4-
<PAGE>
ELECTRICAL: Office area electrical work includes furnishing and installation
of lighting, power outlets, mud rings with pull strings for phone/data
locations, and power connections to HVAC equipment. Electrical devices to be
intermediate grade with wiring systems to meet code. Generators and UPS
systems are excluded.
Office lighting shall be provided using 2' by 4' fluorescent light fixtures
with standard acrylic lenses. Wattage available for lighting for each tenant
space is governed by the Oregon Energy Code.
Current (**) limitations are as follows:
Under 1,000 square feet - 2 watts per square foot
1,000 - 5,999 square feet - 2,000 watts plus 1.6 watts per square
foot for area over 1,000 square feet
6,000 square feet and up - 10,000 watts plus 1.2 watts per square
foot for area over 6,000 square feet
**NOTE: AS OF 1996, ENERGY CODE REQUIREMENTS ARE UNDER REVISION AND WILL BE
MORE RESTRICTIVE THAN LISTED LIMITATIONS.
Special architectural lighting (track lighting, spot lighting, down lights,
wall sconces, etc.) is excluded. Dual level light switching is excluded.
Lighting lamps, ballasts, and controls shall meet electrical energy
consumption code requirements.
Power supply for Tenant desk partitions to be provided at wall, floor, or
power pole locations only; connection to Tenant's power poles or partition
system and wiring within desk partitions are excluded. Mud rings with pull
strings to the area above ceiling shall be provided 1 each per 240 square
feet of improved office area for Tenant installed telephone and data wiring.
Cover plates and receptacles for telephone and data wiring and unused mud
rings shall be provided by the Tenant's phone or data wiring vendor.
Special electrical shall include the following items only:
1. Open office Areas: One (1) above ceiling electrical supply location for
Tenant's power poles to supply four (4) workstations. Power poles to be
supplied by Tenant.
2. Coffee Bar: Two (2) duplex above countertop.
3. Conference Room: Three (3) duplex, one (1) phone/data each room.
4. Rest Rooms: One (1) G.F.I. each room.
5. Janitorial: One (1) duplex.
6. Data/Telephone: Two (2) dedicated outlets.
7. Arcade: Six (6) duplex.
8. Drinking Fountains: Dedicated duplex at each location.
9. Training: Three (3) outlets each room, one (1) phone/data each room.
10. Lunch Room/Coffee Bar: One (1) dedicated for microwave, two (2) outlets.
11. Vending: Four (4) duplex
-5-
<PAGE>
FIRE ALARM: Fire alarm and smoke detection systems shall be provided if
required by the local governing jurisdictions.
SECURITY SYSTEMS: Security systems are excluded.
TELEPHONE AND COMPUTER SYSTEMS: Telephone, data, and computer system
equipment and wiring are excluded. Tenant phone equipment shall be provided
by tenant and located within the tenant area.
-6-
<PAGE>
Exhibit 10.9
THRUSTMASTER, INC.
SUMMARY OF 1997 OFFICER BONUS PROGRAM
The Board of Directors has adopted a bonus program for the Company's
officers for 1997. Bonuses range from 20 to 30% of base compensation, depending
upon an officer's compensation and level of responsibility. In order to receive
a bonus, participants must be employed by the Company on December 31, 1997. The
bonus is payable within two weeks after completion of the Company's 1997 audited
financial statements.
Whether an officer receives a bonus is determined by both Company and
individual performance. Eighty percent of an executive's bonus is tied to the
Company's attainment of goals in three areas: percentage increase in revenue
over 1996; pre-tax profitability as a percentage of revenue; and the achievement
of certain targeted goals in product development, distribution, manufacturing
and corporate initiatives. Twenty percent of an executive's bonus is tied to
attainment of the individual's agreed upon performance goals.
A similar bonus program has been implemented for all other employees.
<PAGE>
Exhibit 11.1
THRUSTMASTER, INC.
STATEMENTS REGARDING COMPUTATION
OF PER SHARE EARNINGS
(In thousands, except per share data)
Years Ended December 31,
---------------------------
1994 1995 1996
---- ---- ----
Weighted average number of
common shares outstanding 2,112 3,647 4,182
Common stock equivalents arising
from stock options 713 646 465
Common stock deemed outstanding
pursuant to SAB 4D:
Common stock issued within one
year of initial filing 111 -- --
Options issued within one year of
initial filing 21 -- --
------- ------- -------
2,957 4,293 4,647
------- ------- -------
------- ------- -------
Net income--pro forma $ 1,138 $1,361 $ 2,259
------- ------- -------
------- ------- -------
Net income per share--pro forma $ 0.38 $ 0.32 $ 0.49
------- ------- -------
------- ------- -------
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
1. ThrustMaster Foreign Sales Corporation
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the registration statement of
ThrustMaster, Inc. on Form S-8 of our report dated January 24, 1997, on our
audits of the consolidated financial statements and financial statement
schedule of ThrustMaster, Inc. and Subsidiary as of December 31, 1995 and
1996, and for each of the three years in the period ended December 31, 1996,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,420
<SECURITIES> 0
<RECEIVABLES> 9,820
<ALLOWANCES> 0
<INVENTORY> 3,560
<CURRENT-ASSETS> 20,148
<PP&E> 2,514
<DEPRECIATION> 1,433
<TOTAL-ASSETS> 21,261
<CURRENT-LIABILITIES> 5,342
<BONDS> 0
0
0
<COMMON> 13,301
<OTHER-SE> 2,597
<TOTAL-LIABILITY-AND-EQUITY> 21,261
<SALES> 30,821
<TOTAL-REVENUES> 30,821
<CGS> 19,592
<TOTAL-COSTS> 19,592
<OTHER-EXPENSES> 8,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,629
<INCOME-TAX> 1,370
<INCOME-CONTINUING> 2,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,259
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
