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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 0-26646
GENERAL SCANNING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2445884
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 ARSENAL STREET, WATERTOWN, MA 02172
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(617) 924-1010
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
TITLE OF EACH CLASS
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $117,520,993 based on the last reported sale
price of the Common Stock on the Nasdaq National Market on February 25, 1997.
The number of shares outstanding of the registrant's class of Common Stock as
of February 25, 1997 was 11,900,860 shares.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held April 17, 1997 are incorporated by reference in Part
III of the Report. Other documents incorporated by reference are listed in the
Exhibit Index.
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GENERAL SCANNING INC.
1996 ANNUAL REPORT--FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PAGE
PART I ----
<C> <S> <C>
Item 1 Business...................................................... 1
Overview...................................................... 1
Business Strategy............................................. 2
Products and Services......................................... 3
Customers..................................................... 7
Sales, Marketing and Customer Support......................... 7
Research and Development...................................... 8
Manufacturing................................................. 9
Working Capital Requirements.................................. 10
Backlog....................................................... 10
Competition................................................... 10
Patents and Intellectual Property............................. 11
Employees..................................................... 11
Item 2 Properties.................................................... 12
Item 3 Legal Proceedings............................................. 13
Item 4 Submission of Matters to a Vote of Security Holders........... 14
Executive Officers............................................ 14
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder
Matters....................................................... 16
Item 6 Selected Financial Data....................................... 17
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 18
Item 8 Financial Statements and Supplementary Data................... F-1
Item 9 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure...................................... F-20
PART III
Item 10 Directors and Executive Officers of the Registrant............ F-20
Item 11 Executive Compensation........................................ F-20
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................... F-20
Item 13 Certain Relationships and Related Transactions................ F-20
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. F-21
</TABLE>
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PART I
ITEM 1. BUSINESS
OVERVIEW
General Scanning Inc. ("General Scanning" or the "Company") was incorporated
in Massachusetts on July 8, 1968. The Company develops and manufactures a
broad line of laser systems for a wide range of applications in the
automotive, electronics, semiconductor, medical and aircraft industries. In
addition, the Company produces a line of laser subsystems and components which
are used in the Company's own systems as well as sold to other manufacturers
of laser systems. In 1996, over 84% of the Company's revenues were derived
from the sale of laser systems and components. General Scanning markets and
sells its products worldwide. In 1996, 59% of its sales were in the United
States, 25% in Asia and 16% in Europe. See Note 12 to Financial Statements for
a more detailed description of the Company's geographic operations.
At the end of August 1996, General Scanning acquired View Engineering, Inc.
("View"), a California corporation, based in Simi Valley, California, through
an exchange of 1.4 million shares of Common Stock of the Company, $.01 par
value ("Common Stock"), in a transaction which was recorded as a pooling of
interests for accounting purposes. Therefore, all historical financial
information has been restated to include the operations of View. View designs,
manufactures and markets vision systems used for measurement and inspection in
electronics and semiconductor manufacturing and for general purpose metrology.
General Scanning manufactures laser systems for a variety of industrial
applications including: thin film resistor processing systems used in the
production of automotive sensors for airbags, anti-lock brakes, emissions
control and airflow measurement; thick film resistor processing systems used
in the manufacture of surface mount ("SMT") electronic components; DRAM
(dynamic random access memory) processing systems used in the fabrication of
high density computer memory chips; inspection systems for solder paste and
component placement on SMT (surface mount technology) printed circuits;
automatic semiconductor package measurement systems for QFP (quad flat
package), TSOPs (thin small outline package) and BGAs (ball grid arrays);
laser marking systems used for permanent identification of products such as
integrated circuit packages and automotive components; precision alignment
systems used primarily in the fabrication of aircraft composite structures;
inspection and metrology systems employing non-contact 3-D image processing
used in the manufacturing of disk drives and other precise tolerance devices;
and laser systems and subsystems used in film imaging. In addition, General
Scanning manufactures laser subsystems and components used by the Company and
its customers in many applications including materials processing, test and
measurement, alignment, inspection, graphics, vision systems, rapid
prototyping and medical imaging. The Company's core technological expertise
which is employed in each of these applications is high speed micropositioning
and precise power control of lasers.
General Scanning also designs and manufactures under ISO 9001 certification
a line of thermal printers for leading medical instrument companies. General
Scanning's printers, based on thermal printing technology, use the Company's
core micropositioning expertise to address customers' needs for high accuracy
recording. General Scanning supplies thermal printers to manufacturers of
medical equipment for critical patient applications such as defibrillators,
patient care monitors, and cardiac pacemaker programmers.
Designing and manufacturing the Company's products requires specialized
skills in: electronics that can operate reliably and accurately under a wide
range of environmental conditions; electromechanical devices that can sustain
high torsional acceleration; optics and lenses that operate with a variety of
types of laser output; closed-loop electronic servo systems that precisely and
quickly measure and control relative positions of mechanical components; and
software that controls laser systems and interfaces with adjunct equipment. In
addition, General Scanning maintains control of the critical production
processes which the Company believes allows it to control costs, realize
higher quality production and bring new products to market more quickly.
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General Scanning expands the scope and use of its core products by working
closely with leading customers to identify both value-added functionality and
new applications. The Company designs and manufactures systems and components
with the aim of providing its customers with low overall cost of ownership.
General Scanning's close relationship with its customers enables it to expand
the number of applications for its core technology and minimize the risk
inherent in new product development. The Company believes that the diversity
of applications in which its products are used minimizes the risk of
dependence on the economic conditions in any one industrial sector it serves.
BUSINESS STRATEGY
The Company's strategy is to continue to apply its expertise in rapid and
high accuracy micropositioning and precise power control of laser beams and,
with the addition of View, 2-D and 3-D image processing to the development and
manufacture of end user and OEM systems, subsystems and components for a broad
range of market applications. This strategy builds upon the Company's
strengths in technology, manufacturing and distribution.
The key elements of the Company's business strategy are as follows:
Leverage Core Technology. The Company is committed to developing new
products and enhancing existing products to address new applications and
evolving manufacturing requirements primarily by leveraging the Company's
core technologies for high accuracy micropositioning and precise power
control of lasers.
Customer Driven Product Development. The Company seeks to partner and
work closely with leading manufacturing companies in selected but diverse
areas. This approach allows the Company to incorporate customer feedback
during the design process, which expedites product development, thereby
saving development time and expenses. The Company believes that developing
a product to meet a need identified by a market leader and potential
customer decreases the risk typically associated with new product
introductions.
Broad Applications in Diverse Markets. The Company currently offers
products serving broad applications in diverse markets, including laser
systems for semiconductor manufacturing, production of automotive sensors,
manufacturing of electronic components and circuits, precision alignment of
manufactured parts, permanent product marking and film imaging. The Company
makes subsystems and components for OEM manufacturers of equipment for
detection of in-process defects and contamination, performance of medical
diagnostic and corrective procedures, confocal microscopy, film imaging,
rapid prototyping, and medical patient vital sign recording. By addressing
diverse markets, the Company seeks to increase its product sales and reduce
its reliance on any single industry or customer. In addition, the Company's
marketing strategy is to continue to develop products based on its core
technical and manufacturing competencies for markets in which it believes
it can attain a leading position in market share.
Maintain Control of Critical Production Processes. The Company's
manufacturing strategy is to identify and perform internally those
manufacturing functions which enable the Company to maintain control over
critical portions of the production process and which add value to its
products. The Company believes it achieves a number of competitive
advantages from such integration, including the ability to achieve lower
cost and higher quality, to bring new products and product enhancements
quickly and reliably to market, and to produce sophisticated component
parts not readily available from other sources.
Focus on Customers' Overall Cost of Ownership. The Company designs and
manufactures systems, subsystems and components aimed at providing its
customers with low overall cost of ownership relative to competing
solutions. The Company's laser systems are intended to assist customers in
achieving higher yields, greater productivity, more efficient use of
operator time and more economical use of manufacturing space.
Address Worldwide Markets. The Company markets, sells and supports its
products worldwide. The Company believes the strength of its international
sales and customer support organization is important to its continued
success. To facilitate its worldwide marketing strategy, the Company has
dedicated sales and
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support organizations in Japan, Hong Kong, Korea, Taiwan, Germany, England,
France and Italy in addition to the United States.
PRODUCTS AND SERVICES
Laser Systems and Components
Thin Film Resistor Processing Systems--The Company's laser systems are used
in the production of thin film resistive components used in the manufacture of
automotive semiconductor sensor circuits. These precision sensor circuits are
used to measure analog variables (such as acceleration, temperature or
pressure) and convert them into digital electrical signals in a growing range
of applications. For example, semiconductor sensors are used in safety
features in equipment such as airbags, anti-lock brakes, emissions control and
active suspension systems. The Company's M310 laser system adjusts the value
of resistors in a thin film sensor circuit by selective cuts while it is under
test, to achieve a consistent digital electrical output in response to a
reference analog input. In the case of pressure sensors, it may be necessary
to subject the sensor to a calibrating pressure during final manufacturing
steps. This additional function is provided in the Company's M310ST laser
system. The Company's thin film resistor processing systems range in price
from approximately $300,000 to $1,100,000. Representative customers include
Analog Devices, Fuji Electric, Motorola and Nippon Denso.
Thick Film Resistor Processing Systems--The Company's laser systems are used
in the production of thick film resistive components (known as chip resistors)
for surface mount ("SMT") electronic circuits. Chip resistors are
microelectronic components that replace larger axial lead resistors in
electronic circuits. Chip resistors are used in most consumer and industrial
electronic products including CD players, VCRs, TVs, camcorders, and cellular
telephones. A camcorder, for example, may contain over five hundred chip
resistors. The increasing use of these devices is being driven by the demand
for enhanced functionality, reduced size, and lower cost of consumer
electronics. SMT components meet these needs by providing reduced package size
and production set-up time, and improved reliability and delivery times. The
Company's W724C laser system is an integral part of the process for
manufacturing chip resistors. By means of selected cuts, laser systems are
used to change the effective length and cross section of the electrical
conductor of each resistor element. The resistance is monitored, and the laser
action continues until the precise resistance value is obtained. The Company
believes that the size of resistors will continue to shrink and, as a result,
manufacturers will require more precise laser systems.
The Company's W670 laser systems are used for processing more general
purpose hybrid thick film electronic circuits. These circuits are designed to
withstand harsh environmental uses, such as automotive ignition controls, fuel
sensors and high voltage regulation.
The Company's thick film resistor processing systems range in price from
approximately $200,000 to $350,000. Representative customers include Ericsson,
Kyocera, Matsushita, Samsung and Vishay.
Surface Mount Measurement Systems--The Company's surface mount measurement
products address another sector of the electronics industry, the manufacture
of printed circuit board assemblies. Customers for SMT measurement products
require systems which can be used for prototyping, near process monitoring and
in-line process control. These systems can be installed near or in the circuit
board assembly line to address these needs. In the manufacture of surface-
mount electronics, solder, in paste form, is stenciled onto the circuit board
with a screen printer, and then components are placed in their respective
positions on the board by automated equipment. Critical variables in the
manufacturing process, which the Company's systems address, include the amount
of solder deposited on the board and the accurate placement of the electronic
components.
The Model 8100 system was introduced in 1995 and represents the third
generation of equipment design. The Model 8100 uses the Company's patented
three-dimensional scanning laser data acquisition technology, and can inspect
either solder paste depositions or component placement accuracy. The current
base price for the Model 8100 system is approximately $200,000. The strongest
market segments for SMT measurement products
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have been in the computer, telecommunications and automotive industries.
Customers include IBM, Ford Motor and Motorola.
Semiconductor Measurement Systems--Semiconductor measurement products are
used by customers who manufacture electronic chips and chip packages. These
customers require fully automated, high throughput systems to inspect
electronics packages. Due to the semiconductor industry's drive toward
miniaturization, components and finished packages are becoming smaller and
more fragile. A single damaged lead, bent by a few thousandths of an inch, can
cause manufacturing defects and product failures. Accordingly, semiconductor
chip manufacturers are effectively required to inspect 100% of their chip
packages.
The Company's products perform inspection during fabrication of the chip--in
the "front end" of the manufacturing process--and perform inspection of final
assembled components--the "back end". The systems incorporate the Company's
patented three-dimensional scanning laser data acquisition technology to
provide fast, accurate measurement. The Model 890, released in early 1997,
performs front-end wafer, die and package substrate measurement for the newly
emerging high-density, matrix-based package interconnect market. The Model
880, first introduced in 1995, performs measurement of finished package leads
or bumps without removal of the devices from their carrier trays. The Model
830 inspects individual finished matrix-based devices. All of the systems are
configurable to support a variety of device and feature types. Current prices
for the base systems range from $150,000 to $275,000. Customers include Anam,
ASE (Taiwan), Intel, Micron, Samsung and Texas Instruments.
DRAM Processing Systems--Dynamic random access memory chips ("DRAMs") are
critical components in the active memory portion of computers and a broad
range of other digital electronic products. To obtain efficient yields in the
production process, each DRAM is designed with redundant circuitry. Using the
Company's M325 laser system, a semiconductor manufacturer can effectively
disconnect defective or redundant circuits in a DRAM with accurately
positioned and power modulated laser pulses. This improves the yield of usable
DRAMs per treated wafer, effectively lowering the cost per unit produced.
As the memory capacity of DRAMs increases, the feature size and spacing
between the elements of the microcircuits decrease. The computer memory
industry is presently changing from 4 megabit to 16 and 64 megabit DRAMs. The
need for higher density DRAMs in the computer industry is driven both by
memory intensive software and higher speed microprocessors. The Company offers
products which are currently being used for processing DRAMs up to 64
megabits. First-pass manufacturing yields are typically low at the start of
production of a new generation of higher capacity devices. Also, the first-
pass yields have decreased with each successive generation of DRAMs as
geometries shrink and manufacturing becomes more difficult.
DRAMs are currently produced in batches on silicon wafers typically
measuring 6" or 8" in diameter. The industry is currently planning for
production using 12" diameter wafers. The Company believes that its technology
and systems architecture will allow it to develop and introduce products to
process the new 12" wafers. The Company's M325 DRAM processing systems range
in price from approximately $500,000 to $800,000. Representative customers
include Cypress Semiconductor, IBM, Mitsubishi and Toshiba.
Permanent Marking Systems--The Company's moving spot laser marking systems
are used to apply permanent alphanumeric, graphic and bar-code identification
directly onto products and packaging materials. Laser marking systems remove
precise amounts of material from, or modify the surface of, an object being
marked by exact control of the laser beam as it moves along a prescribed path.
Such systems are gaining acceptance over a broad range of markets, replacing
older technologies such as inkjet, mechanical imprinting and ink stamping.
This change is being driven by the need for permanent marking, for marking
systems which can be interfaced with computers and environmental acceptance.
Industry has recently begun to require product traceability for years after
the date of manufacture. At present, inkjet and ink stamping do not provide
this permanence; laser marking does. Also, the laser marking process does not
involve the use of environmentally hazardous solvents.
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As an example of this application, the Company's HM1500 laser system is used
to mark integrated circuit ("IC") packages. The plastic or ceramic package
surrounding an IC must be marked without penetration of its thin wall in order
to avoid damaging the expensive circuits it protects. This process requires a
high degree of precision. Laser marking for this application is gaining
widespread usage. The Company's laser systems are also used in other
applications including the marking of automotive parts, electrical components,
tools, medical implants, as well as in the decorative marking of consumer
items. The Company's laser marking systems range in price from approximately
$50,000 to $225,000. Representative customers include Harris, Hewlett-Packard,
Motorola, SGS Thompson, Texas Instruments and Toshiba.
Precision Alignment Systems--The Company has developed a laser system which
interfaces with a computer assisted design and manufacturing ("CAD/CAM")
system to assist in the precision alignment of parts during manufacturing
assembly processes. The demand for precision alignment products is growing
with the need for increasingly tight tolerance manufacturing. The principal
use to date has been in the precision alignment of composite materials for the
aircraft industry. Composite materials are important elements in the
fabrication of critical structures for aircraft, such as jet engine cowlings,
cargo and nose wheel doors, and control surfaces. The Company's systems
project a precise image generated from existing CAD/CAM data to guide the
assembly operations personnel in the proper placement and order of layers of
composite materials. The Company's OLT3050G precision alignment system allows
aircraft manufacturers to eliminate mechanical alignment templates, minimize
costs from engineering changes, and reduce operator learning time and assembly
labor requirements. The Company is exploring the applications of these systems
in other markets. The Company's precision alignment systems sell in the range
from approximately $50,000 to $250,000. Representative customers include
Aerospatiale, Boeing, Hughes Aircraft and Northrop Grumman.
Metrology Systems--The Company's metrology products are automated, non-
contact dimensional coordinate measurement systems which provide major
electronics, telecommunications, and computer manufacturers with the ability
to perform micron accurate measurements of component parts and assemblies
produced throughout their manufacturing processes. These systems utilize
combinations of CCD video camera, image processing, and various laser sensor
technologies to acquire part measurement data. The metrology products are
primarily sold to manufacturers of disk drives, semiconductor packages,
printed circuit boards, and their associated micro-electronics components.
Current prices range from $55,000 to $150,000. Representative customers
include AMP, Parker Pen, Seagate and St. Jude Medical.
Film Imaging Systems--The application of lasers for imaging directly onto
film has progressed steadily over the past decade to the point where it has
become the technology of choice in two major markets: medical diagnostics and
graphics. Both applications demand precise micropositioning for pixel
placement and adjustable contrast range. Medical diagnostics often involve
images of the human anatomy derived from computer assisted tomography ("CT"),
magnetic resonance imaging ("MRI") or nuclear medicine systems. Such images
are usually presented on photographic film for viewing by a radiologist. The
Company's MDL laser imaging systems and its SE154, SAE and LSM subsystems are
used to produce images of adjustable gray-level contrast and high resolution
for enhanced medical diagnostic purposes. The Company's laser imaging
equipment, using these data from the CT, MRI or nuclear medicine equipment,
creates a film image by moving a laser beam across the width of the film, and
modulating it to produce the correct gray scale level for each picture
element, or pixel. When the width of the film has been scanned, the next line
is scanned in sequence. The process is continued until the entire image is
exposed. The Company's laser imaging systems and subsystems are sold to
several major producers of CT, MRI and nuclear medicine equipment and film.
The Company also sells a modified version of its SAE to write directly onto a
film plate for graphic printing. The Company's laser imaging systems and
subsystems sell in the range from approximately $1,500 to $20,000.
Representative customers include A.B. Dick, Agfa and Imation (formerly 3M).
Components--The Company develops, produces and sells optical scanners and
scanner subsystems which include optics, software and control systems. These
are used by the Company and its customers in a variety of
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applications including materials processing, test and measurement, alignment,
inspection, displays, graphics, vision, rapid prototyping, and medical
applications. The Company intends to continue to work with its customers to
develop new components and subsystems based upon its optical scanning
technology. The Company sells its scanners in a range from approximately $100
to $4,000 and its subsystems in a range from approximately $2,000 to $30,000.
Representative customers include Eastman Kodak, Lumonics, Nikon, Perceptron
and Texas Instruments.
Thermal Printing Products
The Company develops, produces and sells a variety of thermal printers which
are designed for use with defibrillators, patient care monitors, cardiac
pacemaker programmers, and other medical applications. Thermal printers are
used to provide a permanent record of a patient's condition during critical
medical care.
The Company's thermal printers generate signal traces, grids and real time
annotation on heat sensitive paper. Paper widths ranging from 48 to 216
millimeters are moved at speeds that can be remotely selected in the range
from 1 millimeter per hour to 125 millimeters per second, and have a
resolution of 8 x 32 dots per millimeter. The text and graphics are generated
by selectively and instantaneously modulating the temperature of small
(approximately 0.105 x 0.175 millimeters) elements of a print head across the
width of the chart. As the elements reach peak temperature, they create dots
on thermal sensitive paper. By repeated action under the control of an on-
board microprocessor, the desired graphic output can be produced.
The Company works closely with its OEM customers to develop and produce
thermal printers which are incorporated into its customers' products. Typical
customized features of thermal printers offered by the Company include:
package and size dimensions dictated by the customer's end products; speed and
accuracy of chart transport; print resolution; number of fonts; and number of
data channels. Medical uses for the Company's thermal printers require high
reliability, since they are often used in emergency medical equipment which
must be rugged and lightweight. The Company believes that its ability to work
rapidly and efficiently with its customers provides an important benefit to
such customers. The Company's thermal printers sell in a range from
approximately $200 to $3,000. Representative customers include Datascope,
Medtronic, Physio-Control, Spacelabs Medical and Zoll Medical.
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PRODUCT LIST
The following is an abbreviated list of General Scanning's products and
their typical market applications:
<TABLE>
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PRODUCTS MARKET APPLICATIONS
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Laser Systems
M310ST............ Automotive sensor production
M310/W678......... Processing of thin film electronic circuits
W724C............. Manufacture of thick film resistive components (chip
resistors)
W670.............. Processing of hybrid thick film electronic circuits
Model 830......... Lead/bump inspection of electronic components
Model 880......... In-tray lead/bump inspection of electronic components
Model 890......... Wafer, die and bump inspection
Model 8100........ Solder paste measurement, component placement
inspection
M325.............. DRAM and PLD fabrication
HM1500............ Integrated circuit marking
HM2000............ Permanent marking of manufactured parts
TAE............... Production of film images for both medical and
graphics applications
OLT3050G.......... Composite structures fabrication
Voyager 1000...... Benchtop metrology
Ultra 8........... Automated, non-contact 3-D measurement
Components
HPM/SPM/HPLK...... Laser processing of materials, including permanent
marking, cutting, drilling and rapid prototyping
VSH............... Semiconductor inspection
Performance of medical procedures in ophthalmology and
dermatology
Performance of biomedical measurement and analysis
Optical Scanners.. Processing of materials
Test, measurement and alignment
Ophthalmalogical and dermatalogical applications
Confocal microscopes
Projection of images on film
Inspection
Thermal Printers
AR42.............. Defibrillator vital sign recording
OMNI-100.......... Patient critical care monitoring
OMNI-200.......... Cardiac pacemaker programming
AR200FB........... Stress testing; electroencephalograph
</TABLE>
CUSTOMERS
The Company has over 1,000 customers. During 1996, no single customer
accounted for more than 7% of total sales. General Scanning's ten most
significant customers in terms of sales in 1996, listed alphabetically, were:
A.B. Dick, Analog Devices, IBM, Imation (formally 3M), Kanematsu, Maxim,
Mitsubishi, Motorola, Physio-Control and Solectron.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company believes that its marketing, sales and customer support
organizations are important to its long-term growth and give the Company the
ability to respond rapidly to the needs of its customers. The Company has
marketing managers for each major product line who have worldwide
responsibility for
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determining product strategy based on knowledge of the industry, customer
requirements and product performance. These marketing managers have direct
contact with customers and support the field sales and service personnel. The
Company believes that its business is not subject to seasonal fluctuations.
The Company sells and supports its products worldwide through its own direct
sales and customer service organization. This domestic and international sales
network is augmented by selected independent sales representatives for end-
user laser systems, due to the geographical dispersion of customers for such
products. Field offices have been located in close proximity to key customers
to help achieve short response time. In the United States, the Company
provides marketing support at its manufacturing locations in Watertown,
Somerville, Arlington and Bedford, Massachusetts and at View's facilities in
Simi Valley, California and Ann Arbor, Michigan. Additionally, field sales
personnel are located in Atlanta, Chicago, Dallas, Minneapolis and Santa
Clara. In Europe, the Company distributes its products through its direct
sales offices located in Germany, the United Kingdom, Italy and France. The
Company distributes its products in Japan through its offices in Tokyo and
Osaka. Throughout the remainder of Asia, the Company distributes through
recently opened offices in Hong Kong, Korea and Taiwan.
The Company provides customer support in the form of applications
engineering, repair services and spare parts inventory through its offices in
Massachusetts, California, France, Germany, Italy, the United Kingdom, Hong
Kong, Japan, Korea and Taiwan. Engineering and field support personnel provide
telephone support or are dispatched to customer locations. Additionally, the
Company's offices generally have certain models of the Company's laser systems
which are used for demonstration purposes and for applications engineering.
From time to time, at the request of a customer, the Company will install a
laser system at the customer's manufacturing site to establish manufacturing
process and demonstrate product performance as part of the selling process
prior to receipt of an order. The typical purchase of a laser system includes
installation, on-site customer support and applications engineering.
RESEARCH AND DEVELOPMENT
The Company devotes significant resources to development programs directed
at creating new products and product enhancements, as well as developing new
applications for existing products. All of the markets served by the Company
are characterized by rapid technological change and product innovation. The
Company believes that continued timely development of new products and product
enhancements to serve both existing and new markets is necessary to remain
competitive.
The Company maintains significant expertise in the following core
technologies:
Mechanics: design of mechanisms with high rigidity and low moving mass;
use of materials at high stress levels; techniques for precise assembly and
vibration isolation of bearings, lasers and lenses.
Optics: design of laser quality lenses with variable depth of field or
large numerical aperture; design of mirrors of high dynamic rigidity;
selection of wavelength-specific mirror and lens coatings; specification
and adjustment of lasers; and laser interaction with materials.
Magnetics: design and use of rare-earth magnets; heat treatment of
specialty magnetic alloys; design and heat dissipation of compact
electrical drive coils.
Electronics: design of wide bandwidth power amplifiers and high signal-
to-noise ratio and low thermal drift signal detection circuits; design and
manufacture of analog servo controllers with low electromagnetic
interference (EMI) circuitry.
Software: development of high-speed computing algorithms for real-time
control of servo mechanisms; handling of data transmitted according to
customer-specific protocols; design of operator friendly computer/systems
interfaces.
Systems Design: integration of mechanisms, optics, lasers, laser electro-
optics, power supplies, electronics, communications interfaces and
software.
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The Company's personnel work closely with customers, frequently at the
customers' facilities, to develop complete process solutions that often
involve new or extended application of the Company's existing products. This
close cooperation leads to new products being developed for a ready customer.
For the years ended December 31, 1996, 1995 and 1994, the Company's research
and development expenditures were approximately $18.4 million, $17.1 million
and $13.1 million, respectively. These amounts were approximately 12%, 14% and
13% of sales in the respective periods. As of December 31, 1996, the Company
had 182 people engaged in research and product development activities. Because
the Company believes that the development of new products is vital to its
continued success, the Company expects significant expenditures to continue on
research and development activities.
MANUFACTURING
The Company's manufacturing strategy is to identify and perform internally
those manufacturing functions which enable the Company to maintain control
over critical portions of the production process and which add value to its
products. The Company believes it achieves a number of competitive advantages
from such integration, including the ability to achieve lower costs and higher
quality, the ability to bring new products and product enhancements quickly
and reliably to market, and the ability to produce sophisticated component
parts not available from other sources.
The Company's manufacturing is conducted at four facilities located near
Boston, Massachusetts and in Simi Valley, California. Each of the Company's
manufacturing facilities has co-located manufacturing, manufacturing
engineering, marketing and product design personnel. The Company believes,
based on its experience, that this organizational proximity greatly
accelerates development and entry into production of new products and aids
economical manufacturing. The Company's thermal printers are manufactured
under ISO 9001 certification.
The Company has fully integrated manufacturing operations in key strategic
elements, such as state-of-the-art metals and plastics fabrication, surface
mount (SMT) printed circuit board fabrication and testing, and extensive in-
process and final product testing capabilities. The Company believes it gains
competitive advantages in its capability to produce high quality, short-run
parts and assemblies in a just-in-time environment which reduces delivery
times to customers.
Certain of the components and materials included in the Company's thermal
printers, laser systems and optical products are currently obtained from
single source suppliers. The Company currently obtains a component for one of
its laser systems products from a single source. The Company currently
maintains a six month inventory of this component and plans to increase this
over the next year. The Company has explored the possibility of producing this
component internally, and in the event of a disruption in the outside supply
of this component, the Company believes that it could commence production
internally within twelve months. The microprocessor used in the Company's
thermal printers is currently obtained from a single manufacturer, one of the
world's major producers of microprocessors. In the event of a disruption of
this supply, the Company would have to redesign its product to accommodate the
technology of an alternative microprocessor, which the Company believes would
result in an interruption in the manufacture of these products. Development
plans for 1997 include a redesign of these products to accommodate a new, more
readily available microprocessor.
The Company is subject to a variety of governmental regulations related to
the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals
used on the Company's premises. The Company believes that it is in material
compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its business. Nevertheless, current or future
regulations could require the Company to purchase expensive equipment or to
incur other substantial expenses to comply with environmental regulations. Any
failure by the Company to control the use of, or adequately restrict the
discharge or disposal of, hazardous substances could subject the Company to
future liabilities, result in fines being imposed on the Company, or result in
the suspension of production or cessation of the Company's manufacturing
operations in one or more locations.
9
<PAGE>
WORKING CAPITAL REQUIREMENTS
The Company manufactures and sells a variety of laser systems, subsystems
and components, as well as a line of thermal printers. The Company maintains
levels of inventory at various states of assembly in order to be responsive to
customers' requirements.
BACKLOG
The Company defines backlog as written purchase orders or other contractual
agreements for products for which the customer has requested delivery within
the next twelve months. Backlog was approximately $36 million on December 31,
1996 compared to $42 million on December 31, 1995.
COMPETITION
The markets for the Company's products are highly competitive. The Company
is subject to substantial competition from both established competitors and
potential new market entrants. Significant competitive factors include:
product functionality, performance, size, flexibility and cost; market
presence; customer satisfaction; customer support capabilities; and breadth of
product line. The Company believes that it competes favorably on the basis of
each of these factors.
Competition in the development, manufacture and sale of laser systems is
concentrated in certain segments and fragmented in others. To the Company's
knowledge, the automotive sensor manufacturing market in which the Company's
thin film processing systems are used has no other competitors. The markets
for the thick film hybrid circuit processing systems in which the Company
competes have several other manufacturers. The Company is aware of three
competitors in vision systems for solder paste and component placement
inspection. In systems for electronic component lead inspection, the Company
competes primarily with Robotic Vision Systems. The Company competes primarily
with Electro Scientific Industries, which has the major market share, in laser
systems for memory fabrication. The Company is aware of laser marking systems
produced by several other manufacturers which compete with the Company's laser
marking equipment. To the Company's knowledge, in the precision alignment
market for the aircraft industry, the Company has one competitor. There are
several competitors in the field of general purpose, non-contact metrology in
which the Company competes.
The Company knows of the existence of at least five other manufacturers of
subsystems for the film imaging systems and subsystems market.
In the optical scanner subsystem and components markets, the Company knows
of two other manufacturers. Additionally, there exist two alternate
technologies, rotating polygons and XY-moving tables, which compete for
certain segments of the markets served by the Company's products.
Thermal printing for the medical equipment market has fragmented
competition, mostly from vertically integrated equipment manufacturers.
The Company expects its competitors to continue to improve the design and
performance of their products. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that will offer superior price or performance features,
or that new processes or technologies will not emerge that render the
Company's products less competitive or obsolete. As a result of the
substantial investment required by a customer to integrate capital equipment
into a production line, or to integrate components and subsystems into a
product design, the Company believes that once a customer has selected certain
capital equipment, or certain components or subsystems from a particular
vendor, the customer generally relies upon that vendor to provide equipment
for the specific production line or product application and may seek to rely
upon that vendor to meet other capital equipment, or component or subsystem
requirements. Accordingly, the Company may be at a competitive disadvantage
with respect to a particular customer if that customer utilizes a competitor's
manufacturing equipment or component. Increased competitive pressure could
10
<PAGE>
lead to lower prices for the Company's products, thereby adversely affecting
the Company's business and results of operations. There can be no assurance
that the Company will be able to compete successfully in the future.
PATENTS AND INTELLECTUAL PROPERTY
The Company believes that the success of its business depends more on the
technical competence and creativity of its employees than on patents,
trademarks and copyrights. Nevertheless, the Company has a policy of seeking
patents, when appropriate, on inventions concerning new products and
improvements as part of its ongoing research, development and manufacturing
activities.
Although the Company has been granted, has filed applications for and has
been licensed under a number of patents in the United States and foreign
countries, there can be no assurance as to the degree of protection offered by
these patents or as to the likelihood that patents will be issued for pending
applications.
Competitors in the United States and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or interfere with the
Company's ability to make and sell some of its products. Although the Company
believes that its products do not infringe the patents or other proprietary
rights of third parties, there can be no assurance that other third parties
will not assert infringement claims against the Company or that such claims
will not be successful. (See Item 3. Legal Proceedings.)
The Company also relies upon trade secret protection for its confidential
and proprietary information. The Company routinely enters into confidentiality
agreements with its employees and consultants. There can be no assurance,
however, that these agreements will provide meaningful protection of the
Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information.
EMPLOYEES
As of December 31, 1996, the Company had 779 full-time employees worldwide,
including 315 in manufacturing, 207 in marketing, sales and field service, 182
in research and development, and 75 in general administration. In addition,
the Company had 39 temporary contract employees engaged principally in new
product development and manufacturing operations. The Company believes that
the use of temporary contract employees allows the Company to respond more
rapidly to fluctuations in manufacturing and product demand and enables the
Company to better control the labor component of its manufacturing costs. None
of the Company's employees is represented by a labor union and the Company has
never experienced a work stoppage or strike. The Company considers its
employee relations to be good.
11
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters is located in Watertown, Massachusetts, which is
a suburb of Boston. Additionally, the Company leases manufacturing facilities
in Somerville, Arlington and Bedford, Massachusetts, all near Boston. The
Company owns one and leases a second facility in Simi Valley, California, as
well as leases one research facility in Ann Arbor, Michigan.
The principal owned and leased properties of the Company and its
subsidiaries are listed in the table below.
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION PURPOSE SQUARE FEET LEASED
-------- ------- ----------- ------
<S> <C> <C> <C>
Watertown, MA, USA...... Marketing, sales, manufacturing, 84,000 owned
engineering, offices; corporate
headquarters
Somerville, MA, USA..... Marketing, sales, manufacturing, 47,000 leased(1)
engineering, offices
Arlington, MA, USA...... Marketing, sales, manufacturing, 30,000 leased(1)
engineering, offices
Bedford, MA, USA........ Marketing, sales, manufacturing, 50,000 leased(2)
engineering, offices
Simi Valley, CA, USA.... Marketing, sales, manufacturing, 41,000 owned
engineering
Simi Valley, CA, USA.... Manufacturing 21,000 leased(3)
Ann Arbor, MI, USA...... Marketing, sales, engineering, offices 13,000 leased(4)
</TABLE>
- --------
(1) Lease expires in 1997.
(2) Lease expires in 2003, with a 3-year renewal option.
(3) Lease expires in 1998, with two 3-year renewal options.
(4) Lease expires in 2001, with two 3-year renewal options.
Additional marketing and sales offices are located in Japan, Germany,
France, Italy, United Kingdom, Hong Kong, Korea, Taiwan and other locations in
the United States. These additional marketing and sales offices are in leased
facilities occupying approximately 20,000 square feet in the aggregate.
The Company has leases on two Massachusetts facilities expiring at the end
of 1997 and is in the process of determining whether to renew or to relocate.
The Company believes that its existing manufacturing facilities will be
adequate to meet its requirements for the foreseeable future and that suitable
additional or substitute space will be available as needed.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
View Engineering v. Robotic Vision Systems, Inc. USDC Case No. 95-1882. On
or about March 24, 1995, View filed a complaint against Robotic Vision
Systems, Inc. ("RVSI") seeking declaratory relief that (i) U.S. Patent No.
4,328,147 held by RVSI was invalid and (ii) View had not infringed this
patent. RVSI counterclaimed against View for alleged trade libel and patent
infringement seeking a declaration that RVSI's patent was valid and that View
had infringed upon one or more claims of the patent, an order that all
infringing goods be delivered to RVSI for destruction, and compensatory and
punitive damages. On April 15, 1996, View filed a motion for summary judgment
on the grounds that RVSI had not established infringement or trade libel. In
conjunction with this motion, View also brought a Rule 11 motion for
sanctions. On June 27, 1996 the court granted View a summary judgment and
granted in part, its motion for Rule 11 sanctions. The summary judgment and
the Rule 11 sanctions have been appealed. A hearing on this appeal has not yet
been held.
Robotic Vision Systems, Inc. v. View Engineering, Inc. USDC Case No. 95-
7441. On or about October 31, 1995, RVSI filed a complaint for patent
infringement against View alleging infringement of U.S. Patent No. 5,463,227
and seeking damages allegedly caused by View's infringement. RVSI's requests
for a temporary restraining order and a preliminary injunction were denied.
View has obtained a summary judgment on the first of RVSI's claims, and RVSI
has dismissed the other claims. RVSI has appealed the summary judgment with
regard to its first claim. A hearing on this appeal was held on January 9,
1997.
Robotic Vision Systems, Inc. v. View Engineering Inc. USDC Case No. 96-2288.
On or about April 1, 1996, RVSI filed a complaint for patent infringement
against View alleging infringement of U.S. Patent No. 5,465,152 and seeking
damages allegedly caused by View's infringement. View filed an answer and
counterclaim on April 22, 1996. Discovery is proceeding.
Robotic Vision Systems, Inc. v. General Scanning Inc. USDC Case No. 96-3884.
On or about August 5, 1996, RVSI filed an action claiming that the Company
improperly obtained proprietary information from RVSI for the purpose of
acquiring View and thwarting RVSI's attempts to acquire View. RVSI is seeking
compensatory and punitive damages in an unspecified amount. The Company filed
an answer on September 9, 1996. Discovery is proceeding.
Electro Scientific Industries, Inc. v. General Scanning Inc. USDC Case No.
C-96-04628. On or about December 26, 1996, Electro Scientific Industries, Inc.
("Electro Scientific") filed a complaint for patent infringement against the
Company alleging infringement of U.S. Patent Nos. 5,265,114 and 5,473,624.
Electro Scientific is seeking temporary and permanent restraining orders,
compensatory and punitive damages in an unspecified amount, and attorney's
fees, costs and disbursements. The Company has filed an answer and
counterclaim to this complaint. No discovery has commenced in this action.
The Company believes that RVSI's and Electro Scientific's claims in each of
the above actions are without merit and that the Company and View will prevail
in the litigation. However, if RVSI or Electro Scientific prevails on one or
more of its claims, there could be a material adverse effect on the Company's
business, financial condition or operating results.
The Company is routinely involved in litigation incidental to its business,
although the Company is not aware of any other pending litigation which, if
adversely determined, could materially and adversely affect its business.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the last quarter of the year ended December 31, 1996.
EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the current
executive officers of the Company and the principal occupations held by each
person named for at least the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Jean I. Montagu......... 63 Chairman of the Board and Director
Pierre J. Brosens, 63 Vice Chairman, Clerk, Treasurer and Director
Sc.D...................
Charles D. Winston...... 55 President, Chief Executive Officer and Director
Victor H. Woolley....... 54 Vice President Finance and Chief Financial Officer
Gregory S. Baletsa...... 43 Vice President and General Manager of the Recorder
Products Division
Michael R. Kampfe....... 47 Vice President and General Manager of the Optical
Scanning Products Division
Victor Sabella.......... 52 Vice President and General Manager of the
Industrial Laser Products Division
Thomas R. Swain......... 51 Vice President and General Manager of the View
Engineering Division
Joseph A. Verderber..... 58 Vice President and General Manager of the Laser
Systems Division
</TABLE>
Jean I. Montagu, a co-founder of the Company, presently serves as Chairman
of the Board of Directors and as a Director of the Company. Mr. Montagu served
as President of the Company from 1968 until 1984. Mr. Montagu received a B.S.
and an M.S. in Mechanical Engineering from the Massachusetts Institute of
Technology ("MIT").
Pierre Brosens, Sc.D., a co-founder of the Company, presently serves as Vice
Chairman of the Board of Directors. Since the Company's inception, Dr. Brosens
has served as Clerk, as Treasurer, and as a Director of the Company. Dr.
Brosens received B.S., M.S. and Sc.D. degrees from MIT. Dr. Brosens also
currently acts as a Director of Cambridge Acoustical Associates, Inc., a
privately held company.
Charles D. Winston has served as President and Chief Executive Officer of
the Company since September 1988. He has served as a Director of the Company
since 1989. Prior to joining the Company, from 1986 to 1988, Mr. Winston
served as a management consultant. In 1986, Mr. Winston was an officer of
Savin Corporation. From 1981 to 1985, he served as a Senior Vice President of
Federal Express Corporation.
Victor H. Woolley has been Vice President and Chief Financial Officer of the
Company since August 1995. From 1986 to 1995, Mr. Woolley was Vice President
and Chief Financial Officer of Sepracor Inc., a public company involved in the
manufacture of systems, medical devices and consumables for the biotechnology
and pharmaceutical industry, as well as conducting research in drug
development.
Gregory S. Baletsa joined the Company in 1985. Since 1989, he has served as
Vice President and General Manager of the Company's Recorder Products
Division.
14
<PAGE>
Michael R. Kampfe joined the Company in 1984. From 1990 through 1996, he
served as Vice President and General Manager of the Company's Laser Graphics
Division. In late 1996, the Laser Graphics Division was merged into the
Optical Scanning Products Division under Mr. Kampfe.
Victor Sabella served as Vice President and General Manager of the Company's
Optical Scanning Products Division from October 1992 through 1996. In late
1996, Mr. Sabella became General Manager of the newly-formed Industrial Laser
Products Division, a combination of the Laser Systems Division's laser marking
product line and a new initiative for this technology into expanded industrial
applications. Prior to joining the Company, from 1991 to 1992, Mr. Sabella
served as Senior Vice President of Crosscomm Corp., a communication inter-
networking firm. From 1986 to 1991, he served as the General Manager of the
Microelectronics Division at Analog Devices, Inc. Mr. Sabella is a Director of
Technical Communications Corporation.
Thomas R. Swain joined the Company in August 1996 with the acquisition of
View. Prior to the acquisition, Mr. Swain was President and Chief Executive
Officer of View. Mr. Swain originally joined View in 1984 as the Vice
President of Finance and Chief Financial Officer and was promoted to President
in 1992.
Joseph A. Verderber has served as Vice President and General Manager of the
Company's Laser Systems Division since May 1991. Before joining the Company,
Mr. Verderber served as President of Barco Graphics, Inc. from 1990 to 1991.
From 1961 to 1990, Mr. Verderber served in a number of executive positions at
AM International, Inc., including Vice President and General Manager,
VariTyper.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
General Scanning's Common Stock has been traded on the Nasdaq National
Market under the symbol GSCN since September 22, 1995. Prior to September 22,
1995 the Company's Common Stock was not publicly traded.
The following table sets forth, for the periods indicated, the high and low
prices per share of the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
1995 1996
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter................................ $15 3/4 $ 8 7/8
Second Quarter............................... $25 1/4 $12 3/4
Third Quarter................................ $13 3/4 $11 1/4 $18 1/4 $ 9 1/2
Fourth Quarter............................... $ 13 $ 8 $13 3/8 $ 8 1/2
</TABLE>
HOLDERS
On February 25, 1997, the Company had approximately 311 stockholders of
record. Since many shares of Common Stock are registered in "nominee" or
"street" name, the Company estimates that the total number of beneficial
owners approximates 2,000.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to reinvest its earnings for use in the business and does
not expect to pay cash dividends in the foreseeable future.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
Laser systems and
components............. $ 131,867 $ 103,405 $ 77,488 $ 62,994 $ 58,665
Thermal printers........ 24,666 22,915 20,624 18,821 20,155
--------- --------- -------- -------- --------
Total sales........... 156,533 126,320 98,112 81,815 78,820
--------- --------- -------- -------- --------
Gross profit:
Laser systems and
components............. 60,829 47,861 37,760 29,785 25,010
Thermal printers........ 10,851 10,061 8,533 7,614 8,097
--------- --------- -------- -------- --------
Total gross profit.... 71,680 57,922 46,293 37,399 33,107
--------- --------- -------- -------- --------
Operating expenses:
Research and product
development............ 18,400 17,106 13,090 11,208 11,637
Selling, general and
administrative......... 39,475 33,091 27,326 21,689 19,961
--------- --------- -------- -------- --------
Total operating
expenses............. 57,875 50,197 40,416 32,897 31,598
--------- --------- -------- -------- --------
Income from operations.... 13,805 7,725 5,877 4,502 1,509
Merger (expenses)......... (1,950) -- -- -- --
Interest income (expense),
net...................... 272 (682) (847) (896) (1,106)
Foreign exchange
transaction gains
(losses)................. (159) 331 636 (24) 336
--------- --------- -------- -------- --------
Income before income
taxes.................... 11,968 7,374 5,666 3,582 739
Income taxes.............. 5,367 2,803 1,868 1,291 235
--------- --------- -------- -------- --------
Net income................ $ 6,601 $ 4,571 $ 3,798 $ 2,291 $ 504
========= ========= ======== ======== ========
Net income per common and
common equivalent share
outstanding.............. $ 0.53 $ 0.44 $ 0.42 $ 0.26 $ 0.06
========= ========= ======== ======== ========
Weighted average common
and common equivalent
shares outstanding....... 12,476 10,357 9,099 8,863 8,909
========= ========= ======== ======== ========
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $ 57,680 $ 52,396 $ 20,275 $ 19,725 $ 16,326
Total assets.............. 95,573 89,708 49,859 47,732 44,149
Long-term obligations..... 3,442 3,102 2,961 6,980 8,216
Stockholders' equity...... 68,289 59,754 27,111 23,216 20,737
</TABLE>
In 1996 the Company acquired View Engineering, Inc. (View) by issuing
1,437,060 shares of General Scanning Inc. common stock in exchange for all of
View's outstanding shares of capital stock, accrued preferred dividends and
the net value of warrants and options. The transaction has been accounted for
as a pooling of interests for accounting purposes and, accordingly, the
financial statements have been retroactively restated to include the accounts
of View for all periods presented.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
General Scanning is a leading manufacturer of laser systems and components
and thermal printers. In 1996, 1995 and 1994, approximately 84%, 82% and 79%,
respectively, of the Company's revenues were derived from sales of laser
systems and components and the balance was derived from sales of thermal
printers. Sales of laser systems and components in 1996 and in 1995 grew
approximately 28% and 33%, respectively, over sales for this segment in the
comparable prior periods. Thermal printers sales in 1996 and in 1995 increased
approximately 8% and 11%, respectively, over the comparable prior periods.
In August 1996, the Company acquired View Engineering, Inc. ("View") by
issuing 1,437,060 shares of General Scanning Common Stock. The transaction was
recorded as a pooling of interests for accounting purposes. Accordingly, the
consolidated financial statements have been retroactively restated to include
the accounts of View for all periods presented. View employs laser image
processing technology to serve applications requiring precision inspection,
measurement and process control in several industries.
The Company sells its laser systems primarily to manufacturers of products
containing advanced electronic components and circuitry. In addition, the
Company produces a line of laser subsystems and components which are used in
the Company's own systems, as well as sold to other manufacturers of laser
systems. The Company's laser systems sales have been, and are expected to
continue to be, dependent upon its customers' capital expenditures which are
in turn affected by cycles in the markets served by those customers. The
Company's strategy is to expand applications for its products into different
and varied markets in order to limit its dependency on any one market; but it
may not always be successful in doing so.
The Company also sells thermal printers to manufacturers of medical
equipment for patient care monitoring. This segment of the Company's business
has not experienced significant cyclicality in the past.
Product prices have remained relatively stable during the periods covered by
this discussion, and price fluctuations did not have a material effect on
reported gross profit. A significant portion of sales are made in foreign
currencies. Fluctuations in currency exchange rates, particularly in the yen
and Deutsche mark as compared to the U.S. dollar, can impact the Company's
sales and expenses, which are reported in U.S. dollars. The Company estimates
that the $30.2 million increase in sales in 1996 over 1995 would have been
approximately 10% higher were it not for a stronger U.S. dollar in 1996 as
compared to 1995. Conversely, the $28.2 million increase in sales in 1995 over
1994 would have been approximately 13% lower were it not for a weaker U.S.
dollar in 1995 as compared to 1994.
In September 1995, General Scanning raised a net $27.7 million through its
initial public offering of 2,585,000 shares of Common Stock including over-
allotments.
18
<PAGE>
The following table sets forth, for the periods indicated, the percentage of
net sales represented by each item reflected in the Company's statement of
operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net sales:
Laser systems and components.......................... 84.2% 81.9% 79.0%
Thermal printers...................................... 15.8 18.1 21.0
------ ------ ------
Total sales......................................... 100.0 100.0 100.0
------ ------ ------
Cost of sales:
Laser systems and components.......................... 53.9 53.7 51.3
Thermal printers...................................... 56.0 56.1 58.6
------ ------ ------
Total cost of sales................................. 54.2 54.2 52.8
------ ------ ------
Gross profit:
Laser systems and components.......................... 46.1 46.3 48.7
Thermal printers...................................... 44.0 43.9 41.4
------ ------ ------
Total gross profit.................................. 45.8 45.8 47.2
------ ------ ------
Operating expenses:
Research and product development...................... 11.8 13.5 13.3
Selling, general and administrative................... 25.2 26.2 27.9
------ ------ ------
Total operating expenses............................ 37.0 39.7 41.2
------ ------ ------
Income from operations.................................. 8.8 6.1 6.0
Merger (expenses)....................................... (1.2) -- --
Interest income (expense), net.......................... 0.1 (0.5) (0.8)
Foreign exchange transaction gains (losses)............. (0.1) 0.2 0.6
------ ------ ------
Income before income taxes.............................. 7.6 5.8 5.8
Income taxes............................................ 3.4 2.2 1.9
------ ------ ------
Net income.............................................. 4.2% 3.6% 3.9%
====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
Sales. Total sales increased to $156.5 million in 1996 from $126.3 million
in 1995 and $98.1 million in 1994. Sales of laser systems and components
increased due to increased unit volumes of end-user systems and OEM laser
systems for film imaging. The increase primarily reflects growth in demand for
the Company's products used in the semiconductor production, electronics
manufacturing, and materials processing industries. The increases in the sales
of thermal printers in both 1995 and 1994 were due, in part, to increased unit
volume to satisfy the requirements of a current customer's introduction of new
products. International sales, as a percentage of total sales, decreased to
41% in 1996 from 47% in 1995 as compared with 38% in 1994.
Gross Profit. Total gross profit was $71.7 million, or 45.8% of sales, in
1996, $57.9 million, or 45.8%, in 1995, and $46.3 million, or 47.2%, in 1994.
Gross profit as a percentage of sales remained unchanged from 1995 to 1996.
Laser systems and components gross profit as a percentage of sales was 46.1%,
46.3% and 48.7% for the years 1996, 1995 and 1994, respectively. Thermal
printers gross profit as a percentage of sales was 44.0% in 1996, 43.9% in
1995 and 41.4% in 1994.
Research and Product Development. Research and product development expenses
increased 8% to $18.4 million in 1996 from $17.1 million in 1995 and $13.1
million in 1994. This increase in research and product development expenses
was primarily due to the addition of personnel to support the development of
new laser systems and components. Research and product development expenses as
a percentage of sales have ranged
19
<PAGE>
between approximately 12% to 13% over the past three years. Because the
development of new products is vital to its continued success, the Company
expects to maintain similar levels of research and development expenses as a
percentage of sales over the long term.
Selling, General and Administrative. Selling, general and administrative
expenses were $39.5 million in 1996, $33.1 million in 1995 and $27.3 million
in 1994. This increase in selling, general and administrative expenses was
primarily due to the addition of sales and marketing personnel and related
costs incurred in supporting increased sales. In 1996, selling, general and
administrative expenses decreased as a percentage of sales due to such
expenses growing more slowly than revenues.
Interest. Net interest income was $271 thousand in 1996 compared to net
expense of $682 thousand in 1995 and $847 thousand in 1994. These changes
primarily reflect interest earned on cash raised in the Company's initial
public offering in September 1995.
Foreign Exchange. Foreign exchange transactions resulted in a loss of $159
thousand in 1996 compared to gains of $331 thousand in 1995 and $636 thousand
in 1994. The loss in 1996 was due primarily to weakening of the yen and
deutsche mark at a time when the Company's net receivables denominated in
these currencies were not fully hedged.
Income Tax. The effective income tax rate was 45% in 1996, 38% in 1995 and
33% in 1994. The high 1996 rate was the result of (i) a portion of merger
expenses not being tax deductible and (ii) losses incurred at View prior to
the effective date of the merger that could not be used to offset General
Scanning's profit for tax purposes. The 1995 rate reflects increased profits
in the Company's foreign operations, where tax rates are generally higher than
in the United States. In 1994, the income taxes in the Company's foreign
subsidiaries in Japan and Germany were reduced by net operating loss
carryforwards. The Company has provided a valuation allowance against View's
net operating loss carryforwards and tax credits due to the uncertainty of
their realizability as a result of limitations on their utilization in
accordance with certain tax laws and regulations.
Net Income. Net income after tax was $6.6 million in 1996, $4.6 million in
1995 and $3.8 million in 1994. The increase in net income in 1996, despite an
increase in the effective tax rate, was primarily due to increased sales and a
leveraging over operating expenses which grew at a lower rate than did the
increase in sales.
Summary. The Company has experienced, and may continue to experience,
fluctuations in operating results due to a variety of factors, including: the
rate of growth of the markets for laser systems and components and thermal
printers; market acceptance of the Company's products and those of its
competitors; development and promotional expenses relating to the introduction
of new products or new versions of existing products; changes in pricing
policies by the Company and its competitors; the timing of the receipt of
orders from major customers; and timing of shipments. The Company's expense
levels are based, in part, on its expectations as to future sales and, as a
result, operating results would be disproportionately affected by a reduction
in sales or a failure to meet the Company's sales expectations. The Company
believes that its business is not subject to seasonal fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $17.7 million on December 31, 1996
compared to $25.7 million on December 31, 1995. During 1996, $1.7 million was
used in operating activities and $6.9 million was used in capital additions.
Historically, cash requirements have been satisfied by cash flows from
operating activities, supplemented by bank loans. In the Fall of 1995, the
Company raised a net $27.7 million through its initial public offering of
2,585,000 shares of Common Stock, inclusive of 335,000 shares exercised by the
underwriters to cover over-allotments.
20
<PAGE>
A net $1.7 million was used in operating activities during 1996. Net income
of $6.6 million, supplemented by non-cash charges for depreciation, deferred
compensation and deferred income taxes totaling approximately $2.9 million
were offset by increases in current assets, principally accounts receivable
and inventory, of $10.6 million to support expanded business activity and a
reduction in payables of about $600 thousand.
Capital expenditures were $6.9 million for 1996. These expenditures were
primarily for the purposes of adding manufacturing capacity, providing
equipment for operating efficiencies within the Company's existing facilities
and the acquisition and initial installation of a new company-wide information
system platform. The Company began to occupy newly leased 50,000 square feet
of additional manufacturing, research and office space during the first half
of 1996.
The Company's bank credit agreement provides for a maximum $10 million
revolving credit facility and $4 million in international credit lines. At
December 31, 1996, $3.0 million was outstanding under this agreement.
Borrowings under the $10 million revolving credit facility bear interest at
the London InterBank Offered Rate (LIBOR) plus one and one-half percent or
prime, determined at time of borrowing. Borrowings under the international
credit lines up to a maximum of $4 million accrue interest at a negotiated
rate approximating the country prime rate. The agreement requires compliance
with certain financial ratios.
In 1996, the Company acquired View for 1,437,060 shares of Common Stock in a
transaction which was accounted for as a pooling of interests.
The Company believes that its existing cash, together with cash generated
from future operations and its existing bank line of credit, will be
sufficient to satisfy anticipated cash needs to fund working capital and
investments in manufacturing facilities and equipment for its existing
businesses over the next two years. The Company may, from time to time, as
market and business conditions warrant, invest in or acquire complementary
businesses, products or technologies. The Company may require additional
equity or debt financings to fund such activities, which could result in
additional dilution to the Company's shareholders.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL SCANNING INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994........................................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995............. F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994........................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Supplementary Financial Information (Quarterly Financial Information for
1996 and 1995, unaudited)............................................... F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of General Scanning Inc.:
We have audited the accompanying consolidated balance sheets of General
Scanning Inc. (a Massachusetts corporation) and subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of General Scanning Inc. and
subsidiaries as of December 31, 1996 and 1995 and the 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.
Arthur Andersen LLP
Boston, Massachusetts
February 3, 1997
F-2
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales:
Laser systems and components.......... $131,867 $103,405 $77,488
Thermal printers...................... 24,666 22,915 20,624
----------- ----------- ----------
Total sales......................... 156,533 126,320 98,112
----------- ----------- ----------
Cost of sales:
Laser systems and components.......... 71,038 55,544 39,728
Thermal printers...................... 13,815 12,854 12,091
----------- ----------- ----------
Total cost of sales................. 84,853 68,398 51,819
----------- ----------- ----------
Gross profit:
Laser systems and components.......... 60,829 47,861 37,760
Thermal printers...................... 10,851 10,061 8,533
----------- ----------- ----------
Total gross profit.................. 71,680 57,922 46,293
----------- ----------- ----------
Operating expenses:
Research and product development...... 18,400 17,106 13,090
Selling, general and administrative... 39,475 33,091 27,326
----------- ----------- ----------
Total operating expenses............ 57,875 50,197 40,416
----------- ----------- ----------
Income from operations.................. 13,805 7,725 5,877
Merger (expenses)....................... (1,950) -- --
Interest income (expense), net.......... 272 (682) (847)
Foreign exchange transaction gains
(losses)............................... (159) 331 636
----------- ----------- ----------
Income before income taxes.............. 11,968 7,374 5,666
Income taxes............................ 5,367 2,803 1,868
----------- ----------- ----------
Net income.............................. $ 6,601 $ 4,571 $ 3,798
=========== =========== ==========
Net income per common and common
equivalent share outstanding........... $ 0.53 $ 0.44 $ 0.42
=========== =========== ==========
Weighted average common and common
equivalent shares outstanding.......... 12,476,237 10,357,287 9,099,474
=========== =========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1996 1995
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 17,655 $ 25,695
Accounts receivable, less allowance of $867 in 1996 and
$792 in 1995.......................................... 32,213 23,552
Inventories............................................ 26,051 25,087
Deferred income taxes.................................. 4,022 3,376
Other current assets................................... 1,581 1,538
--------- ---------
Total current assets................................. 81,522 79,248
--------- ---------
Property, plant and equipment, net....................... 12,922 9,191
Other assets............................................. 428 484
Intangible assets, net of amortization of $1,753 in 1996
and $1,669 in 1995...................................... 701 785
--------- ---------
$ 95,573 $ 89,708
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and current portion of long-term
debt.................................................. $ 3,030 $ 4,475
Other notes payable.................................... -- 700
Accounts payable....................................... 7,025 8,084
Accrued expenses....................................... 13,787 13,593
--------- ---------
Total current liabilities............................ 23,842 26,852
--------- ---------
Long-term debt due after one year........................ 1,549 1,556
Deferred compensation.................................... 1,893 1,546
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares; issued and outstanding--none.................. -- --
Common stock, $.01 par value; authorized 15,000,000
shares; issued 12,245,655 in 1996 and 11,967,845 in
1995.................................................. 122 119
Additional paid-in capital............................. 43,657 41,587
Retained earnings...................................... 25,685 19,084
Cumulative translation adjustment...................... (587) (448)
Treasury stock, at cost; 365,995 shares in 1996 and
1995.................................................. (588) (588)
--------- ---------
Total stockholders' equity............................. 68,289 59,754
--------- ---------
$ 95,573 $ 89,708
========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------ ----------------
$.01 ADDITIONAL CUMULATIVE
PAR PAID-IN RETAINED TRANSLATION
SHARES VALUE CAPITAL EARNINGS ADJUSTMENT SHARES COST
------ ----- ---------- -------- ----------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993, as previously
reported............... 7,671 $ 77 $ 1,888 $12,486 $(147) (328) $ (482)
Adjustments for View
Engineering, Inc.
pooling of interests... 1,437 14 11,151 (1,771) -- -- --
------ ---- ------- ------- ----- ------ -------
Balance, December 31,
1993, as restated...... 9,108 91 13,039 10,715 (147) (328) (482)
Net income.............. -- -- -- 3,798 -- -- --
Stock option and warrant
exercises, including
tax effects............ 120 1 247 -- -- -- --
Purchase of treasury
stock.................. -- -- -- -- -- (38) (106)
Cumulative translation
adjustment............. -- -- -- -- (45) -- --
------ ---- ------- ------- ----- ------ -------
Balance, December 31,
1994................... 9,228 92 13,286 14,513 (192) (366) (588)
Net income.............. -- -- -- 4,571 -- -- --
Issuance of common
stock.................. 2,585 26 27,714 -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 155 1 587 -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (256) -- --
------ ---- ------- ------- ----- ------ -------
Balance, December 31,
1995................... 11,968 119 41,587 19,084 (448) (366) (588)
Net income.............. -- -- -- 6,601 -- -- --
Stock option and warrant
exercises, including
tax effects............ 278 3 2,070 -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (139) -- --
------ ---- ------- ------- ----- ------ -------
Balance, December 31,
1996................... 12,246 $122 $43,657 $25,685 $(587) (366) $ (588)
====== ==== ======= ======= ===== ====== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 6,601 $ 4,571 $ 3,798
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization.................. 3,180 1,984 2,410
Deferred compensation.......................... 347 319 93
Deferred income taxes.......................... (646) (460) (489)
Changes in current assets and liabilities--
Accounts receivable............................ (9,444) (4,194) (1,722)
Inventories.................................... (1,119) (9,104) (1,263)
Other current assets........................... 2 (1,111) 196
Accounts payable and accrued expenses.......... (592) 4,520 4,132
-------- -------- -------
Net cash provided by (used in) operating
activities...................................... (1,671) (3,475) 7,155
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment,
net............................................. (6,902) (2,596) (1,765)
Decrease (increase) in other assets.............. 15 (67) 117
-------- -------- -------
Net cash (used in) investing activities.......... (6,887) (2,663) (1,648)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) on notes payable to banks
and others...................................... (1,934) 2,464 (2,233)
Net proceeds (payments) on long-term debt........ (7) (178) (4,112)
Net proceeds from issuance of common stock....... -- 27,740 --
Stock option and warrant exercises, net of tax
effects......................................... 2,073 588 248
Purchase of treasury stock....................... -- -- (106)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 132 30,614 (6,203)
-------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents..................................... 386 (143) (480)
-------- -------- -------
Increase (decrease) in cash and cash
equivalents..................................... (8,040) 24,333 (1,176)
Cash and cash equivalents, beginning of period... 25,695 1,362 2,538
-------- -------- -------
Cash and cash equivalents, end of period......... $ 17,655 $ 25,695 $ 1,362
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest....................................... $ 862 $ 1,064 $ 908
======== ======== =======
Income taxes................................... $ 4,834 $ 2,540 $ 1,973
======== ======== =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
General Scanning Inc. develops, manufactures and sells its products on a
worldwide basis through two industry segments: laser systems and components;
and thermal printers. The laser systems and components segment provides
products for a variety of industrial applications that require high-speed
micropositioning and precise power control of lasers. The thermal printer
segment provides a line of thermal printers, primarily for the medical
industry.
Basis of presentation
The consolidated financial statements include the accounts of General
Scanning Inc. and its wholly-owned subsidiaries (the Company). Significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company's 50% joint venture in the United Kingdom, which had been
accounted for by the equity method, was fully acquired on December 31, 1995 in
a purchase transaction. The acquisition was not material to the Company's
operations.
In August 1996, the Company acquired View Engineering, Inc. (View), a
California company, by issuing 1,437,060 shares of General Scanning Inc.
common stock (after giving effect to certain adjustments at the closing) in
exchange for all of View's outstanding shares of capital stock, accrued
preferred dividends and the net value of warrants and options. View uses laser
image processing technology to serve applications requiring precision
inspection, measurement and process control. The transaction has been
accounted for as a pooling of interests for accounting purposes and,
accordingly, the accompanying consolidated financial statements have been
retroactively restated to include the accounts of View for all periods
presented. Merger expenses include primarily brokers' fees and legal and
accounting costs. The following is a reconciliation of certain restated
amounts with amounts previously reported.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
---------------------
1995 1994
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Sales:
General Scanning Inc. ........................... $ 101,819 $ 76,214
View Engineering, Inc. .......................... 24,501 21,898
---------- ---------
As restated.................................... $ 126,320 $ 98,112
========== =========
Net income:
General Scanning Inc. ........................... $ 6,009 $ 3,694
View Engineering, Inc. .......................... (1,438) 104
---------- ---------
As restated.................................... $ 4,571 $ 3,798
========== =========
Net income per share:
General Scanning Inc. ........................... $ 0.67 $ 0.48
View Engineering, Inc. .......................... (0.23) (0.06)
---------- ---------
As restated.................................... $ 0.44 $ 0.42
========== =========
</TABLE>
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
F-7
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
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.
Risks and uncertainties
The Company has experienced, and may continue to experience, fluctuations in
operating results due to a variety of factors, including: the rate of growth
of the markets for laser systems and components and thermal printers; market
acceptance of the Company's products and those of its competitors; development
and promotional expenses relating to the introductions of new products or new
versions of existing products; changes in pricing policies by the Company and
its competitors; the timing of the receipt of orders from major customers; and
timing of shipments.
The microprocessor used in the Company's thermal printers is currently
obtained from a single manufacturer, one of the world's major producers of
microprocessors. In the event of a disruption of this supply, the Company
would have to redesign its product to accommodate the technology of an
alternative microprocessor, which the Company believes would result in an
interruption in the manufacture of these products.
Fiscal year
The Company's fiscal year ends on December 31. For interim reporting
purposes, the Company closes its books on the Saturday closest to each
quarter-end. Each of the quarters in the years 1996, 1995 and 1994 included 13
weeks.
Cash and cash equivalents
Cash and cash equivalents include cash in banks and highly liquid
investments having original maturity dates not exceeding three months. The
investments are stated at cost, which approximates their fair value. The
Company does not believe it is exposed to any significant credit risk on its
cash and cash equivalents.
Inventories
Inventories, which include materials and conversion costs, are stated at the
lower of cost (primarily first-in, first-out) or market. Inventories consist
of the following:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Purchased parts......................................... $12,572 $11,163
Work-in-process......................................... 5,341 6,648
Finished goods.......................................... 8,138 7,276
------- -------
Total inventory....................................... $26,051 $25,087
======= =======
</TABLE>
Depreciation and amortization
Depreciation and amortization are determined by the straight-line and
declining-balance methods over the estimated useful lives of the owned assets.
Estimated useful lives for buildings and improvements range from 5 to 31 years
and for machinery and equipment from 3 to 15 years. Leasehold improvements are
amortized over the lesser of their useful lives or the lease term, including
option periods expected to be utilized.
F-8
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Foreign currency
Assets and liabilities of foreign operations are translated from foreign
currencies into U.S. dollars at the exchange rates in effect at the period-
end. Revenues and expenses are translated at the average exchange rate in
effect for the period. The resulting translation adjustments are recorded as a
component of stockholders' equity.
Foreign exchange forward contracts and local currency borrowings are used to
reduce the impact of certain foreign currency balance sheet fluctuations.
Gains and losses from the forward contracts that are not hedges of firm
commitments are accrued at each balance sheet date and included in the
Consolidated Statements of Income as foreign exchange transaction gains
(losses). At December 31, 1996, the Company had such contracts to exchange
foreign currencies (yen and Deutsche marks) for U.S. dollars totaling
$3,000,000 maturing through April 1997.
In certain circumstances, the Company enters into foreign exchange forward
contracts to reduce the impact of foreign currency fluctuations arising from
foreign currency denominated customer sales. Gains and losses on these
contracts are deferred until the contract matures. At December 31, 1996 and
1995 there were no such contracts.
To the extent the Company utilizes foreign exchange forward contracts, it
purchases them from major financial institutions for terms that have not
exceeded six months.
Net income per share of common stock
Net income per common and common equivalent share is computed using the
weighted number of common shares and dilutive common equivalent shares
outstanding during each period. Dilutive common equivalent shares, consisting
of outstanding stock options and warrants, are determined using the treasury
stock method. Fully diluted net income per common and common equivalent share
has not been presented as it is not materially different from primary net
income per common and common equivalent share or is antidilutive.
Revenue recognition
The Company recognizes product revenues generally at the later of the time
of shipment or when substantially all terms and conditions of the sale have
been met. The Company provides for estimated warranty costs at the time of
revenue recognition.
Research and product development expense
Expenditures for research and development of products and manufacturing
processes are charged to expense as incurred.
Interest
Interest income in 1996 is net of $845,000 of interest expense, and interest
expense in 1995 is net of $373,000 of interest income.
Income tax
The Company does not provide United States federal income taxes on
undistributed earnings of consolidated foreign subsidiaries as such earnings
are deemed to be permanently reinvested in non-U.S. operations.
F-9
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Impairment of long-lived assets
The Company periodically assesses the realizability of its long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. Based on its review, the Company does not believe that any
material impairment of its long-lived assets has occurred.
2. INTANGIBLE ASSETS
In connection with the acquisition of the minority interest in Teradyne
Laser Systems, Inc. in 1991, the Company allocated the excess purchase price
over the fair market value of the assets acquired to intangible assets. These
intangible assets, which include noncompete agreements, patents and goodwill,
are being amortized over their estimated useful lives of from 3 to 15 years.
Amortization expense was $84,000 in 1996 and 1995 and $366,000 in 1994.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cost:
Land, buildings and improvements...................... $ 10,936 $ 10,283
Machinery and equipment............................... 26,271 22,655
-------- --------
Total cost.......................................... 37,207 32,938
Accumulated depreciation.............................. (24,285) (23,747)
-------- --------
Net property, plant and equipment................... $ 12,922 $ 9,191
======== ========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and benefits....................... $ 6,701 $ 6,255
Income taxes............................................ 3,893 3,499
Other................................................... 3,193 3,839
------- -------
Total accrued expenses................................ $13,787 $13,593
======= =======
</TABLE>
5. DEBT
Notes payable to banks and current portion of long-term debt
Notes payable to banks and current portion of long-term debt consists of the
following:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit agreements............................. -- $4,460
Lines of credit......................................... 3,013 --
Current portion of long-term debt....................... 17 15
------ ------
Total................................................. $3,030 $4,475
====== ======
</TABLE>
F-10
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The currently effective revolving credit agreement, which expires on
December 31, 1998, provides for borrowings up to $10,000,000. Borrowings bear
interest at the London InterBank Offered Rate (LIBOR) plus one and one-half
percent or prime, determined at the time of borrowing. A commitment fee of
3/8% per annum is paid quarterly in arrears on the unused portion. Among other
restrictions, the agreement requires a minimum level of tangible net worth and
compliance with certain financial ratios.
Bank lines of credit are provided to the Company's foreign operations with a
maximum availability of $4,000,000. Such debt outstanding at December 31, 1996
was denominated in yen with an interest rate of 1.9%.
Other notes payable
Other notes payable of $700,000 at December 31, 1995 were issued by View
Engineering, Inc. during 1995 with detachable warrants. The notes earned
interest at 10% per annum. All exercisable warrants were converted into common
shares of View Engineering, Inc. prior to or coincident with the merger of
View Engineering, Inc. with General Scanning Inc. The notes have been repaid
and no warrants remain outstanding.
Long-term debt
Long-term debt consists of a mortgage payable at 10.4% interest,
collateralized by certain land and building. Interest and principal are
payable at $14,906 per month until maturity in February 2000, at which time
the remaining principal of $1,507,516 will be payable. The portion of
principal payable within one year, which is included in current liabilities,
is $17,000.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of the year-end fair value
of significant financial instruments, including debt. The Company believes,
based upon current terms, that the carrying value of its debt approximated its
fair value.
6. DEFERRED COMPENSATION
Officers and certain employees may defer payment of their compensation until
termination of employment or later. Interest on the outstanding balance is
credited quarterly at the prime rate.
7. STOCKHOLDERS' EQUITY
Recapitalization
In August 1995, the Company's stockholders voted to amend its Articles of
Organization to change the par value of the Company's common stock from $1.00
to $.01. Subsequently, the Board of Directors authorized a 5-for-1 stock
split, effected as a dividend, of the Company's common stock. All share and
per share amounts of common stock for all periods presented have been
retroactively adjusted to reflect the change in par value and the stock split.
Preferred stock
In August 1995, the stockholders approved an amendment to the Articles of
Organization which authorizes 1,000,000 shares of preferred stock, $.01 par
value. The preferred stock is divisible and issuable into one or more series.
The rights and preferences of the different series may be established by the
Board of Directors without further action by the stockholders. The Board of
Directors is authorized, with respect to each series, to fix and
F-11
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
determine, among other things, (i) the dividend rate, (ii) the liquidation
preference, (iii) whether such shares will be convertible into, or
exchangeable for, any other securities and (iv) whether such shares will have
voting rights and, if so, the conditions under which such shares will vote as
a separate class.
Stock options
The 1992 Stock Option Plan, as amended in August 1995, provides for the
issuance of nonqualified and incentive stock options to purchase up to
1,000,000 shares of the Company's common stock, of which 450,546 were
available for future grant at December 31, 1996. Under this plan, options are
granted at the fair value per share as determined by the Board of Directors at
the date of grant. Outstanding options vest over periods of three or four
years beginning on the date of grant and expire ten years from the date of
grant. The Company's 1981 Stock Option Plan has terminated; however, options
to purchase 555,860 shares of common stock were outstanding under this Plan at
December 31, 1996.
During 1995, the Financial Accounting Standards Board issued SFAS 123, which
defines a fair value based method of accounting for an employee stock option
or similar equity instrument and encourages all entities to adopt that method
of accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation costs for those
plans using the method of accounting prescribed by APB 25. Entities electing
to remain with the accounting in APB 25 must make pro forma disclosures of net
income and, if presented, earnings per share as if the fair value based method
of accounting defined in the Statement had been applied.
The Company has elected to account for its stock-based compensation plans
under APB 25, under which immaterial amounts of compensation have been
recognized. Had compensation cost for these plans been determined consistent
with FASB Statement No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts below. Because the Statement
123 method of accounting has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation costs may not be
representative of that to be expected in future years.
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C> <C>
Net income (thousands): As reported $6,601 $4,571
Pro forma $6,354 $4,483
Earnings per share: As reported $ 0.53 $ 0.44
Pro forma $ 0.51 $ 0.43
</TABLE>
F-12
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Stock option activity for the years ended December 31, 1994, 1995 and 1996
is presented below. The weighted average fair value of options granted in 1996
is $4.47.
<TABLE>
<CAPTION>
WTD. AVG.
OPTIONS EX. PRICE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1993........................ 1,149,060 $2.33
Granted................................................. 127,640 2.85
Exercised............................................... (119,355) 2.28
Canceled................................................ (36,685) 2.62
--------- -----
Outstanding at December 31, 1994........................ 1,120,660 2.38
Granted................................................. 116,064 6.30
Exercised............................................... (155,000) 2.29
Canceled................................................ (750) 2.36
--------- -----
Outstanding at December 31, 1995........................ 1,080,974 2.81
Granted................................................. 166,250 14.33
Exercised............................................... (212,810) 2.32
Canceled................................................ (6,250) 7.65
--------- -----
Outstanding at December 31, 1996........................ 1,028,164 $4.75
========= =====
Exercisable at December 31, 1996........................ 768,059 $3.08
========= =====
</TABLE>
Additional information regarding the options outstanding at December 31,
1996 follows:
<TABLE>
<CAPTION>
RANGE OF NO. OF WTD. AVG. WTD. AVG. NO. WTD. AVG.
EXERCISE PRICES OPTIONS EXERCISE PRICE REMAINING LIFE EXERCISABLE EXERCISE PRICE
--------------- ------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.75-
$2.36 581,660 $ 2.28 3.3 years 551,760 $ 2.28
$2.50-
$12.09 302,754 $ 4.62 7.0 years 187,549 $ 3.63
$15.00-
$15.00 143,750 $15.00 9.7 years 28,750 $15.00
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for the 1995 and 1996 grants: risk-free interest rate of
6.3%, expected dividend yield of zero, expected lives of 4 years upon vesting
and expected volatility of approximately 50%.
Warrants
The Company has issued warrants for the purchase of common stock to the
nonemployee members of the Board of Directors. Warrants issued through 1995
vested over periods of three or four years, beginning on the date of grant,
and expire ten years from the date of grant. No such warrants were granted,
exercised or canceled in 1994 or 1995. In 1996, 65,000 of such warrants were
exercised at prices ranging from $1.75 to $2.50 per share, and at December 31,
1996, 55,000 of such warrants, all of which are exercisable, remain
outstanding at exercise prices ranging from $1.75 to $2.50 per share.
During 1995, the stockholders adopted the 1995 Directors' Warrant Plan and
reserved 100,000 shares for future issuance of warrants to nonemployee
Directors under the Plan. The exercise price of such warrants is the fair
market value per share as determined by a committee of the Board of Directors
at the date of grant. The warrants are subject to vesting as determined by
such committee and expire ten years from the date of grant. In 1996, 8,000
such warrants were granted at an exercise price of $20.75 per share and all of
such warrants are exercisable at December 31, 1996.
F-13
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
8. BENEFIT PLANS
Employee Stock Ownership Plan
Under the Employee Stock Ownership Plan (ESOP) established in 1989, Company
contributions were in the form of cash or common stock and were allocated to
eligible employees based on their relative compensation. The ESOP was
terminated effective December 31, 1995 and the plan assets have been
distributed to plan participants. Company contributions to the ESOP were
$367,000 in 1995 and $307,000 in 1994.
Defined contribution plans
The Company has employee savings defined contribution plans under the
provisions of Section 401(k) of the Internal Revenue Code under which
contributions may be made by its domestic employees. The Company matches the
contributions of participating employees on the basis of the percentages
specified in the respective plans. Company matching contributions to the plans
were $1,080,000, $488,000 and $363,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
9. INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using the currently enacted tax rates.
The components of income before income taxes for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
---------------------
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
United States....................................... $10,348 $5,245 $3,221
Foreign............................................. 1,620 2,129 2,445
------- ------ ------
Total............................................. $11,968 $7,374 $5,666
======= ====== ======
</TABLE>
The provision for income taxes for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
----------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal and State................................. $5,209 $2,200 $ 933
Foreign........................................... 804 1,292 938
------ ------ ------
Total current................................... 6,013 3,492 1,871
Deferred.......................................... (646) (689) (3)
------ ------ ------
Total........................................... $5,367 $2,803 $1,868
====== ====== ======
</TABLE>
F-14
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The income tax provision for the years ended December 31 is different from
that which would be computed by applying the U.S. federal income tax rate to
income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
------------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal statutory tax rate.............. 34.0% 34.0% 34.0%
State income taxes, net...................... 3.9% 3.9% 2.5%
Foreign sales corporation.................... (3.0)% (4.1)% (3.0)%
Other taxes provided......................... 2.0% 6.2% 4.2%
Research and development credits............. (3.3)% (6.6)% (6.3)%
Effect of foreign losses utilized or not ben-
efited and of foreign tax rate differen-
tial........................................ 2.1% 1.0% 2.0%
View Engineering merger expenses not deduct-
ible for tax purposes....................... 4.0% -- --
Valuation allowance for View Engineering pre-
acquisition losses.......................... 6.8% -- --
Other, net................................... (1.7)% 3.6% (0.4)%
------ ------ ------
Effective tax rate......................... 44.8% 38.0% 33.0%
====== ====== ======
</TABLE>
Significant components of deferred income tax assets as of December 31 are
as follows:
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred compensation................................. $ 700 $ 556
Vacation and sick pay benefit......................... 496 497
Inventory valuation................................... 2,020 1,879
Warranty costs........................................ 299 269
Depreciation.......................................... (298) (289)
Operating loss and tax credit carryforwards........... 2,673 2,213
Accounts receivable valuation......................... 210 181
Other................................................. 595 283
------- -------
Total deferred income tax assets...................... 6,695 5,589
Less valuation allowance.............................. (2,673) (2,213)
------- -------
Net deferred income tax assets...................... $ 4,022 $ 3,376
======= =======
</TABLE>
The Company has provided a valuation allowance on the net operating loss
carryforwards and tax credits related to its wholly-owned subsidiary, View
Engineering, Inc., due to the uncertainty of their realizability as a result
of limitations on their utilization in accordance with certain tax laws and
regulations. The operating loss carryforwards expire from 2005 through 2011
and the tax credits expire in 1999 and 2000. Utilization of the operating loss
carryforwards and tax credits is limited to approximately $1.2 million per
year.
10. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain equipment and facilities under operating lease
agreements that expire through 2003. The facility leases require the Company
to pay real estate taxes and other operating costs. For the years
F-15
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
ended December 31, 1996, 1995 and 1994, lease expense was approximately
$1,787,000, $1,500,000 and $1,362,000, respectively.
Minimum lease payments under operating leases expiring subsequent to
December 31, 1996 are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997.......................................................... $1,712
1998.......................................................... 871
1999.......................................................... 628
2000.......................................................... 703
2001.......................................................... 655
Thereafter.................................................... 758
------
Total minimum lease payments................................ $5,327
======
</TABLE>
Recourse receivables
In Japan, where it is customary to do so, the Company discounts certain
notes receivable at a bank with recourse. The Company's maximum exposure was
$602,000 at December 31, 1996. The fair value of the recourse receivables was
not determinable. The Company received cash proceeds relating to the
discounted receivables of $4,144,000, $7,188,000 and $4,671,000 during the
years ended December 31, 1996, 1995 and 1994, respectively.
Legal proceedings and disputes
In August 1996, Robotic Vision Systems, Inc. (RVSI) commenced an action
against General Scanning in the United States District Court for the Eastern
District of New York. RVSI claims that General Scanning improperly obtained
proprietary information from RVSI for the purpose of obtaining ownership of
View Engineering, Inc. and of thwarting RVSI's attempts to acquire View
Engineering. The plaintiff is seeking compensatory and punitive damages in an
unspecified amount. General Scanning believes the claims are without merit and
is defending this action vigorously.
Voxel, a customer of the Company, asserted in December 1996 that the Company
may not have met certain product specifications. The Company believes its
product has met the necessary specifications. Pursuant to the agreement
between Voxel and GSI, the matter will be subject to binding arbitration in
the event that negotiations do not resolve the issue. At December 31, 1996,
accounts receivable included a total of approximately $931,000 of billed and
unbilled amounts due from Voxel. Management believes the amounts due are
recoverable from Voxel.
The Company has certain other contingent liabilities resulting from
litigation and claims incidental to its business, including two patent
infringement suits relating to products currently sold or expected to be sold
by the Company. Management believes that the probable resolution of such
contingencies will not have a materially adverse effect on the Company's
results of operations or financial position.
11. RELATED PARTY TRANSACTION
In 1992, the Company's Board of Directors authorized a loan to an officer in
the amount of $160,000 as a reimbursement for certain relocation expenses.
Under the agreement, 80% of the loan is being forgiven over a period of four
years, provided that the officer remains an employee of the Company. This loan
is secured by deferred compensation due to this officer. If the officer should
terminate employment, the remaining balance is due upon termination. In each
of 1996, 1995 and 1994, $32,000 of the loan was forgiven and charged as
compensation expense.
F-16
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
12. SEGMENT INFORMATION
Industry segment reporting
Information with respect to the Company's industry segments is set forth in
the table below.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
---------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Laser systems and components.................. $131,867 $103,564 $77,951
Thermal printers.............................. 24,666 22,915 20,624
Intersegment elimination...................... 0 (159) (463)
-------- -------- -------
Total....................................... $156,533 $126,320 $98,112
======== ======== =======
Income from operations:
Laser systems and components.................. $ 11,967 $ 6,330 $ 4,449
Thermal printers.............................. 4,321 3,845 3,327
Corporate expenses............................ (2,483) (2,450) (1,899)
-------- -------- -------
Total....................................... $ 13,805 $ 7,725 $ 5,877
======== ======== =======
Identifiable assets:
Laser systems and components.................. $ 64,836 $ 55,556 $41,269
Thermal printers.............................. 8,150 5,081 4,624
Corporate assets.............................. 22,587 29,071 3,966
-------- -------- -------
Total....................................... $ 95,573 $ 89,708 $49,859
======== ======== =======
Capital expenditures:
Laser systems and components.................. $ 5,704 $ 2,155 $ 1,565
Thermal printers.............................. 1,198 441 200
-------- -------- -------
Total....................................... $ 6,902 $ 2,596 $ 1,765
======== ======== =======
Depreciation and amortization:
Laser systems and components.................. $ 2,773 $ 1,699 $ 1,919
Thermal printers.............................. 407 285 491
-------- -------- -------
Total....................................... $ 3,180 $ 1,984 $ 2,410
======== ======== =======
</TABLE>
F-17
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Geographic segment information
Information with respect to the Company's geographic operations is set forth
in the table below.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
---------------------------
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America, including export.................. $107,033 $ 84,621 $69,623
Europe........................................... 21,300 12,461 9,408
Asia............................................. 28,200 29,238 19,081
-------- -------- -------
Total.......................................... $156,533 $126,320 $98,112
======== ======== =======
Transfers to affiliates.......................... $ 31,800 $ 25,188 $14,216
======== ======== =======
Export sales:
From North America............................. $ 15,200 $ 17,245 $ 9,273
======== ======== =======
Income from operations:
North America, including export.................. $ 13,623 $ 7,884 $ 5,594
Europe........................................... 898 456 487
Asia............................................. 1,767 1,835 1,695
Corporate........................................ (2,483) (2,450) (1,899)
-------- -------- -------
Total.......................................... $ 13,805 $ 7,725 $ 5,877
======== ======== =======
Identifiable assets:
North America, including export.................. $ 57,803 $ 48,935 $37,361
Europe........................................... 5,925 4,845 3,051
Asia............................................. 10,588 5,952 5,481
Corporate........................................ 21,257 29,976 3,966
-------- -------- -------
Total.......................................... $ 95,573 $ 89,708 $49,859
======== ======== =======
</TABLE>
F-18
<PAGE>
GENERAL SCANNING INC.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
96Q4 96Q3 96Q2 96Q1 95Q4 95Q3 95Q2 95Q1
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Laser systems and com-
ponents.............. $33,251 $32,744 $34,522 $31,350 $29,702 $27,935 $24,792 $20,976
Thermal printers...... 6,765 5,419 6,148 6,334 5,801 5,746 5,741 5,627
------- ------- ------- ------- ------- ------- ------- -------
Total sales......... 40,016 38,163 40,670 37,684 35,503 33,681 30,533 26,603
------- ------- ------- ------- ------- ------- ------- -------
Gross profit:
Laser systems and com-
ponents.............. 14,743 15,569 15,845 14,672 13,791 12,851 11,083 10,136
Thermal printers...... 3,152 2,336 2,657 2,706 2,515 2,445 2,642 2,459
------- ------- ------- ------- ------- ------- ------- -------
Total gross profit.. 17,895 17,905 18,502 17,378 16,306 15,296 13,725 12,595
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and product
development.......... 4,410 4,853 4,534 4,603 4,225 4,318 4,393 4,170
Selling, general and
administrative....... 9,883 9,313 10,376 9,903 9,525 8,714 7,721 7,131
------- ------- ------- ------- ------- ------- ------- -------
Total operating ex-
penses............. 14,293 14,166 14,910 14,506 13,750 13,032 12,114 11,301
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 3,602 3,739 3,592 2,872 2,556 2,264 1,611 1,294
Merger (expenses)....... -- (1,950) -- -- -- -- -- -
Interest income (ex-
pense), net............ 81 34 32 125 141 (273) (318) (232)
Foreign exchange
transaction gains
(losses)............... (28) (70) (42) (19) 13 188 93 37
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 3,655 1,753 3,582 2,978 2,710 2,179 1,386 1,099
Income taxes............ 1,460 824 1,683 1,400 1,030 828 527 418
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 2,195 $ 929 $ 1,899 $ 1,578 $ 1,680 $ 1,351 $ 859 $ 681
======= ======= ======= ======= ======= ======= ======= =======
Net income per common
and common equivalent
share outstanding...... $ 0.18 $ 0.07 $ 0.15 $ 0.13 $ 0.14 $ 0.13 $ 0.09 $ 0.07
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding..... 12,456 12,514 12,513 12,422 12,331 10,128 9,549 9,421
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
F-19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information with respect to directors is contained the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 17, 1997
(the "1997 Proxy Statement") under the caption "Election of Directors" and is
incorporated herein by reference.
EXECUTIVE OFFICERS
The information with respect to executive officers is set forth under the
caption "Executive Officers" in Part I of this report.
REPORTS OF BENEFICIAL OWNERSHIP
The information required by this item is contained in the 1997 Proxy
Statement under the caption "Stock Ownership of Principal Stockholders and
Management" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 1997 Proxy Statement
under the captions "Director Compensation," "Compensation of Executive
Officers" and "Employment Agreements" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 1997 Proxy Statement
under the caption "Stock Ownership of Principal Stockholders and Management"
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is contained in the Company's 1997 Proxy Statement
under the caption "Certain Transactions" and is incorporated herein by
reference.
F-20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
LIST OF FINANCIAL STATEMENTS
See the index to consolidated financial statements and financial statement
schedules.
LIST OF FINANCIAL STATEMENT SCHEDULES
See Schedule II-Valuation and Qualifying Accounts.
LIST OF EXHIBITS (numbered in accordance with Item 601 of Regulations S-K)
<TABLE>
<C> <S>
**2.1 Agreement and Plan of Merger, dated as of June 7, 1996, among the
Registrant., GSI Acquisition Sub, Inc. and View Engineering, Inc.
*3.1 Restated Articles of Organization of the Registrant, as amended
*3.2 By-Laws of the Registrant, as amended
*4.1 Specimen Certificate of Common Stock
*10.1 1981 Stock Option Plan of the Registrant
*10.2 1992 Stock Option Plan of the Registrant
*10.3 1995 Directors' Warrant Plan
*10.4 Lease dated August 10, 1989, as amended to date, between the Registrant
and Arlington Center Garage and Service Corp.
*10.5 Lease dated February 24, 1989, as amended to date, between Ames Realty
Trust Associates and Teradyne Laser Systems Inc. and General Scanning
Inc.
10.6 Lease dated July 31, 1996, as amended to date, between View Engineering,
Inc. and Donald J. Devine as Trustee under the Donald J. Devine Trust
Agreement.
10.7 Lease dated March 24, 1995, as amended to date, between View
Engineering, Inc. and Marjorie Lynn Landon.
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants
27.1 Financial Data Schedule
</TABLE>
- --------
* Incorporated by reference to the Company's registration statement on Form
S-1, filed August 11, 1995 (33-95718).
** Incorporated by reference to the Company's Current Report on Form 8-K,
filed September 6, 1996 (Accession Number 0000927016-96-001043)
REPORTS ON FORM 8-K
On September 6, 1996 the Company filed a current report on Form 8-K relating
to its acquisition of View.
F-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) THE SECURITIES ACT OF
1934, THE REGISTRANT, GENERAL SCANNING INC., HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GENERAL SCANNING INC.
(Registrant)
/s/ Charles D. Winston
By: _________________________________
CHARLES D. WINSTON PRESIDENT AND
CHIEF EXECUTIVE OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
Date: March 7, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
Chairman of the March 7, 1997
/s/ Jean I. Montagu Board
- -------------------------------------
JEAN I. MONTAGU
/s/ Pierre J. Brosens Vice Chairman of the March 7, 1997
- ------------------------------------- Board
PIERRE J. BROSENS
/s/ Charles D. Winston President, Chief March 7, 1997
- ------------------------------------- Executive Officer
CHARLES D. WINSTON and Director
(Principal
Executive Officer)
/s/ Victor H. Woolley Vice President- March 7, 1997
- ------------------------------------- Finance and Chief
VICTOR H. WOOLLEY Financial Officer
(Principal
Financial and
Accounting Officer)
/s/ Richard B. Black Director March 7, 1997
- -------------------------------------
RICHARD B. BLACK
/s/ Paul F. Ferrari Director March 7, 1997
- -------------------------------------
PAUL F. FERRARI
/s/ Woodie C. Flowers Director March 7, 1997
- -------------------------------------
WOODIE C. FLOWERS
/s/ James R. Turner Director March 7, 1997
- -------------------------------------
JAMES R. TURNER
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of General Scanning Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon
dated February 3, 1997. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 3, 1997
F-23
<PAGE>
GENERAL SCANNING INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994:
Allowance for doubtful
accounts............... $338 $185 -- $12 $511
Year ended December 31,
1995:
Allowance for doubtful
accounts............... 511 281 -- -- 792
Year ended December 31,
1996:
Allowance for doubtful
accounts............... 792 79 -- 4 867
</TABLE>
F-24
<PAGE>
GENERAL SCANNING INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.6 Lease dated July 31, 1996, as amended to date, between View
Engineering, Inc. and Donald J. Devine as Trustee under the
Donald J. Devine Trust Agreement................................
10.7 Lease dated March 24, 1995, as amended to date, between View
Engineering, Inc. and Marjorie Lynn Landon......................
21.1 Subsidiaries of the Registrant...................................
23.1 Consent of Arthur Andersen LLP, independent public accountants...
27.1 Financial Data Schedule..........................................
</TABLE>
<PAGE>
EXHIBIT 10.6
LEASE AGREEMENT
---------------
LANDLORD
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DONALD J. DEVINE
1375 Fairlane
Ann Arbor, Michigan 48104
TENANT
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VIEW ENGINEERING, INC.
1650 N. Voyager Avenue
Simi Valley, California 93063
BUILDING LOCATION
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4420 Varsity Drive
Pittsfield Township, Michigan
<PAGE>
LEASE AGREEMENT
THIS LEASE, dated July 31, 1996, is between DONALD J. DEVINE, as the
Trustee under the DONALD J. DEVINE TRUST AGREEMENT dated January 30, 1987, as
amended, whose address is 1375 Fairlane, Ann Arbor, Michigan (the "Landlord")
and VIEW ENGINEERING, INC., a California corporation whose address is 1650 N.
Voyager Avenue, Simi Valley, California 93063 (the "Tenant") and confirms the
terms and conditions upon which the Tenant will lease and occupy the
approximately 15,527 square foot office building located at 4420 Varsity Drive,
Ann Arbor, Michigan (the "Building"), situated on the land legally described as
Lots 16 and 17 of the Ann Arbor Commence Park (the "Land").
WITNESSETH:
In consideration of the agreements of the parties as herein contained,
Landlord and Tenant agree as follows:
1. TERM. The term of this Lease (the "Term") shall be as follows:
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(a) Initial Term. The initial term of this Lease (the "Initial
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Term") shall be for a period commencing on July 31, 1996 (the
"Commencement Date") and ending on August 31, 2001.
(b) Renewal Terms. The Tenant shall have the option, exercisable
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by delivery of written notice to the Landlord not later than November
30, 2000, to extend this Lease for an additional term (the "First
Renewal Term") of three (3) years, commencing on September 1, 2001 and
ending August 31, 2004. If the Tenant exercised the option to extend
this Lease for the First Renewal Term, then the Tenant shall have the
further option, exercisable by delivery of written notice to the
Landlord not later than November 30, 2003, to extend this Lease for a
further additional term (the "Second Renewal Term") of three (3) years,
commencing September 1, 2004 and ending August 31, 2007. The right of
the Tenant to exercise the option for the First Renewal Term and, if
applicable, the Second Renewal Term (collectively, the "Renewal Terms")
shall be subject to and conditioned upon the Tenant being in full
compliance with all terms and conditions of this Lease as of the date of
delivery of the written notice to the Landlord exercising that option
and as of the day immediately preceding the first day of that Renewal
Term. Time shall be of the essence in the exercise by the Tenant of this
option to renew.
2. BASE RENT. Tenant shall pay to Landlord a base rent (the "Base
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Rent") for the Building and the Land (collectively, the "Leased Premises") in
accordance with the following:
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(a) Initial Term. The Base Rent for the Initial Term shall be in
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the following amounts for the following periods:
(i) For the period beginning on the Commencement Date and
ending on September 30, 1996 the Base Rent shall be $0.00.
(ii) For the 23 month period beginning October 1, 1996 and
ending August 31, 1998, the Base Rent shall be $238,080.59, payable
in monthly installments of $10,351.33 each.
(iii) For the 36 month period beginning September 1, 1998 and
ending on August 31, 2001, the Base Rent shall be $395,938.44,
payable in monthly installments of $10,998.29 each.
(b) Renewal Terms. If the Tenant extends this Lease pursuant to
Section 1(b), then the Base Rent for each 12 month period beginning on
September 1st during each Renewal Term, commencing with the 12 month
period beginning September 1, 2001, shall be $131,979.48, increased (but
not decreased) to account for changes in the Consumer Price Index from
June of 1998 to the June immediately preceding the 12 month period for
which the computation is being made. The Base Rent for each such 12
month period will be payable in equal monthly installments. For such
purposes, the Consumer Price Index will mean "Consumer Price Index-All
Items", as compiled and published by the United States Department of
Labor: Bureau of Labor Statistics (the "CPI"). In computing the
adjustment, the base amount of $131,979.48 shall be multiplied by a
fraction, the numerator which will be the CPI for the June immediately
preceding the 12 month period from which the computation is being made
and the denominator shall be the CPI for June of 1998.
The Base Rent shall be paid in advance on the first day of each month,
commencing October 1, 1996 and continuing thereafter during the continuance of
this Lease.
3. ADDITIONAL RENT. Tenant shall pay to Landlord additional rent
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(the "Additional Rent") for the Leased Premises in accordance with the
following:
(a) Taxes And Assessments. The Tenant shall reimburse the
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Landlord for all taxes, assessments and other governmental impositions
(collectively, the "Governmental Charges") which are assessed against
and become due and payable with respect to the Leased Premises to the
extent allocable to the Initial Term and, if applicable, the Renewal
Terms (collectively, the "Term"), prorated on a "due date basis" (ie.
each Governmental Charge will be deemed allocable to the 12 month period
beginning on the due date for payment of that Governmental Charge). On
or before the Commencement Date, the Landlord will invoice the Tenant
for the Governmental Charges prepaid by the Landlord as of the
Commencement Date. Promptly following the receipt of each tax bill
during the
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Term of this Lease, the Landlord will invoice the Tenant for the
Governmental Charges included in that tax bill (subject to proration for
the last year of the Term of the Lease). The Landlord shall attach to
each such invoice a copy of the tax bills(s) giving rise to that invoice
and, where applicable, a computation of the portion of those
Governmental Charges allocable to the Term of this Lease. The Tenant
shall pay each invoice in full within 30 days after the date of Tenant's
receipt of that invoice.
(b) Premises Insurance. The Tenant shall reimburse the Landlord
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for all premiums payable for insurance against damage to or destruction
of the Building to the extent allocable to the Term of this Lease,
prorated on the basis of the coverage periods to which such premiums
apply. Such insurance shall be for the full replacement cost of the
Building and provide coverage against "all risks", with such coverages
on terms and conditions reasonably established by the Landlord. On or
before the Commencement Date, the Landlord will invoice the Tenant for
any prepaid premiums as of the Commencement Date. Promptly following
receipt of each premium notice during the Term of this Lease, the
Landlord will invoice the Tenant for the premiums included in that
notice. The Landlord shall attach to each such invoice a copy of the
premium notice giving rise to that invoice together with, if applicable,
a computation of the portion of that premium allocable to the Term of
this Lease. The Tenant shall pay each invoice in full within 30 days
after the date of Tenant's receipt of that invoice.
(c) Liability Insurance. The Tenant shall secure and maintain in
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full force and effect insurance against bodily injury and property
damage with a combined single occurrence limit of not less than
$2,000,000.00, with the Tenant as the "primary insured" and with the
Landlord, and, if applicable, the Landlord's mortgage financing source,
as "additional insureds". All such insurance will be equivalent to
coverage offered by a commercial comprehensive general liability form,
including, without limitation, personal injury, products and completed
operations, broad form property damage and contractual liability
coverage. Certificates of insurance, together with copies of the
endorsements, when applicable, naming Landlord and any others specified
by Landlord as additional insureds, will be delivered to Landlord prior
to Tenant's occupancy of the Premises and from time to time at least ten
(10) days prior to the expiration of the term of each such policy. All
commercial general liability or comparable policies maintained by tenant
will name Landlord and such other persons or firms as Landlord specifies
from time to time as additional insureds, entitling them to recover
under such policies for any loss sustained by them, their agents, and
employees, including those losses sustained as a result of the negligent
acts or omissions of tenant. All such policies maintained by Tenant will
provide that they may not be terminated nor may coverage be reduced
except after thirty (30) days' prior written notice to Landlord. All
commercial general liability insurance policies maintained by Tenant
will be written as primary policies, not contributing with and not
supplemental to the coverage that Landlord may carry.
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4. SECURITY DEPOSIT. Landlord acknowledges receipt of a security
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deposit by Tenant in the amount of $20,702.66 (the "Security Deposit"), which
shall be retained by Landlord as security for the faithful performance by Tenant
of all of the covenants, conditions and agreements of this Lease. If Tenant is
in default, Landlord, at its sole discretion, may use this Security Deposit, or
any portion thereof, to cure the default or to compensate Landlord for any
damage sustained by Landlord as a result of Tenant's default, but in no event
shall the Landlord be obliged to so use this Security Deposit. Tenant shall
immediately on demand pay to Landlord a sum equal to the portion of the Security
Deposit expended or applied by Landlord as provided in this Section so as to
maintain the Security Deposit in the sum initially deposited with Landlord.
Landlord's right to possession of the Leased Premises for the nonpayment of Rent
or for any other reason shall not in any event be affected by reason of the fact
that Landlord holds this Security Deposit. The Security Deposit, if not applied
toward the payment of damages suffered by Landlord by reason of Tenant's breach
of the covenants, conditions and agreements of this Lease, shall be returned to
Tenant at the expiration or termination of this Lease, but in no event is the
Security Deposit to be returned until Tenant has vacated the Leased Premises and
delivered possession to Landlord, including the delivery to Landlord of all keys
to the premises. Landlord may maintain the Security Deposit separate and apart
from Landlord's general funds or may commingle the Security Deposit with
Landlord's general or other funds.
5. USE AND OCCUPANCY. During the Term of this Lease, the Tenant shall
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have the exclusive right to occupy and use the Leased Premises, subject only to
the following exceptions: (a) the Landlord reserves the right to continue to
occupy the accounting offices in the Building until August 31, 1996 and (b) the
Landlord reserves the right at any time during the Term of the Lease to remove a
portion of the Land from the Leased Premises (for purposes of an independent
sale of that removed portion, the development of another building on that
removed portion or otherwise) without any adjustment to the Base Rent provided
that such removal does not materially interfere with the Tenant's access to or
use of the Building and provided that, upon such removal, the Tenant will be
relieved of any future responsibility for Additional Rent pertaining to the
removed portion of the Land. The Leased Premises shall be used by the Tenant for
light manufacturing and administrative operations and shall not be used by the
Tenant or any other party for any other purposes unless with the prior written
consent of the Landlord. The Tenant, in its use and occupancy, shall keep the
Leased Premises in a sanitary and safe condition in accordance with the laws of
the State of Michigan, and in accordance with all rules and regulations of the
health office, fire marshal, building inspector or other proper officers of the
governmental agencies having jurisdiction, at the sole cost and expense of
Tenant. The Tenant, in its use and occupancy of the Leased Premises, shall
comply with all applicable statutes and ordinances pertaining to the Leased
Premises. Tenant shall not, at any time or for any reason, generate, store,
handle or otherwise permit any hazardous materials to be located within the
Leased Premises. (For such purposes, the term "hazardous materials" means any
toxic or other hazardous waste or substance which is regulated by any federal,
state or local law pertaining to the preservation of the environment and the
regulation of environmental contamination.) Tenant shall permit no waste,
disturbance, or nuisance upon or damage or injury to the Leased Premises, and at
the expiration of the tenancy created hereunder Tenant shall surrender the
Leased Premises
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<PAGE>
in as good condition and repair as they were at the time Tenant took possession,
reasonable wear and tear, loss by fire or other insured casualty or act of God
excepted.
6. REPAIRS AND MAINTENANCE.
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(a) Landlord's Obligation. Landlord shall be responsible for all
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necessary maintenance, repairs and replacements to roof, exterior walls
and foundation of the Building except for such maintenance, repairs and
replacements required as a result of the act, neglect or default of the
Tenant or its agents, servants and employees.
(b) Tenant's Obligation. Except as provided in Section 6(a), the
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Tenant shall be responsible for all necessary maintenance, repairs or
replacements to the Leased Premises, whether capital or non-capital in
nature, including, without limitation, the maintenance and repair of all
interior improvements to the Building and all doors, windows, plate
glass, exterior signs and canopies servicing the Building, the
maintenance, repair and replacement of all electrical, plumbing, HVAC
and sprinkler systems servicing the Leased Premises, the maintenance and
care of all lawns and landscaping on the Leased Premises, the
maintenance, repair and replacement of all parking areas, sidewalks and
driveways servicing the Leased Premises (including snow removal,
sweeping, coating, striping, etc.). All such maintenance, repairs or
replacements shall be made with materials of a quality equal to or
better than the existing materials incorporated into the Leased
Premises. If the Tenant fails to make any necessary maintenance, repair
or replacement as herein provided within thirty (30) days (or such
shorter interval as may be reasonably specified by the Landlord), after
notice by the Landlord of the need therefor, Landlord may, at its
option, in addition to all of the remedies otherwise set forth herein,
cause such repairs or replacements to be made, which cost, together with
ten percent (10%) of the amount of such cost to compensate Landlord for
his efforts, shall be due and payable to Landlord by Tenant immediately
upon demand and shall constitute Additional Rent hereunder.
7. UTILITIES AND SERVICES. The Tenant shall be responsible for the
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payment of all charges for all utilities services provided to the Leased
Premises during the term of this Lease. The Landlord and the Tenant will notify
each utilities provider that all billings for such utilities charges shall be
invoiced to the Tenant effective as of the Commencement Date. If and as
applicable, charges for utilities shall be prorated between the Landlord and the
Tenant as of the Commencement Date based upon the billing periods applicable to
those charges. Landlord shall not be liable in any way for interruption or
failure of any such services from any cause whatsoever and any such interruption
or failure shall not be deemed an eviction of the Tenant or relieve the Tenant
form any obligations under this Lease unless such interruption or failure of
services is due to the negligence or misconduct of Landlord, its employees or
agents.
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<PAGE>
8. LEASEHOLD IMPROVEMENTS.
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(a) No Landlord Improvements. Tenant acknowledges that the
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Landlord has made no commitment to make any improvements to the Leased
Premises. The Tenant has inspected the Leased Premises and the Tenant
has agreed to accept the Leased Premises in their present condition.
(b) Tenant Improvements. Landlord acknowledges that the Tenant
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intends to make improvements to the Leased Premises and agrees to give
its consent to such improvements provided that those improvements are
limited exclusively to the interior of the Building, do not affect the
structure of the Building or the outer walls or roof of the Building and
are of a quality and nature which is equivalent to and compatible with
the existing interior improvements to the Building. The Tenant agrees,
prior to implementing any such improvements, to provide detailed plans
and specifications for such improvements and to secure the Landlord's
written consent to such improvements. The Landlord agrees not to
unreasonably withhold or delay his consent. Unless otherwise agreed in
writing by the Landlord and the Tenant, all such improvements shall,
upon installation, immediately become the property of the Landlord and,
upon termination of this Lease, shall remain upon and be surrendered
with the Leased Premises; provided, however, the Landlord may designate
by written notice to Tenant those improvements which shall be removed by
Tenant at the termination of this Lease and Tenant shall promptly remove
the same and repair any damage to the Leased Premises caused by such
removal. The Tenant shall be responsible for obtaining all required
permits and for complying with all building code and other legal
requirements applicable to the improvements. The Tenant shall pay when
due all costs for labor and materials utilizing in installing such
improvements. Tenant shall, at all times, keep the Leased Premises free
from any and all liens arising out of any work performed, materials
furnished, or obligations incurred, by or on behalf of Tenant. If any
mechanics or other lien is placed on all or any part of the Leased
Premises by reason of any work performed for, materials furnished to, or
obligations incurred by Tenant, or claimed to have been performed for,
furnished to, or incurred by Tenant, and if Tenant fails to remove such
mechanics lien or other lien of record within ten (10) days after the
filing thereof, then Tenant shall be in default under this Lease, and
Landlord may, but shall not be required or expected to, remove such
mechanics lien or other lien of record by bond, by payment or other
means, which cost, together with ten percent (10%) of the amount of such
cost to compensate Landlord for his efforts, shall be due and payable to
Landlord by Tenant immediately upon demand and shall constitute
Additional Rent hereunder.
9. ASSIGNMENT/SUBLEASING/ENCUMBRANCES.
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(a) Tenant's Rights. The Tenant shall not assign all or any of
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it rights under this Lease or sublet all or any portion of the Leased
Premises unless with the prior written consent of the Landlord. The
Tenant shall not assign its rights under this Lease for collateral
purposes or otherwise encumber its rights under this Lease or its rights
with
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<PAGE>
respect to the Leased Premises unless with the prior written consent of
the Landlord. The consent of the Landlord under this Section 9(a) shall
not be unreasonably withheld or delayed.
(b) Landlord's Rights. The Landlord may assign its rights under
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this Lease only if (i) prior written notice is delivered to the Tenant
of such assignment and (ii) the Assignee acknowledges and agrees to be
bound by the terms and conditions of this Lease. The Landlord may assign
its rights under this Lease for collateral purposes and may mortgage or
otherwise encumber all or any portion of the Leased Premises only if
(i) prior written notice is delivered to the Tenant of such assignment,
mortgage or encumbrance and (ii) the assignee/mortgagee/encumbrancer
agrees that it will not disturb the use and occupancy by the Tenant of
the Leased Premises so long as the Tenant is not in default under the
terms of this Lease. Subject in each instance to receipt of such
acknowledgment, the Lessee agrees to execute any documents which are
required by the Landlord or the assignee/mortgagee/encumbrancer to
confirm the subordination of the Tenant's rights with respect to the
Leased Premises to the rights of such assignee/mortgagee/encumbrancer.
10. DAMAGE OR DESTRUCTION. If during the Term of this Lease, the
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Leased Premises are destroyed by fire or other casualty so as to become
partially or wholly untenantable, then the following shall apply:
(a) Minor Damage. If the reasonably estimated cost to repair the
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damage or destruction is 25% or less of the total value of the Building
and the site improvements on the Land and the proceeds of insurance are
sufficient to fund that cost, then the Landlord shall with due diligence
restore the Leased Premises to a condition at least equivalent to that
prior to the occurrence of such damage or destruction.
(b) Major Damage. If the reasonably estimated cost to repair the
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damage or destruction is greater than 25% of the total value of the
Building and the site improvements on the Land, or if the proceeds of
insurance are not sufficient to fund such costs, then the Landlord, at
the Landlord's discretion, may (i) elect not to restore the Leased
Premises and, in such event, terminate this Lease effective as of the
date of such damage or destruction or (ii) elect to restore the Leased
Premises to a condition at least equivalent to that existing prior to
the occurrence of the damage or destruction.
If any dispute arises between the Landlord and the Tenant as to whether
Section 10(a) or Section 10(b) applies, then the determination of the percentage
of damage or destruction shall be referred to and conclusively resolved by the
insurance company which issued the hazard insurance procured by the Landlord
pursuant to Section 3(b). If the Landlord elects to or is required to repair the
Leased Premises, then the Landlord shall complete such repair and the Lessee
shall be restored to full occupancy of the Leased Premises within one hundred
twenty (120) days from the date of a date that settlement is reached with the
Lessor's insurer regarding the proceeds to be paid to the Landlord to repair the
damage or destruction; provided, however, if for any reason such full occupancy
is not restored within such one hundred twenty day period, then the Tenant, by
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<PAGE>
written notice to the Landlord, may terminate this Lease effective as of the
date of such notice. During any period in which the occupancy of the Leased
Premises is affected by damage or destruction, the Base Rent payable hereunder
shall be reduced on a proportionate basis relative to the degree of
untenantability.
11. WAIVER OF SUBROGATION. Landlord and Tenant each waive any and all
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rights to recover against the other or against any other occupant of the Leased
Premises, or against the officers, directors, shareholders, partners, joint
venturers, employees, agents, customers, invitees, or business visitors of such
other party or other occupant of the Leased Premises, for any loss or damage to
such waiving party arising from any insurable cause. Landlord and Tenant from
time to time will cause their respective insurers to issue appropriate waiver of
subrogation rights endorsements to all property insurance policies carried in
connection with the Leased Premises or the contents of the Leased Premises.
Tenant agrees to cause all other occupants of the Premises claiming by, under,
or through Tenant to execute and deliver to Landlord such a waiver of claims and
to obtain such waiver of subrogation rights endorsements.
12. CONDEMNATION. If during the Term of this Lease, all or any portion
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of the Building is taken by or conveyed to any governmental authority by virtue
of its power of eminent domain, then, unless otherwise agreed by the Landlord
and the Tenant, this Lease shall automatically terminate effective as the date
of such taking or conveyance. All damages awarded as a result of such taking or
conveyance which are attributable to the ownership of the Leased Premises
(including, without limitation, the Land, the Building and all improvements in
the Building, including the improvements installed by the Tenant pursuant to
Section 8{b}) shall be the exclusive property of the Landlord. All damages
awarded as compensation for any damage to the business of the Tenant, for the
diminution in the value of the Tenant's rights under this Lease or for the
diminution in the value of any trade fixtures or similar assets of the Tenant
shall be the exclusive property of the Tenant.
13. QUIET ENJOYMENT. Upon payment by the Tenant when due of the Base
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Rent and Additional Rent and upon the observance and performance by Tenant of
all covenants, terms and conditions in this Lease, Tenant shall peaceably and
quietly hold and enjoy the Leased Premises for the Term of this Lease without
hindrance or interruption by Landlord or any other persons lawfully or equitably
claiming by, through or under the Landlord, subject, nevertheless, to the terms
and conditions of this Lease.
14. ACCESS BY LANDLORD. Landlord or Landlord's agents shall have the
------------------
right to enter the Leased Premises at all reasonable times to examine the same,
and to show them to prospective purchasers or mortgagees of the Leased Premises,
and to make such repairs, alterations, improvements or additions as Landlord may
deem necessary or desirable, and Landlord shall be allowed to take all material
into and upon said Leased Premises that may be required therefor without the
same constituting an eviction of Tenant. In the event that such access by the
Landlord causes any interference with Tenant's use of the Leased Premises, then
(unless such access was necessitated by Tenant's act, neglect, default or mode
of operation), the
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Tenant's obligations for the Base Rent and the Additional Rent shall be abated
for so long as and to the extent that such interference continues.
15. NON-WAIVER. Waiver of any one breach of the covenants or
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conditions of this Lease shall not be construed as a waiver of any subsequent
breaches of same or another covenant or condition hereof, and the consent or
approval by Landlord to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar act by Tenant.
16. BANKRUPTCY. In the event the estate created hereby shall be taken
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in execution or by other process of law, or if Tenant shall be adjudicated
insolvent or bankrupt pursuant to the provisions of any state or federal
insolvency or bankruptcy law, or if a receiver or trustee of the property of
Tenant shall be appointed by reason of Tenant's insolvency or inability to pay
its debts, or if any assignment shall be made of Tenant's property for the
benefit of creditors, then and in any of such events, Landlord may terminate
this Lease by written notice to Tenant; provided however, if the order of court
creating any of such disabilities shall not be final by reason or pendency of
such proceeding, or appeal from such order, then Landlord shall not have the
right to terminate this Lease so long as Tenant performs its obligations
hereunder.
17. LATE PAYMENT CHARGES/ATTORNEY'S FEES. Any amount payable under
------------------------------------
this Lease which is not paid on or before its due date shall bear interest from
its due date to the date of payment at the rate of 12% per annum. If either
party incurs any attorney's fees or legal expenses as a consequence of the
breach by the other party of any payment or other obligation under this Lease,
then the breaching party shall be obligated to reimburse the other party on
demand for such fees and expenses.
18. DEFAULT.
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(a) Events of Default. The following shall constitute events of
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default by the Tenant under this Lease (the "Events of Default"):
(i) the failure of the Tenant to pay any installment of the Base Rent,
the Additional Rent or any other amount payable under this Lease within
ten (10) days after its due date; or (ii) the breach by the Tenant of
any other covenant or commitment under this Lease and the failure to
remedy such breach within thirty (30) days after receipt of written
notice from the Landlord identifying such breach and demanding remedial
action.
(b) Remedial Rights. Upon the occurrence of a Event of Default,
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the Landlord, at its election, may affirm all obligations of the Tenant
under this Lease and pursue all appropriate legal proceedings to enforce
such obligations or may terminate this Lease and pursue all appropriate
legal proceedings to recover damages resulting from such termination. In
either event, to the extent permitted by applicable law, the Landlord
may reenter and repossess the Leased Premises and remove all persons or
property from the Leased Premises. If the Landlord elects to terminate
this Lease, then the Landlord shall make such efforts as are required
under applicable law to mitigate damages by reletting the
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Leased Premises, or any part thereof, under such terms and conditions as
the Landlord in his sole discretion deems advisable. The proceeds from
such subletting shall be applied first to reimburse the Landlord for all
costs incurred in preparing the Leased Premises for reletting, second to
all costs incurred by the Landlord (including leasing commissions) in
implementing that reletting, third to the payment of all amounts then
due under this Lease. Any residual proceeds shall be applied against the
future payment obligations of the Tenant under this Lease. The Tenant
shall be liable for any deficiencies. All rights and remedies accorded
to the Landlord hereunder shall be cumulative and shall be in addition
to any and all other rights or remedies permitted under applicable law.
19. NOTICES. Any notice permitted or required under this Lease shall
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be in writing and shall be deemed delivered as follows: If by personal delivery,
on the date of personal delivery to the addressee; if by courier delivery, on
the date of confirmed delivery to the address of the addressee as set forth in
the preamble to this Lease; if by mail, on the third business day following the
date of deposit with the U.S. Postal Service, postage prepaid, to the address of
the addressee as set forth in the preamble to this Lease; if by facsimile
transmission, on the next business day following the date of confirmed
transmission to the facsimile number of the addressee as set forth below the
addressee's signature. Either party, by notice delivered to the other party in
the manner prescribed above, may change its address or facsimile number for
purposes of future notices.
20. APPLICABLE LAW. This Lease is made under and shall be interpreted
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in accordance with the laws of the State of Michigan.
21. ENTIRE AGREEMENT. This ten (10) page document constitutes the
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entire agreement between the Landlord and the Tenant with respect to the
Tenant's use and occupancy of the Leased Premises. All prior agreements between
the Landlord and the Tenant with respect to the Leased Premises, whether
written or oral, shall be of no further force or effect. The terms of this
Lease shall not be amended and this Lease shall not be cancelled unless by a
document which is in writing and signed by both the Landlord and the Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
LANDLORD:
/s/ Donald J. Devine
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Donald J. Devine, Trustee
FAX 313/677-3500
TENANT:
VIEW ENGINEERING, INC.
By /s/ Tom Swain
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Tom Swain, President
By /s/ Arnold Teter
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Arnold Teter, Vice President, Finance
Fax 805/578-5250
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EXHIBIT 10.7
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--GROSS
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
March 24, 1995, is made by and between Marjorie Lynn Landon ("Lessor") and View
Engineering, Inc., a California Corporation ("Lessee"), (collectively the
"Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 1780 North Voyager Avenue, located in the County
of Ventura, State of California and generally described as (describe briefly
the nature of the property) Approximately a 20,385 square foot concrete block
industrial structure located on approximately 1.09 acres of L-I zoned land.
("Premises"). (See paragraph 2 for further provisions.)
1.3 Term: 3 years and 2.5 months ("Original Term") commencing May 1, 1995
("Commencement Date") and ending July 15, 1998 ("Expiration Date"). (See
Paragraph 3 for further provisions.)
1.4 Early Possession: __________________________("Early Possession Date").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $9,377.10* per month ("Base Rent"), payable on the first
(1st) day of each month commencing May 1, 1995. *See Addendum Paragraph 1.5
(See Paragraph 4 for further provisions.) [_] If this box is checked, there are
provisions in the Lease for the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $14,065.65 as Base Rent for the period
June 16, 1995 - July 31, 1995.
1.7 Security Deposit: $9,377.10 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 Permitted Use: Manufacturing of vision based electronic systems and
related activities. (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $___________ is the
"Base Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): CB Commercial Real Estate
Group, Inc. represents [_] Lessor exclusively ("Lessor's Broker"); [X] both
Lessor and Lessee, and_________________________________________represents [_]
Lessee exclusively ("Lessee's Broker"); [_] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by__________________________________________________________________
_____________________________________________ ("Guarantor"). (See Paragraph 37
for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1.5 through 55 and Exhibits --- all of which constitute a part of
this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee;
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within thirty (30) days
after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee put the Premises or to any Alterations
or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such non-
compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within six (6) months
following the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation
as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the Premises
and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's
agents, has made any written representations or warranties with respect to the
said matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, shall be in effect during such period. Any such early possession
shall not affect nor advance the Expiration Date of the Original Term.
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3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to
pay rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall; upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions, Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3), "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with an Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier Termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 5 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable. Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
paragraph 8.3(a) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.).
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repair occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (1) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of the Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of the Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installation; Trade Fixtures; Alterations. See Addendum
Paragraph 51
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, airlines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installation or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications thereof. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under the Lease. Except as otherwise agreed or
specified in writing by Lessor, the Premises, as surrendered, shall include the
Utility Installations. The obligation of Lessee shall include the repair of any
damage occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Alterations and/or Utility Installations,
as well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable Law and/or
good service practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("Required Insurance"),
over and above the Base Premium, as hereinafter defined, calculated on an annual
basis, "Insurance Cost Increases" shall include, but not be limited to,
increases resulting from the nature of Lessee's occupancy, any act or omission
of Lessee, requirements of the holder of a mortgage or deed of trust covering
the Premises, increased valuation of the Premises, and/or a premium rate
increase. If the parties insert a dollar amount in Paragraph 1.9, such amount
shall be considered the "Base Premium." In lieu thereof, if the Premises have
been previously occupied, the "Base Premium" shall be the annual premium
applicable to the most recent occupancy. If the Premises have never been
occupied, the "Base Premium" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term, assuming the most nominal use possible of the Premises. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in
lieu of any coinsurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance coverage amount
by a factor of not less than the adjusted U.S. Department of Labor Consumer
Price Index for All Urban Consumers for the city nearest to where the Premises
are located.
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not, in case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
force and effect. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such repair,
the Insuring Party shall promptly contribute the shortage in proceeds as and
when required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lessee shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair of restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination--Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real property Taxes. See Addendum paragraph 10.1(a)
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by Lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lessee is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either:(i) in a lump sum amount equal to the amount due, at
least twenty (20) days prior to the applicable delinquency date, or (ii) monthly
in advance with the payment of the Base Rent. If Lessor elects to require
payment monthly in advance, the monthly payment shall be that equal monthly
amount which, over the number of months remaining before the month in which the
applicable tax installment would become delinquent (and without interest
thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge
the obligations of Lessee to pay such Tax Increase as the same becomes due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligation. All moneys paid to Lessor under this Paragraph
may be intermingled with other moneys of Lessor and shall not bear interest. In
the event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor be treated as an additional Security Deposit under
Paragraph 5.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Lessee Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, Improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease. Including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
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10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way or merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An Assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease, Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
PAGE 6
<PAGE>
and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, shall entitle Lessor to pursue the remedies set forth
in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endanger or threatens
life or property, where such failure continues for a period of three (3) days
following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 8.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs, (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed; (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fail to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation or Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee or Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease, as defined in
Paragraph 13.1, with or without further notice or demand, and without limiting
Lessor in the exercise of any right or remedy which Lessor may have by reason of
such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee; (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentences shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, the, without any requirement for notice to Lessee. Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
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14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to the Lessee for
Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of its net severance damages received, over and above the
legal and other expenses incurred by Lessor in the condemnation matter, repair
any damage to the Premises caused by such condemnation, except to the extent
that Lessee has been reimbursed therefor by the condemning authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $14,000) for brokerage services rendered by
said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction, Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the thirty-
first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as
Lessor may from time to time hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight, courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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<PAGE>
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability, or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installation, Trade
Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor
reserves all rights to the use of the roof and the right to install, and all
revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgement that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and Information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 Hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee
PAGE 8
<PAGE>
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safely, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Oxnard, Cal., on March 31, 1995
by LESSOR: Marjorie Lynn Landon
-----------------------------------------
/s/ Marjorie Lynn Landon
----------------------------------------------------
By /s/ Robert G. Noe
-------------------------------------------------
Name Printed: Robert G. Noe
--------------------------------------
Title: Attorney in Fact
---------------------------------------------
By
-------------------------------------------------
Name Printed:
--------------------------------------
Title:
---------------------------------------------
Address:
-------------------------------------------
Tel. No. ( ) Fax No. ( )
------------------ --------------------
Executed at Simi Valley, CA, on March 30, 1995
by LESSEE: View Engineering, Inc.
----------------------
a California Corporation
------------------------
By /s/ Arnold Teter
-------------------------------------------------
Name Printed: Arnold Teter
--------------------------------------
Title: Vice President Finance
By
-------------------------------------------------
Name Printed:
---------------------------------------
Title:
----------------------------------------------
Address: 1650-90 Voyager Avenue
----------------------
Simi Valley, CA 93063
---------------------
Tel. No. (805) 522-8439 Fax No. ( )
-------------- -------------
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<PAGE>
ADDENDUM TO THE STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS, DATED
MARCH 24, 1995, BY AND BETWEEN MARJORIE LYNN LANDON, AS ("LESSOR") AND VIEW
ENGINEERING, INC., A CALIFORNIA CORPORATION, AS ("LESSEE") INVOLVING THE
PREMISES AT 1780 NORTH VOYAGER AVENUE, SIMI VALLEY, CALIFORNIA 93063
- --------------------------------------------------------------------------------
1.5 Base Rent Continued
The rent schedule shall be as follows:
TIME FRAME RENT
May 1, 1995 - June 15, 1995 No charge to Lessee
June 16, 1995 - July 31, 1995 $14,065.65, industrial gross
August 1, 1995 - May 31, 1996 $9,377.10 per month, industrial gross
June 1, 1996 - May 31, 1997 $9,785.00 per month, industrial gross
June 1, 1997 - July 15, 1998 $10,400.00 per month, industrial gross
10.1(a)Real Property Taxes - Payment of Taxes (continued):
Notwithstanding the foregoing, if Lessor sells the building during the
lease term or option term, any increase in real estate taxes due solely as
a result of the sale, shall be the responsibility of the Lessor.
49. Rent Abatement
Monthly rental payments for the first forty-five (45) days of the lease
term shall be abated and at no cost to Lessee.
50. Tenant Improvements
Lessor grants permission to Lessee for Lessee to install, at Lessee's sole
cost and expense, a temperature controlled room toward the back of the
building. This room shall have special air conditioning and the specific
improvements for this room, as well as the aforementioned air conditioning
shall be the property of the Lessee, and thus Lessor grants permission for
Lessee the opportunity to take said improvements at the end of the period
of possession. However, Lessee hereby warrants that there will not be any
damage to the facility when the said improvements are removed, and that the
facility will be in the same condition at the end of the period of
possession as it was at the commencement of the lease term.
51. Broker Disclosure and Lessor Indemnification:
Lessor's Broker hereby discloses to Lessor and Lessee that he is aware of
some type of problem involving toxic waste/soil contamination within the
facility at 1625 Surveyor Avenue (northwest corner of Surveyor and Royal
Avenue). Lessor's broker is not aware of any other potential toxic problem
within the immediate neighborhood.
52. CC&R's and Maintenance Association:
Notwithstanding the provisions of this Lease, Lessee hereby acknowledges
that the leased premises are subject to: (1) Declaration of Covenants,
Conditions, and Restriction of Peppertree Business Park, Tract #3254-1; (2)
Declaration of Covenants, Conditions, and Grants of Easements (Simi-Voyager
Commercial/Industrial Plan Development); (3) By-Laws of the Simi-Voyager
Maintenance Association; and (4) First Amendment to Declaration of
Covenants, Conditions, Restriction, and Grants of Easements (Simi-Voyager
Commercial/Industrial Plan Development) and that said restrictions affect
the use of the leased premises. Lessee agrees that it shall comply with
said restrictions.
According to Mr. Cliff Enderfe, the President of the Simi-Voyager
Maintenance Association in 1993, the fees in 1993 were running somewhere in
the area of $165 per month and include landscaping, parking lot sweeping,
and bookkeeping (of the association's books).
-1-
<PAGE>
ADDENDUM TO THE STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS, DATED
MARCH 24, 1995, BY AND BETWEEN MARJORIE LYNN LANDON, AS ("LESSOR") AND VIEW
ENGINEERING, INC., A CALIFORNIA CORPORATION, AS ("LESSEE") INVOLVING THE
PREMISES AT 1780 NORTH VOYAGER AVENUE, SIMI VALLEY, CALIFORNIA 93063
- --------------------------------------------------------------------------------
53. ADA - Lessor is not aware of any ADA (Americans with Disabilities)
violations within the premises. Lessee shall satisfy itself that there are
no violations within the premises, and Lessee shall be responsible for
making any ADA alterations, if required.
AMERICANS WITH DISABILITIES ACT ("ADA") - "The parties hereto agree to
comply with all applicable federal, state and local laws, regulations,
codes, ordinances and administrative orders having jurisdiction over the
paries, property of the subject matter of this agreement, including, but
not limited to, the 1964 Civil Rights Act and all amendments thereto, the
Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act and The Americans
With Disabilities Act."
CONSULT YOUR ATTORNEY/ADVISORS - This document has been prepared for approval by
your attorney. No representation is made by CB Commercial Real Estate Group,
Inc. or the Southern California Chapter of the Society of Industrial and Office
Realtors (S.I.O.R.), Inc., or the agents or employees of either of them as to
the legal sufficiency, legal effect, or tax consequences of this document or the
transaction to which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
/s/ Arnold Teter March 30, 1995
- ------------------------------ --------------------------------
SIGNATURE DATE
/s/ Majorie Lynn Jordon
/s/ by ?????? attorney-in-fact March 31, 1995
- ------------------------------ --------------------------------
SIGNATURE DATE
-2-
<PAGE>
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
Dated March 24, 1995
--------------------------------------------------------------------------
By and Between (Lessor) Marjorie Lynn Landon
--------------------------------------------------------
(Lessee) View Engineering, Inc., a California Corp.
--------------------------------------------------------
Property Address: 1780 North Voyager Avenue
--------------------------------------------------------------
Paragraph 54
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for 1 additional 36 month period(s) commencing when the prior term
expires upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which
is prior to the date that the option period would commence (if exercised) by at
least 4 and not more than 6 months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence, if said notification of the exercise of said option(s) is(are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] I. Cost of Living Adjustment(s) (COL) (See subparagraph III below)
(a) On (Fill in COL Adjustment Date(s): at the commencement of the
13th and 25th months of the extension term. (See Paragraph III below), the
monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted by the change, if any, from the Base Month specified below, in
the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): [_] CPI W (Urban Wage Earners and Clerical
Workers) or [X] CPI U (All Urban Consumers), for (Fill in Urban Area): Los
Angeles/Anaheim/Riverside, All Items (1982-1984 = 100), herein referred to as
"C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the C.P.I. of the calendar month 2 (two) months
prior to the month(s) specified in paragraph A1(a) above during which the
adjustment is to take effect, and the denominator of which shall be the C.P.I.
of the calendar month which is two (2) months prior to (select one): [_] the
first month of the term of this Lease as set forth in paragraph 1.3 ("Base
Month") or [X] (Fill in Other "Base Month"): July 16, 1998. The sum so
calculated shall constitute the new monthly rent hereunder, but in no event,
shall any such new monthly rent be less than the rent payable for the month
immediately preceding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for decision
to the American Arbitration Association in accordance with the then rules of
said association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
[_] II. Market Rental Value Adjustment(s) (MRV)
(a) On (Fill in MRV Adjustment Date(s):
------------------------------
- --------------------------------------------------------------------------------
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
OPTION(S) TO EXTEND
Page 1 of 2
<PAGE>
ADDENDUM TO
STANDARD LEASE
Dated March 24, 1995
----------------------------------------------
By and Between Marjorie Lynn Landon (Lessor)
------------------------------------
and View Engineering, Inc., a California Corporation (Lessee)
----------------------------------------------------
55 RIGHT OF FIRST REFUSAL TO PURCHASE
- ------
(a) Lessor shall not at any time prior to the expiration of the term of
this Lease, or any extension thereof, sell the Premises, or any interest
therein, without first giving written notice thereof to Lessee, which notice is
hereinafter referred to as "Notice of Sale".
(b) The Notice of Sale shall include the exact and complete terms of the
proposed sale and shall have attached thereto a photocopy of bona fide offer and
counteroffer, if any, duly executed by both Lessor and the prospective
purchaser.
(c) For a period of ten (10) business days after receipt by Lessee of the
Notice of Sale, Lessee shall have the right to give written notice to Lessor of
Lessee's exercise of Lessee's right to purchase the Premises, or the interest
proposed to be sold, on the same terms, price and conditions as set forth in the
Notice of Sale. In the event that Lessor does not receive written notice of
Lessee's exercise of the right herein granted within said ten (10) day period,
there shall be a conclusive presumption that Lessee has elected not to exercise
Lessee's right hereunder, and Lessor may sell the Premises, or the interest
proposed to be sold, on the same terms set forth in the Notice of Sale.
(d) In the event that Lessee declines to exercise its right of first
refusal after receipt of the Notice of Sale, and, thereafter, Lessor and the
prospective purchaser modify by more than 5%, (i) the sales price, (ii) the
amount of down payment, or (iii) interest charged, or in the event that the sale
is not consummated within 160 days of the date of the Notice of Sale, then
Lessee's right of first refusal shall reapply to said transaction as of the
occurrence of any of the aforementioned events.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
General Scanning GmbH Jurisdiction of Incorporation:
Germany
General Scanning Asia Pacific Limited
Jurisdiction of Incorporation:
Hong Kong
General Scanning Japan K.K. Jurisdiction of Incorporation:
Japan
GSI Export Corporation Jurisdiction of Incorporation:
U.S. Virgin Islands
General Scanning France SARL Jurisdiction of Incorporation:
France
General Scanning Limited Jurisdiction of Incorporation:
United Kingdom
General Scanning Securities Corporation
Jurisdiction of Incorporation:
Massachusetts,
United States
View Engineering, Inc. Jurisdiction of Incorporation:
California, United
States
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement, File No. 33-99788.
Arthur Andersen LLP
Boston, Massachusetts
March 7, 1997
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<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
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<SECURITIES> 0
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<ALLOWANCES> 867
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<PP&E> 37,207
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<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 68,167
<TOTAL-LIABILITY-AND-EQUITY> 95,573
<SALES> 156,533
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<CGS> 84,853
<TOTAL-COSTS> 84,853
<OTHER-EXPENSES> 58,867
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<EPS-PRIMARY> .53
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