-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O4lGshupMNerhCr3SRcGNKh86sAtiDdxOBeGgekVIrRf/uiMbjURgeuqxanwzdHq fom1oiGO3ZW0BlpiV75Iew== 0000350750-00-000005.txt : 20000501 0000350750-00-000005.hdr.sgml : 20000501 ACCESSION NUMBER: 0000350750-00-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAIRNCO CORP /DE/ CENTRAL INDEX KEY: 0000350750 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 133057520 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08120 FILM NUMBER: 611548 BUSINESS ADDRESS: STREET 1: 2251 LUCIEN WAY SUITE 300 CITY: MAITLAND STATE: FL ZIP: 32751 BUSINESS PHONE: 4078752222 MAIL ADDRESS: STREET 1: 2251 LUCIEN WAY, SUITE 300 CITY: MAITLAND STATE: FL ZIP: 32751-7037 10-K 1 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-8120 BAIRNCO CORPORATION (Exact name of Registrant as specified in its charter) Delaware 13-3057520 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 300 Primera Blvd., Lake Mary, Florida 32746 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (407) 875-2222 Securities registered pursuant to Section 12(b) of the Act: Name of each Exchange on Title of each class which registered Common Stock, par value $.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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. [ ] Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No On March 16, 2000, the aggregate market value of the Registrant's voting stock held by non-affiliates was $49,434,113. On March 16, 2000, there were 7,741,384 shares of Common Stock outstanding, exclusive of treasury shares or shares held by subsidiaries of the Registrant. Parts I, II and IV incorporate information by reference from the Annual Report to Stockholders for the fiscal year ended December 31, 2000. Part III incorporates information by reference from the Proxy Statement dated March 14, 2000 in connection with the Registrant's Annual Meeting of Stockholders to be held on April 21, 2000. PART I Item 1. BUSINESS a. Recent Developments and Description Bairnco Corporation was incorporated under the laws of the State of New York on April 9, 1981. Effective September 24, 1991, Bairnco Corporation changed its state of incorporation from New York to Delaware. Unless otherwise indicated herein, the terms "Bairnco" and the "Corporation" refer to Bairnco Corporation and its subsidiaries. Bairnco's two core businesses are Arlon's Engineered Materials and Components, and Kasco's Replacement Products and Services. In February of 2000 Bairnco purchased certain assets of the materials business ("Signtech") of Signtech USA, Ltd., a manufacturer of laminated vinyl fabrics designated for use in the commercial graphics market. Signtech's product lines complement Arlon's current vinyl product lines, and will provide product line extensions, additional brand recognition, product development synergies, and penetration into new customer segments and markets. At December 31, 1999, Bairnco employed 820 persons including 14 headquarters personnel. Bairnco's operations occupy approximately 605,000 square feet of factory and office space at its principal locations. There is an additional 53,000 square feet of leased space used as field warehouses throughout North America. b. & c. Financial Information About Industry Segments and Narrative Description of Business Bairnco Corporation is a diversified multinational company that operates two business sectors. Engineered materials and components are designed, manufactured and sold under the Arlon brand identity to electronic, industrial and commercial markets. These products are based on common technologies in coating, laminating, polymers and dispersion chemistry. Replacement products and services are manufactured and distributed under the Kasco brand identity principally to supermarkets, meat and deli operations, and meat, poultry and fish processing plants throughout the United States, Canada and Europe. Kasco also manufactures small band saw blades for cutting metal and wood, and large band saw blades for use at lumber mills. In Canada and France, in addition to providing its replacement products, Kasco also distributes equipment to the supermarket and food processing industries. Financial data and other information about the Corporation's segments is set forth in Note 10 to the Consolidated Financial Statements on pages 28 through 30 and on pages 4 through 7 of Bairnco's 1999 Annual Report to Stockholders which is incorporated herein by reference. This information should be read in conjunction with the "Financial History" set forth on page 9 of Bairnco's 1999 Annual Report to Stockholders, and "Management's Discussion and Analysis" set forth on pages 10 through 12 of Bairnco's 1999 Annual Report to Stockholders, which is incorporated herein by reference. The principal facilities utilized by each segment are detailed on page 10 under "Item 2. PROPERTIES" of this filing. ENGINEERED MATERIALS AND COMPONENTS (ARLON) Description of Business Engineered materials and components are designed, manufactured and sold under the Arlon brand identity. These products are based on common technologies in coating, laminating, polymers, and dispersion chemistry. Arlon's principal products include high performance materials for the printed circuit board industry, adhesive coated cast and calendered vinyl films, custom-engineered laminates, and calendered and extruded silicone rubber insulation products used in a broad range of industrial, consumer and commercial products. Arlon Materials for Electronics has an international reputation as the premier supplier of high technology materials for the printed circuit board industry. These products are marketed principally to printed circuit board manufacturers and OEM's by technical sales representatives in the US, and through distributors and manufacturers representatives in Europe, the Far East, and South America, supported by direct technical sales specialists in Europe and Asia. Our Electronic Substrates product line includes high temperature, high performance thermoset laminates and prepreg bonding plies used in circuit boards for sophisticated commercial applications and military electronics. These applications require materials that are highly reliable, withstand continuous high or widely varying operating temperatures, provide ease of field repairability, or improve board fabrication yields. Intermediate temperature laminates, which provide improved product reliability and ease of manufacture at a lower cost, are also key to the line. The Microwave Materials product line offers application matched, reinforced PTFE and other resin based laminates providing high yields and high performance for low signal-loss and frequency-dependent microwave applications. The applications for this product line include microwave antennas, digital cordless telephones, cellular phone handsets, cellular phone base stations, direct broadcast satellite TV systems, personal communications networks, global positioning satellites, local area networks, collision avoidance systems, and radar detection systems. Arlon specialty graphic films are marketed under the Calon brand name and include cast and calendered vinyl films that are manufactured in a wide variety of colors, face stocks and adhesive systems. These vinyl films are used in commercial and electrical signage, point of purchase displays, highway signage, fleet markings, and other commercial advertising applications. In February of 2000, Bairnco announced it had purchased certain assets of the materials business ("Signtech") of Signtech USA, Ltd., a manufacturer of laminated vinyl fabrics designated for use in the commercial graphics market. Signtech's product lines complement Arlon's current vinyl product lines, and will provide product line extensions, additional brand recognition, product development synergies, and penetration into new customer segments and markets. Custom engineered laminates and coated products are also manufactured and marketed under the Arlon brand identity. Typical applications include insulating foam tapes for thermopane windows, specialty flexible circuit materials, electrical insulation materials for motors and transformers, thermal insulation panels for appliances and cars, identification cards and labels, durable printing stock, and other custom engineered laminates for specific industrial applications. Arlon also manufactures a line of silicone rubber materials, used in a broad range of consumer, industrial and commercial products. Typical applications and products include silicone sheet rubber for producing composite parts, silicone rubber insulating tapes for electric traction motor coil windings, insulation for industrial and commercial flexible heaters, silicone products for high temperature hose and duct markets, insulating tape for medium and high voltage electrical splices and terminations, as well as compliant, thermally or electrically conductive silicone sheet adhesives known as ThermabondT. Competition Arlon has numerous competitors ranging in size from small, sole proprietorships to units of very large, multinational corporations that in certain instances have far greater market positions and financial resources than the Corporation's. The principal method of competition for Arlon's products varies by product line and type of customer. While competition for established lines is usually based on one or more of lead time, price, product performance, or technical support and customer service, it may also be based on the ability to service emerging technologies through the custom design of new products, or redesign of existing products, and materials for the new applications. As an example, for some high performance materials sold to the printed circuit board industry, the consistent technical performance of the materials supplied in excess of minimum specified standards can be the critical competitive element. In addition, Arlon sells a significant portion of its circuit board materials into the Far Eastern and European markets where local producers of similar materials have a competitive advantage related to their geographic location. Distribution Arlon products are marketed by company sales personnel, outside sales representatives and distributors in the North and South America, Europe, the Far East and several other international markets. Raw Materials and Purchased Parts The essential raw materials used in Arlon engineered materials and components are silicone rubber, fiberglass cloth, pigments, steel and aluminum parts, copper foil, aluminum foil, polyethylene foam and various plastic films, special papers and release liners, vinyl resins, various adhesives and solvents, TeflonT or polytetrafluoroethylene (PTFE) resin, polyimide resin, epoxy resins, other thermoset resins, and various chemicals. Generally, these materials are each available from several qualified suppliers. There are, however, several raw materials used in Arlon's products that are purchased from chemical companies and are proprietary in nature. Other raw materials are purchased from a single approved vendor on a "sole source" basis although alternative sources could be developed in the future if necessary. However, the qualification procedure can take up to several months and could therefore interrupt production if the primary raw material source was lost unexpectedly. Due to the number and diversity of Arlon's products it is unlikely that availability problems with any one raw material would have a material adverse effect on Arlon. There are no known limitations to the continued availability of Arlon's raw materials. Current suppliers are located in the United States, Japan, Europe and Brazil. Employees As of December 31, 1999, approximately 502 employees were employed by the operations, which constitute Arlon's engineered materials and components. Patents and Trademarks The Corporation owns several registered trademarks under which certain Arlon products are sold. The Corporation does not believe that the loss of any or all of these trademarks would have a material adverse effect on this segment. REPLACEMENT PRODUCTS AND SERVICES (KASCO) Description of Business Replacement products and services are manufactured and distributed under the Kasco brand identity principally to the meat, deli and seafood departments of supermarkets; to meat, poultry and fish processing plants; and to manufacturers and distributors of electrical saws and cutting equipment throughout the United States, Canada and Europe. These products and services include band saw blades for cutting meat and fish, saw blades for cutting wood and metal, chopper plates and knives for grinding meat, electrical saws and cutting machines, seasoning products, preventive maintenance for equipment in meat and deli operations, and other related butcher supply products. Replacement products and services are sold under a number of brand names including Kasco in the United States and Canada, Atlantic Service in the United Kingdom and Canada, and Bertram & Graf and Biro France in Continental Europe. Competition and Marketing Kasco competes with several large and medium-sized national and regional companies, as well as numerous small local companies. The principal methods of competition are service, price and product performance. The performance of meat band saw blades used in cutting meat or other food items is balanced between minimizing waste and maximizing the efficiency and productivity of the band saw machine and operator or other cutting/processing equipment being used. Kasco has a significant distribution network that reaches over 30,000 retail grocery stores, restaurants, delis, and processing plants in the US, Canada, Europe, Latin America and Asia. Kasco's distribution network is made up of Territory Managers and Distributors who have in-depth knowledge of the local markets and the customer's needs. Kasco has an extensive training program for its Territory Managers so that each is proficient in the installation, repair, and service of meat, deli and seafood department equipment. Within our extensive market coverage of retail grocery stores, Kasco also offers a unique product offering of seasoning blends, recipes and instructions under the tradename Mealtime SolutionsT, which allows a supermarket to present value-added products in their meat, deli and seafood departments. Raw Materials and Purchased Supplies High quality carbon steel is the principal raw material used in the manufacture of band saw blades and is purchased from multiple domestic and international suppliers. Tool steel is utilized in manufacturing meat grinder plates and knives and is purchased from qualified suppliers located in the United States, Europe and Japan. Equipment, replacement parts and supplies are purchased from a number of manufacturers and distributors, mostly in the United States and Europe. In France, certain specialty equipment and other items used in the supermarket industry and in the food processing industry are purchased and resold under exclusive distributorship agreements with the equipment manufacturers. All of the raw materials and purchased products utilized by this segment have been readily available throughout this last year. Employees As of December 31, 1999, approximately 304 persons were employed in the replacement products and services segment. Patents and Trademarks The Corporation has a number of United States and foreign mechanical patents related to several of the products manufactured and sold by Kasco, as well as a number of design patents and registered trademarks. The Corporation does not believe, however, that the loss of any or all of those patents would have a material adverse effect on this segment. d. Foreign Operations The Corporation has foreign operations located in Canada, the United Kingdom, France, and Germany. Information on the Corporation's operations by geographical area for the last three fiscal years is set forth in Note 10 to the Consolidated Financial Statements on pages 28 through 30 of Bairnco's 1999 Annual Report to Stockholders which is incorporated herein by reference. In addition, export sales from the Corporation's US based operations for the years ended December 31, 1999, 1998 and 1997 were $39,291,000, $30,554,000 and $28,770,000, respectively. Export sales to any particular country or geographic area did not exceed 10% of consolidated sales during any of these years. Item 2. PROPERTIES The following chart lists for the Corporation as a whole, and by each of its segments, the principal locations of the Corporation's facilities and indicates whether the property is owned or leased and if leased, the lease expiration date. LEASED OR OWNED LOCATION SQUARE FEET (LEASE EXPIRATION) CORPORATION TOTAL 658,000 Headquarters Lake Mary, FL 11,000 Leased (Expires 2009) Engineered Materials and Components (Arlon) Bear, DE 135,000 Owned East Providence, RI 60,000 Owned Northbrook, IL 30,000 Owned Rancho Cucamonga, CA 80,000 Owned Santa Ana, CA 124,000 Leased (Expires 2003) Replacement Products and Services (Kasco) Gwent, Wales, UK 25,000 Owned Pansdorf, Germany 22,000 Owned Paris, France 20,000 Leased (Expires 2001) St. Louis, MO 78,000 Owned St. Louis, MO 20,000 Leased (Expires 2000) Field Warehouses (Approximately 70 locations in North America) 53,000 Leased Item 3. LEGAL PROCEEDINGS Bairnco and its subsidiaries are among the defendants in a lawsuit pending in the U.S. District Court for the Southern District of New York (the "Transactions Lawsuit") in which it is alleged that Bairnco and others are derivatively liable for the asbestos-related claims against its former subsidiary, Keene Corporation ("Keene"). The plaintiffs in the Transactions Lawsuit are the trustees of Keene Creditors Trust ("KCT"), a successor in interest to Keene. In the Transactions Lawsuit complaint, the KCT alleges that certain sales of assets by Keene to other subsidiaries of Bairnco were fraudulent conveyances and otherwise violative of state law, as well as being violative of the civil RICO statute, 18 U.S.C. Section 1964. The complaint seeks compensatory damages of $700 million, interest, punitive damages, and trebling of the compensatory damages pursuant to civil RICO. In a series of decisions that remain subject to appeal, the court has dismissed plaintiff's civil RICO claims; dismissed 14 of the 21 defendants named in the complaint; and partially granted defendants' motions for summary judgment on statute of limitations grounds. Discovery is now underway as to the remaining claims and defendants. The court has entered a scheduling order requiring the completion of all discovery (including expert discovery) by May 11, 2001. A trial date has not been set, but the Court has scheduled a conference for June 19, 2001, to determine dates for filing a pretrial order, for trial, and/or for any pretrial motions. Keene was spun off in 1990, filed for relief under Chapter 11 of the Bankruptcy Code in 1993, and emerged from Chapter 11 pursuant to a plan of reorganization approved in 1996 (the "Keene Plan"). The Keene Plan provided for the creation of the KCT, and transferred the authority to prosecute the Transactions Lawsuit from the Official Committee of Unsecured Creditors of Keene (which initiated the lawsuit in the Bankruptcy Court in 1995) to the KCT. The Keene Plan further provided that only the KCT, and no other entity, can sue Bairnco in connection with the claims in the Transactions Lawsuit complaint. Therefore, although a number of other asbestos-related personal injury and property damage cases against Bairnco nominally remain pending in courts around the country, it is expected that the resolution of the Transactions Lawsuit in substance will resolve all such claims. Bairnco also is the defendant in a separate action by the KCT (the "NOL Lawsuit"), also pending in the United States District Court for the Southern District of New York, in which the KCT seeks the exclusive benefit of tax refunds attributable to the carryback by Keene of certain net operating losses ("NOL Refunds"), notwithstanding certain provisions of applicable tax sharing agreements between Keene and Bairnco. (As with the Transactions Lawsuit, the NOL Lawsuit was commenced during Keene's Chapter 11 case and, pursuant to the Keene Plan, the KCT became the plaintiff in the lawsuit and the lawsuit was moved from the Bankruptcy Court to the District Court.) Pending resolution of the NOL Lawsuit, any refunds actually received are to be placed in escrow. Through December 31, 1999, approximately $28.5 million of NOL Refunds had been received and placed in escrow. There can be no assurance whatsoever that resolution of the NOL Lawsuit will result in the release of any portion of the NOL Refunds to Bairnco. Bairnco and its Arlon subsidiary ("Arlon") also are among the defendants in a third action by the KCT (the "Properties Lawsuit"), commenced December 8, 1998 and pending in the United States District Court for the Southern District of New York. In the Properties Lawsuit complaint, the KCT seeks a declaratory judgment that it owns certain patents and real property purchased by Arlon from Keene in 1989, based on the allegations that technical title to these assets was not conveyed at the time of the sale and that no proof of claim specifically referencing these assets was filed during Keene's Chapter 11 case. In an answer and counterclaims, Bairnco and Arlon have denied the KCT's claims and have requested a declaratory judgment that full title to the patents and real property in question in fact was transferred to Arlon at the time of the 1989 asset sale. The Properties Lawsuit has been transferred to the Transactions Lawsuit Judge for consolidated discovery and other proceedings. Management believes that Bairnco has meritorious defenses to all claims or liability purportedly derived from Keene and that it is not liable, as an alter ego, successor, fraudulent transferee or otherwise, for the asbestos-related claims against Keene or with respect to Keene products. Bairnco Corporation and its subsidiaries are defendants in a number of other actions. Management of Bairnco believes that the disposition of these other actions, as well as the actions and proceedings described above, will not have a material adverse effect on the consolidated results of operations or the financial position of Bairnco Corporation and its subsidiaries as of December 31, 1999. Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 1999. EXECUTIVE OFFICERS OF THE REGISTRANT The information required with respect to executive officers of the Corporation is as follows: Name and Age of Data Pertaining to Executive Officers Executive Officers Luke E. Fichthorn III (58) Mr. Fichthorn has served as Chairman of Bairnco since May 23, 1990, and on December 18, 1991, became Chief Executive Officer of Bairnco. For over twenty-five years, Mr. Fichthorn has been a private investment banker and partner of Twain Associates, a private investment banking and consulting firm. Mr. Fichthorn served as a director of Keene Corporation, a former subsidiary of Bairnco Corporation from August, 1969 until May, 1981, and became a director of Bairnco in January, 1981. Mr. Fichthorn is also a director of Florida Rock Industries, Inc. and FRP Properties, Inc., neither of which is affiliated with Bairnco. Larry D. Smith (50) Mr. Smith was elected Vice President - Administration and Secretary of Bairnco in April 1999. Prior to joining Bairnco, Mr. Smith was employed for over 14 years with Emerson Electric Company in various human resource managerial capacities. Most recently, Mr. Smith was Vice President Human Resources for Emerson's Therm-O-Disc, Inc. division in Mansfield, Ohio. James W. Lambert (46) Mr. Lambert was appointed Vice President - Finance and Treasurer of Bairnco in December 1999. From August 1997 to December 1999, Mr. Lambert was Bairnco's Corporate Controller. Prior to joining Bairnco, Mr. Lambert was employed for over 15 years by Air Products and Chemicals Inc., in a variety of financial, marketing and product management capacities. Lawrence C. Maingot (40) Mr. Maingot was appointed Corporate Controller of Bairnco in December 1999. From May 1997 to December 1999, Mr. Maingot was Bairnco's Assistant Controller. From April 1992 to May 1997, Mr. Maingot was Bairnco's Accounting Manager. Prior to joining Bairnco, Mr. Maingot was employed with Arthur Andersen LLP. PART II Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS a. & c. Data regarding market prices of Bairnco's common stock is included in the "Quarterly Results of Operations" on page 13 of Bairnco's 1999 Annual Report to Stockholders which is incorporated herein by reference. Bairnco's common stock is traded on the New York Stock Exchange under the symbol BZ. Data on dividends paid is included in the Consolidated Statements of Income on page 15 of Bairnco's 1999 Annual Report to Stockholders, which is incorporated herein by reference. The quarterly cash dividend remained constant at $0.05 per share during 1999. The Board continues to review the dividend on a quarterly basis. b. The approximate number of holders of record of Bairnco common stock (par value $.01 per share) as of December 31, 1999 was 1,356. Item 6. SELECTED FINANCIAL DATA Reference is made to "Financial History" on page 9 of Bairnco's 1999 Annual Report to Stockholders, which is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the "Management's Discussion and Analysis" on pages 10 through 12 of Bairnco's 1999 Annual Report to Stockholders which is incorporated herein by reference. Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The interest on the Corporation's bank debt is floating and based on prevailing market interest rates. For market rate based debt, interest rate changes generally do not affect the market value of the debt but do impact future interest expense and hence earnings and cash flows, assuming other factors remain unchanged. A theoretical one- percentage point change in market rates in effect on December 31, 1999 would increase interest expense and hence reduce the net income of the Corporation by approximately $210,000 per year. The Corporation's fiscal 1999 sales denominated in a currency other than U.S. dollars were approximately 14% of total sales and net assets maintained in a functional currency other than U.S. dollars at December 31, 1999 were approximately 19% of total net assets. The effects of changes in foreign currency exchange rates has not historically been significant to the Corporation's operations or net assets. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Consolidated Financial Statements and accompanying Notes included on pages 15 through 31 and the "Quarterly Results of Operations" on page 13 of Bairnco's 1999 Annual Report to Stockholders which is incorporated herein by reference. Financial Statement Schedules are included in Part IV of this filing. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required with respect to directors of Bairnco is included in the Proxy Statement for the 2000 Annual Meeting of Stockholders of Bairnco, which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. See the information regarding executive officers of the Corporation on pages 13 and 14 of this Annual Report on Form 10-K. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is included in the Proxy Statement for the 2000 Annual Meeting of Stockholders of Bairnco, which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is included in the Proxy Statement for the 2000 Annual Meeting of Stockholders of Bairnco, which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is included in the Proxy Statement for the 2000 Annual Meeting of Stockholders of Bairnco, which has been filed with the Securities and Exchange Commission and is incorporated herein by reference. PART IV Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a) 1. Financial Statements Included in the 1999 Annual Report to Stockholders which is included as Exhibit 13 to this Annual Report on Form 10-K: Report of Independent Certified Public Accountants; Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997; Consolidated Statements of Comprehensive Income for the years ended December 31, 1999, 1998 and 1997; Consolidated Balance Sheets as of December 31, 1999 and 1998; Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997; Consolidated Statements of Stockholders' Investment for the years ended December 31, 1999, 1998 and 1997; Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Included in Part IV of this Annual Report on Form 10-K: Report of Independent Certified Public Accountants on Financial Statement Schedules on page 21 of this Annual Report on Form 10-K; Financial Statement Schedules for the years ended December 31, 1999, 1998 and 1997: Schedule II - Valuation and Qualifying Accounts on page 22 of this Annual Report on Form 10-K; All other schedules and notes are omitted because they are either not applicable, not required or the information called for therein appears in the Consolidated Financial Statements or Notes thereto. 3. See Index to Exhibits on pages 24 through 26 of this Annual Report on Form 10-K. b) Reports on Form 8-K - None filed in the fourth quarter of 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BAIRNCO CORPORATION (Registrant) Date: March 27, 2000 By: /s/ James W. Lambert James W. Lambert Vice President-Finance and Treasurer (Principal Financial Officer) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated above. /s/ Luke E. Fichthorn III Luke E. Fichthorn III - Chairman and CEO /s/ Richard A. Shantz Richard A. Shantz - Director /s/ Charles T. Foley Charles T. Foley - Director /s/ William F. Yelverton William F. Yelverton - Director /s/ James W. Lambert James W. Lambert - Vice President-Finance and Treasurer (Principal Financial Officer) /s/ Lawrence C. Maingot Larry C. Maingot - Controller (Principal Accounting Officer) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES TO BAIRNCO CORPORATION: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Bairnco Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 21, 2000, except with respect to the matters discussed in Note 12, as to which the date is February 16, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a) 2 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 consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated 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 consolidated financial statements taken as a whole. Orlando, Florida January 21, 2000 (except with respect to the matters discussed in Note 12, as to which the date is February 16, 2000) Arthur Andersen LLP BAIRNCO CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 Balance Balance Year Ended Beginning Deductions End December 31, of Year Expenses (a) Other (b) of Year 1999 Reserve for Doubtful Accounts $1,224,000 $ 647,000 $ (735,000) $ -- $1,136,000 Reserve for Excess and Obsolete Inventory $2,559,000 $3,739,000 $(2,156,000) $ -- $4,142,000 1998 Reserve for Doubtful Accounts $ 943,000 $ 372,000 $ (241,000) $150,000 $1,224,000 Reserve for Excess and Obsolete Inventory $1,673,000 $3,029,000 $(2,612,000) $469,000 $2,559,000 1997 Reserve for Doubtful Accounts $ 822,000 $ 365,000 $ (244,000) $ -- $ 943,000 Reserve for Excess and Obsolete Inventory $2,057,000 $2,036,000 $(2,420,000) $ -- $1,673,000 (a) Actual charges incurred in connection with the purpose for which the reserves were established. (b) Additions to the reserve from acquisition. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS TO 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, 1999 Commission File No.: 1-8120 BAIRNCO CORPORATION (Exact name of registrant as specified in the charter) INDEX TO EXHIBITS Description Incorporated Herein By Reference To Certificate of Incorporation, as Exhibit 3 to Bairnco's Annual amended through September 24, 1991. Report on Form 10-K for fiscal year ended December 31, 1991. By Laws, as amended through December Exhibit 3 to Bairnco's Annual 18, 1991. Report on Form 10-K for fiscal year ended December 31, 1991. Promissory note dated as of Exhibit 4 to Bairnco's Annual September 1, 1989, between Arlon, Report on Form 10-K for fiscal Inc. And the Delaware Economic year ended December 31, 1989. Development Authority. Indenture of Trust, series 1989, Exhibit 4 to Bairnco's Annual dated as of September 1, 1989, Report on Form 10-K for fiscal between the Delaware Economic year ended December 31, 1989. Development Authority and Manufacturers and Traders Trust Company, securing variable rate demand Industrial Development Refunding Revenue Bonds (Arlon, Inc. Project), series 1989 of the Delaware Economic Development Authority. Loan Agreement, dated as of Exhibit 4 to Bairnco's Annual September 1, 1989, between the Report on Form 10-K for fiscal Delaware Economic Development year ended December 31, 1989. Authority and Arlon, Inc. Reimbursement Agreement dated as of Exhibit 4 to Bairnco's Annual September 1, 1989 by and among Report on Form 10-K for fiscal Arlon, Inc., Bairnco Corporation and year ended December 31, 1989. Continental Bank NA (now Bank of America, Illinois). Agreement of the Company, dated Exhibit 4(e) to Bairnco's March 30, 1987, to furnish a copy of Annual Report on Form 10-K for any instrument with respect to fiscal year ended December 31, certain other long-term debt to the 1986. Securities and Exchange Commission upon its request. Standard Industrial Lease dated June Exhibit 10 to Bairnco's 30, 1983 between James E. and Nancy Annual Report on Form 10-K S. Welsh, trustees under Welsh for fiscal year ended Family Trust, dated April 20, 1979 December 31, 1983. and Arlon, Inc. as successor to Keene Corporation. Bairnco Corporation 401(k) Savings Exhibit 4.3 to Bairnco's Plan and Trust. Registration Statement on Form S-8, No. 33-41313. Bairnco Corporation 1990 Stock Exhibit 4.3 to Bairnco's Incentive Plan. Registration Statement on Form S-8, No. 33-36330. INDEX TO EXHIBITS Description Incorporated Herein By Reference To Bairnco Corporation Management Exhibit 10 to Bairnco's Incentive Compensation Plan. Annual Report on Form 10-K for fiscal year ended December 31, 1981. Employment Agreement dated January Exhibit 10 to Bairnco's 22, 1990, between Bairnco Annual Report on Form 10-K Corporation and Luke E. Fichthorn for fiscal year ended III. December 31, 1989. Promissory Note dated January 31, Exhibit 4 to Bairnco's 1998, between Bairnco Corporation Annual Report on Form 10-K and Bank of America NT&SA. for fiscal year ended December 31, 1997. Second Amended and Restated Credit Exhibit 2 to Bairnco's Agreement dated as of February 22, Current Report on Form 8-K 2000, by and among Bairnco dated February 24, 2000. Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Bank of America, N.A., as the Agent for Lenders. Exhibits to Second Amended and Exhibit 3 to Bairnco's Restated Credit Agreement dated as Current Report on Form 8-K of February 22, 2000, by and among dated February 24, 2000. Bairnco Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Bank of America, N.A., as the Agent for Lenders. Lease, dated May 17, 1999, between Exhibit 10.1 filed herewith. Crescent Resources, Inc. a South Carolina Corporation, and Bairnco Corporation. Lease, dated February 16, 2000, Exhibit 10.2 filed herewith. between Signtech USA, Ltd., a Texas Limited Partnership, and Arlon Signtech Ltd. Calculation of Basic and Diluted Exhibit 11 filed herewith. Earnings per Share for the years ended December 31, 1999, 1998 and 1997. 1999 Annual Report to Stockholders. Exhibit 13 filed herewith. INDEX TO EXHIBITS Description Incorporated Herein By Reference To Subsidiaries of the Registrant. Exhibit 21 filed herewith. Consent of Independent Certified Exhibit 23 filed herewith. Public Accountants. Financial Data Schedules. Exhibit 27 filed herewith (electronic filing only). Form 11-K Re: Bairnco Corporation Exhibit 99 filed herewith. 401(k) Savings Plan and Trust for the fiscal year ended December 31, 1999. EX-10.1 2 LEASE AGREEMENT THE CRESCENT AT PRIMERA, BUILDING FOUR LEASE SUMMARY LEASE DATE: May 17, 1999 LANDLORD: Crescent Resources, Inc., a South Carolina corporation NOTICE: Post Office Box 1003 [zip code 28201-1003] (If delivered by mail) ADDRESS OF LANDLORD 400 South Tryon Street, Suite 1300 [zip code 28202] (If personally delivery or overnight service or telegram) Charlotte, North Carolina Attention: Regional Vice PresidentTelephone: (704) 382-8009 Facsimile: (704) 382-6385 COPY TO: Crescent Resources, Inc. 605 Crescent Executive Court, Suite 112 Lake Mary, Florida 32746 Attention: Property Manager Telephone: (407)804-1200 Facsimile: (407)804-1222 COPY TO: Pohl & Short, P.A. 280 West Canton Avenue, Suite 410 Winter Park, Florida 32789 Attention: John R. Simpson, Jr., Esquire Telephone: (407)647-7645 Facsimile: (407)647-2314 TENANT: Bairnco Corporation, a Delaware corporation NOTICE Bairnco Corporation ADDRESS OF 2251 Lucien Way, Suite 300 TENANT: Maitland, Florida 32751 Attention: James W. Lambert,Telephone: (407) 875-2222 Facsimile: (407) 875-3398 COPY TO: Holland & Knight, LLP Two South Orange Avenue Orlando, Florida 32801 Attn: Christopher Brockman, EsquireTelephone: (407) 244-1100 Facsimile: (407) 244-5288 BUILDING: Office building known as The Crescent at Primera, Building Four, located on the Land (at 300 Primera Boulevard , Lake Mary, Florida). LAND: That certain tract or parcel of land located in Lake Mary, Florida, and described on Exhibit A attached hereto and incorporated herein by reference. PREMISES: Suite 432 on the fourth floor of the Building, as more particularly described on Exhibit B attached hereto and incorporated herein by reference. The Premises Net Rentable Area and the Premises Net Usable Area described below are estimates. Upon completion of the final space plan for the Premises, the actual Rentable Area and Usable Area shall be calculated in accordance with the measurement method promulgated by the Building Owners and Managers Association (BOMA) based upon a common area factor of thirteen percent (13%). The Premises Net Rentable Area and the Premises Net Usable Area shall then be adjusted and determined in accordance with such calculations and all other provisions of this Lease which are based upon the Premises Net Rentable Area or the Premises Net Usable Area shall likewise be adjusted. Landlord and Tenant shall execute an amendment to this Lease to evidence all such adjustments. PREMISES NET RENTABLE AREA: 11,241 square feet located on the fourth floor in the Building, subject to adjustment as described above. PREMISES NET USABLE AREA: 9,948 square feet located on the fourth floor in the Building, subject to adjustment as described above. BUILDING NET RENTABLE AREA: 121,467 square feet, measured in accordance with BOMA standards. LEASE TERM: Ten (10) years, beginning on the Commencement Date. Provided, however, if the Commencement Date is any day other than the first day of a calendar month, the Lease Term shall be extended automatically until midnight on the last day of the calendar month in which the Lease Term otherwise would expire. COMMENCEMENT DATE: August 15, 1999. BASE RENTAL: Period Annual Rent per Monthly Rent* Rentable Square Foot Year One $19.25 $18,032.44 Year Two $19.65 $18,407.14 Year Three $20.06 $18,791.21 Year Four $20.48 $19,184.64 Year Five $20.91 $19,587.44 Year Six $21.36 $20,008.98 Year Seven $21.82 $20,439.89 Year Eight $22.30 $20,889.53 Year Nine $22.78 $21,339.17 Year Ten $23.29 $21,816.91 * - Monthly Rent shall be adjusted upon final measurement of the Premises Net Rentable Area and evidenced by an amendment to this Lease. RENT CONCESSION: Tenant shall be entitled to a Rent Concession which is equal to the Base Rental payable for the first four months of the Lease Term. Landlord shall provide such Rent Concession by waiving Base Rental for the first four months of the Lease Term. Accordingly, the Advance Base Rental payment shall be applied to the rent due for the fifth month of the Lease Term. BASIC COSTS EXPENSE STOP: Shall mean the Basic Costs paid or incurred by Landlord during calendar year 1999, grossed up to reflect occupancy of 95% of the rentable area in the Building for the entire year. Provided, however, that the component of the Basic Costs Expense Stop for real estate taxes for the Building shall be $1.70 multiplied by the Building Net Rentable Area regardless of the actual real estate taxes for calendar year 1999. Accordingly, no payment shall be due from Tenant for increases in Basic Costs until calendar year 2000, at which time Tenant shall pay Landlord for increases in Basic Costs as described in Paragraph 7 of this Lease. Tenant acknowledges that the Premises Electrical Expense Stop is 60 cents per rentable square foot per year and that Tenant is obligated to pay electrical expenses exceeding the Premises Electrical Expense Stop pursuant to Paragraph 13 of this Lease. For purposes of calculating Tenant's payment of excess Basic Costs as provided in Paragraph 7 of this Lease, annual total increases in "Controllable Basic Costs" (as defined below) for calendar years 2000 and thereafter shall be limited to eight percent (8%) of the prior year's Controllable Basic Costs. "Controllable Basic Costs" shall mean the costs incurred by Landlord for janitorial service and supplies, common area maintenance and administrative services. For purposes of applying and calculating this limitation, Controllable Basic Costs shall be grossed up, if necessary, to reflect occupancy of 95% of the rentable space in the Building. This limitation on increases in Controllable Basic Costs shall apply to annual increase of total Controllable Basic Costs, not to any single component or item of Controllable Basic Costs. PREMISES ELECTRICAL EXPENSE STOP: Sixty cents (60 cents) multiplied by the Premises Net Rentable Area, per year. ADVANCE BASE RENTAL PAYMENT: Nineteen Thousand Two Hundred Ninety-Four and 71/100 Dollars ($19,294.71), including 7% sales tax, payable upon occupancy of the Premises. SECURITY DEPOSIT: Not Applicable. TENANT IMPROVEMENTS ALLOWANCE: Shall be $20.00 per rentable square foot of the Premises for space planning, architectural, mechanical and construction drawings and hard construction costs. The Tenant Improvements Allowance shall be applied and paid as described in Paragraph 9 of this Lease. BROKER: The Welsh Company (Agent: Greg Morrison) The foregoing summary (the "Lease Summary") is hereby incorporated into and made a part of the Lease Agreement. In the event, however, of a conflict between the terms of the Lease Summary and the terms of the Lease Agreement, the latter shall control. Initial: RJH (For Landlord) Initial: JWL (For Tenant) TABLE OF CONTENTS PARAGRAPH DESCRIPTION PAGE 1. Definitions 1 2. Lease Grant 3 3. Lease Term 4 4. Use 5 5. Base Rental 5 6. Adjustments to Base Rental 6 7. Adjustments for Increase in Basic Costs 6 8. Services to Be Furnished by Landlord 7 9. Construction of Improvements 10 10. Maintenance and Repair by Landlord 10 11. Maintenance and Repair by Tenant 11 12. Alterations by Tenant 12 13. Use of Electrical Services by Tenant 12 14. Graphics and Signage 13 15. Parking 13 16. Compliance with Laws 14 17. Building Rules 14 18. Entry by Landlord 15 19. Assignment and Subletting 15 20. Liens 17 21. Property Insurance 17 22. Liability Insurance 18 23. Indemnities 18 24. Waiver and Waiver of Subrogation Rights 18 25. Casualty Damage 19 26. Condemnation 19 27. Damages from Certain Causes 20 28. Events of Default/Remedies 20 29. Security Deposit 22 30. Peaceful Enjoyment 22 31. Holding Over 22 32. Subordination to Mortgage 23 33. Estoppel Certificate 23 34. Attorneys' Fees 23 35. No Implied Waiver 24 36. Personal Liability 24 37. Notices 24 38. Severability 25 39. Recordation 25 40. Governing Law 25 41. Force Majeure 25 42. Time of Performance 26 43. Transfers by Landlord 26 44. Commissions 26 45. Effect of Delivery of this Lease 26 46. Real Estate Investment Trust 26 47. Hazardous Materials 27 48. Landlord's Right of Relocation 27 49. Evidence of Authority 27 50. Survival of Obligations 28 51. Confidentiality 28 52. Contractual Landlord's Lien 28 53. Rent a Separate Covenant 28 54. Radon 28 55. Miscellaneous Provisions 28 56. Special Stipulations 29 57. Waiver of Jury Trial 29 EXHIBITS A Description of Land B Designation of Premises C Construction of Improvements D Cleaning and Janitorial Services E Rules and Regulations F Special Stipulations - Not Applicable. G Guaranty of Lease - Not Applicable. H Commencement Date Stipulation I Preliminary Tenant Improvements Plans and Specifications LEASE AGREEMENT THIS LEASE AGREEMENT (this "Lease") is made and entered into on the date and between the Landlord and Tenant identified in the Lease Summary. WITNESSETH: 1. Definitions. Capitalized terms appearing in this Lease, unless defined elsewhere in this Lease or in the Lease Summary, shall have these definitions: (a) "Additional Rent" shall mean all sums of money in addition to Base Rental which shall become due from Tenant under this Lease, including, without limitation, Tenant's Proportionate Share of Basic Costs in excess of the Basic Costs Expense Stop, as set forth in Paragraph 7 herein. (b) "Adjustment Date" is not applicable. (c) "Advance Base Rental Payment" shall have the meaning set forth in the Lease Summary. (d) "Base Rental" during the Lease Term shall be the amount so designated in the Lease Summary, as same may be adjusted pursuant to the terms of this Lease, together with all taxes (excise, sales, use or other) levied or assessed by any governmental entity on Base Rental, Additional Rent or any other sums payable by Tenant under this Lease. (e) "Basic Costs" shall mean and include: all expenses relating to the Building and the Building Exterior Common Areas, including all costs of operation, maintenance and management thereof and assessments for public betterments or improvements, any and all assessments or charges that are charged by any property owners association applicable to the Land, ad valorem real estate taxes and any other tax on real estate as such, ad valorem taxes on furniture, fixtures, equipment or other property used in connection with the operation, maintenance or management of the Building and the Building Exterior Common Areas and the costs, including, without limitation, legal and consulting fees, of contesting or attempting to reduce any of the aforesaid taxes, reasonable amortization of capital improvements which are required by applicable law or which will improve the efficiency of operating, managing or maintaining the Building or which will reduce Basic Costs or the rate of increase thereof, the cost of labor, materials, repairs, insurance, utilities and services and such other expenses with respect to the operation, maintenance and management of the Building and the Building Exterior Common Areas, all of which expenses shall be incurred or paid by or on behalf of Landlord or are properly chargeable to Landlord's operating expenses in accordance with generally accepted accounting principles as applied to the operation, maintenance and management of a first class office building. Notwithstanding the foregoing, it is agreed that the Basic Costs shall not include: any leasing or marketing or brokerage costs, fees, or commissions; any cost of upfitting space for occupancy by tenants; any amortization of principal or interest on account of any indebtedness; any legal expenses arising out of any misconduct or negligence of Landlord or any person for which Landlord is responsible or arising out of dealings between any principals constituting Landlord or arising out of any leasing, sale or financing of the Building or the Land or any part of either of them; or, except as expressly permitted above, any amortization or depreciation. (f) "Basic Costs Expense Stop" shall be the amount so designated in the Lease Summary. (g) "Broker" shall be the party or parties so designated in the Lease Summary. (h) "Building" shall have the meaning set forth in the Lease Summary. (i) "Building Exterior Common Areas" shall mean (A) the exterior of the Building and all of the improvements and real property on the Land, including, without limitation, all parking areas, enclosed or otherwise, and all streets, sidewalks, signs and landscaped areas located on or within the Land; and (B) all signs and landscaped areas located in public rights-of-way directly contiguous to the Land if and to the extent Landlord maintains such signs and landscaped areas from time to time. (j) "Building Net Rentable Area" shall have the meaning set forth in the Lease Summary. (k) "Building Shell Improvements" shall mean the Building improvements constructed or to be constructed by Landlord, at Landlord's sole cost and expense and without applying any of the Tenant Improvements Allowance. The Building Shell Improvements are more particularly described in Exhibit C attached hereto and incorporated herein by reference. (l) "Commencement Date" shall mean that date set forth in the Lease Summary, as same may be adjusted pursuant to the provisions of Paragraph 3 herein. (m) "Common Areas" shall mean those areas within the Building devoted to corridors, elevator foyers, restrooms, mechanical rooms, janitorial closets, electrical and telephone closets, vending areas and other similar facilities provided for the common use or benefit of tenants generally and/or the public, including any columns and/or projections located within said areas. (n) "Premises Electrical Expense Stop" shall have the meaning set forth in the Lease Summary. The Premises Electrical Expense Stop covers the annual cost of electricity to be supplied to the Premises (i) to operate lights and light fixture therein, (ii) to operate equipment and fixtures that are connected to electrical outlets therein and (iii) to operate any HVAC system or unit that exclusively serves the Premises (or any portion thereof). (o) Intentionally deleted. (p) "Force Majeure Matters" is defined in Paragraph 41 herein. (q) "Land" shall mean the real property upon which the Building is situated as more particularly described on Exhibit A hereto. (r) "Lease Term" shall mean the term of this Lease as set forth in the Lease Summary. (s) "Premises" shall have the meaning set forth in the Lease Summary. (t) "Premises Net Rentable Area" shall have the meaning set forth in the Lease Summary. (u) "Premises Net Usable Area" shall have the meaning set forth in the Lease Summary. (v) "Tenant Improvements" shall mean the improvements to be constructed and installed in the Premises (beyond the Building Shell Improvements) in accordance with the Tenant Improvements Plans and Specifications, the terms of Paragraph 9 herein and Exhibit C attached hereto. (w) "Tenant Improvements Allowance" shall mean the allowance to be provided by Landlord to Tenant for the construction of the Tenant Improvements. The amount of the Tenant Improvements Allowance is set forth in the Lease Summary. (x) "Tenant Improvements Plans and Specifications" shall mean the plans and Specifications" for the construction of the Tenant Improvements, which plans and specifications shall be prepared pursuant to Exhibit C attached hereto. (y) "Tenant's Proportionate Share" means that fraction, the numerator of which is the Premises Net Rentable Area and the denominator of which is the Building Net Rentable Area. 2. Lease Grant. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon and subject to the covenants, agreements, provisions and conditions of this Lease, the Premises located in the Building. 3. Lease Term. This Lease shall continue in force during a period beginning on the Commencement Date and continuing until the expiration of the Lease Term, unless this Lease is sooner terminated or extended to a later date under any other term or provision herein. Subject to delays resulting from Force Majeure Matters or delays caused by Tenant or Tenant's agents, employees, contractors, subcontractors or licensees, including, without limitation, change orders to the Tenant Improvements Plans and Specifications ("Tenant Delay Factors"), Landlord will deliver the Premises to Tenant not later than the Commencement Date set forth in the Lease Summary or 120 days after issuance of a building permit for the Tenant Improvements, whichever is later, (the "Target Commencement Date"), with the Tenant Improvements substantially completed in accordance with the Tenant Improvements Plans and Specifications, as evidenced by a certificate of occupancy issued for the Premises by appropriate local government and by a certificate of substantial completion issued by Landlord's architect or other designated engineering representative. If Landlord for any reason whatsoever cannot deliver possession of the Premises to Tenant (with the Tenant Improvements substantially completed in accordance with the Tenant Improvements Plans and Specifications) not later than the Target Commencement Date, this Lease shall not be void or voidable nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom except as described below; but in that event, Landlord shall act diligently and in good faith to complete the work that is necessary to allow Landlord to deliver the Premises to Tenant as specified above. In such case, (a) if Landlord's failure to deliver possession of the Premises to Tenant (with the Tenant Improvements substantially completed in accordance with the Tenant Improvements Plans and Specifications) by the Target Commencement Date is not the result, in whole or in part, of one or more Tenant Delay Factors, the Commencement Date shall be adjusted to be the date when Landlord does in fact deliver possession of the Premises to Tenant as described above and Landlord shall pay delay damages to Tenant as described below, and (b) if Landlord's failure to deliver possession of the Premises to Tenant (with the Tenant Improvements substantially completed in accordance with the Tenant Improvements Plans and Specifications) by the Target Commencement Date is the result, in whole or in part, of one or more Tenant Delay Factors, the Commencement Date shall be the later of (i) the Target Commencement Date or (ii) the date the Tenant Improvements would have been substantially completed in the absence of such Tenant Delay Factors(s) and no delay damages shall be payable to Tenant. Landlord shall have one hundred twenty (120) days after the Lease Date to obtain a building permit for the Tenant Improvements. Thereafter, Landlord shall have an additional one hundred twenty (120) days to complete construction of the Tenant Improvements. If Landlord cannot complete construction of the Tenant Improvements and deliver possession of the Premises to Tenant within two hundred forty (240) days after the Lease Date (the "Delivery Deadline"), which Delivery Deadline shall be extended by Force Majeure Matters and by Tenant Delay Factors, then Landlord shall pay delay damages to Tenant equal to one day of Base Rental for each one day of delay for the period from the Delivery Deadline through the date that possession of the Premises is delivered to Tenant with the Tenant Improvements completed. Such delay damages shall, at Landlord's election, either be paid in cash to Tenant or as a credit against monthly payments of Base Rental otherwise due hereunder. Within five (5) days following Tenant's occupancy of the Premises, Tenant shall execute and deliver to Landlord duplicate originals of a stipulation in the form attached to this Lease as Exhibit H (with the blanks properly completed). Subject to Landlord's approval of the information inserted by Tenant in the blanks, Landlord shall execute the duplicate originals of the stipulation and shall promptly return one (1) fully executed original to Tenant. Punchlist items identified by agreement of Landlord and Tenant shall be completed by Landlord within thirty (30) days after the Commencement Date. 4. Use. The Premises shall be used for office purposes and for no other purposes. Tenant agrees not to use or permit the use of the Premises for any purpose that is illegal or is in violation of any applicable legal, governmental or quasi-governmental requirement, ordinance or rule, or that, in Landlord's opinion, creates a nuisance, disturbs any other tenant of the Building or injures the reputation of the Building. 5. Base Rental. (a) Tenant agrees to pay during the Lease Term to Landlord, without any setoff or deduction, except as provided herein, the Base Rental, and all such other sums of money as shall become due hereunder as Additional Rent, all of which are sometimes herein collectively called "rent" or "Rent." Base Rental for each calendar year or portion thereof during the Lease Term, together with any applicable adjustment thereto pursuant to Paragraph 6 herein, shall be due and payable in advance, in twelve (12) equal installments on the first day of each calendar month during the Lease Term; provided, however, as set forth in the Lease Summary and Paragraph 5(b) herein, Base Rental for the fifth full calendar month during the Lease Term (i.e., the Advance Base Rental Payment) shall be due and payable upon occupancy of the Premises by Tenant. Tenant hereby agrees to pay such Base Rental and any adjustments thereto to Landlord at Landlord's address provided herein (or such other address as may be designated by Landlord in writing from time to time) monthly, in advance, and without demand. If the Lease Term commences on a day other than the first day of a month or terminates on a day other than the last day of a month, then the installments of Base Rental and any adjustments thereto for such month or months shall be prorated, based on the number of days in such month or months. (b) Upon occupancy of the Premises, Tenant shall pay to Landlord the Advance Base Rental Payment as additional security for Tenant's performance of its obligations under this Lease. If Tenant is not then in default under this Lease, Landlord shall apply the Advance Base Rental Payment to the payment of the monthly installment of Base Rental due relative to the fifth full calendar month during the Lease Term. If Tenant is then in default under this Lease, Landlord may, at its option, apply all or any part of the Advance Base Rental Payment to cure the default. With regard to any partial calendar month (if any) preceding the first full calendar month during the Lease Term, Tenant shall pay the applicable prorata portion of the monthly installment of Base Rental in a timely manner pursuant to Paragraph 5(a) herein. 6. Adjustments to Base Rental. Base Rental shall be adjusted annually on the anniversary of the Commencement Date as provided in the Lease Summary. 7. Adjustments for Increases in Basic Costs. With respect to each calendar year or portion thereof during the Lease Term (and any renewal or extension thereof), Tenant shall pay Landlord as Additional Rent, in the manner hereafter provided, Tenant's Proportionate Share of the amount by which Basic Costs paid or incurred by Landlord during such period (grossed up, if necessary, to reflect occupancy of ninety-five percent (95%) of the rentable space in the Building) exceeded the Basic Costs Expense Stop. References in this Paragraph 7 to "Basic Costs" shall be deemed and construed to refer to Basic Costs as grossed up pursuant to the immediately preceding sentence. If Tenant shall be obligated to make payments as aforesaid with regard to any partial calendar year during the Lease Term, Basic Costs in excess of the Basic Costs Expense Stop shall be prorated on the basis of the number of days during such calendar year for which Tenant is obligated to make such payments. It is acknowledged and agreed that it will not be possible to determine the actual amount of the excess (if any) of Basic Costs over the Basic Costs Expense Stop for a given calendar year until after the end of such calendar year. Therefore, until Tenant's liability for Tenant's Proportionate Share of Basic Costs in excess of the Basic Costs Expense Stop shall have been finally determined for a particular calendar year, Tenant shall make payment on account of excess Basic Costs as follows: (a) Commencing as of the Commencement Date and continuing throughout the Lease Term (and any renewal or extension thereof), and subject to the limitation expressed above, Landlord shall make a good faith estimate of Basic Costs for such calendar year and Tenant's Proportionate Share thereof (hereinafter "Estimated Basic Costs" and "Tenant's Estimated Proportionate Share"), and Tenant shall pay to Landlord, as Additional Rent with each monthly installment of Base Rental, an amount equal to one- twelfth (1/12) of Tenant's Estimated Proportionate Share of the amount by which Estimated Basic Costs for the current calendar year are estimated to exceed the Basic Costs Expense Stop. Such payments for any partial month shall be paid in advance at the daily rate equal to the monthly payment divided by the number of days in the month for which the same is due. On or about January 1 of each calendar year in respect of which Tenant shall be obligated to make payments on account of excess Basic Costs during the Lease Term (and any renewal or extension thereof), Landlord shall furnish to Tenant a statement for such calendar year of Tenant's Estimated Proportionate Share and of Estimated Basic Costs and thereupon, subject to the limitations expressed above, as of such January 1, Tenant shall make payments under this Paragraph 7(a) in accordance with such statement. (b) On or before April 1 in the year following the year in which the Commencement Date occurs and each April 1 thereafter during the Lease Term (and any renewal or extension thereof), Landlord shall furnish Tenant with an itemized statement setting forth the total amount of Basic Costs and Tenant's Proportionate Share of the amount by which Basic Costs for the preceding calendar year exceeded the Basic Costs Expense Stop. If any such statement shall show an overpayment or underpayment of Tenant's Proportionate Share of excess Basic Costs for the preceding calendar year, any overpayment shall be refunded to Tenant or credited against payments due from Tenant under this Lease, and the full amount of any underpayment shall be paid to Landlord by Tenant not later than the first day of the first calendar month after such statement shall have been delivered to Tenant. (c) In the event Tenant is required to pay Tenant's Proportionate Share of Basic Costs pursuant to this Paragraph 7, Tenant shall have the right, at Tenant's expense and no more frequently than once per calendar year, to inspect Landlord's books and records showing Basic Costs of the Building for the calendar year in question; provided, however, Tenant shall not have the right to withhold any payments of Tenant's Proportionate Share of Basic Costs due and payable hereunder the amount of which may be in dispute, and Tenant must pay the entire amount due and payable hereunder prior to reviewing Landlord's books and records. In the event an inspection of Landlord's books and records by any tenant of the Building reveals a verifiable error in Landlord's computation of Basic Costs or Tenant's Proportionate Share of excess Basic Costs resulting in an overpayment by Tenant of Tenant's Proportionate Share of excess Basic Costs (after allowing for any adjustment pursuant to Paragraph 7(b) herein), Landlord shall promptly reimburse the amount of such overpayment to Tenant, together with interest thereon from the date of overpayment until the date of reimbursement at a rate per annum equal to one percent (1%) plus the Prime Rate (as defined herein) in effect as of the date of overpayment. As used in this Lease, the "Prime Rate" shall be deemed to be that rate of interest announced by Nations Bank, N.A., or any successor thereto, from time to time as its "prime rate," and Landlord and Tenant acknowledge and understand that Nations Bank, N.A., lends at rates of interest both above and below the Prime Rate. Landlord's statement setting forth the total amount of Tenant's Proportionate Share of excess Basic Costs furnished to Tenant in accordance with the provisions of this Paragraph 7 shall be deemed to have been approved by Tenant unless protested by Tenant in writing within ninety (90) days after delivery of such statement to Tenant at the Premises. If the results of Tenant's inspection of Landlord's books and records indicate that the statement for any calendar year over- stated Basic Costs for such calendar year by more than five percent (5%), Landlord shall pay Tenant the reasonable cost of such inspection. 8. Services to Be Furnished by Landlord. Landlord agrees to furnish Tenant the following services: (a) Hot and cold water at those points of supply identified on the Tenant Improvements Plans and Specifications. (b) Except with regard to any HVAC system or unit that exclusively serves the Premises (or any portion thereof), which shall be Tenant's responsibility pursuant to Paragraph 11(b) herein, Landlord shall furnish central heat and air conditioning sufficient for the comfortable occupancy of the Premises. Provided, however, central heating and air conditioning service at times other than for "Normal Business Hours" for the Building (which are 8:00 a.m. to 6:00 p.m. on Mondays through Fridays and 8:00 a.m. to 1:00 p.m. on Saturdays, exclusive of normal business holidays identified as New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day), shall be furnished only on the written request of Tenant delivered to Landlord on the following schedule: (1) For evenings Monday through Friday - prior to 3:00 p.m. on the day when such service is required; (2) For Saturday afternoon, Saturday evening and Sunday - prior to 3:00 p.m. on Friday; and (3) For normal business holidays - prior to the times set forth above for the last day prior to such holiday. The above notwithstanding, upon written request and authorization from Tenant, Landlord shall program the energy management system for the Building to give Tenant the ability to control heating and air conditioning services to the Premises after Normal Business Hours without the need for daily notice to Landlord. Tenant shall bear the entire cost (as Additional Rent) of such additional heating and air conditioning furnished to the Premises at times other than Normal Business Hours, and Tenant shall pay such costs within ten (10) days following demand by Landlord. The cost to be charged by Landlord to Tenant hereunder for heating and air conditioning service used by Tenant during times other than Normal Business Hours shall be $30.00 per hour per floor of the Building. Such hourly rate may be increased from time to time during the Lease Term only to reimburse Landlord for increases in the cost to Landlord of electricity consumed in providing the heating and air conditioning service. If more than one tenant on the same floor requests heating and air conditioning services after Normal Business Hours, the hourly charge shall be apportioned among all such tenants. If heat-generating machines or equipment shall be used in the Premises by Tenant which affect the temperature otherwise maintained by the Building HVAC system, Landlord shall have the right (at Landlord's option) to install (or to require Tenant to install) one or more HVAC systems or units that exclusively serve the Premises (or the portion thereof where such heat-generating machines or equipment are located). As set forth in Paragraph 11(b) herein, the cost of any such separate HVAC systems or units that exclusively serve the Premises, including the cost of installation and the cost of operation and maintenance thereof, shall be borne by Tenant. (c) Electrical service to serve the Common Areas and the Premises, subject to the terms of Paragraph 13 herein. (d) Routine maintenance and electric lighting service for all Common Areas of the Building in the manner and to the extent deemed by Landlord to be standard. (e) Janitorial service, in accordance with the schedule attached hereto as Exhibit D, Mondays through Fridays, exclusive of normal business holidays as described in subparagraph (b) above; provided, however, if Tenant's floor covering or other improvements require special treatment, Tenant shall pay the additional cleaning cost attributable thereto as Additional Rent upon presentation of a statement therefor by Landlord. (f) All Building standard fluorescent and incandescent light bulb replacement in the Common Areas and all light bulb replacement in the Premises. Provided, however, Tenant shall promptly pay to Landlord, as Additional Rent, costs incurred by Landlord in replacing light bulbs in the Premises (including the cost of purchasing such light bulbs) if and to the extent such replacement cost exceeds the replacement cost for Building standard light bulbs. As used herein, "Building standard light bulbs" shall be deemed to refer to 2' x 4', 3 lamp F40/CW with energy saving ballasts. (g) Tenant, its employees, and its invitees who have been registered with Landlord shall have access to the Premises (including elevator service) by a code or card access system seven (7) days a week, twenty-four (24) hours a day. Tenant shall receive an allotment of codes or cards for all of its employees and for its invitees who are registered with Landlord. Landlord shall bear the cost of each such code or card initially issued, provided Tenant shall pay to Landlord (as Additional Rent, within thirty (30) days after Tenant receives an invoice therefor) the actual costs incurred by Landlord in obtaining and issuing replacement codes or cards for codes or cards previously issued. Landlord, however, shall have no liability to Tenant, its employees, agents, invitees or licensees for losses due to theft or burglary or for damages done by unauthorized persons on the Premises, and Landlord shall not be required to insure against any such losses. Tenant shall cooperate fully with Landlord's efforts to maintain controlled access to and in the Building during times other than Normal Business Hours and shall follow all regulations promulgated by Landlord with respect thereto. The failure by Landlord to any extent to furnish, or the interruption or termination of these defined services in whole or in part, resulting from any Force Majeure Matters or from any other causes beyond the reasonable control of Landlord shall not (i) render Landlord liable in any respect, (ii) be construed as an eviction of Tenant, (iii) work an abatement of rent, or (iv) relieve Tenant from the obligation to fulfill any covenant or agreement in this Lease. Should any of the equipment or machinery used in the provision of such services for any cause cease to function properly, Tenant shall have no claim for offset or abatement of rent or damages on account of an interruption in service resulting therefrom. Landlord shall use its best commercial efforts to restore any interrupted services. If such services are not restored within three (3) business days after such interruption, Tenant may take such action as is necessary to restore the interrupted services and Landlord shall thereafter reimburse Tenant for the reasonable costs of such restoration, and Tenant may pursue other legal or equitable remedies not otherwise prohibited hereunder. Amounts payable pursuant to this Paragraph 8 shall be deemed to be Additional Rent due from Tenant to Landlord, and any default in the payment thereof shall entitle Landlord to all remedies provided for herein at law or in equity on account of Tenant's failure to pay Base Rental. 9. Construction of Improvements. (a) Subject to Force Majeure Matters and consistent with the terms of Paragraph 3 herein and Exhibit C hereto, Landlord shall pursue diligently and in good faith the completion of the Building Shell Improvements and the Tenant Improvements. (b) The Tenant Improvements Allowance shall be applied by Landlord against the costs of designing, planning and constructing the Tenant Improvements. In the event the costs incurred in connection with the design, planning and construction of the Tenant Improvements exceed the Tenant Improvements Allowance, Tenant shall be responsible for bearing and paying such excess costs (the "Excess Costs"), as follows: (1) Tenant shall pay to Landlord, prior to the commencement of construction of the Tenant Improvements, an amount equal to fifty percent (50%) of such Excess Costs (as then estimated by Landlord). (2) After issuance of a Certificate of Occupancy for the Tenant Improvements but prior to occupancy of the Premises by Tenant, Tenant shall pay to Landlord an amount equal to ninety percent (90%) of the Excess Costs (as then estimated by Landlord), less payments received by Landlord pursuant to Paragraph 9(b)(1) herein. (3) As soon as the final accounting is prepared and submitted by Landlord to Tenant and punchlist items are completed by Landlord, Tenant shall pay to Landlord the entire unpaid balance of the actual Excess Costs based on the final costs to Landlord. The Excess Costs (if any) payable by Tenant under this Paragraph 9(b) shall constitute Additional Rent due hereunder at the time specified herein, and failure to make any such payment when due shall constitute a default of Tenant under Paragraph 28 herein. (c) Except as otherwise provided above in this Paragraph 9, all installations and improvements now or hereafter placed on or in the Premises shall be for Tenant's account and at Tenant's cost. Tenant shall also pay increased ad valorem taxes (as determined by local taxing authority) and increased insurance (as determined by insurance company) on or attributable to the Tenant Improvements (to the extent of the cost of the Tenant Improvements is in excess of the Tenant Improvements Allowance), which cost shall be payable by Tenant to Landlord as Additional Rent. 10. Maintenance and Repair by Landlord. Except to the extent any such repairs or replacements are the responsibility of Tenant pursuant to the terms of Paragraph 11 or Paragraph 12 herein or any other provision in this Lease, Landlord shall be responsible for maintaining, repairing and replacing: (a) the roof, foundations, exterior walls, and all structural parts of the Building; (b) all portions of the Premises affected by structural conditions whose source lies outside the Premises; (c) all Common Areas and Building Exterior Common Areas; (d) all utility, sprinkler service, electrical and plumbing lines and HVAC systems outside the Premises but which serve the Premises on a non-exclusive basis; and (e) all utility, sprinkler service, electrical and plumbing lines and HVAC systems within the Premises but which serve other space within the Building. Except as expressly provided herein, Landlord shall not be required to make any repairs to the Premises or the Building, but Landlord shall maintain the Building to the same quality and standards as originally constructed. 11. Maintenance and Repair by Tenant. In addition to any other provisions in this Lease which obligate Tenant to perform maintenance, repair and replacement duties relative to the Premises and/or the Building, Tenant shall be responsible for the following maintenance, repair and replacement responsibilities: (a) Tenant shall, at its expense, keep and maintain the Premises in good order and repair and not commit or allow any waste to be committed on any portion of the Premises; and at the termination of this Lease, Tenant agrees to deliver up the Premises to Landlord in as good of a condition as existed on the Commencement Date, excepting only ordinary wear and tear, acts of God and repairs required to be made by Landlord pursuant to the terms of this Lease. (b) Tenant shall, at its expense, keep and maintain all HVAC systems and units, appliances and equipment that exclusively serve the Premises (or any portion thereof). In the event the Premises (or any portion thereof) is exclusively served by an HVAC system or unit, Tenant shall contract with a qualified heating and air conditioning service company approved by Landlord for the monthly maintenance and the repair and replacement, as necessary, of such HVAC system or unit. Tenant shall provide Landlord with a copy of any contract required under this Paragraph 11(b) within ten (10) days after the Commencement Date and a copy of any subsequent contracts (or any renewal contracts) within ten (10) days after their execution. The cost of all contracts which Tenant is required to maintain under this Paragraph 11(b) shall be borne by Tenant. (c) Tenant shall, at Tenant's own cost and expense, repair or replace any damage done to the Common Areas, the Building Exterior Common Areas, the Building, or any part thereof (including the Premises), caused by Tenant or Tenant's agents, employees, invitees, or visitors, and such repairs shall restore the damaged area to as good of a condition as existed prior to such damage and shall be effected in compliance with all applicable laws; provided, however, if, within a reasonable period following written notice from Landlord of the need for such repairs or replacements, Tenant fails to make such repairs or replacements promptly, Landlord may, at its option, make the repairs or replacements, and Tenant shall pay the cost thereof to Landlord on demand as Additional Rent. 12. Alterations by Tenant. Tenant shall not make or allow to be made any alterations to the Premises or install any vending machines in the Premises, without first obtaining the written consent of Landlord in each such instance, such consent not to be unreasonably withheld, delayed or qualified. Any and all alterations to the Premises, including, without limitation the Tenant Improvements, shall become the property of Landlord upon the termination of this Lease (except for personal property and furniture owned by Tenant). Landlord may, by written notice to Tenant not later than sixty (60) days prior to termination, require Tenant, upon the expiration or earlier termination of this Lease, to remove any and all fixtures, equipment and other improvements installed in the Premises by Tenant. In the event that Landlord so elects and Tenant fails to remove such improvements, Landlord may remove such improvements at Tenant's cost, and Tenant shall pay Landlord on demand the cost of restoring any damage to the Premises resulting from such removal, excepting only ordinary wear and tear and acts of God. 13. Use of Electrical Services by Tenant. Landlord shall install an electrical check meter (a "Check Meter ") for the Premises as part of the Tenant Improvements. The Check Meter will measure all electricity supplied to the Premises (i) to operate lights and light fixtures therein, (ii) to operate equipment and fixtures that are connected to electrical outlets therein and (iii) to operate any HVAC system or unit that exclusively serves the Premises (or any portion thereof). As contemplated in Paragraph 8(c) herein, Landlord shall pay the local electrical utility company prior to delinquency for the electricity supplied to the Premises through the Check Meter. Provided, however, in the event the amount paid by Landlord to the local electrical utility company for electricity supplied to the Premises (as measured by the Check Meter) for any given period of time is greater than the allocable portion of the Premises Electrical Expense Stop (allocated to the Premises for the relevant period of time), Landlord may submit an invoice to Tenant periodically for the cost of such excess electricity supplied to the Premises and Tenant shall pay the full invoiced amount (as Additional Rent) to Landlord within ten (10) days after Tenant's receipt of each such invoice. The following formula shall be used to determine the invoice amount for Tenant's excess electrical usage in the Premises: Invoice Amount =Total Electrical Costs Per Check Meter - [(Premises Electrical Expense Stop) x (Number of Days in Period Number of Days in Year)] For example, presuming (for purposes of this illustration only) that the Premises Net Rentable Area is 10,000 square feet, that the Check Meter indicates $2,000.00 of electricity was supplied to the Premises during a given 90-day period and that the calendar year in which such 90-day period falls contains 365 days, Landlord shall be entitled hereunder to send an invoice to Tenant in the amount of $520.40 for excess electrical usage in the Premises during such 90-day period, computed as follows: Invoice Amount =$2,000.00 - [($6,000.00) x (90/365)] = $2,000.00 -[$6,000.00 x .2466] = $2,000.00 - $1,479.60 = $520.40 In computing invoices to be sent to Tenant for electricity supplied to the Premises through the Check Meter, Landlord shall use the same billing rate per kilowatt hour as is charged to the overall Building by the local electrical utility company. Additionally, with regard to any period of time that Landlord elects to use a Check Meter to bill Tenant for excess electricity supplied to the Premises, Landlord also shall use a Check Meter to bill other tenants in the Building for excess electricity supplied to their respective premises; and in such case, the cost of electricity supplied to the Premises and to other premises in the Building for which Landlord separately bills Tenant and other tenants in the Building (i.e. such electrical costs that exceed the Premises Electrical Expense Stop) shall not be included in Basic Costs hereunder. Landlord shall be entitled to bill Tenant pursuant to this Paragraph 13 for excess electrical usage in the Premises monthly, quarterly, annually or otherwise, as determined by Landlord from time to time during the Lease Term. 14. Graphics and Signage. All letters and numerals on doors or other signs on the Premises shall be in the standard form of graphics for the Building, and no others shall be used or permitted without Landlord's prior written consent. Furthermore, Tenant shall not place signs on or in the Premises which are visible from outside the Premises. Tenant's name and suite number shall be included by Landlord on the lobby directory for the Building and at the main entry for the Premises. 15. Parking. During the Lease Term, Tenant shall have, without charge, the non-exclusive right to use, in common with Landlord, other tenants of the Building, and their respective guests and invitees, the automobile parking areas, driveways, and footways located on the Land. Notwithstanding the terms and provisions in the immediately preceding sentence, (i) Tenant and Tenant's guests and invitees shall not, at any given time, be entitled to use more than five (5) parking spaces for each 1,000 square feet of Premises Net Usable Area, and (ii) Landlord shall have the right during the Lease Term to reserve parking spaces on the Land for the exclusive use of other tenants in the Building, provided the reservation of such spaces for the exclusive use of other tenants in the Building does not have the effect of denying Tenant the non-exclusive use of five (5) parking spaces for each 1,000 square feet of Premises Net Usable Area. If Landlord provides reserved parking spaces to another tenant of the Building, then Tenant shall also be entitled to reserved parking spaces and the number of such parking spaces reserved for Tenant shall be in the same ratio to Tenant's Premises Net Usable Area as the number of reserved spaces provided to such other tenant bears to such other tenant's Premises Net Usable Area. To the extent spaces are existing and available, Tenant's reserved spaces shall be located in the same general proximity to the Building as the reserved spaces for such other tenant or within fifty (50) feet of such other reserved spaces. Such reserved parking spaces are included in and are not in addition to the total number of parking spaces made available to Tenant pursuant to this Paragraph 15. 16. Compliance with Laws. Tenant agrees to comply with all applicable laws, ordinances, rules and regulations of any governmental entity or agency having jurisdiction over the Premises. Without limiting the generality of the foregoing, in the event the Premises must be modified or any other action relating to the Premises must be undertaken in the future to comply with the Americans With Disabilities Act or any similar federal, state or local statute, law, or ordinance, the responsibility for such modification or action (including the payment of all costs incurred in connection therewith) shall belong to Tenant. If the Common Areas or the Building Exterior Common Areas must be modified or any other action relating to the Common Areas or the Building Exterior Common Areas must be undertaken in the future to comply with the Americans With Disabilities Act or any similar federal, state or local statute, law, or ordinance and if such modification or action is required because of (i) any special or unique use or activity in the Premises or (ii) the performance of any alterations within the Premises, the responsibility for such modification or action (including the payment of all costs incurred in connection therewith) shall belong to Tenant. Except as provided in the immediately preceding sentence, in the event the Common Areas or the Building Exterior Common Areas must be modified or any other action relating to the Common Areas or the Building Exterior Common Areas must be undertaken in the future to comply with the Americans With Disabilities Act or any similar federal, state or local statute, law, or ordinance, the responsibility for such modification or action (including the payment of all costs incurred in connection therewith, subject to the terms and provisions of this Lease relating to the pass- through of Basic Costs) shall belong to Landlord. Any such expenses included in Basic Costs shall be amortized over the useful life of the improvement. Landlord covenants that the Building and the Premises shall be designed and constructed to be in compliance with the Americans With Disabilities Act and other applicable laws, codes and regulations effective as of the date a building permit is issued for the Building and the Premises. 17. Building Rules and Regulations. Tenant shall comply with the rules and regulations applicable to the Building and the Building Exterior Common Areas (the "Rules and Regulations") adopted and altered by Landlord from time to time and shall cause all of its agents, employees, invitees and visitors to do so; all changes to the Rules and Regulations will be sent by Landlord to Tenant in writing. The initial Rules and Regulations, which have been reviewed and approved by Tenant, are attached hereto as Exhibit E. The provisions of this Lease shall control any conflicting provisions of the Rules and Regulations. 18. Entry by Landlord. Tenant agrees to permit Landlord and Landlord's agents and representatives to enter into and upon any part of the Premises at all reasonable hours upon 24 hours notice (and in emergencies at all times and without notice) to inspect the same, to show the Premises to prospective purchasers, mortgagees, tenants or insurers, to install or maintain Check Meters and other devices to determine if Tenant's electrical usage is in excess of design loads and capacities, and to clean or make repairs, alterations or additions thereto, and Tenant shall not be entitled to any abatement or reduction of rent by reason thereof. Such repairs, alterations and additions shall be scheduled and handled so as not to unreasonably interfere with Tenant's use of the Premises. 19. Assignment and Subletting. (a) Tenant shall not assign this Lease or sublet all or any part of the Premises or make any other transfer of its interest in the whole or any portion thereof, directly or indirectly, at any time during the Lease Term without the prior written consent of Landlord, which such consent shall not be unreasonably withheld or delayed. Any attempted assignments, subleases or other transfers by Tenant in violation of the terms and conditions of this Paragraph 19(a) shall be null and void. The above notwithstanding, Landlord's consent shall not be required in connection with an assignment or sublet of the Premises or any part thereof to any successor of Bairnco Corporation resulting from a merger, consolidation, sale or acquisition of the entire business of Bairnco Corporation or to an entity which is a subsidiary or parent of Bairnco Corporation or is otherwise affiliated with Bairnco Corporation (a "Special Transfer"), provided notice of same is furnished to Landlord and information regarding such merger, consolidation, sale or acquisition reasonably requested by Landlord is furnished, and provided further that the then current use of the Premises shall continue with no major demolition of improvements to the Premises. In the event that Tenant desires at any time to assign this Lease or sublet all or any part of the Premises, Tenant shall submit to Landlord at least fifteen (15) business days prior to the proposed effective date of the assignment or sublease, in writing, (i) a request for permission to assign or sublet setting forth the proposed effective date which shall be no less than thirty days after the sending of such notice; (ii) the name of the proposed subtenant or assignee or other party; (iii) the nature of the business to be carried on in the Premises after the assignment or sublet; (iv) the terms and provisions of the proposed assignment or sublet; and (v) current financial statements of the proposed subtenant or assignee; and such additional information that Landlord may reasonably request in order to make a reasoned judgment. (b) If Tenant requests Landlord's consent to an assignment of this Lease or subletting of all or part of the Premises, or any other transfer of its interest(s), Landlord shall have the option (without limiting Landlord's other rights hereunder) of terminating this Lease with respect to the portion of the Premises subject to the proposed assignment, subletting or transfer upon fifteen (15) business days' notice and of dealing directly with the proposed assignee, subtenant or transferee. If Landlord should fail to notify Tenant in writing of its decision within a fifteen (15) business day period after Landlord is notified in writing of the proposed assignment, sublease or other transfer, Landlord shall be deemed to have refused to consent to such assignment, sublease or transfer and to have elected to keep this Lease in full force and effect. If Landlord notifies Tenant that Landlord has refused to consent to such assignment or sublease and that Landlord intends to terminate this Lease with respect to the portion of the Premises subject to the proposed assignment or sublease, then Tenant shall have the right to be exercised within ten (10) days thereafter to withdraw its proposed assignment or sublease in which event the Lease shall not be terminated as to such portion of the Premises. This subparagraph (b) shall not apply to a Special Transfer as described above. (c) Landlord hereby reserves the right to condition Landlord's consent to any assignment or sublet upon Landlord's receipt from Tenant of a written agreement, in form and substance acceptable to Landlord, pursuant to which Tenant shall pay over to Landlord fifty percent (50%) of all rent or other consideration received by Tenant from any such subtenant or assignee, either initially or over the term of the assignment or sublease, in excess of the Rent called for hereunder, or, in case of the sublease of a portion of the Premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account, and after taking into account Tenant's reasonable expenses incurred in connection with such subletting or assignment. This subparagraph (c) shall not apply to a Special Transfer as described above. (d) If Tenant assigns, sublets or makes any other transfer of all or any portion of its interest(s) hereunder, Tenant named in this Lease shall remain directly and primarily responsible for the faithful performance and observance of all of the covenants and obligations on Tenant's part to be performed in this Lease. No assignment or subletting shall affect the continuing primary liability of Tenant hereunder (which, following any assignment or sublet, shall be joint and several with the assignee or subtenant), and Tenant shall not be released from performing any of the terms, covenants and conditions of this Lease. (e) Any assignee or subtenant hereunder shall be bound by and shall comply with all of the terms and provisions in this Lease, including, without limitation, the use restriction set forth in Paragraph 4 herein. As a condition to the effectiveness of any assignment that is permitted hereunder, the assignee shall, by an instrument in writing, assume and agree to perform (for the express benefit of Landlord) the terms hereof; and as a condition to the effectiveness of any sublease that is permitted hereunder, the subtenant shall acknowledge in writing (for the express benefit of Landlord) the existence of this Lease and shall covenant not to do or permit to be done anything that would constitute a breach hereof. (f) Landlord's consent to any one assignment, sublease or other transfer hereunder shall not waive the requirement of its consent to any subsequent assignment, sublease or other transfer as required herein. 20. Liens. Tenant will not permit any mechanic's lien(s) or other liens to be placed upon the Premises, the Building or the Land and nothing in this Lease shall be deemed or construed in any way as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any person for the performance of any labor or the furnishing of any materials to the Premises, or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to any mechanics' or other liens against the Premises, the Building or the Land. In the event any such lien is attached to the Premises, the Building or the Land, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obliged to, discharge the same. Any amount paid by Landlord for any of the aforesaid purposes shall be reimbursed by Tenant to Landlord on demand as Additional Rent. The interest of Landlord shall not be subject to liens for improvements made by Tenant in and to the Premises. Tenant shall notify every contractor making such improvements of the provisions set forth in the preceding sentence of this paragraph. The parties agree, should Landlord so request, to execute, acknowledge and deliver without charge to Tenant, a Short Form Lease in recordable form in accordance with Chapter 713, Florida Statutes containing a confirmation that the interest of Landlord shall not be subject to liens for improvements made by Tenant to the Premises. 21. Property Insurance. Landlord shall maintain fire and extended coverage insurance on the Building and the Premises, such policy(ies) to cover Landlord's interest in the Building and Premises for not less than the full replacement value thereof. Such insurance shall be maintained at the expense of Landlord (as a part of Basic Costs), and payments for losses thereunder shall be made solely to Landlord or the mortgagees of Landlord relative to the Land and the Building (collectively, "Mortgagees"; each, a "Mortgagee"), as their respective interests shall appear. Tenant shall maintain, at its expense, in an amount equal to full replacement cost, fire and extended coverage insurance on all of its personal property, including removable trade fixtures, located in the Premises. Tenant shall, at Landlord's request from time to time, provide Landlord with current certificates of insurance evidencing Tenant's compliance with the terms and requirements of this Paragraph 21 and Paragraph 22 herein. All policies required to be maintained by Tenant under this Paragraph 21 and Paragraph 22 herein shall contain a provision whereby the insurer is not allowed to cancel, fail to renew or change materially the coverage without first giving thirty (30) days prior written notice to Landlord. Tenant shall also obtain the agreement of Tenant's insurers to notify Landlord that a policy is due to expire at least thirty (30) days prior to such expiration. 22. Liability Insurance. Tenant and Landlord shall, each at its own expense, maintain a policy or policies of comprehensive general liability insurance (occurrence coverage) with respect to the respective activities of each on the Land and in the Building with the premiums thereon fully paid on or before the due date, issued by and binding upon an insurance company authorized to conduct such business in the State of Florida. Such comprehensive general liability insurance to be maintained by Tenant and Landlord under this Paragraph 22 shall afford minimum protection of not less than $1,000,000 combined single limit coverage of bodily injury, property damage or combination thereof; and such comprehensive general liability insurance to be maintained by Tenant shall name Landlord as an additional insured. Such insurance coverage maintained by Tenant also shall include, without limitation, personal injury and contractual liability coverage for the performance by Tenant of the indemnity agreements set forth in this Lease. Landlord shall not be required to maintain insurance against thefts within the Premises or the Building or on the Land. 23. Indemnities. Landlord shall not be liable to Tenant, or to Tenant's agents, servants, employees, customers, or invitees for any injury to person or damage to property caused by any act, omission, or neglect of Tenant, its agents, servants, employees, invitees, licensees or any other person entering the Land, the Building Exterior Common Areas, the Building or the Premises under the invitation of Tenant or arising out of a default by Tenant in the performance of its obligations hereunder. Tenant hereby indemnifies and holds Landlord harmless from all liability and claims for any such damage or injury. Landlord hereby indemnifies and holds Tenant harmless from all liability and claims for any damage or injury resulting from any act or omission of Landlord that constitutes negligence or willful misconduct. 24. Waiver and Waiver of Subrogation Rights. Anything in this Lease to the contrary notwithstanding (including, without limitation, Paragraph 23 herein), Landlord and Tenant each hereby waive any and all rights of recovery, claim, action, or cause of action, against the other, its agents, officers, or employees, for any loss or damage that may occur to the Premises or a part thereof, or any improvements thereto, or any personal property of such party therein, by reason of fire, the elements, or any other cause(s) which are insured against under the terms of the standard fire and extended coverage insurance policies referred to in Paragraph 21 herein, regardless of cause or origin, including negligence of the other party hereto, its agents, officers, or employees. All insurance policies carried with respect to Paragraph 21 herein, if permitted under applicable law, shall contain a provision whereby the insurer waives, prior to loss, all rights of subrogation against Landlord and Tenant. 25. Casualty Damage. If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord. In case the Building shall be so damaged that substantial alteration or reconstruction of the Building shall be required (whether or not the Premises shall have been damaged by such casualty) or in the event any Mortgagee should require that the insurance proceeds payable as a result of a casualty be applied to the payment of the mortgage debt or in the event of any material uninsured loss to the Building, Landlord may, at its option, terminate this Lease by notifying Tenant in writing of such termination within ninety (90) days after the date of such casualty. If, by reason of such casualty, the Premises are rendered untenantable in some material portion, and the amount of time required to repair the damage is reasonably determined by Landlord to be in excess of one hundred eighty (180) days from the date upon which Landlord is required to determine whether to terminate this Lease, then Tenant shall have the right to terminate this Lease by giving Landlord written notice of termination within thirty (30) days after the date Landlord delivers Tenant notice that the amount of time required to repair the damage has been determined by Landlord to be in excess of one hundred eighty (180) days. If Landlord (or Tenant, if applicable) does not thus elect to terminate this Lease, Landlord shall commence and proceed with reasonable diligence to restore the Building to substantially the same condition as existed immediately prior to the occurrence of the casualty, except that Landlord's obligation to restore shall not exceed the scope of the work required to be done by Landlord in originally constructing the Building Shell Improvements and installing the Tenant Improvements in the Premises. Landlord shall not be obligated to restore the Building Shell Improvements or the Premises if the cost of the restoration work required under this Lease and all other leases of space in the Building exceeds the insurance proceeds actually received by Landlord as a result of the casualty, in which event Tenant shall have the right to terminate this Lease. When the Tenant Improvements have been restored by Landlord, Tenant shall restore Tenant's furniture and equipment. Landlord shall not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from such damage or the repair thereof, except that, subject to the provisions of the next sentence, Landlord shall allow Tenant a fair diminution of Rent during the time and to the extent the Premises are untenantable and until a Certificate of Occupancy is issued following repair of the Premises. If the Premises or any other portion of the Building is damaged by fire or other casualty resulting from the fault or negligence of Tenant or any of Tenant's agents, employees, or invitees, the rent hereunder shall not be diminished during the repair of such damage and Tenant shall be liable to Landlord for the cost of the repair and restoration of the Building caused thereby to the extent such cost and expense are not covered by insurance proceeds. 26. Condemnation. If the whole or substantially the whole of the Building or the Premises should be taken for any public or quasi-public use, by right of eminent domain or otherwise or should be sold in lieu of condemnation, then this Lease shall terminate as of the date when physical possession of the Building or the Premises is taken by the condemning authority. If less than the whole or substantially the whole of the Building or Premises is thus taken or sold and the remaining portion of the Building can no longer be operated as a multi-tenant office building on a financially sound basis, in Landlord's sole opinion, or if any Mortgagee should require that the condemnation proceeds payable as a result of such taking or sale be applied to the payment of the mortgage debt, Landlord (whether or not the Premises are affected by the taking or sale) may terminate this Lease by giving written notice thereof to Tenant, in which event this Lease shall terminate as of the date when physical possession of such portion of the Building or Premises is taken by the condemning authority. If this Lease is not so terminated upon any such taking or sale and if a portion of the Premises is affected thereby, the Base Rental payable hereunder shall be diminished by an equitable amount, and Landlord shall, restore the Building and the Premises to substantially their former condition, except Landlord's obligation to restore shall not exceed the scope of the work required to be done by Landlord in originally constructing the Building Shell Improvements and installing the Tenant Improvements. Landlord shall not be obligated to restore the Building Shell Improvements or the Tenant Improvements if the cost of the restoration work required under this Lease and all other leases of space in the Building exceeds the amount received by Landlord for such taking, in which event Tenant shall have the right to terminate this Lease. All amounts awarded upon a taking of any part or all of the Building or the Premises shall belong to Landlord, and Tenant shall not be entitled to and expressly waives all claims to any such compensation, but Tenant shall not be barred from making its own claim to the condemning authority provided such claim does not reduce the compensation payable to Landlord. 27. Damages from Certain Causes. Landlord shall not be liable to Tenant for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, or order of governmental body or authority or by any other Force Majeure Matter. Nor shall Landlord be liable for any damage or inconvenience which may arise through repair or alteration of any part of the Building or Premises, except as is the result of Landlord's negligence or willful misconduct. 28. Events of Default/Remedies. (a) The following events shall be deemed to be events of default by Tenant under this Lease: (i) Tenant fails to pay any installment of Base Rental or Additional Rent when due and such failure continues for more than five (5) days after Tenant is given written notice of such failure (provided, however, Tenant shall not be entitled to such notice and cure period more than twice in any calendar year during the Lease Term); (ii) Tenant fails to comply with any provision of this Lease (other than clauses (iii), (iv), (v), (vi) and (vii) in this Paragraph 28(a)), all of which terms, provisions and covenants shall be deemed material and such failure continues for more than thirty (30) days after Tenant is given written notice of such failure or Tenant fails to commence to cure the default within said thirty (30) day period and diligently pursue the cure to completion (provided such 30-day notice and cure period for non-monetary defaults shall be decreased or dispensed with, as reasonably required, in cases of emergency or in circumstances where such failure will result in a default by Landlord under other leases of space in the Building); (iii) the leasehold estate of Tenant is taken on execution or other process of law in any action against Tenant; (iv) Tenant abandons any substantial portion of the Premises and fails to pay Rent for the Premises; (v) Tenant becomes insolvent or unable to pay its debts as they become due, or Tenant notifies Landlord that it anticipates either condition; (vi) Tenant takes any action to or notifies Landlord that Tenant intends to file a petition under any section or chapter of the United States Bankruptcy Code, as amended from time to time, or under any similar law or statute of the United States or any State thereof; or a petition shall be filed against Tenant under any such statute or Tenant or any creditor of Tenant's notifies Landlord that it knows such a petition will be filed or Tenant notifies Landlord that it expects such a petition to be filed; or (vii) a receiver or trustee is appointed for Tenant's leasehold interest in the Premises or for all or a substantial part of the assets of Tenant. Provided, however, and notwithstanding the foregoing provisions in this Paragraph 28(a), Tenant shall not be entitled to any notice and cure period in connection with Tenant's obligation to vacate the Premises at the end of the Lease Term. (b) Upon the occurrence under this Lease of any event or events of default by Tenant, whether enumerated in Paragraph 28(a) herein or not, Landlord shall have the option to pursue any one or more of the following remedies: (i) terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord; (ii) terminate Tenant's right to occupy the Premises and re-enter and take possession of the Premises (without terminating this Lease) and relet or attempt to relet the Premises for the account of Tenant and Landlord shall not be deemed to have thereby accepted a surrender of the Premises, and Tenant shall remain liable for all Base Rental, Additional Rent or other sums due under this Lease and for all damages suffered by Landlord because of Tenant's breach of any provision of this Lease; (iii) enter upon the Premises and do whatever Tenant is obligated to do under the terms of this Lease, and Tenant agrees to reimburse Landlord on demand for any expense which Landlord may incur in effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action; (iv) accelerate and declare the entire remaining unpaid Base Rental and Additional Rent for the balance of the Lease Term (reduced to present value) to be immediately due and payable forthwith, and may, at once, take legal action to recover and collect the same; and (v) exercise all other remedies and seek all damages available to Landlord at law or in equity, including, without limitation, injunctive relief of all varieties. In the event Landlord elects to re-enter or take possession of the Premises after Tenant's default, Tenant hereby waives notice of such re-entry or repossession and of Landlord's intent to re-enter or take possession. Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, expel or remove Tenant and any other person who may be occupying said Premises or any part thereof. In addition, the provisions of Paragraph 31 herein shall apply with respect to the period from and after the giving of notice of such termination to Tenant. All of Landlord's remedies under this Lease shall be cumulative and not exclusive. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or an election of remedies. (c) Any installment of Base Rental and any Additional Rent not paid within ten (10) days following the date when due and payable shall bear interest from the date due until paid at the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum lawful contract rate per annum. (d) This Paragraph 28 shall be enforceable to the maximum extent not prohibited by applicable law, and the unenforceability of any portion thereof shall not thereby render unenforceable any other portion. To the extent any provision of applicable law requires some action by Landlord to evidence or effect the termination of this Lease or to evidence the termination of Tenant's right of occupancy, Tenant and Landlord hereby agree that notice, in writing only and delivered in accordance with Paragraph 37 herein, shall be sufficient to evidence and effect the termination therein provided for. (e) Landlord shall be in default hereunder in the event Landlord has not begun and pursued with reasonable diligence the cure of any failure of Landlord to meet its obligations hereunder within thirty (30) days of receipt by Landlord of written notice from Tenant of the alleged failure to perform. Except as otherwise provided in Paragraph 3 herein, in no event shall Tenant have the right to terminate or rescind this Lease or otherwise withhold or abate Base Rental or Additional Rent as a result of Landlord's default as to any covenant or agreement contained in this Lease or as a result of the breach of any promise or inducement hereof, whether in this Lease or elsewhere. Tenant hereby waives such remedies for default hereunder and Tenant's remedies for default by Landlord hereunder shall be limited to a proceeding for damages and/or injunction. In addition, Tenant hereby covenants that, prior to the exercise of any such remedies, it will give the Mortgagee(s) who then hold(s) a mortgage on the Building (if Landlord has notified Tenant of the name and address of such Mortgagee) the same notice and time period as Landlord to cure any default by Landlord under this Lease. 29. Security Deposit. - Intentionally Deleted. 30. Peaceful Enjoyment. Tenant shall, and may peacefully have, hold, and enjoy the Premises against Landlord and all persons claiming by and through or under Landlord for the Lease Term, subject to the other terms hereof, provided Tenant pays the rent and other sums herein recited to be paid by Tenant and performs all of Tenant's covenants and agreements herein contained. This covenant and any and all other covenants of Landlord shall be binding upon Landlord and its successors only with respect to breaches occurring during its or their respective periods of ownership of Landlord's interest hereunder. 31. Holding Over. If Tenant remains in possession of the Premises or any part thereof after the expiration or earlier termination of this Lease, whether with or without Landlord's acquiescence, Tenant shall be deemed a tenant at will. In the event of any such holding over by Tenant after the expiration or other termination of this Lease or in the event Tenant continues to occupy the Premises after the termination of Tenant's right of possession pursuant to Paragraph 28(b) herein, Tenant shall, throughout the entire holdover period, pay Base Rental equal to 150% of the Base Rental in effect immediately before the holdover period began, together with all applicable Additional Rent which would have been applicable had the Lease Term continued through the period of such holding over by Tenant. Tenant shall also remain liable for any and actual damages suffered by Landlord as a result of any holdover without Landlord's unequivocal written acquiescence. No holding over by Tenant after the expiration of the Lease Term shall be construed to extend the Lease Term. 32. Subordination to Mortgage. Tenant accepts this Lease subject and subordinate to any mortgage, deed of trust, or other lien presently existing or hereafter arising upon the Premises, the Building and/or the Land, and to any renewals, modifications, refinancings and extensions thereof, but Tenant agrees that any such Mortgagee shall have the right (without seeking or obtaining Tenant's consent) at any time to subordinate such mortgage, deed of trust or other lien to this Lease. Tenant agrees to cooperate and execute and deliver such further instruments subordinating this Lease or attorning to the holder of any such liens as Landlord may request within fifteen (15) days of the date of such request. Landlord shall provide a non-disturbance agreement from Mortgagee to Tenant if a mortgage is placed on the Building. 33. Estoppel Certificate. Tenant agrees that it will, from time to time upon request by Landlord and within fifteen ( 15) days of such request, cooperate and execute and deliver to such persons as Landlord shall request an estoppel certificate in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as so modified), stating the dates to which rent and other charges payable under this Lease have been paid, stating that, to the best knowledge of Tenant, Landlord is not in default hereunder (or if Tenant alleges a default, stating the nature of such alleged default) and further stating such other matters as Landlord shall reasonably require. In the event that Tenant should fail to execute any such estoppel certificate promptly as requested, Tenant hereby irrevocably constitutes Landlord as its attorney-in-fact to execute such estoppel certificate in Tenant's name, place and stead, it being agreed that such power is one coupled with an interest. Landlord shall likewise provide an estoppel certificate if requested by Tenant. 34. Attorneys' Fees. In the event either party defaults in the performance of any of the terms of this Lease and the other party employs attorney(s) in connection therewith, the defaulting party agrees to pay the prevailing party's reasonable attorneys' and paralegals' fees (calculated at such attorneys' reasonable and customary hourly rates and without regard to the amount in controversy) and costs of litigation, whether at the trial level, on appeal or in any bankruptcy or administrative proceedings. 35. No Implied Waiver. The failure of Landlord to insist at any time upon the strict performance of any covenant or agreement herein or to exercise any option, right, power or remedy contained in this Lease shall not be construed as a waiver or a relinquishment thereof for the future. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of rent due under this Lease shall be deemed to be other than on account of the earliest rent due hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or to pursue any other remedy in this Lease provided. 36. Personal Liability. The liability of Landlord to Tenant for any default by Landlord under the terms of this Lease shall be limited to the equity of Landlord in the Building and the Land, and Tenant agrees to look solely to Landlord's equity in the Building and the Land for recovery of any judgment from Landlord, it being intended that neither Landlord nor the shareholders, parents, affiliates, partners, members, or owners of Landlord shall be personally liable for any judgment or deficiency. 37. Notices. Any notice in this Lease provided for must, unless otherwise expressly provided herein, be in writing, and may, unless otherwise in this Lease expressly provided, be given or be served by depositing the same in the United States mail, postpaid and certified or registered and addressed to the party to be notified, with return receipt requested, or by delivering the same in person to an officer of such party, or by prepaid telegram or overnight delivery service (e.g., Federal Express), or by sending the same by facsimile (with the original being sent by one of the other permitted means), addressed to the party to be notified at the applicable address stated in the Lease Summary or such other address, notice of which has been given to the other party pursuant to this Paragraph 37. Notice deposited in the mail in the manner hereinabove described shall be effective from and after the expiration of three (3) calendar days after it is so deposited. Notice by personal delivery shall be effective on the day of personal delivery. Notice by prepaid telegram or overnight delivery service shall be effective on the first business day after said notice is sent. Notice by facsimile shall be effective on the day sent by facsimile (provided the original is sent by one of the other permitted means). 38. Severability. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law, notwithstanding the invalidity of any other term or provision hereof. 39. Recordation. Tenant agrees not to record this Lease; provided, however, Landlord shall execute and deliver a memorandum of this Lease, in recordable form, and suitable to provide record notice of this Lease, if so requested by Tenant. 40. Governing Law and Venue. This Lease and the rights and obligations of the parties hereto shall be interpreted, construed, and enforced in accordance with the laws of the State of Florida and venue for any actions initiated by Landlord or Tenant shall be in Seminole County. 41. Force Majeure. Whenever a period of time is herein prescribed for the taking of any action by Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation of such period of time, any delays due to any condition, matter or circumstance beyond the reasonable control of such party (collectively, "Force Majeure Matters"; each, a "Force Majeure Matter"), including, without limitation, the following: strikes; defaults or failures to perform by contractors or subcontractors; unavailability of materials; lockouts; acts of God; governmental restrictions, war or enemy action or invasion; civil commotion; insurrection; riot; mob violence; malicious mischief or sabotage; fire or any other casualty; adverse weather conditions or unusual inclement weather; a condemnation; failure of a governmental instrumentality to act in a timely fashion; any litigation or other legal proceeding which delays the approval of plans or the issuance of any grading or building permit for construction, including, without limitation, the issuance of an injunction enjoining such approval and/or issuance, as the case may be; any law, order or regulation of any governmental, quasi-governmental, judicial or military authority; or other similar cause. Force Majeure Matters shall not excuse or delay payment due hereunder. Without limiting the generality of the foregoing, in the event a Force Majeure Matter affects Landlord's construction and delivery obligation(s) relative to the Premises under this Lease, at Landlord's option, the Commencement Date shall be extended by the same number of days as the number of days of delay caused by such Force Majeure Matter on the critical path of completing such construction and delivery obligation(s). 42. Time of Performance. Except as expressly otherwise herein provided, with respect to all required acts of Tenant, time is of the essence of this Lease. 43. Transfers by Landlord. Landlord shall have the right to transfer and assign, in whole or in part, all its rights and obligations hereunder and in the Building and property referred to herein, and in such event and upon such transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of Landlord for the performance of such obligations, except those obligations of Landlord with respect to which a default exists as of the effective date of such transfer or assignment. 44. Commissions. Landlord warrants and represents to Tenant that Landlord has not engaged or contracted with any person, firm or entity to serve or act as a broker, agent or finder, other than Broker (if any), for the purpose of leasing the Premises or in regard to this Lease. Tenant warrants and represents to Landlord that Tenant has not engaged, contracted with or dealt with any person, firm or entity (other than Broker, if any) to serve or act as a broker, agent or finder, for the purpose of leasing the Premises or in regard to this Lease. Landlord agrees to be solely responsible for the payment of any commission to Broker (if any) relating to this Lease pursuant to a separate agreement between Landlord and Broker (if any). Tenant shall and does hereby indemnify and hold harmless Landlord from and against any claim for any consulting fee, finder's fee, commission, or like compensation, including reasonable attorneys' fees in defense thereof, payable in connection with this Lease and asserted by any party arising out of any act or agreement by Tenant, excluding the commission payable by Landlord to Broker (if any) as described above. 45. Effect of Delivery of this Lease. Landlord has delivered a copy of this Lease to Tenant for Tenant's review only, and such delivery does not constitute an offer to Tenant or an option in favor of Tenant. This Lease shall not be effective until an original executed by both Landlord and Tenant is delivered to and accepted by Landlord. 46. Real Estate Investment Trust. During the Lease Term, should a real estate investment trust become Landlord hereunder, all provisions of this Lease shall remain in full force and effect except as modified by this Paragraph 46. If Landlord in good faith determines that its status as a real estate investment trust under the provisions of the Internal Revenue Code of 1986, as heretofore or hereafter amended, will be jeopardized because of any provision of this Lease, Landlord may request reasonable amendments to this Lease and Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such amendments do not (a) increase the monetary obligations of Tenant pursuant to this Lease or (b) in any other manner adversely affect Tenant's interest in the Premises. 47. Hazardous Materials. (a) Throughout the Lease Term, Tenant shall not knowingly cause, permit or allow any Hazardous Materials to be placed, stored, dumped, dispensed, released, discharged, used, sold, transported, or located on or within any portion of the Premises, the Building or the Land by itself or its servants, agents, employees, contractors, subcontractors, licensees, assignees or subtenants; provided, however, minor quantities of Hazardous Materials may be used or stored in the Premises for cleaning purposes only or in connection with the use of office equipment and the normal operation of Tenant's office only, so long as such quantities and the use thereof are permitted by or are exempt from applicable governmental regulation. Tenant agrees to give Landlord prompt written notice of any discovery, discharge, release or threatened discharge or threatened release of any Hazardous Materials on or about the Premises, the Building or the Land. Tenant agrees to promptly clean up any Hazardous Materials which are placed in the Premises or on the Land by Tenant or its servants, agents, employees, contractors, subcontractors, licensees, assignees or subtenants and to remediate and remove any such contamination relating to the Premises, the Building and/or the Land, as appropriate, at Tenant's cost and expense, in compliance with all applicable laws, ordinances, rules and regulations then in effect and to Landlord's satisfaction, at no cost or expense to Landlord. Additionally, Tenant hereby agrees to indemnify and hold harmless Landlord and Landlord's partners, officers, directors, members, affiliates, employees and agents from and against all loss, cost, damage, liability and expense (including attorneys' fees and expenses) arising from or relating to any Hazardous Materials (other than those permitted above) which are placed in the Premises or the Building or on the Land by Tenant or its servants, agents, employees, contractors, subcontractors, licensees, assignees or subtenants. For purposes of this Lease, the term "Hazardous Materials" means such substances as give rise to remediation requirements, duties or obligations under the Clean Air Act, the Clean Water Act, the Federal Water Pollution Control Act of 1976, the Comprehensive Environmental Response, Compensation Liability Act of 1980, the Toxic Substances Control Act and any other state or federal environmental statutes, ordinances, rules or regulations. (b) The terms and provisions in this Paragraph 47 shall survive the termination or earlier expiration of this Lease. 48. Landlord's Right of Relocation. Intentionally deleted. 49. Evidence of Authority. If requested by Landlord, Tenant shall furnish appropriate legal documentation evidencing the valid existence and good standing of Tenant and the authority of any parties signing this Lease to act for Tenant. By signing this Lease on Tenant's behalf, the signatory for Tenant hereby represents the truth of such facts to Landlord. 50. Survival of Obligations. Notwithstanding any term or provision in this Lease to the contrary, any liability or obligation of Landlord or Tenant arising during or accruing with respect to the Lease Term shall survive the expiration or earlier termination of this Lease, including, without limitation, obligations and liabilities relating to (i) rent payments, (ii) the condition of the Premises and the removal of Tenant's property, and (ii) indemnity and hold harmless provisions in this Lease. 51. Confidentiality. Tenant agrees, on behalf of Tenant and Tenant's employees, agents, contractors, consultants, partners, affiliates, assignees and subtenants, not to disclose the terms of this Lease or the results of any audit of Landlord's books and records under this Lease to any third party except (i) legal counsel to Tenant, (ii) any assignee of Tenant's interest in this Lease or any subtenant of Tenant relative to the Premises (or any portion thereof), (iii) as required by applicable law or by subpoena or other similar legal process, or (iv) for financial reporting purposes. 52. Contractual Landlord's Lien. - Intentionally deleted. 53. Rent a Separate Covenant. Tenant shall not for any reason withhold or reduce Tenant's required payments of Basic Rent and other charges provided in this Lease, it being expressly understood and agreed contractually by the parties that the payment of Basic Rent, Additional Rent, and other charges provided under this Lease is a contractual covenant by Tenant that is independent of the other covenants of the parties under this Lease. 54. Radon. As required by Florida Statutes, 404.056(6) 1995, Landlord notifies Tenant as follows: "RADON GAS: Radon is a naturally occurring radioactive gas, that when it has accumulated in a building in sufficient quantities, it may present health risk to persons who are exposed to it over time. Levels of Radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding Radon and Radon testing may be obtained from your county public health unit." 55. Miscellaneous Provisions. The entire agreement, intent and understanding between Landlord and Tenant is contained in the provisions of this Lease and the exhibits attached hereto and any stipulations, representations, promises or agreements, written or oral, made prior to or contemporaneously with this Lease shall have no legal or equitable effect or consequence unless reduced to writing herein or in the exhibits attached hereto. This Lease may not be modified except by a written instrument by the parties hereto. The terms "Landlord" and "Tenant" and all pronouns relating thereto shall be deemed to mean and include corporations, partnerships and individuals as may fit the context, and the masculine gender shall be deemed to include the feminine and the neuter, and the singular number, the plural. 56. Renewal Option. Tenant shall have the option to renew this Lease for one Renewal Term of five (5) years at the then current market rental rate for renewal leases of tenants having uses and improvement requirements similar to Tenant in comparable office buildings in the northern suburbs of Orlando, Florida, as such market rental rate is reasonably determined by agreement between Landlord and Tenant. Tenant shall exercise such renewal option by written notice to Landlord given not less than nine (9) months prior to the end of the initial Lease Term. If Landlord and Tenant, acting in good faith, have not, within thirty (30) days after such exercise, executed a renewal amendment to this Lease which amendment states, inter alia, the rental rate applicable during the Renewal Term, then such renewal exercise shall be deemed cancelled and withdrawn unless Tenant agrees to use the three appraiser method described below. In such event, Landlord and Tenant shall each select an MAI appraiser, who, in turn, shall select a third MAI appraiser. The three appraisers shall determine by majority action the market rental rate for renewal leases of tenants having uses and improvement requirements similar to Tenant in comparable office buildings in the northern suburbs of Orlando, Florida. The determination of the three appraisers shall be binding on Landlord and Tenant and shall establish the rental rate during the Renewal Term. Landlord and Tenant shall each bear the cost of the appraiser they selected and shall share equally the cost of the third appraiser. Tenant may exercise its option to renew and Tenant's exercise of that option shall be effective only if, at the time of Tenant's exercise and on the commencement date of Renewal Term, this Lease is in full force and effect and Tenant is not in default under this Lease beyond any applicable cure period; provided that Tenant must, in any event, cure any then existing default within its applicable cure period or such exercise shall, at Landlord's option, be deemed ineffective and null and void in its entirety. Upon exercise of the renewal option and determination of the rental rate, the Lease shall be extended for the Renewal Term. 57. WAIVER OF JURY TRIAL. THE PARTIES HERETO SHALL, AND THEY HEREBY DO, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES AND/OR BUILDING AND/OR CLAIM OR INJURY OR DAMAGE. IN THE EVENT LANDLORD COMMENCES ANY PROCEEDINGS TO ENFORCE THIS LEASE OR THE LANDLORD/TENANT RELATIONSHIP BETWEEN THE PARTIES OR FOR NON-PAYMENT OF BASIC RENT OF ANY NATURE WHATSOEVER, OR ADDITIONAL MONIES DUE LANDLORD FROM TENANT UNDER THIS LEASE, TENANT WILL NOT INTERPOSE ANY COUNTERCLAIM OF WHATEVER NATURE OR DESCRIPTION IN ANY SUCH PROCEEDINGS. IN THE EVENT TENANT MUST, BECAUSE OF APPLICABLE COURT RULES, INTERPOSE ANY COUNTERCLAIM OR OTHER CLAIM AGAINST SUCH PROCEEDING THE LANDLORD AND TENANT COVENANT AND AGREE THAT, IN ADDITION TO ANY OTHER LAWFUL REMEDY OF LANDLORD UPON MOTION OF LANDLORD, SUCH COUNTERCLAIM OR OTHER CLAIM ASSERTED BY TENANT SHALL BE SEVERED OUT OF THE PROCEEDINGS INSTITUTED BY LANDLORD AND, IF NECESSARY, TRANSFERRED TO A COURT OF DIFFERENT JURISDICTION, AND THE PROCEEDINGS INSTITUTED BY LANDLORD MAY PROCEED TO FINAL JUDGMENT SEPARATELY AND APART FROM AND WITHOUT CONSOLIDATION WITH OR REFERENCE TO THE STATUS OF EACH COUNTERCLAIM OR ANY CLAIM ASSERTED BY TENANT. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in multiple original counterparts as of the day and year first above written. Signed, sealed and delivered LANDLORD in the presence of: CRESCENT RESOURCES, INC., a South Carolina corporation /s/ Brandee Barnhill By: /s/ Robert J. Holmes, Jr. Print Name: Brandee Barnhill Name: Robert J. Holmes /s/ Donna Hughes Title: Regional Vice President Print Name: Donna Hughes TENANT: BAIRNCO CORPORATION, a Delaware corporation /s/ Paula H. Godbee By: /s/ James W. Lambert Print Name: Paula H. Godbee Name: James W. Lambert /s/ Larry C. Maingot Title: Corporate Controller Print Name: Larry C. Maingot EXHIBIT A Description of Land All that certain tract or parcel of land lying and being in the City of Lake Mary, Seminole County, Florida, and being more particularly described as follows: SECTION 7, TOWNSHIP 20 SOUTH, RANGE 30 EAST THE CITY OF LAKE MARY, SEMINOLE COUNTY, FLORIDA A PORTION OF SECTION 7, TOWNSHIP 20 SOUTH, RANGE 30 EAST, SEMINOLE COUNTY, FLORIDA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGIN AT THE CENTER OF SECTION 7, TOWNSHIP 20 SOUTH, RANGE 30 EAST, SEMINOLE COUNTY, FLORIDA AND RUN N 8940'59"E, 213.49 FEET TO A POINT ON THE WESTERLY RIGHT-OF-WAY LINE OF PRIMERA BOULEVARD, PRIMERA PHASE II, ACCORDING TO THE PLAT THEREOF AS RECORDED IN PLAT BOOK 53, PAGES 52 THROUGH 54 OF THE PUBLIC RECORDS OF SEMINOLE COUNTY, FLORIDA, SAID POINT BEING ON A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 773.02 FEET, A CHORD OF 142.57 FEET AND A CHORD BEARING OF S 0650'37"W; THENCE RUN SOUTHWESTERLY ALONG SAID CURVE AND WESTERLY RIGHT-OF-WAY LINE 142.77 FEET THROUGH A CENTRAL ANGLE OF 1034'55" TO THE END OF SAID WESTERLY RIGHT-OF-WAY LINE AND THE BEGINNING OF THE WESTERLY RIGHT-OF-WAY LINE OF PRIMERA BOULEVARD, PRIMERA PHASE I, ACCORDING TO THE PLAT THEREOF AS RECORDED IN PLAT BOOK 49, PAGES 88 THROUGH 91 OF THE PUBLIC RECORDS OF SEMINOLE COUNTY, FLORIDA, SAID POINT BEING ON A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 773.02 FEET, A CHORD OF 59.92 FEET AND A CHORD BEARING OF S 1421'20"W; THENCE RUN SOUTHWESTERLY ALONG SAID CURVE AND WESTERLY RIGHT-OF-WAY LINE 59.94 FEET THROUGH A CENTRAL ANGLE OF 426'33" TO A POINT OF COMPOUND CURVATURE OF A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 346.19 FEET, A CHORD OF 280.92 FEET AND A CHORD BEARING OF S 4030'50"W; THENCE RUN SOUTHWESTERLY ALONG SAID CURVE AND WESTERLY RIGHT-OF-WAY LINE 289.26 FEET THROUGH A CENTRAL ANGLE OF 4752'27" TO A POINT OF TANGENCY; THENCE RUN S 6427'07"W ALONG SAID WESTERLY RIGHT-OF-WAY LINE, 32.40 FEET TO THE POINT OF CURVATURE OF A CURVE CONCAVE NORTHWESTERLY HAVING A RADIUS OF 805.02 FEET, A CHORD OF 167.68 FEET AND A CHORD BEARING OF S 7613'03"W; THENCE RUN SOUTHWESTERLY ALONG SAID CURVE AND WESTERLY RIGHT-OF-WAY LINE 330.63 FEET THROUGH A CENTRAL ANGLE OF 2331'55" TO A POINT OF REVERSE CURVATURE ON A CURVE CONCAVE SOUTHEASTERLY HAVING A RADIUS OF 519.98 FEET, A CHORD OF 167.54 FEET AND A CHORD BEARING OF S 7842'51"W; THENCE RUN SOUTHWESTERLY ALONG SAID CURVE AND WESTERLY RIGHT-OF-WAY LINE 168.27 FEET THROUGH A CENTRAL ANGLE OF 1832'30"; THENCE LEAVING SAID WESTERLY RIGHT-OF-WAY LINE RUN N 0912'05"W, 505.18 FEET; THENCE RUN S 8940'59"W, 559.42 FEET; THENCE RUN N 0019'01"W, 35.00 FEET TO A POINT ON THE NORTH LINE OF THE SOUTHWEST 1/4 OF SAID SECTION 7; THENCE RUN N 8940'59"E ALONG THE NORTH LINE OF THE SOUTHWEST 1/4 OF SAID SECTION 7, 1153.66 FEET TO THE POINT OF BEGINNING CONTAINING 356347.77 SQUARE FEET (8.1806 ACRES). A-1 EXHIBIT B Designation of Premises Graphic display of property B-1 EXHIBIT C Construction of Improvements 1. Building Shell Improvements. Landlord, at Landlord's sole cost, shall complete or has completed the following as part of the Building Shell Improvements: 2' x 2' ceiling grid installed at 9' above the finished floor 2' x 2' tegular acoustical ceiling tile (to be stacked on the floor in the Premises) columns wrapped with drywall high efficiency 2' x 4, 3 lamp fixtures with 18- cell parabolic lenses and lights at a ratio of one fixture per 75 square feet of Premises Net Usable Area (to be stacked on the floor in the Premises) low pressure and medium pressure duct work interior VAV boxes installed with thermostats at the rate of approximately one (1) per 2,665 usable square feet perimeter VAV boxes installed to perimeter slot diffusers at the rate of approximately one (1) per 2,190 usable square feet Building standard fire sprinkler system (in accordance with applicable code requirements), with heads turned up demising walls: Landlord shall pay for the cost of the demising walls between the Premises and the Common Areas and Tenant shall pay for one-half of the cost of the demising walls between the Premises and other tenant space in the Building blinds for exterior windows 2. Preparation and Approval of Tenant Improvements Plans and Specifications. As soon as reasonably practicable following the Lease Date, Landlord shall proceed to have Landlord's architect prepare a draft of the Tenant Improvements Plans and Specifications and shall deliver a complete copy of the Tenant Improvements Plans and Specifications together with an itemized construction cost proposal (the "Budget") to Tenant for Tenant's review and approval. Tenant shall review the draft of the Tenant Improvements Plans and Specifications and Budget and shall notify Landlord in writing within five (5) business days after Tenant's receipt of same as to whether Tenant approves the Tenant Improvements Plans and Specifications and Budget; and if Tenant does not approve the Tenant Improvements Plans and Specifications and Budget, such written notice from Tenant to Landlord shall provide Tenant's specific and detailed comments and suggestions which, if incorporated in the Tenant Improvements Plans and Specifications would render the Tenant Improvements Plans and Specifications and Budget acceptable to Tenant. Landlord and Tenant shall cooperate with one another in good faith to reach agreement regarding the Tenant Improvements Plans and Specifications and Budget as soon as practicable, and in any event Tenant shall approve the Tenant Improvements Plans and Specifications if they are prepared in accordance with and consistent with the preliminary plans and specifications which are attached as Exhibit I to the Lease. Within fifteen (15) days after the parties approve Tenant Improvement Plans and Specifications, Landlord shall submit such plans to the City of Lake Mary for issuance of a building permit. Any changes to the approved Tenant Improvement Plans and Specifications and Budget shall be documented by change order approved by Landlord and Tenant. In the event Landlord and Tenant are unable, after complying with the foregoing terms and provisions in this Paragraph 2, to reach agreement regarding the Tenant Improvements Plans and Specifications and Budget within fifteen (15) business days after the date on which C-1 Landlord initially delivers the draft of the Tenant Improvements Plans and Specifications and Budget to Tenant pursuant to this Paragraph 2 and until such time as Landlord and Tenant succeed in reaching agreement relative to the Tenant Improvements Plans and Specifications and Budget, Landlord may terminate the Lease by giving written notice of such action to Tenant. EXHIBIT D Cleaning and Janitorial Services LANDLORD SHALL FURNISH CLEANING AND JANITORIAL SERVICES TO THE PREMISES AS DESCRIBED BELOW: DAILY (Monday - Friday): Sweep, dry mop or vacuum, as appropriate, all floor areas; remove material such as gum and tar which has adhered to the floor. Empty and damp wipe all ash trays, waste baskets and containers, remove all trash from the leased premises. Dust all cleared horizontal surfaces with treated dust cloth, including furniture, files, telephones, equipment that can be reached without a ladder. Spot wash to remove smudges, marks and fingerprints from such areas that can be reached without a ladder. Clean water fountains, cafeteria tables and chairs. Damp mop all non-resilient floors such as terrazzo and ceramic tile. Clean freight and passenger elevator cabs and landing doors. Clean mirrors, soap dispensers, shelves, wash basins, exposed plumbing, dispenser and disposal container exteriors, damp wipe all ledges, toilet stalls and toilet doors. Clean toilets and urinals with detergent disinfectants. Furnish and refill all soap, toilet, sanitary napkin and towel dispensers. Spot clean carpet stains. Wash glass in Building directory, entrance doors and frames. Remove all litter from the parking lot and grounds. WEEKLY: Dust vertical blinds and louvers. Spot wash interior partition glass and door glass to remove smudge marks. Sweep all stairs areas. D-1 Dust all baseboards. Vacuum or brush all fabric covered chairs. MONTHLY: Scrub and recondition resilient floor areas. Wash all stairwell landings and treads. Wash all interior glass both sides. QUARTERLY: High dust all horizontal and vertical surfaces not reached by nightly cleaning. Vacuum all ceiling and wall air supply and exhaust diffusers and grills. Wash and polish vertical terrazzo and marble surfaces. Spot clean carpeted areas. SEMI-ANNUALLY: Vacuum drapes, cornices and wall hangings. Dust all storage areas and shelves and contents. Damp wash diffusers, grills, and other such items. ANNUALLY: Strip and refinish all resilient floors. Wash all building exterior glass both sides. Clean light fixtures, reflectors, globes, diffusers and trim. Wash walls in corridors, lounges, classrooms, demonstration areas, cafeterias, break rooms, washrooms. Clean all vertical surfaces not attended to during nightly, weekly, quarterly or semi-annually cleaning. Landlord will provide a day porter for use throughout the Building on business days, Monday through Friday. D-2 EXHIBIT E Rules and Regulations 1. Sidewalks, doorways, vestibules, halls, stairways, and similar areas shall not be obstructed nor shall refuse, furniture, boxes or other items be placed therein by any tenant or its officers, agents, servants, and employees, or be used for any purpose other than ingress and egress to and from premises in the Building, or for going from one part of the Building to another part of the Building. Canvassing, soliciting and peddling in the Building are prohibited. 2. Plumbing, fixtures and appliances shall be used only for the purposes for which constructed, and no unsuitable material shall be placed therein. 3. No signs, directories, posters, advertisements, or notices shall be painted or affixed on or to any of the windows or doors, or in corridors or other parts of the Building, except in such color, size, and style, and in such places, as shall be first approved in writing by Landlord in its discretion. However, the prohibition in the immediately preceding sentence shall not limit or restrict any tenant's right to maintain within the premises occupied by such tenant any signs, directories, posters, advertisements, or notices so long as such items are not visible from the exterior of the premises occupied by such tenant or from the Common Areas of the Building. Building standard suite identification signs will be prepared by Landlord at each tenant's expense. Landlord shall have the right to remove all unapproved signs without notice to any tenant, at the expense of the responsible tenant. 4. No tenant shall do, or permit anything to be done, in or about the Building, or bring or keep anything therein, that will in any way increase the rate of fire or other insurance on the Building, or on property kept therein or otherwise increase the possibility of fire or other casualty. 5. Landlord shall have the power to prescribe the weight and position of heavy equipment or objects which may overstress any portion of the floor. All damage done to the Building by the improper placing of such heavy items will be repaired at the sole expense of the responsible tenant. 6. Each tenant shall notify the Building manager when safes or other heavy equipment are to be taken in or out of the Building, and the moving shall be done after written permission is obtained from Landlord on such conditions as Landlord shall require. 7. All deliveries must be made via the service entrance and service elevator, when provided, during normal working hours. Landlord's written approval must be obtained for any delivery after normal working hours. 8. Each tenant shall cooperate with Landlord's employees in keeping such tenant's premises neat and clean. 9. Each tenant shall not cause or permit any improper noises in the Building, allow any unpleasant odors to emanate from the Premises, or otherwise interfere, injure or annoy in E-1 any way other tenants or persons having business with them. However, Landlord acknowledges that, if permitted by the applicable lease, a tenant may operate a food services facility within the premises of such tenant for the sole use and benefit of the occupants of such premises and that such food services facility may emit odors normally associated with the operation of such on-site food services facilities. 10. No animals shall be brought into or kept in or about the Building. 11. When conditions are such that a tenant must dispose of crates, boxes, etc. on the sidewalk, it will be the responsibility of such tenant to dispose of same prior to 7:30 a.m. or after 5:30 p.m. 12. No machinery of any kind, other than ordinary office machines such as typewriters, information processing systems, copy machines, communications equipment and calculators, shall be operated in any premises in the Building without the prior written consent of Landlord, nor shall any tenant use or keep in the Building any inflammable or explosive fluid or substance (including Christmas trees and ornaments), or any illuminating materials. No space heaters or fans shall be operated in the Building. 13. No motorcycles or similar vehicles will be allowed in the Building. 14. No nails, hooks, or screws shall be driven into or inserted in any part of the Building, except as approved by Building maintenance personnel. Notwithstanding the foregoing, a tenant may decorate the interior of such tenant's premises at such tenant's sole discretion provided such decorations do not impact the structural integrity of the Building and cannot be seen from the exterior of the Building or from any Common Areas of the Building. 15. Landlord has the right to evacuate the Building in the event of an emergency or catastrophe. 16. No food and/or beverages shall be distributed from any tenant's office without the prior written approval of the Building manager. But a tenant may prepare coffee and similar beverages and warm typical luncheon items for the consumption of such tenant's employees and invitees. Furthermore, Landlord acknowledges that, if permitted by the applicable lease, a tenant may operate a food services facility within the premises of such tenant for the sole use and benefit of the occupants of such premises. 17. No additional locks shall be placed upon any doors without the prior written consent of Landlord. All necessary keys or access cards or codes shall be furnished by Landlord, and the same shall be surrendered upon termination of the applicable lease, and each tenant shall then give Landlord or Landlord's agent an explanation of the combination of all locks on the doors or vaults. Replacement keys or access cards or codes (i.e., replacements for keys or access cards or codes previously issued by Landlord) shall be obtained only from Landlord, and Tenant shall pay to Landlord (as Additional Rent, within thirty (30) days after Tenant receives an invoice therefor) the actual costs incurred by Landlord in obtaining and issuing replacement keys or access cards or codes for keys or access cards or codes previously issued. E-2 18. Tenants will not locate furnishings or cabinets adjacent to mechanical or electrical access panels or over air conditioning outlets so as to prevent operating personnel from servicing such units as routine or emergency access may require. Cost of moving such furnishings for Landlord's access will be for the responsible tenant's account. The lighting and air conditioning equipment of the Building will remain the exclusive charge of the Building designated personnel. 19. Each tenant shall comply with reasonable parking rules and regulations as may be posted and distributed by Landlord from time to time. 20. No portion of the Building shall be used for the purpose of lodging rooms. 21. Prior written approval, which shall be at Landlord's sole discretion, must be obtained for installation of window shades, blinds, drapes, or any other window treatment of any kind whatsoever. Landlord will control all internal lighting that may be visible from the exterior of the Building and shall have the right to change any unapproved lighting, without notice to the responsible tenant, at the responsible tenant's expense. 22. No tenant shall make any changes or alterations to any portion of the Building without Landlord's prior written approval, which may be given on such conditions as Landlord may elect. All such work shall be done by Landlord or by licensed contractors and/or workmen. E-3 EXHIBIT F Special Stipulations [NOT APPLICABLE] The foregoing Special Stipulations are hereby incorporated into and made a part of the Lease Agreement. In the event, however, of a conflict between the terms of the Special Stipulations and the terms of the Lease Agreement, the Special Stipulations shall control. Initial: RJH_______ (For Landlord) Initial: JWL______ (For Tenant) F-1 EXHIBIT G GUARANTY OF LEASE AGREEMENT [NOT APPLICABLE] G-1 EXHIBIT H Commencement Date Stipulation Pursuant to that certain Lease Agreement (the "Lease) between CRESCENT RESOURCES, INC. (the "Landlord") and Bairnco Corporation (the "Tenant") dated as of May 17, 1999, for certain premises in The Crescent at Primera, Building Four located at 300 Primera Boulevard, Lake Mary, Florida 32746, Landlord and Tenant hereby stipulate and certify that: 1. The Commencement Date under the Lease is September, and the expiration date of the Lease Term is August 31, 2009. 2. Tenant's obligation to pay Rent under the Lease commenced on January 1, 2000. The terms and provisions of this Commencement Date Stipulation are hereby incorporated into the Lease and modify any and all provisions to the contrary contained therein. Executed under seal as of the 25th day of January, 2000. TENANT: BAIRNCO CORPORATION a Delaware corporation By: /s/ James W. Lambert Name: James W. Lambert Title: VP Finance LANDLORD: CRESCENT RESOURCES, INC., a South Carolina corporation By: /s/ Robert J. Holmes, Jr. Name: Robert J. Holmes, Jr. Title: Vice President H-1 EXHIBIT I Preliminary Tenant Improvements Plans and Specifications [TO BE PROVIDED] I-1 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (the "First Amendment") is dated as of the 31 day of May, 1999, by and between CRESCENT RESOURCES, INC., a South Carolina corporation (the "Landlord") and BAIRNCO CORPORATION, a Delaware corporation (the "Tenant"). RECITALS A. Landlord and Tenant entered into a certain Lease dated as of May 17, 1999 (the "Lease") with respect to certain space described therein as Suite 432 and located on the fourth floor of the Crescent at Primera, Building Four. B. The parties wish to change the Commencement Date described in the Lease Summary to provide more time to obtain bids for construction of the Tenant Improvements. AMENDMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, Landlord and Tenant do hereby agree as follows: 1. Defined Terms; Recitals. Except as otherwise set forth herein, all terms contained in this First Amendment shall have the same meaning ascribed to them in the Lease. The Recitals set forth above are true and correct. 2. Commencement Date. The Commencement Date identified in the Lease Summary is hereby amended to September 1, 1999. The parties acknowledge that such Commencement Date is a target date and that the actual Commencement Date of the Lease shall be determined pursuant to Paragraph 3 of the Lease. 3. Binding Effect. The Lease, as modified by this First Amendment, and all covenants, agreements, exhibits, terms and conditions contained therein, shall remain in full force and effect and is hereby ratified and confirmed. The provisions of this First Amendment shall control any conflicting provisions of the Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the day and year first above written. LANDLORD CRESCENT RESOURCES, INC. /s/ Brandee Barnhill By: /s/ Robert J. Holmes, Jr. Witness Name: Robert J. Holmes Title: Regional Vice President TENANT BAIRNCO CORPORATION /s/ Paula H. Godbee By: /s/ James W. Lambert Witness Name: James W. Lambert Title: Corporate Controller /s/ Larry C. Maingot Witness SECOND AMENDMENT TO LEASE THIS SECOND AMENDMENT TO LEASE (the "Second Amendment") is dated as of the 31 day of August, 1999, by and between CRESCENT RESOURCES, INC., a South Carolina corporation (the "Landlord") and BAIRNCO CORPORATION, a Delaware corporation (the "Tenant"). RECITALS A. Landlord and Tenant entered into a certain Lease dated as of May 17, 1999 as amended by First Amendment dated May 31, 1999, (the "Lease") with respect to certain space described therein as Suite 432 and located on the fourth floor of the Crescent at Primera, Building Four. B. Tenant desires to install two satellite communication dishes on the Building and Landlord is willing to permit such installation in accordance with the terms and conditions described in this Second Amendment. AMENDMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, Landlord and Tenant do hereby agree as follows: 1. Defined Terms; Recitals. Except as otherwise set forth herein, all terms contained in this Second Amendment shall have the same meaning ascribed to them in the Lease. The Recitals set forth above are true and correct. 2. Telecommunications Equipment. Tenant shall have the right to install and maintain on the roof of the Building or in another location approved by Landlord two (2) satellite/ microwave communication antenna and related cabling (the "Equipment") for the purpose of transmitting and receiving telecommunication signals. The location, size, design, color and style of the Equipment shall be subject to reasonable approval of Landlord. Tenant shall comply with all ordinances, codes and regulations regarding the Equipment and shall obtain all permits required therefore. The cost of installation (including the cost of Landlord's roofer or engineer to supervise roof penetrations), operation, maintenance and removal of the Equipment shall be the obligation of Tenant including the cost of repair for damage to any portion of the Building caused by such installation, operation, maintenance or removal. Upon the expiration of the Lease Term or the earlier termination of this Lease, Tenant shall promptly remove the Equipment and repair any portion of the Building which was altered or damaged in any way in connection with the installation, operation, maintenance or removal of the Equipment. Tenant shall indemnify and hold Landlord harmless from any and all damages, injury, loss, liability, costs or claims resulting from the installation, operation, maintenance or removal of the equipment, including any injury to person or damage to the roof or any other part of the Building. 3. Binding Effect. The Lease, as modified by this Second Amendment, and all covenants, agreements, exhibits, terms and conditions contained therein, shall remain in full force and effect and is hereby ratified and confirmed. The provisions of this Second Amendment shall control any conflicting provisions of the Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment as of the day and year first above written. LANDLORD CRESCENT RESOURCES, INC. /s/ Brandee L. Barnhill By: /s/Robert J. Holmes, Jr. Witness Name: Robert J. Holmes, Jr. Title: Vice President TENANT BAIRNCO CORPORATION /s/ Larry C. Maingot By: /s/ James W. Lambert Witness Name: James W. Lambert Title: Corporate Controller /s/ Paula H. Godbee Witness EX-10.2 3 LEASE AGREEMENT 18 LEASE AGREEMENT THIS LEASE AGREEMENT (as hereinafter defined, this "Lease") made this the 16th day of February, 2000 by and between SIGNTECH USA, LTD., a Texas limited partnership (as hereinafter defined, "Landlord"), and ARLON SIGNTECH, LTD., a Texas limited partnership (as hereinafter defined, "Tenant"). W I T N E S S E T H: 1. Definitions. When used in this Lease and not otherwise defined, the following capitalized terms shall have the respective meanings as follows: "ADA" shall have the meaning set forth in Paragraph 16 of this Lease. "Affiliate" shall mean, with respect to any person, any other person controlling, controlled by, or under common control with such person. "Base CPI" shall mean the CPI for the most recent month before the beginning of the initial term of this Lease, it being agreed that such CPI was ______. "Base Rent" shall have the meaning set forth in Paragraph 5 of this Lease. "Building" shall mean the building located on the real property described in Exhibit A and containing the interior portions of the Premises, it being acknowledged by the parties that Landlord or others claiming through Landlord may use the remaining portions of the Building. "CPI" shall mean the "Consumer Price Index-Seasonally Adjusted U.S. City Average For All Items For All Urban Consumers, (1982-84=100)," published monthly in the "Monthly Labor Review" of the Bureau of Labor Statistics of the United States Department of Labor. If such CPI is discontinued, the "Consumer Price Index- Seasonally Adjusted U.S. City Average For All Items For Urban Wage Earners and Clerical Workers (1982-84=100)," published monthly in the "Monthly Labor Review" of the Bureau of Labor Statistics of the United States Department of Labor (the "CPI- W"), will be used instead of such CPI for making the computation set forth above. If the CPI-W is discontinued, comparable statistics on the purchasing power of the consumer dollar published by the Bureau of Labor Statistics of the United States Department of Labor will be used for making the computation set forth above. If the Bureau of Labor Statistics will no longer maintain statistics on the purchasing power of the consumer dollar, comparable statistics published by a responsible financial periodical or recognized authority agreeable to the parties will be used for making the computation set forth above. If the base year "(1982-84=100)" or other base year used in computing the CPI is changed, the figures used in making the computation above will be changed accordingly, so that all increases in such price index are taken into account notwithstanding any such change in the base year. "Environmental, Health and Safety Laws" shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Clean Air Act, the Federal Water Pollution Control Act, the Hazardous Materials Transportation Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Medical Waste Tracking Act, the Occupational Safety and Health Act of 1970, as amended, together with all other laws (including rules, regulations, codes, injunctions, judgments, orders, decrees, and rulings thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety (specifically including the Occupational Safety and Health Administration), all as the same now exist or hereafter may be amended. "Hazardous Materials" shall mean any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any of the Environmental, Health, and Safety Laws, including but not limited to any admixture or solution thereof, and specifically including but not limited to waste oil, petroleum and all derivatives thereof or synthetic substitutes therefor and friable asbestos. "Landlord" shall mean Signtech USA, Ltd., a Texas limited partnership that soon will change its name to "Salsa" or some other appropriate name not including the word "Signtech," the owner of the Premises and the landlord under this Lease, together with its successors and permitted assigns. "Lease" shall mean this Lease Agreement and all written amendments hereto that hereafter shall be executed and delivered by Landlord and Tenant. "New CPI" shall mean, with respect to determination of Base Rent for either renewal term, the CPI for the most recent month before the beginning of such renewal term. "Premises" shall mean the real property to be leased by Tenant from Landlord under this Lease, consisting of certain portions of the real property and improvements located at 4669 Highway 90 West, San Antonio, Texas and more particularly described in Exhibit A hereto, including, without limitation, (a) approximately 90,470 square feet of manufacturing space located within the Building, (b) 7,792 square feet of office space located within the Building, and (c) the right to use the exterior portions of the real property described in Exhibit A hereto, including a Proportionate Share of the parking spaces. The portions of the Building to be occupied by Tenant are described in the drawing of the Building attached hereto as Exhibit B. "Proportionate Share" shall mean, with respect to either Landlord or Tenant, a share based upon the size of that portion of the Building allocated to such party, it being agreed that: (a) the Proportionate Share of Tenant shall be that fraction of the whole of which (1) the numerator is the number of square feet located in the Building and leased by Tenant under this Lease, and (2) the denominator is the total number of square feet in the Building, and (b) the share of Landlord shall be the entire balance of the whole. "Tenant" shall mean Arlon-Signtech, Ltd., a Texas limited partnership, the lessee of the Premises under this Lease, and if this Lease shall be validly assigned, or if the Premises shall be validly sublet, then "Tenant" shall include the Tenant's assignees or sub-Tenants as to the particular portions of the Premises covered by such assignment or sub-lease. 2. Leasing of Premises. Landlord, for and in consideration of the rents, covenants, agreements, and stipulations hereinafter mentioned, reserved and contained, to be paid, kept and performed by Tenant, has leased and rented, and by these presents does lease and rent, unto said Tenant, and said Tenant hereby agrees to lease and take upon the terms and conditions which hereinafter appear, the Premises. Landlord covenants that Tenant, provided it performs all of its obligations under this Lease, will peaceably and quietly enjoy the Premises during the Lease term without any disturbance from Landlord, anyone claiming by, through or under Landlord, or any other party, except as otherwise specifically provided in this Lease. 3. Term. Unless renewed by Tenant in its discretion in the manner hereinafter provided, the term of this Lease shall be for a period of three (3) years, with such term to begin on the _____ day of February, 2000 and to end on the ______ day of February, 2003. 4. Renewal Options. Provided it is not then in default under the Lease, Tenant may renew the term of this Lease up to two (2) consecutive times for five (5) additional years per renewal by written notice of its election to do so given to Landlord at least one hundred eighty (180) days prior to the expiration date of the initial term or the expiration date of the first renewal term, as applicable. With the exception of rent, the renewal term will be on all of the terms and conditions of this Lease. The rent for each renewal term shall be increased as follows: (a) For the first renewal term, the annual rental shall be the amount determined by multiplying the Base Rent by a fraction of which: (1) the numerator is New CPI; and (2) the denominator is the Base CPI. (b) For the second renewal term, the annual rental shall be the amount determined by multiplying the Base Rent by a fraction of which: (1) the numerator is the New CPI; and (2) the denominator is the Base CPI. (c) In no event shall the annual rental for any renewal term be reduced by operation of the formula set forth in this Paragraph. 5. Rental. For the initial term of this Lease, Tenant will pay an annual rental of Four Hundred Twelve Thousand Seven Hundred and 40/100 Dollars ($412,700.40) (the "Base Rent") per year. The annual rental for each year of the initial term of this Lease will be due and payable in twelve equal monthly installments of Thirty Four Thousand Three Hundred Ninety-One and 70/100 Dollars ($34,391.70) in advance on the first day of each and every calendar month during the initial term of this Lease. The first payment of such annual rental is to be made on the _____ day of February, 2000, pro-rated if the term begins on a day other than the first day of the month. The parties acknowledge that the Base Rent during the initial term is based on an agreed rental amount of four dollars and twenty cents ($4.20) per square foot and a gross square footage of the interior portions of the Premises of 98,262 square feet, consisting of 90,470 square feet of manufacturing space and 7,792 square feet of office space. If the actual square footage of the Premises is less than as set forth above, the annual rental (and monthly payments) shall abate proportionately. The annual rental for each year of any renewal term of this Lease will be due and payable in twelve equal monthly installments in advance on the first day of each and every calendar month during the renewal term. 6. Utility Bills. (a) For any utilities that are separately metered, Tenant will pay all utility bills of all types, including, but not limited to, water and sewer, natural gas, electricity and sanitary pick up bills for the Premises, or used by Tenant in connection therewith. If Tenant does not pay same, Landlord may pay the same, and such payment will be added to the next due monthly installment of rental of the Premises. (b) For any utilities that are not separately metered, Tenant will pay to Landlord its Proportionate Share of utility costs no later than the date such utility costs are due and payable to the utility provider. If Landlord does not then pay same, Tenant may pay such utility costs, and Tenant's rent will be abated by such amount so paid by Tenant. 7. Ad Valorem Taxes. (a) Tenant shall pay as additional rent its Proportionate Share of any and all ad valorem real estate taxes assessed and levied against the real property described in Exhibit A to this Lease and the improvements thereto. Tenant's proportionate share shall be payable to Landlord no later than the date such taxes may be paid without penalty or interest. (b) Tenant shall pay its fair share of any special assessment imposed upon the Property, it being agreed that Tenant's fair share shall be based on both (1) Tenant's Proportionate Share of the Building, and (2) the ratio of the then remaining term of this Lease to the useful life of the improvement to which the special assessment pertains. Tenant's fair share shall be payable to Landlord no later than the date such taxes may be paid without penalty or interest. (c) Tenant will pay timely any and all ad valorem taxes assessed against the personal property of Tenant located on the Premises, during the entire term thereof. (d) Tenant shall have the right, at Tenant's sole expense, to appeal any and all taxes applicable to the Premises and Landlord agrees that Landlord will cooperate with Tenant reasonably and sign all documents reasonably required in connection with any such appeal. Provided that an appeal or protest of a tax assessment will operate to suspend the collection of assessed taxes and the enforcement of the lien for the assessed tax, Tenant may delay payment of any portion of such taxes which are the subject of an appeal or protest until the resolution of such appeal or protest, in which event Tenant shall be solely responsible for the payment of any penalties, interest, or additional taxes which result from such delay. Notwithstanding the foregoing, Tenant shall not permit the filing of a tax lien against the Premises. 8. Insurance. (a) Landlord will carry "All Risk" Insurance Coverage on the demised Premises in an amount not less than the full insurable value. The term "full insurable value" will mean the actual replacement cost, excluding foundation and excavation costs, as reasonably determined by Landlord. Such policies will name Tenant as an additional named insured. Tenant will reimburse Landlord for its Proportionate Share of the "All Risk" Insurance Coverage no later than the date the premium on the coverage is due and payable to the insurance carrier. If Landlord fails in its obligations to obtain or maintain said insurance, Tenant may, at its option, either (1) make the requisite payments for Landlord's insurance and have its rent abated by said amount, or (2) obtain its own insurance, for which Landlord will be liable to Tenant for its Proportionate Share of the costs thereof. (b) Tenant will carry at Tenant's own expense insurance coverage on all equipment, fixtures and appliances. Landlord acknowledges that consistent with the practices of Tenant's ultimate parent entity, certain perils that are insured by many businesses are self-insured by Tenant up to the parent entity's prescribed excess insurance attachment point. (c) Landlord and Tenant waive all rights to recover against each other or against any other Tenant or occupant of the Building, or against the officers, directors, shareholders, partners, joint venturers, employees, agents, customers, invitees, or business visitors of each other or of any other Tenant or occupant of the Building, for any loss or damage arising from any cause covered by any insurance required to be carried by each of them pursuant to this Paragraph or any other insurance actually carried by each of them. Landlord and Tenant will cause their respective insurers to issue appropriate waiver of subrogation rights endorsements to all policies of insurance carried in connection with the Building or the Premises or the contents of either of them to the extent such waivers are available. 9. Maintenance and Repairs by Tenant. Landlord warrants as of the commencement date of this Lease that the Premises are structurally sound and that all electrical, lighting, utility, fire safety, HVAC, and all operating systems are in good working condition and are not in need of repair. Except as set forth in Paragraph 10, Tenant will, at its own expense, keep and maintain the interior of the Premises, including all systems pertaining to electrical, lighting, and HVAC; provided, however, if the HVAC system serves both Landlord and Tenant, Landlord shall be responsible for its maintenance and repair, and Tenant shall reimburse Landlord for its Proportionate Share of the costs of said repair no later than the date the cost of the maintenance and repairs is due and payable by Landlord. It is the intent of the parties that Tenant will only be required to make repairs or replacements which are not structural in nature. 10. Repairs by Landlord. Landlord agrees to maintain and keep in good repair the roof, exterior walls, structural supports (including foundations), exterior doors of any and all buildings located on the Premises, and all water or sewer pipes located underground or in the slab, sidewalks, parking lots, driveways and other vehicular access and maneuvering areas. Landlord will also be responsible for any repairs or replacements which are structural in nature, which are extraordinary or capital in nature, which will increase the value of the Premises subsequent to the end of the then term, and any other repairs not expressly delegated to Tenant in this Lease. Landlord will also promptly clean up and dispose of any Hazardous Materials found on, in or under any portion of the Premises, remediate the Premises to comply with any and all environmental laws applicable thereto, and pay for all clean up and disposal costs at no cost to Tenant, unless directly caused by Tenant, its employees, agents or contractors. 11. Destruction of or Damage to the Premises. If the Premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this Lease will terminate as of the date of such destruction, and rental will be accounted for as between Landlord and Tenant as of that date. If the Premises are damaged but not wholly destroyed by any of such casualties, rental will abate in such proportion as use of the Premises has been destroyed, and Landlord will restore the Premises to substantially the same condition as before the damage as speedily as practicable, whereupon full rental will recommence; however, if the damage will be so extensive the same cannot be reasonably repaired and restored within _______ (__) months' time from the date of the casualty, then either Landlord or Tenant may cancel this Lease by giving written notice to the other party within thirty (30) days from the date of such casualty. In such event, rental will be apportioned and paid up to the date of such casualty. 12. Modifications and Alterations to the Premises. No modifications, alterations, or improvements to the Building or openings cut through the roof are allowed without the prior written consent of Landlord, which consent will not be unreasonably withheld or delayed. 13. Removal of Fixtures. Tenant may (if not in default hereunder) prior to the expiration of this Lease, or any renewal or extension thereof, remove all personal property, fixtures and equipment which Tenant has placed in the Premises, provided that during such removal Tenant will make all reasonable repairs necessary to return the Premises to its original condition, reasonable wear and tear excepted. 14. Return of the Premises. Tenant agrees to return the Premises to Landlord at the expiration or prior termination of this Lease in same condition and repair, reasonable wear and tear, damage by storm, fire, lightning, earthquake or other casualty alone excepted. 15. Condemnation. (a) If the whole of the Premises, or such portion thereof as will make the Premises unusable for the purpose herein leased, shall be condemned by any legally constituted authority for any public use or purpose or if Landlord shall sell the Premises under threat of condemnation, then in either such case the term of this Lease will end at the time when possession thereof is taken by public authorities, and rental will be accounted for as between Landlord and Tenant as of that date. Such termination, however, will be without prejudice to the rights of Landlord to recover compensation and damage caused by condemnation from the condemnor or the rights of Tenant to recover from the condemnor compensation for its costs of relocation (including for any business disadvantage or increased rent resulting from such relocation) and for the unamortized value of leasehold improvements made by Tenant. It is further understood and agreed that neither Tenant nor Landlord will have any rights in any award made to the other by any condemning authority. (b) If there is a partial taking of the Premises by condemnation and if it is not so extensive as to render the remaining portion (after restorations) unsuitable for the business of Tenant, then this Lease will continue in effect and Landlord, upon receipt of the award in condemnation, will expeditiously commence and complete all necessary repairs and restorations to the Premises so as to constitute the portion of the Building not taken a complete architectural unit and restore the Premises as nearly as practicable to its prior condition; provided, however, that such work does not exceed the scope of the original construction, and Landlord will not be under any duty to expend amounts in excess of the award received by Landlord. Rent, taxes and other charges payable by Tenant will equitably abate while Landlord's repairs and restorations are in process. If a partial taking consists only of a street widening or utility easement which, at Tenant's reasonable judgment, is determined not to materially affect Tenant's use of the Premises, this Lease will continue in full force and effect without abatement of rent, taxes or other charges. 16. Governmental Orders. Tenant agrees, at its own expense and solely in relation to those portions of the Premises which Tenant is required to maintain or repair under Paragraph 9, to promptly comply with all requirements of any legally constituted public authority made necessary by reason of Tenant's specific use of said Premises. Notwithstanding the foregoing, the Tenant will not be liable for: (a) repairs, alterations, replacements or retrofitting required by the accessibility or path of travel requirements set forth in Title III of the Americans With Disabilities Act of 1990, 42 USC 12101, et seq. and regulations and guidelines promulgated thereunder, as amended from time to time (collectively referred to as "ADA"); (b) repairs, alterations or replacements required to comply with federal, state or local indoor air quality laws, rules or regulations (separate and apart from any such laws, rules or regulations that are specific to Tenant's industry); or (c) repairs, alterations or replacements described in Paragraph 10. Landlord agrees to promptly comply with any other governmental or regulatory requirements if not made necessary by reason of Tenant's occupancy of the Premises or relating to those portions of the Premises which Landlord is required to maintain or repair under Paragraph 10. 17. Assignment. Tenant may assign this Lease or sublet all or part of the Premises to (a) any Affiliate of Tenant, and (b) any entity that is not an Affiliate of Tenant that succeeds to the entire business of Tenant through purchase, merger, consolidation or reorganization. Any other subletting of all or any portion of the Premises or assignment in whole or in part of this Lease shall be prohibited without the prior written consent of Landlord, which shall not be withheld unreasonably. Subtenants or assignees will become liable directly to Landlord for all obligations of Tenant hereunder, without relieving Tenant's liability. 18. Mortgagee's Rights. Tenant's rights will be subject to any bona fide mortgage or deed to secure debt which is now, or may hereafter be, placed upon the Premises by Landlord, and Tenant agrees, at Landlord's cost, to execute and deliver such documentation as may be reasonably required by any such mortgagee to effect any subordination. Provided, however, as a condition to such subordination, Landlord must secure from each mortgagee a nondisturbance agreement acceptable to Tenant providing that in the event of a foreclosure the mortgagee will recognize the validity of this Lease and, provided that Tenant is not in default, will not disturb Tenant's possession or its rights under this Lease. Landlord and Tenant specifically approve the form of Subordination, Nondisturbance and Attornment Agreement attached hereto as Exhibit C. 19. Use of the Premises. The Tenant may use the Premises for the manufacturing of plastics or other products, warehousing, storage, and related office purposes, for engaging in the flexible signage materials, screen-printing, heat transfer and related products businesses, or for any other lawful purpose. The Premises will not be used for any illegal purposes, nor in any manner to create any nuisance or trespass; nor in any manner to vitiate the insurance, based on the above purposes for which the Premises are leased. 20. Signs. Tenant will have the right to erect at Tenant's sole expense signage at the entrance to and upon the Premises, including but not limited to a customary trade sign identifying the business of Tenant. The erection of signage by Tenant will be subject to and in conformity with all applicable laws, zoning ordinances and building restrictions or covenants of record. On or before termination of this Lease, Tenant will remove the signage thus erected, and will repair any damage or disfigurement, caused by such removal. All signage proposed by Tenant shall be subject to Landlord's review and approval, which approval shall not be unreasonably withheld, conditioned or delayed. 21. Tenant's Right of First Refusal to Purchase. Landlord will have the right to sell the real property described in Exhibit A and all improvements thereto, but such right shall be subject to the following conditions: (a) Landlord shall give notice of each proposed sale, including the purchase price and all other terms and conditions, to Tenant; (b) Tenant will have the right to purchase such real property at the purchase price and on the other terms and conditions offered by Landlord or offered to Landlord by the third party (which offer Landlord wishes to accept), by giving notice to Landlord within twenty (20) business days after Landlord has notified Tenant of the terms of Landlord's proposed sale; and (c) if Tenant does not give notice of the exercise of its option within such time, Landlord will have the right to sell such real property upon the terms stated in the offer made or received by Landlord, but not upon terms more favorable to the purchaser, unless Landlord again gives notice pursuant to Subparagraph (a) above, and Tenant does not exercise its option based upon the new terms. Notwithstanding the foregoing, Tenant's right of first refusal to purchase such real property shall not apply to Landlord's sale of such real property as part of the sale by Landlord of a portfolio of properties that includes such real property and at least two other properties of equal or greater value. 22. Entry for Carding, etc. Landlord may card the Premises "For Rent" ninety (90) days before the termination of this Lease. Landlord may enter the Premises at reasonable hours during the term of this Lease to exhibit the same to prospective purchasers and to make repairs required of Landlord under the terms hereof. Landlord may card the real property described on Exhibit "A" "For sale" or any portion of the real property other than the Premises "For Rent" at any time. 23. Indemnity. (a) Landlord agrees to indemnify and save harmless Tenant and its parents, subsidiaries, Affiliates, directors, officers, employees, agents, servants, attorneys and representatives from any and all claims, causes of action, damages, fines, judgments, penalties, costs (including environmental clean-up costs and response costs), liabilities, expenses or losses (including without limitation, reasonable attorneys' fees and expenses of litigation) arising during or after the Lease term: (1) as a result of any violation by Landlord or prior owners or occupants of the Premises of any applicable federal, state or local environmental laws or regulations, as now or hereinafter in effect, regulating, relating to or imposing liability or imposing standards of conduct concerning any Hazardous Materials; or (2) as a result of the presence, disturbance, discharge, release, removal or cleanup of Hazardous Materials or as a result of environmental contamination or other similar conditions which existed prior to commencement of the Lease term, including the matters referenced in the Asset Purchase Agreement between Landlord, as Seller, and Tenant, as Buyer, under which Landlord has undertaken responsibility for certain corrective environmental measures; or (3) as a result of any violation of the accessibility or path of travel requirements imposed by ADA; or (4) as a result of any of Landlord's representations and warranties being untrue. These indemnities will survive the expiration, cancellation or termination of the Lease. Notwithstanding the foregoing, Landlord's indemnities shall not apply or extend to claims arising from or caused by Tenant. (b) Tenant agrees to indemnify and save harmless Landlord and its parents, subsidiaries, Affiliates, directors, officers, employees, agents, servants, attorneys and representatives from any and all claims, causes of action, damages, fines, judgments, penalties, costs (including environmental clean-up costs and response costs), liabilities, expenses or losses (including without limitation, reasonable attorneys' fees and expenses of litigation) arising during or after the Lease term: (1) as a result of any violation by Tenant of any applicable federal, state or local environmental laws or regulations, as now or hereinafter in effect, regulating, relating to or imposing liability or imposing standards of conduct concerning any Hazardous Materials; or (2) as a result of the presence, disturbance, discharge, release, removal or cleanup of Hazardous Materials or as a result of environmental contamination or other similar conditions which existed after commencement of the Lease term and which was caused by or brought onto the Premises by Tenant or Tenant's agents, contractors, employees, licensees and invitees; or (3) as a result of any violation by Tenant of the accessibility or path of travel requirements imposed by ADA; or (4) as a result of any of Tenant's representations and warranties being untrue. These indemnities will survive the expiration, cancellation or termination of the Lease; provided, however, that Tenant will not be liable for the acts of Landlord or of any other tenants of said property. 24. Default of Tenant. (a) It shall be a default by Tenant if: (1) the rent herein required is not paid at the time and place when and where due and Tenant fails to pay said rent within ten (10) days after written demand from Landlord; or (2) Tenant fails to comply with any material term, provision, condition, or covenant of this Lease, other than the payment of rent, and will not cure such failure within thirty (30) days after notice to Tenant of such failure to comply or such additional time period as may reasonably be necessary to effect a cure of the default provided that Tenant commences and diligently pursues a cure of the default; or (3) Tenant causes any lien to be placed against the Premises and does not cure the same within thirty (30) days after notice from Landlord to Tenant demanding cure. (b) Upon any default by Tenant referenced in Subparagraph (a) above, Landlord may, in addition to, and not in limitation of any other remedy permitted by law or by this Lease: (1) terminate this Lease, in which case Tenant shall (A) immediately surrender the Premises to Landlord, and (B) indemnify Landlord for all loss and damage that Landlord may suffer by reason of such termination, whether through inability to relet the Premises, or through decrease in rent, or otherwise; or (2) acting as Tenant's agent, without terminating this Lease, may terminate Tenant's right of possession, and, at Landlord's option, enter upon and rent the Premises at the best price obtainable by reasonable effort, without advertisement and by private negotiations and for any term Landlord deems proper, in which case Tenant will be liable to Landlord for the deficiency, if any, between Tenant's rent hereunder and the price obtained by Landlord on reletting. Pursuit of any of the foregoing remedies will not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law. In any case, Landlord will use reasonable efforts to mitigate Tenant's damages. Any notice in this provision may be given by Landlord or its attorney. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, will affect Landlord's right to collect rent for the period prior to the termination thereof. 25. Default of Landlord. It shall be a default by Landlord if Landlord fails to comply with any material term, provision, condition or covenant of this Lease and will not cure such failure within thirty (30) days after notice to Landlord of such failure to comply or such additional time period as may reasonably be necessary to effect a cure of the default provided that Landlord commence and diligently pursues a cure of the default. Upon any default by Landlord, Tenant may, at its option, elect to: (a) terminate this Lease upon thirty (30) days written notice to Landlord; (b) bring an action to require specific performance of Landlord's obligations; (c) provide Landlord with an additional period of time within which to effect that cure; (d) commence such cure itself, and Tenant may either, at its option, offset any expenses it incurs in effecting such cure against the rent and other charges due and payable by Tenant hereunder, or require that Landlord immediately reimburse Tenant for its expenses; provided, however, in the event of an emergency, Tenant may immediately effect a cure of Landlord's failure should Landlord fail to act immediately to do so, without the requirement of any notice by Tenant to Landlord; and/or (e) pursue any other remedies provided herein or provided by law. 26. Warranties of Landlord. Landlord warrants that: (a) Landlord owns the Premises in fee simple and has the right to enter into this Lease. The Premises are free from liens and encumbrances, except for utility easements, unviolated restrictive covenants which do not materially adversely affect Tenant's intended use of the Premises, and other title matters to which the conveyance of the Premises by Landlord to Tenant was subject, including a mortgage for which the mortgagee, Landlord and Tenant have executed a subordination, nondisturbance and attornment agreement. The Premises have legal, direct, pedestrian and vehicular access to and from and abuts one or more publicly dedicated roads; (b) Except for the corrective environmental work called for by the Asset Purchase Agreement between Landlord, as Seller, and Tenant, as Buyer, to Landlord's knowledge the Premises are in compliance with all Environmental, Health and Safety Laws. (c) Except for the citations that Landlord has separately disclosed to Tenant, Landlord has not received a citation from any regulatory agency for noncompliance with Environmental, Health and Safety Laws. Landlord alone shall be responsible for fines, penalties, and all other damages arising out of any such citation with respect to occurrences or conditions at the Premises prior to the date hereof and for any such items in the portions of the Building other than the Premises or resulting from Landlord's use of such land at any time subsequent to the date hereof. 27. Holding Over. If Tenant remains in possession of the Premises after expiration of the term hereof with Landlord's acquiescence, Tenant shall be a month to month tenant on the terms that were in effect immediately prior to expiration of the term of this Lease. If Tenant remains in possession of the Premises after expiration of the term hereof without Landlord's acquiescence and after Landlord's written demand for return of the Premises, Tenant will be a tenant-at-sufferance at 150% of the rental rate in effect at end of the Lease. In neither case shall there be deemed to be a renewal of this Lease (other than to a month-to-month basis, as stated above) by operation of law. 28. Notices. Any notice given pursuant to this Lease will be in writing and sent by certified mail to: If to Landlord: Signtech USA, LTD. 4669 Highway 90 West San Antonio, TX 78237 Attn: Mr. James Gandy Copy to: Deven N. Dixon, P.C. Law Office, Trinity Plaza 745 East Mulberry Street, Suite 870 San Antonio, TX 78212 If to Tenant: Arlon Signtech, Ltd. c/o Arlon, Inc. Adhesives and Films Division 2811 South Harbor Boulevard Santa Ana, CA 92704 Attn: Mr. Elmer G. Pruim, III Division President Copies to: Mr. James W. Lambert Vice President Arlon, Inc. 300 Primera Blvd., Suite 432 Lake Mary, FL 32746 Holland & Knight LLP 200 South Orange Avenue, Suite 2600 Orlando, Florida 32801 Attn: Leighton D. Yates, Jr. 29. Construction of Lease Terms. Irrespective of which party was responsible for the preparation and drafting of this Lease, the terms of this Lease will not be construed more strictly against such party than against any other party. 30. Waiver of Rights. No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant with its obligations hereunder, and no custom or practice of the parties at variance with the terms hereof will constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. 31. Rights Cumulative. All rights, powers and privileges conferred hereunder upon the parties hereto will be cumulative but not restrictive to those given by law. 32. Time of Essence. Time is of the essence of this Lease. 33. Entire Agreement. This Lease contains the entire agreement of the parties hereto, and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein, will be of any force or effect. 34. Severability and Governing Law. If any term, covenant or condition of this Lease or the application thereof to any person, entity or circumstance will, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant, or condition to persons, entities or circumstances other than those which or to which sued may be held invalid or unenforceable, will not be affected thereby, and each term, covenant or condition of this Lease will be valid and enforceable to the fullest extent permitted by law. This Lease shall be governed by and construed in accordance with the law of the state in which the Premises are located. 35. Brokerage. Each of Landlord and Tenant warrants to the other that no commissions are payable or due to any broker or finder in connection with this Lease and each of Landlord and Tenant agrees to indemnify, defend and hold the other harmless from and against any commissions or fees or claims for commissions or fees arising under the indemnifying party, which indemnification will expressly survive the termination of this Lease. 36. No Recording; Memorandum of Lease. This Lease shall not be recorded, but a written Memorandum of Lease in the form of Exhibit D hereto shall be placed of record in the public records of Bexar County, Texas. Such Memorandum of Lease makes specific reference to the term of this Lease, including renewals, and to the right of first refusal granted to Tenant under Paragraph 21 of this Lease. IN WITNESS WHEREOF, the parties herein have executed this Lease on the day and year first above written. "LANDLORD" SIGNTECH USA, LTD., a Texas limited partnership By: GANDY GROUP, INC., General Partner Witnesses: _____________________________ By:____________________________ Printed:_______________________ Name:_________________________ Its:____________________________ ______________________________ Printed:________________________ "TENANT" ARLON SIGNTECH, LTD., a Texas limited partnership By: ARLON ADHESIVES & FILMS, INC., General Partner Witnesses: _____________________________ By:___________________________ Printed:_______________________ Name:________________________ Its:___________________________ ______________________________ Printed:________________________ ORL1 #534655 v7 EXHIBIT LIST FOR LEASE AGREEMENT Exhibit A Legal Description of Real Property Including the Premises Exhibit B Drawing of Building Identifying Interior Portions of Premises Leased by Tenant Exhibit C Approved Form of Subordination, Nondisturbance and Attornment Agreement Exhibit D Form of Memorandum of Lease EXHIBIT A (Legal Description of the Real Property Including the Premises) EX-11 4 BASIC AND DILUTED EPS EXHIBIT 11 BAIRNCO CORPORATION AND SUBSIDIARIES CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 1999 1998 1997 BASIC EARNINGS PER COMMON SHARE: Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000 Average common shares outstanding 7,965,000 8,655,000 9,151,000 Basic Earnings Per Common Share $ 1.08 $ 0.18 $ 0.96 DILUTED EARNINGS PER COMMON SHARE: Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000 Average common shares outstanding 7,965,000 8,655,000 9,151,000 Common shares issuable in respect to options issued to employees with a dilutive effect 73,000 163,000 199,000 Total common shares assuming full dilution 8,038,000 8,818,000 9,350,000 Diluted Earnings Per Common Share $ 1.08 $ 0.18 $ 0.94 Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during each year. Diluted earnings per common share include the effect of all dilutive stock options. EX-13 5 1999 ANNUAL REPORT TO STOCKHOLDERS BAIRNCO CORPORATION 1999 ANNUAL REPORT Our mission Bairnco is an organization of people committed to providing value-added industrial and commercial products and services to niche markets which meet or exceed our customers' requirements leading to the creation of stockholder and employee value. Our strategy Bairnco strives to develop true partnership relationships with its customers in selected markets through close cooperation in developing value- added solutions to their needs. Bairnco seeks to identify and participate in those markets that will provide growth opportunities due to either technical developments or the changing needs of customers. Bairnco implements this mission and strategy through two business segments: Engineered materials and components are designed, manufactured and sold under the Arlon brand identity. Replacement products and services are manufactured and distributed under the Kasco brand identity. Our objectives Bairnco believes that concentrating its resources in selected market niches can provide the basis to achieve both superior profitability and growth. Management's long term objectives are to achieve: 15% compound rate of earnings growth 20% return on stockholders' investment 15% return on total capital employed. Our values Values are the core of Bairnco's corporate culture. They are the basis for the decisions made regarding the development and deployment of people, the improvement and investment in processes, and the manufacture and distribution of products. Bairnco's values are: Personal and corporate integrity The inevitability and opportunity of change Continuous improvement and development Total customer satisfaction Decentralized organization and empowered employees Superior rewards for superior performance Have fun - enjoy your work and your life. CONTENTS Financial Highlights 1 Letter to Our Stockholders 2 Engineered Materials & Components (Arlon) 4 Replacement Products & Services (Kasco) 7 Directors and Management 8 Financial History 9 Management's Discussion and Analysis 10 Quarterly Results of Operations 13 Report of Independent Certified Public Accountants 14 Consolidated Financial Statements 15 Notes to Consolidated Financial Statements 19 FINANCIAL HIGHLIGHTS Percent Change (In thousands except per share data) 1999 1998 1997 99/98 98/97 Net Sales $168,881 $156,456 $158,708 8% (1%) Operating Profit $ 15,002 $ 4,529 $ 15,592 231% (71%) Net Income $ 8,641 $ 1,594 $ 8,771 442% (82%) Diluted Earnings per Share $ 1.08 $ 0.18 $ 0.94 500% (81%) Cash Dividends per Share $ 0.20 $ 0.20 $ 0.20 0% 0% Stockholders' Investment per Average Diluted Common Share Outstanding $ 6.24 $ 5.27 $ 5.61 18% (6%) Total Assets $119,145 $118,555 $109,286 0% 8% Stockholders' Investment $ 50,167 $ 46,438 $ 52,469 8% (11%) Average Diluted Common Shares Outstanding 8,038 8,818 9,350 (9%) (6%) (Data for Bar Charts for Five Years 1995 to 1999; in 000's) Year Net Sales Operating Profit Net Income Diluted Earnings per Share 1995 $150,507 $14,633 $7,781 $0.75 1996 $150,234 $14,956 $8,335 $0.85 1997 $158,708 $15,592 $8,771 $0.94 1998 $156,456 $ 4,529 $1,594 $0.18 1998(a) $156,456 $12,029 $6,320 $0.72 1999 $168,881 $15,002 $8,641 $1.08 (a) Prior to impact on operating profit, net income and diluted earnings per share of $7.5 million (pre-tax) provision for litigation costs in the fourth quarter of 1998. LETTER TO OUR STOCKHOLDERS 1999 was a good year for Bairnco. Sales and earnings increased. Productivity improved. Our management team was further strengthened and deepened. The MII acquisition made at the end of 1998 was smoothly integrated into Arlon. Subsequent to year-end, we acquired Signtech and increased Bairnco's credit facility to $75 million. We continue to repurchase our stock. Bairnco's financial condition remains strong. 2000 is expected to be a year of continued growth in sales and earnings. FINANCIAL RESULTS 1999 consolidated sales increased 7.9% to $168,881,000. Sales from new products developed in the past five years accounted for 12.8% of total sales in 1999 compared to 8.0% of sales in 1998. Bairnco's goal is to have 25% of annual sales from new products developed and acquired within the last five years. In 1999, gross profit increased 9.0% to $55,147,000 with gross profit margins improving to 32.7% from 32.3% last year. A number of our operational teams made significant improvements. Productivity improved 8.2% as measured by sales per employee which increased to $205,950 from $190,340. This accomplishment was due to the efforts of all our employees. Selling and administrative expenses increased 4.1% to $40,145,000 in 1999 compared to $38,554,000 in 1998, excluding the $7,500,000 provision for litigation costs taken in 1998. As a percent of sales, these expenses were reduced to 23.8% from 24.6% in 1998. Research and development expenses increased 19.3% as Bairnco invested in the development of new products and improved quality. Earnings before interest and taxes were $15,002,000, up 24.7% from $12,029,000 excluding the provisions for litigation costs in 1998. The growth is primarily attributable to increased gross profit and controlled expenses. Income before taxes increased to $12,898,000 from $2,531,000 in 1998. Net income increased to $8,641,000 or $1.08 per share from $1,594,000 or $.18 per share in 1998. The provision for litigation costs reduced net income in 1998 by $4,726,000, or approximately $.54 diluted earnings per common share. The diluted average number of shares outstanding in 1999 was 8,038,000 an 8.8% decrease from 8,818,000 diluted average shares outstanding in 1998. ACQUISITION On February 16, 2000, Bairnco purchased certain assets of the materials business ("Signtech") of Signtech USA, Ltd. for approximately $14.5 million. Signtech's sales for the year ended December 31, 1999 were approximately $16.0 million. Signtech manufactures and distributes flexible reinforced vinyl materials used as the substrate in flexible faced sign systems. Signtech's products are sold primarily on a specification basis for corporate specified programs using various striping, heat transfer and screen print applications. Signtech has a strong presence in international markets. The acquisition will complement Arlon's graphic films and industrial products with product line extensions, additional brand recognition, product development synergies, and penetration into new customer segments and markets. The acquisition will also expand Arlon's coating and converting capacity. FINANCIAL MANAGEMENT Return on capital employed increased to 11.9% from 8.9% last year and return on stockholders' investment in 1999 increased to 18% compared to 12.4% last year. The 1998 returns exclude the impact of the provision for litigation costs. In 1999, Bairnco's Board of Directors authorized the repurchase of up to $5,000,000 of its common stock. This was in addition to still unused prior authorizations of $2.6 million as of January 1, 1999. During the year the company repurchased 497,900 shares for $2.9 million. The Board has authorized management to continue its stock repurchase program in 2000 subject to market conditions and capital requirements of the business. At year-end $4.7 million was available for additional stock repurchases. The Board may consider additional authorizations if appropriate during the year. Subsequent to year-end, Bairnco amended its secured reducing revolving credit agreement. The amendment effectively extended the expiration date from December 31, 2003 to February 22, 2005, and increased the credit facility from $50 million at December 31, 1999 to $75 million. After the Signtech acquisition approximately $27 million was unused and available under the credit agreement. Working capital management improved during the year. Working capital as a percent of sales decreased from 21.3% to 19.7%. Net cash flows provided by operating activities were $15,668,000. These cash flows were more than sufficient to cover operating requirements, fund Bairnco's capital expenditure program, pay dividends, purchase treasury stock, while still permitting us to reduce debt by $6,391,000. Consequently 1999 total debt decreased to $31,283,000 from $37,844,000 at the end of 1998. Debt as a percent of equity decreased to 62.4% from 81.5% in 1998. Bairnco made $5,670,000 of capital expenditures in 1999 as compared to its plan of approximately $8.2 million. Capital expenditures were focused on cost reduction projects, equipment replacements, and new information systems software and hardware that were installed during the year. Total capital expenditures in 2000 are expected to be approximately $8.9 million. Depreciation and amortization is estimated to be approximately $8.0 million. The planned capital expenditures include quality improvements, cost reduction projects replacements, new product developments, new processing equipment, information systems hardware and software, and limited capacity additions. DIVIDEND The quarterly $.05 per share cash dividend was maintained during the year. MANAGEMENT There were significant positive additions and changes in the Bairnco management team. Larry D. Smith became Vice President of Administration and Secretary of Bairnco on April 26, 1999. He is responsible for our human resources functions, coordination of the Six-Sigma program, and administration. Larry came to Bairnco from Emerson Electric where he most recently was Vice President, Human Resources, Therm-o-Disc, Inc. He previously was Corporate Director, Employee Relations and Communications, with Emerson Electric Company at the corporate headquarters in St. Louis, MO. J. Robert Wilkinson, Vice President Finance and Treasurer, made the decision to retire from Bairnco effective March 31, 2000. Bob assumed the title Chief Financial Officer Emeritus effective December 31, 1999. Bob has been with Bairnco fourteen years. He has made many contributions to the Company. We all will miss him and wish him many happy years in retirement. Bob developed a strong financial team at Bairnco which has resulted in a seamless transition. Consequently, effective December 31, 1999, Jim Lambert, Controller, was promoted to Vice President Finance and Treasurer of Bairnco Corporation, and Larry Maingot, Assistant Controller, was promoted to Controller of Bairnco Corporation. Brian E. Turner became President of Kasco on November 10, 1999. Brian came to Kasco from Allied Signal, Inc. where he was a Director of Marketing. His experience includes an overseas assignment as the Managing Director of an operation in the Netherlands. During 1999 the management development program, which is one of the keys to our future success, continued to make progress in all operations. Further additions and changes were made to continue to strengthen operations management which has lead to continuous improvement in efficiencies. We have strengthened our sales and marketing teams to further penetrate certain market segments. The development of management talent is an essential ingredient to both internal and acquisition growth. The ongoing improvement and development of all our employees remains a critical and never-ending element for Bairnco's success. During 1999, the Six-Sigma program was expanded to most of our operations as part of our continuous improvement program. The initial training is complete and we began to see the benefits from specific programs. For 2000, additional projects have been selected and training will be expanded. We expect this program to accelerate the yields from our continuous improvement program. OUTLOOK In 2000 we expect "GDP" type growth in most of our industrial markets served assuming the Federal Reserve negotiates a gentle slowing of the economy. Additional growth is expected from continued penetration in certain market segments, new products and the Signtech acquisition. Earnings are expected to grow both from improved sales and improved productivity. The continuing dedication and excellent performance of our teammates remains the key to our past and future success. We are all dedicated to making 2000 a year of continuing improvement. Respectfully yours, Luke E. Fichthorn III Chairman and CEO Arlon Engineered Materials and Components Bairnco designs, manufactures, and sells engineered materials and components for the electronic, industrial and commercial markets under the Arlon brand identity. These products are based on common technologies in coating, laminating, polymers, and dispersion chemistry. Arlon Materials for Electronics has an international reputation as the premier supplier of high technology materials for the printed circuit board industry. These products are marketed principally to printed circuit board manufacturers and OEM's by strong technical sales representatives in the U.S. and through distributors and manufacturers representatives in Europe, the Far East, and South America, supported by direct technical sales specialists in Europe and Asia. Our Electronic Substrates product line includes high temperature, high performance thermoset laminates and prepreg bonding plies used in circuit boards for sophisticated commercial applications and military electronics. These applications require materials that are highly reliable, withstand high continuous or widely varying operating temperatures, provide ease of field repairability, and improve board fabrication yields. Other specialty laminates, many of which are based on specialized resin-coated substrates provide improved product reliability and ease of manufacture for wireless and high density interconnect (HDI) applications at a lower cost than alternative technologies. Electronic Substrates also offers a very broad line of specialized prepregs for heat sink bonding, use in flex-rigid boards, for metal core board hole-filling, and other specialized printed wire board applications. These materials can be tailored to the specific applications for which they are used. The Microwave Materials product line offers application-matched, reinforced PTFE and other resin based laminates providing high yields and high performance for low signal-loss and frequency-dependent microwave applications. These PTFE laminates are also offered with bonding plies for multi-layer applications. The applications for this product line include microwave antennas, digital cordless telephones, cellular phone handsets, cellular phone base stations, direct broadcast satellite TV systems, personal communications networks, global positioning satellites, local area networks, collision avoidance systems, and radar detection systems. With the continuing proliferation of wireless applications there will be continued aggressive growth opportunities for the Microwave product line. Progress continued both in new PTFE product line extensions and further commercialization of recently developed products serving the wireless market: Arlon's 25N series, a laminate system based on aromatic polyolefin resin that offers many of the performance advantages of PTFE materials with the cost and processing advantages of traditional thermoset materials, is targeted for commercial electronics. This product is currently being used in cellular phones, Direct Broadcast Satellite TV, and cellular antennas. Arlon's Thermount nonwoven, aramid reinforced materials offer many advantages for specialty applications at a more attractive cost- performance ratio than woven aramids or buried metal cores. Applications include cellular phones and other telecom uses, as well as military and commercial avionics and missile systems. Arlon's AD Series substrate materials, a specialized PTFE based laminate family that offers all the performance characteristics of PTFE with lower cost, is targeted for higher volume commercial applications. Arlon's 33N and 35N polyimide laminate systems provide high temperature capability for applications involving extreme environments. These products are used in military hardware boards and semiconductor burn-in circuit boards. PHOTO - Advances in printed circuit boards are requiring higher quality materials. In order to meet these demands, Arlon must continuously improve its clean room technology. Lay-up operators at the Rancho Cucamonga, CA facility assemble Arlon's polyimide laminates for pressing using a newly installed tacking machine which removes minute particles of contamination from the press plates used in the manufacturing process. Arlon manufactures and markets, under the Calon brand name, cast and calendered vinyl films in a wide variety of colors, face stocks and adhesive systems. These vinyl films are used in commercial and electrical signage, point of purchase displays, highway signage, fleet markings, and other commercial advertising applications. PHOTO - Arlon's 22T Series films, manufactured at the Northbrook, Illinois facility, are designed for easy removal after up to 2 years of rugged outdoor use. The films are ideal for markings on leased fleets and containers, advertisements on motor and railway coaches, billboards, signage, and point-of-purchase displays. We have continued to invest in new product development and to improve the quality of our current product line. During 1999 we developed an improved adhesive system for our cast translucent vinyl which improves efficiencies to our customers when manufacturing sign faces. Arlon also undertook a significant program to expand the range of available colors and specialty face stocks to broaden our product offering to meet the needs of several new customers. PHOTO - With its equipment and product upgrades, and its material compatability programs, Arlon has begun penetrating the corporate specification markets as evidenced by the KFC program observed above. Arlon's translucent vinyl films manufactured at the Santa Ana, CA facility, were written into the KFC program specifications along with Cooley's flexface material. In February of 2000 Arlon announced it had purchased certain assets of the materials business ("Signtech") of Signtech USA, Ltd., a manufacturer of laminated vinyl fabrics designated for use in the commercial graphics market. Signtech's product lines complement Arlon's current vinyl product lines, and will provide product line extensions, additional brand recognition, product development synergies, and penetration into new customer segments and markets. Arlon also manufactures and markets custom-engineered laminates and coated products. Typical applications include insulating foam tapes for thermopane windows, specialty flexible circuit materials, electrical insulation materials for motors and transformers, thermal insulation panels for appliances and cars, identification cards and labels, durable printing stock, and other custom engineered laminates for specific industrial applications. The keys to Arlon's success in custom-engineered laminates and coated products are our knowledge base of materials and adhesives technology and our understanding of customer applications. Our sales engineers and product managers are dedicated to understanding customer requirements and developing product specifications that meet those customer needs. PHOTO - The newly installed automatic windup on the silicone calender at the Bear, DE plant has increased throughput while significantly improving the quality of the product. The automatic windup senses changes in tension and automatically makes continuous adjustments throughout the run. PHOTO - New semi-automatic barrel-feeding equipment allows the operator to concentrate on in-line inspection to ensure quality product from the silicone tape extruding line at the Bear, DE plant. Arlon manufactures a line of silicone rubber materials used in a broad range of consumer, industrial and commercial products. Typical applications and products include: Silicone sheet rubber for producing composite parts Silicone rubber insulating tapes for electric traction motor coil windings Insulation for industrial and commercial flexible heaters Silicone products for high temperature hose and duct markets Insulating tape for medium and high voltage electrical splices and terminations Compliant, thermally or electrically conductive silicone sheet adhesive known as ThermabondT In 2000 we will focus application development efforts on a new high temperature UL approved compound, foil laminated heater products, high performance hose and duct materials and retail opportunities for fusible tape applications. Kasco Replacement Products and Services Kasco is a leading manufacturer and distributor of products and services to the meat, deli and seafood departments of supermarkets; to meat, poultry and fish processing plants; and to manufacturers and distributors of electrical saws and cutting equipment throughout the United States, Canada and Europe. These products and services include: Band saw blades for cutting meat and fish Saw blades for cutting wood and metal Chopper plates and knives for grinding meat Electrical saws and cutting machines Seasoning products Preventive maintenance for equipment in meat and deli operations Other related butcher supply products. Kasco has manufacturing operations in St. Louis, Missouri; Gwent, Wales, United Kingdom; and Pansdorf, Germany. In addition, there are distribution facilities in Montreal, Canada and Paris, France. Kasco has a significant distribution network that reaches over 30,000 retail grocery stores, restaurants, delis, and processing plants in the US, Canada, Europe, Latin America and Asia. Kasco's distribution network is made up of Territory Managers and Distributors who have in-depth knowledge of the local markets and the customer's needs. Kasco has an extensive training program for its Territory Managers so that each is proficient in the installation, repair, and service of meat, deli and seafood department equipment. Within our extensive market coverage of retail grocery stores, Kasco also offers a unique product offering of seasoning blends, recipes and instructions under the tradename Mealtime SolutionsT, which allows a supermarket to present value-added products in their meat, deli and seafood departments. The Mealtime SolutionsT seasoning program continues to be a success as sales for home meal replacement items within supermarkets increase. PHOTO - Kasco's Mealtime SolutionsT seasoning program offers a package of seasoning blends, recipes and instructions which allows a supermarket to present an attractive, ready-to-cook home meal to its customers. Directors 1.Luke E. Fichthorn III Chairman and CEO Bairnco Corporation 2.Charles T. Foley * President Estabrook Capital Management, Inc. 3.Richard A. Shantz * Private Investor 4.William F. Yelverton * CEO LiveInsurance.com * Audit Committee member Management: 1.Robert M. Carini Vice President Arlon, Inc. 2.James W. Lambert Vice President Finance & Treasurer Bairnco Corporation 3.Lawrence C. Maingot Controller Bairnco Corporation 4.Elmer G. Pruim Vice President Arlon, Inc. 5.Larry D. Smith Vice President Administration & Secretary Bairnco Corporation 6.Brian E. Turner President Kasco Corporation FINANCIAL HISTORY 1999 1998 1997 1996 1995 Summary of Operations ($ in thousands) Net sales $168,881 156,456 158,708 150,234 150,507 Gross profit $ 55,147 50,583 53,996 52,536 53,317 Operating profit $ 15,002 4,529 15,592 14,956 14,633 Interest expense, net $ 2,104 1,998 1,834 1,725 2,026 Income before income taxes $ 12,898 2,531 13,758 13,231 12,607 Provision for income taxes $ 4,257 937 4,987 4,896 4,826 Net income $ 8,641 1,594 8,771 8,335 7,781 Return from operations on: Net sales % 5.1 1.0 5.5 5.5 5.2 Stockholders' investment % 18.0 3.1 17.4 17.2 16.7 Capital employed % 11.9 3.3 12.2 12.3 11.9 Year-End Position ($ in thousands) Working capital $ 33,256 33,259 35,712 30,341 28,350 Plant and equipment, net $ 39,682 41,402 39,913 38,276 34,449 Total assets $119,145 118,555 109,286 102,600 98,196 Total debt $ 31,283 37,844 30,318 28,179 24,578 Stockholders' investment $ 50,167 46,438 52,469 49,464 48,024 Capital employed $ 81,450 84,282 82,787 77,643 72,602 Per Common Share Data Income from continuing operations - Basic $ 1.08 0.18 0.96 0.85 0.75 - Diluted $ 1.08 0.18 0.94 0.85 0.75 Cash dividend $ 0.20 0.20 0.20 0.20 0.20 Stockholders' investment $ 6.43 5.61 5.83 5.25 4.74 Market price: High $ 8 11-3/8 11-1/4 8-1/2 6 Low $ 4-5/8 5-9/16 6-3/8 5-1/2 3-7/8 Other Data (in thousands) Depreciation and amortization $ 7,365 6,688 6,516 6,305 6,314 Capital expenditures $ 5,670 5,976 8,789 10,131 4,831 Average common shares outstanding 7,965 8,655 9,151 9,753 10,433 Diluted common shares outstanding 8,038 8,818 9,350 9,851 10,440 Current ratio 2.1 2.2 2.6 2.4 2.2 Number of common stockholders 1,356 1,436 1,574 1,773 1,967 Average number of employees 820 822 850 825 874 Sales per employee $205,950 190,340 186,710 182,100 172,200 MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes which begin on page 15. Results of Operations: 1999 Compared to 1998 1999 consolidated sales increased 7.9% to $168,881,000 from $156,456,000 in 1998. Arlon's sales increased 12.0%, due to the full year effect of the acquisition made late in 1998, the rebound in most markets from the depressed conditions due to the Asian crisis in 1998, and further penetration in new market segments. Kasco's sales declined 1.0% due to competitive pressures in the North American base business, the currency translation effect of the strong dollar and lower demand in the European markets for selected products. In 1999, gross profit increased 9.0% to $55,147,000 from $50,583,000 in the prior year with gross profit margins improving to 32.7% from 32.3% last year. Gross profit increased at Arlon as the result of the 1998 acquisition and improved sales and manufacturing efficiencies. Kasco's gross profit improved slightly as better manufacturing cost performance offset the sales decline. Selling and administrative expenses increased 4.1% to $40,145,000 in 1999 compared to $38,554,000 in 1998, excluding the $7,500,000 provision for litigation costs taken in 1998. As a percent of sales, these expenses declined to 23.8% from 24.6% in 1998. Research and development expenses increased 19.3% as Bairnco invested in the development of new products and improved quality. The average number of employees was essentially unchanged from last year. Productivity as measured by sales per employee increased 8.2%. Earnings before interest and taxes were $15,002,000, up significantly from $4,529,000 in 1998. The improvement is attributable to higher gross profit and the effect of the $7,500,000 provision for litigation costs on 1998 results. Net interest expense increased to $2,104,000 from $1,998,000 in 1998. The increase was due to increased average debt outstanding primarily resulting from the acquisition in the fourth quarter of 1998. Income before income taxes increased to $12,898,000 as compared to $2,531,000 in 1998. The effective tax rate was 33% compared to 37% in 1998 due to the implementation of tax planning strategies and increase in the Foreign Sales Corporation tax benefit. The provision for income taxes in both years includes all applicable federal, state, local and foreign income taxes. Net income increased to $8,641,000 from $1,594,000 in 1998. The provision for litigation costs reduced net income in 1998 by $4,726,000, or approximately $.54 diluted earnings per common share. Diluted earnings per common share increased to $1.08 from $.18 in 1998 as a result of the increase in operating income and reduced number of shares outstanding. Results of Operations: 1998 Compared to 1997 1998 consolidated sales of $156,456,000 decreased 1.4% from $158,708,000 in 1997. Arlon's sales decreased 3.8%, as all markets served declined during the year after a strong first quarter. The electrical and electronic markets were the most depressed. The drop in the electronic market due to the Asian crisis adversely affected many of the end users of Arlon's products, as did low-priced competition from Asian competitors. Further penetration in new market segments offset some of the decline. Kasco's sales increased 4.4% through growth in the U.S. base business and seasoning programs for in-store meal preparation and in the European operations. In 1998, gross profit decreased 6.3% to $50,583,000 from $53,996,000 in the prior year with gross profit margins declining to 32.3% from 34% in 1997. Gross profit decreased at Arlon as the combined result of lower sales, lower prices, and a continuing change in mix to lower margin commercial products to serve the electronic/communication markets. Kasco's gross profit decreased slightly due to the costs from discontinued products and services. In 1998 the court in the Transactions Lawsuit (refer to Note 10 to the Consolidated Financial Statements) issued a series of opinions that eliminated certain claims and parties from the case and set the stage for discovery and trial as to the claims and parties that remain. In particular, the court dismissed the RICO claims; all claims against third- party professionals, including lawyers, accountants and investment bankers; and all claims against individuals with the exception of Bairnco's former chairman and president. The court also narrowed the scope of certain claims against Bairnco and the other corporate defendants. With the initial motions phase of the case complete, Bairnco is prepared to mount a vigorous defense on the merits. Toward that end, a $7,500,000 provision for litigation costs was taken in the fourth quarter of 1998 (refer to Note 2 to the Consolidated Financial Statements). Selling and administrative expenses, excluding the provision for litigation costs, increased 0.4% to $38,554,000 from $38,404,000 in 1997. As a percent of sales, these expenses increased to 24.6% in 1998 from 24.2% in 1997. Research and development expenses increased 4.8% as Bairnco continued to invest in the development of new products and improved quality. Based on sharp swings in order input throughout 1998 and management's continuing belief in the future of the Corporation's key markets, the decision was made to cut costs but not to impair the core management competencies that have been developed. The average number of employees was reduced by 3.3% from 1997. Productivity as measured by sales per employee increased 1.9%. Earnings before interest, the provision for litigation costs and taxes were $12,029,000 down 22.9% from $15,592,000 in 1997. The decline is primarily attributable to reduced gross profit. In the fourth quarter of 1998 Bairnco recorded the $7,500,000 pre-tax provision for anticipated litigation costs. Net interest expense increased from $1,834,000 to $1,998,000. The increase was due to increased average debt outstanding primarily resulting form the acquisition in the fourth quarter. Income before income taxes decreased to $2,531,000 in 1998 as compared to $13,758,000 in 1997. The effective tax rate was 37% as compared to 36.2% in 1997. Net income decreased to $1,594,000 from $8,771,000. Diluted earnings per common share fell sharply to $.18 from $.94 in 1997 as a result of the decreased operating income and the provision for litigation costs. The provision for litigation costs reduced net income in 1998 by $4,726,000 or $.54 per share. Liquidity and Capital Resources At December 31, 1999, Bairnco had working capital of $33.3 million, essentially the same level as December 31, 1998. The increase in accounts receivable relates primarily to the growth in sales. Other current assets increased due primarily to a tax refund expected to be received during the first quarter 2000. The increase in accounts payable is due primarily to a higher level of purchases in support of the higher levels of sales and production. At December 31, 1999, $31.3 million of total debt was outstanding compared to $37.8 million at the end of 1998. As of December 31, 1999, approximately $17.4 million was available for borrowing under the Corporation's secured reducing revolving credit agreement. In addition, approximately $4.1 million was available under various short-term domestic and foreign uncommitted credit facilities. Debt as a percent of equity was reduced to 62.4% at the end of 1999 from 81.5% at the end of 1998. The reduction was due to the repayments of debt during the course of 1999. On February 15, 2000, the Corporation's Credit Agreement was amended. The amendment effectively increased the credit facility from $50 million at December 31, 1999 to $75 million, including a five-year term loan credit facility of $20 million subject to quarterly amortization of principal of $500,000 in 2000, $750,000 in 2001, $1,000,000 in 2002, $1,250,000 in 2003 and $1,500,000 in 2004. The amended credit facility also includes a letter of credit facility for $9 million which may be increased up to $15 million or decreased to $5 million with a corresponding change in the loan commitment under the revolving credit facility. The amendment extended the expiration date of the Credit Agreement from December 31, 2003 to February 22, 2005, although the term loan expires on December 31, 2004. Bairnco made $5,670,000 of capital expenditures in 1999 as compared to its plan of approximately $8.2 million. Capital expenditures were focused on cost reduction projects, equipment replacements, and new information systems software and hardware that were installed during the year. Total capital expenditures in 2000 are expected to be approximately $8.9 million. Depreciation and amortization is estimated to be approximately $8.0 million. The planned capital expenditures include quality improvements, cost reduction projects, replacements, new product developments, new processing equipment, information systems hardware and software, and limited capacity additions. In 1999, Bairnco's Board of Directors authorized an additional $5,000,000 to be available for the ongoing repurchase of its common stock. This was in addition to still unused prior authorizations of $2.6 million as of January 1, 1999. During 1999, Bairnco repurchased 497,900 shares of its common stock for $2.9 million. The diluted average number of shares outstanding in 1999 was 8,038,000 an 8.8% decrease from the 8,818,000 diluted average shares outstanding in 1998. The Board has authorized management to continue its stock repurchase program in 2000 subject to market conditions and the capital requirements of the business. Cash provided by operating activities plus the amounts available under Bairnco's credit facilities (refer to Note 7 and Note 12 to the Consolidated Financial Statements) are expected to be sufficient to fulfill Bairnco's anticipated cash requirements in 2000. Year 2000 Date Conversion In January of 1998 Bairnco adopted a formal plan to address the Year 2000 issue and thus maintain the integrity of its financial systems and ensure the reliability of its operating systems. The implementation and validation of the system upgrades was completed during the fourth quarter of 1999 at a total cost of approximately $250,000. The Corporation did not experience any disruption in its operations due to Year 2000 issues with its computer software programs and operating systems or its interface with key suppliers and vendors. Other Matters Bairnco Corporation and its subsidiaries are defendants in a number of legal actions and proceedings that are discussed in more detail in Note 11 to the Consolidated Financial Statements. Management of Bairnco believes that the disposition of these actions and proceedings will not have a material adverse effect on the consolidated results of operations or the financial position of Bairnco Corporation and its subsidiaries as of December 31, 1999. Outlook Management is not aware of any adverse trends that would materially affect the Company's financial position. The outlook for 2000 is for improved sales and earnings. It is expected that the combination of growth from new products, higher growth in certain niche markets and the results of the acquisition will result in increased sales. Improved earnings are expected both from increased sales and from ongoing productivity improvement programs. Quarterly Results of Operations (Unaudited) (In thousands except per share data)
1st 2nd 3rd 4th Total 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 Net Sales $42,662 $42,125 $42,653 $37,651 $42,130 $37,747 $41,436 $38,933 $168,881 $156,456 Cost of sales 28,410 28,442 28,171 24,905 28,945 25,922 28,208 26,604 113,734 105,873 Gross Profit 14,252 13,683 14,482 12,746 13,185 11,825 13,228 12,329 55,147 50,583 Selling and administrative expenses 10,245 9,716 10,461 9,717 9,768 9,461 9,671 9,660 40,145 38,554 Provision for litigation costs -- -- -- -- -- -- -- 7,500 -- 7,500 Operating Profit 4,007 3,967 4,021 3,029 3,417 2,364 3,557 (4,831) 15,002 4,529 Interest expense, net 567 481 515 508 516 502 506 507 2,104 1,998 Income before income taxes 3,440 3,486 3,506 2,521 2,901 1,862 3,051 (5,338) 12,898 2,531 Provision for income taxes 1,170 1,290 1,192 933 888 689 1,007 (1,975) 4,257 937 Net Income $ 2,270 $ 2,196 $ 2,314 $ 1,588 $ 2,013 $ 1,173 $ 2,044 $(3,363) $ 8,641 $ 1,594 Basic Earnings per Share $ 0.28 $ 0.25 $ 0.29 $ 0.18 $ 0.25 $ 0.14 $ 0.26 $ (0.40) $ 1.08 $ 0.18 Diluted Earnings per Share $ 0.28 $ 0.24 $ 0.29 $ 0.18 $ 0.25 $ 0.14 $ 0.26 $ -- $ 1.08 $ 0.18 Market Price: High $7-5/16 $11-3/8 $7-5/8 $11-3/8 $ 8 $ 9-1/8 $ 7-1/2 $11-1/4 $ 8 $ 11-3/8 Low 4-5/8 9-13/16 5 8-7/8 6-7/8 5-9/16 5-7/8 6-11/16 4-5/8 5-9/16
"Safe Harbor" Statement under the Private Securities Reform Act of 1995 Certain of the statements contained in this annual report (other than the financial statements and statements of historical fact), including, without limitation, statements as to management's expectations and belief presented under the captions "Letter to Our Stockholders" and "Management's Discussion and Analysis", are forward-looking statements. Forward-looking statements are made based upon management's expectations and belief concerning future developments and their potential effect upon the Corporation. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Corporation will be those anticipated by management. The Corporation wishes to caution readers that the assumptions which form the basis for forward-looking statements with respect to or that may impact earnings for the year ended December 31, 2000 and thereafter include many factors that are beyond the Corporation's ability to control or estimate precisely. These risks and uncertainties include, but are not limited to, the market demand and acceptance of the Corporation's existing and new products; the impact of competitive products; changes in the market for raw or packaging materials which could impact the Corporation's manufacturing costs; changes in product mix; changes in the pricing of the products of the Corporation or its competitors; the loss of a significant customer or supplier; production delays or inefficiencies; disruptions in operations due to labor disputes; the costs and other effects of complying with environmental regulatory requirements; losses due to natural disasters where the Corporation is self-insured, the costs and other effects of legal and administrative cases and proceedings, settlements and investigations; and changes in US or international economic or political conditions, such as inflation or deflation, or fluctuations in interest or foreign exchange rates. While the Corporation periodically reassesses material trends and uncertainties affecting the Corporation's results of operations and financial condition in connection with its preparation of the stockholders' letter and management's discussion and analysis contained in its annual reports, the Corporation does not intend to review or revise any particular forward-looking statement referenced herein in light of future events. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders of Bairnco Corporation: We have audited the accompanying consolidated balance sheets of Bairnco Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, stockholders' investment and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bairnco Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Orlando, Florida January 21, 2000 (except with respect to the matters discussed in Note 12, as to which the date is February 16, 2000) Arthur Andersen LLP CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 1999, 1998 and 1997 Bairnco Corporation and Subsidiaries 1999 1998 1997 Net Sales $168,881,000 $156,456,000 $158,708,000 Cost of sales 113,734,000 105,873,000 104,712,000 Gross Profit 55,147,000 50,583,000 53,996,000 Selling and administrative expenses 40,145,000 38,554,000 38,404,000 Provision for litigation costs (Note 2) -- 7,500,000 -- Operating Profit 15,002,000 4,529,000 15,592,000 Interest expense, net 2,104,000 1,998,000 1,834,000 Income before Income Taxes 12,898,000 2,531,000 13,758,000 Provision for income taxes (Note 5) 4,257,000 937,000 4,987,000 Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000 Basic Earnings per Share of Common Stock (Note 4) $ 1.08 $ 0.18 $ 0.96 Diluted Earnings per Share of Common Stock (Note 4) $ 1.08 $ 0.18 $ 0.94 Dividends per Share of Common Stock $ 0.20 $ 0.20 $ 0.20 The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 1999, 1998 and 1997 Bairnco Corporation and Subsidiaries 1999 1998 1997 Net Income $8,641,000 $1,594,000 $8,771,000 Other comprehensive income, net of tax: Foreign currency translation adjustment (Note 1) (516,000) 173,000 (710,000) Comprehensive Income $8,125,000 $1,767,000 $8,061,000 The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 Bairnco Corporation and Subsidiaries 1999 1998 Assets Current Assets: Cash and cash equivalents $ 660,000 $ 822,000 Accounts receivable, less allowances of $1,136,000 and $1,224,000, respectively 29,107,000 27,999,000 Inventories: Raw materials and supplies 5,986,000 5,701,000 Work in process 8,574,000 6,604,000 Finished goods 10,644,000 13,874,000 25,204,000 26,179,000 Deferred income taxes (Note 5) 4,598,000 4,137,000 Other current assets 3,640,000 1,709,000 Total current assets 63,209,000 60,846,000 Plant and Equipment, at cost: Land 1,826,000 1,846,000 Buildings and leasehold interests and improvements 17,873,000 18,115,000 Machinery and equipment 81,973,000 77,330,000 101,672,000 97,291,000 Less - Accumulated depreciation and amortization (61,990,000) (55,889,000) 39,682,000 41,402,000 Cost in Excess of Net Assets of Purchased Businesses (Note 1) 11,822,000 11,840,000 Other Assets (Note 1) 4,432,000 4,467,000 $119,145,000 $118,555,000 Liabilities and Stockholders' Investment Current Liabilities: Short-term debt (Note 7) $ 4,692,000 $ 4,373,000 Accounts payable 10,719,000 9,022,000 Accrued expenses (Note 6) 14,542,000 14,192,000 Total current liabilities 29,953,000 27,587,000 Long-Term Debt (Notes 7 and 12) 26,591,000 33,471,000 Deferred Income Taxes (Note 5) 5,459,000 2,912,000 Other Liabilities 6,975,000 8,147,000 Stockholders' Investment (Notes 4, 7 and 8): Preferred stock, par value $.01, 5,000,000 shares authorized, none issued -- -- Common stock, par value $.01, 30,000,000 shares authorized, 11,198,849 and 11,187,224 issued, respectively 112,000 112,000 Paid-in capital 49,235,000 49,165,000 Retained earnings 29,719,000 22,670,000 Currency translation adjustment (Note 1) 1,229,000 1,745,000 Treasury stock, at cost, 3,402,065 and 2,904,165 shares, respectively (30,128,000) (27,254,000) Total stockholders' investment 50,167,000 46,438,000 $119,145,000 $118,555,000 The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1999, 1998 and 1997 Bairnco Corporation and Subsidiaries 1999 1998 1997 Cash Flows from Operating Activities: Net income $ 8,641,000 $ 1,594,000 $ 8,771,000 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 7,365,000 6,688,000 6,516,000 (Gain) loss on disposal of plant and equipment 12,000 (13,000) 34,000 Deferred income taxes 2,086,000 (2,751,000) 1,265,000 Change in operating assets and liabilities: (Increase) in accounts receivable, net (1,553,000) (1,033,000) (3,874,000) Decrease (increase) in inventories 544,000 2,117,000 (3,406,000) (Increase) decrease in other current assets (1,960,000) 1,125,000 956,000 Increase (decrease) in accounts payable 1,749,000 (38,000) 1,510,000 (Decrease) increase in accrued expenses 376,000 2,204,000 (480,000) Other (1,592,000) 4,223,000 472,000 Net cash provided by operating activities 15,668,000 14,116,000 11,764,000 Cash Flows from Investing Activities: Capital expenditures (5,670,000) (5,976,000) (8,789,000) Payment for purchased businesses, net of cash acquired -- (8,423,000) -- Proceeds from sale of plant and equipment 309,000 123,000 219,000 Net cash (used in) investing activities (5,361,000) (14,276,000) (8,570,000) Cash Flows from Financing Activities: Net (repayments) borrowings of external debt (6,391,000) 7,746,000 2,434,000 Payment of dividends (1,592,000) (1,726,000) (1,827,000) Purchase of treasury stock (2,874,000) (6,207,000) (3,255,000) Exercise of stock options 70,000 135,000 26,000 Net cash (used in) financing activities (10,787,000) (52,000) (2,622,000) Effect of foreign currency exchange rate changes on cash and cash equivalents 318,000 (183,000) (210,000) Net (decrease) increase in cash and cash equivalents (162,000) (395,000) 362,000 Cash and cash equivalents, beginning of year 822,000 1,217,000 855,000 Cash and cash equivalents, end of year $ 660,000 $ 822,000 $ 1,217,000 Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ 2,100,000 $ 2,008,000 $ 1,824,000 Income taxes $ 4,976,000 $ 2,402,000 $ 2,805,000 The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT For the years ended December 31, 1999, 1998 and 1997 Bairnco Corporation and Subsidiaries
Currency Common Paid-in Retained Translation Treasury Stock Capital Earnings Adjustment Stock Balance, December 31, 1996 $112,000 $49,004,000 $15,858,000 $2,282,000 $(17,792,000) Net income -- -- 8,771,000 -- -- Cash dividends ($.20 per share) -- -- (1,827,000) -- -- Issuance of 5,275 shares pursuant to exercise of stock options -- 26,000 -- -- -- Acquisition of treasury stock (424,800 shares at cost) -- -- -- -- (3,255,000) Currency translation adjustment (Note 1) -- -- -- (710,000) -- Balance, December 31, 1997 112,000 49,030,000 22,802,000 1,572,000 (21,047,000) Net income -- -- 1,594,000 -- -- Cash dividends ($.20 per share) -- -- (1,726,000) -- -- Issuance of 26,450 shares pursuant to exercise of stock options -- 135,000 -- -- -- Acquisition of treasury stock (737,400 shares at cost) -- -- -- -- (6,207,000) Currency translation adjustment (Note 1) -- -- -- 173,000 -- Balance, December 31, 1998 112,000 49,165,000 22,670,000 1,745,000 (27,254,000) Net income -- -- 8,641,000 -- -- Cash dividends ($.20 per share) -- -- (1,592,000) -- -- Issuance of 11,625 shares pursuant to exercise of stock options -- 70,000 -- -- -- Acquisition of treasury stock (497,900 shares at cost) -- -- -- -- (2,874,000) Currency translation adjustment (Note 1) -- -- -- (516,000) -- Balance, December 31, 1999 $112,000 $49,235,000 $29,719,000 $1,229,000 $(30,128,000) The accompanying notes are an integral part of these consolidated financial statements.
(1) Nature of Operations and Summary of Significant Accounting Policies Nature of operations: Bairnco Corporation is a diversified multinational company that operates two business sectors: Engineered Materials and Components which are designed, manufactured and sold under the Arlon brand identity to electronic, industrial and commercial markets worldwide; and, Replacement Products and Services which are manufactured and distributed under the Kasco brand identity principally to retail food stores and meat, poultry and fish processing plants throughout the United States, Canada and Europe. Arlon's products are based on a common technology in coating, laminating and dispersion chemistry. Arlon's principal products include high performance materials for the printed circuit board industry, cast and calendered vinyl film systems, custom engineered laminates and pressure sensitive adhesive systems, and calendered and extruded silicone rubber insulation products used in a broad range of industrial, consumer and commercial products. Kasco's principal products include replacement band saw blades for cutting meat, fish, wood and metal, on-site maintenance services and seasonings for ready-to-cook foods for the retail food industry primarily in the meat and deli departments. Kasco also distributes equipment to the food industry in Canada and France. Principles of consolidation: The accompanying consolidated financial statements include the accounts of Bairnco Corporation and its subsidiaries (Bairnco or the Corporation) after the elimination of all material inter-company accounts and transactions. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Consolidated statements of cash flows: The Corporation considers cash in banks, commercial paper, demand notes and similar investments with a maturity of less than three months as cash and cash equivalents for the purposes of the consolidated statements of cash flows. Certain reclassifications were made to prior year balances in order to conform to the current year presentation. Inventories: Inventories are stated at cost, which is not in excess of market. Inventory costs include material, labor and overhead. Inventories are stated principally on a first-in, first-out (FIFO) basis. Plant and equipment: The Corporation provides for depreciation of plant and equipment principally on a straight-line basis by charges to income in amounts estimated to allocate the cost of these assets over their useful lives. Rates of depreciation vary among the several classifications as well as among the constituent items in each classification, but generally fall within the following ranges: Years Buildings and leasehold interests and improvements 5 - 40 Machinery and equipment 3 - 20 When property is sold or otherwise disposed of, the asset cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statement of income. Leasehold interests and improvements are amortized over the terms of the respective leases, or over their estimated useful lives, whichever is shorter. Maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Accelerated methods of depreciation are used for income tax purposes, and appropriate provisions are made for the related deferred income taxes. Depreciation expense of $6,992,000, $6,509,000 and $6,333,000 was recognized during 1999, 1998 and 1997, respectively. Cost in excess of net assets of purchased businesses: Cost in excess of net assets of purchased businesses acquired prior to 1971 of approximately $3.5 million is not being amortized since, in the opinion of management, there has been no diminution in value. For businesses acquired subsequent to 1970, the cost in excess of net assets of purchased businesses, aggregating $10,298,000 and $10,020,000 at December 31, 1999 and 1998, respectively, is being amortized over 40 years. Accumulated amortization at December 31, 1999 and 1998, was $1,964,000 and $1,665,000, respectively. Amortization expense of $335,000, $147,000 and $146,000 was recognized during 1999, 1998 and 1997, respectively. At each balance sheet date, the Corporation evaluates the realizability of its cost in excess of net assets of purchased businesses based upon expectations of non-discounted cash flows and operating income for each division having a material cost in excess of net assets of purchased businesses balance. Based upon its most recent analysis, the Corporation believes that no material impairment of its cost in excess of net assets of purchased businesses exists at December 31, 1999. Intangibles: Intangible assets of purchased businesses, net of amortization, are included in other assets and totaled $85,000 and $123,000 at December 31, 1999 and 1998, respectively. These items are amortized over their estimated lives, which generally range from three to twenty years. Amortization expense recognized was $38,000 during 1999, $32,000 during 1998 and $37,000 during 1997. Revenue recognition: Revenues are recognized when products are shipped or when services are rendered. Income taxes: The Corporation accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation's financial statements or tax returns. In estimating future tax consequences, the Corporation generally considers all expected future events other than enactment of changes in the tax law or changes in tax rates. Changes in tax laws or rates will be recognized in the future years in which they occur. Temporary differences between income for financial reporting and income tax purposes arise primarily from the timing of the deduction of certain accruals and from the use of accelerated methods of depreciation for income tax reporting purposes compared to the method of depreciation used for financial reporting purposes. Accrued expenses-insurance: Accrued expenses-insurance represents the estimated costs of known and anticipated claims under the Corporation's general liability, automobile liability, property and workers compensation insurance policies for all of its US operations. The Corporation provides reserves on reported claims and claims incurred but not reported at each balance sheet date based upon the estimated amount of the probable claim or the amount of the deductible, whichever is lower. Such estimates are reviewed and evaluated in light of emerging claim experience and existing circumstances. Any changes in estimates from this review process are reflected in operations currently. Stock options: The Corporation accounts for stock options under Accounting Principles Board Opinion No. 25 ("APB 25"), under which no compensation expense has been recognized. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for years beginning after December 15, 1995. SFAS 123 established financial accounting and reporting standards for stock-based employee compensation plans. The statement 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 stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans using the intrinsic value based method of accounting prescribed by APB 25, but requires pro-forma disclosure of net income and earnings per share for the effects on compensation expense had the accounting guidance for SFAS 123 been adopted. Had SFAS 123 been implemented, the Corporation's net income and earnings per share would have been reduced to the amounts indicated below: 1999 1998 1997 Net income (in thousands): As reported $8,641 $1,594 $8,771 Pro forma $8,529 $1,529 $8,733 Diluted earnings per share: As reported $ 1.08 $ 0.18 $ 0.94 Pro forma $ 1.06 $ 0.17 $ 0.93 In preparing these disclosures, the Corporation determined the values using the Black Scholes model based on the following assumptions: expected lives of 7 years, volatility of 38.0%, a risk-free rate of 7.0% and a dividend yield of 3.1%. Translation of foreign currencies: Balance sheet accounts of foreign subsidiaries are translated at the rates of exchange in effect at the balance sheet date while income and expenses are translated at the monthly average rates of exchange in effect during the year. Fair value of financial instruments: The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amount of the Corporation's short-term and long-term debt approximates fair value, since the debt is at floating rates or rates approximating rates currently offered to the Corporation for debt of the same remaining maturities. Comprehensive income: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective for years beginning after December 15, 1997. SFAS 130 established standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. This statement requires that all items of comprehensive income are classified by their nature in a financial statement and that the accumulated balance of other comprehensive income be displayed separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Bairnco adopted SFAS 130 effective January 1, 1998. The comparative prior period financial statements have been reclassified to conform to the current period presentation. Comprehensive income includes net income as well as certain other transactions shown as changes in stockholders' investment. For Bairnco, comprehensive income includes net income plus the change in net asset values of foreign divisions as a result of translating the local currency values of net assets to US dollars at varying exchange rates. Accumulated other comprehensive income consists solely of foreign currency translation adjustments. There are currently no tax expenses or benefits associated with the foreign currency translation adjustments. Reportable segments: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years beginning after December 15, 1997. SFAS 131 introduces a new model for segment reporting called the management approach. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. SFAS 131 requires disclosures for each segment that are similar to those required under previous standards with the addition of quarterly disclosure requirements and a finer partitioning of geographic disclosures. It requires limited segment data on a quarterly basis. It also requires geographic data by country, as opposed to broader geographic regions permitted under previous standards. Bairnco adopted SFAS 131 effective January 1, 1998 and prior year segment information and disclosures have been restated, where applicable, to conform to the current year presentation. Pension Accounting: In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and other Postretirement Benefits" ("SFAS 132"), which is effective for fiscal years beginning after December 15, 1997. SFAS 132 standardizes the disclosure requirements for pensions and other postretirement benefits and requires additional information on changes in the benefit obligations and fair value of plan assets while eliminating certain prior disclosures that are no longer considered useful. Bairnco adopted SFAS 132 effective January 1, 1998 and prior year pension disclosures have been restated, where applicable, to conform to the current year presentation. (2) Provision for Litigation Costs In the fourth quarter of 1998, Bairnco recorded a $7,500,000 pre-tax provision for litigation costs. The litigation provision added to the existing reserves for asbestos-related litigation expenditures due to a change in the estimate to defend the Transaction Lawsuit (refer to Management's Discussion and Analysis and Note 11 to Consolidated Financial Statements). $2.5 million of this provision for litigation costs is included in accrued expenses with the remaining $5.0 million included in other liabilities in the Corporation's consolidated balance sheet for the year ended December 31, 1998. As of December 31, 1999, $1.5 million of the provision was included in accrued expenses and $4.0 million was included in other liabilities. After recognition of related tax benefits, the litigation provision reduced net income in 1998 by $4.7 million or approximately $.54 diluted earnings per common share. (3) Acquisition On October 31, 1998, Bairnco purchased MII International, Inc. ("MII") for approximately $8.3 million including the repayment of its debt. MII manufactures adhesive coated films for use in the graphics and industrial markets. The transaction was accounted for as a purchase and was financed with long-term debt. The purchase price exceeded the fair value of net assets acquired by approximately $4.0 million which is being amortized on a straight-line basis over 40 years. The results of operations of MII are included in the accompanying consolidated financial statements from the date of acquisition. The following summarized unaudited pro forma financial information assumes the acquisition had occurred on January 1 of each year: Pro Forma Information (in thousands, except per share data) 1998 1997 Net sales $167,865 $174,184 Net income $ 1,782 $ 9,053 Basic earnings per share $ 0.21 $ 0.99 Diluted earnings per share $ 0.20 $ 0.97 These amounts include MII's actual results in 1997 and for the first ten months of 1998 prior to acquisition and actual results for the two months in 1998 after acquisition. The amounts are based upon certain assumptions and estimates, and do not reflect any benefit from economies which might be achieved from combined operations. The pro forma results do not necessarily represent results which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of the results of future combined operations. (4)Earnings per Share The Corporation accounts for earnings per share ("EPS") under Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). The following disclosures comply with the requirements of SFAS 128. 1999 1998 1997 Basic Earnings per Common Share: Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000 Average common shares outstanding 7,965,000 8,655,000 9,151,000 Basic Earnings Per Common Share $ 1.08 $ 0.18 $ 0.96 Diluted Earnings per Common Share: Net Income $ 8,641,000 $ 1,594,000 $ 8,771,000 Average common shares outstanding 7,965,000 8,655,000 9,151,000 Common shares issuable in respect to options issued to employees, with a dilutive effect 73,000 163,000 199,000 Total diluted common shares outstanding 8,038,000 8,818,000 9,350,000 Diluted Earnings Per Common Share $ 1.08 $ 0.18 $ 0.94 Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share includes the effect of all dilutive stock options. (5) Income Taxes The components of income before income taxes and the provisions for domestic and foreign income taxes are as follows: 1999 1998 1997 Income before Income Taxes: Domestic $11,002,000 $ 1,187,000 $12,765,000 Foreign 1,896,000 1,344,000 993,000 Total Income before Income Taxes $12,898,000 $ 2,531,000 $13,758,000 Provision for Income Taxes: Domestic: Currently payable $ 2,145,000 $ 3,266,000 $ 3,616,000 Deferred 1,359,000 (2,688,000) 1,102,000 Foreign: Currently payable 618,000 422,000 106,000 Deferred 135,000 (63,000) 163,000 Total Provision for Income Taxes $ 4,257,000 $ 937,000 $ 4,987,000 Bairnco's net current and non-current deferred tax assets (liabilities) include the following at December 31: 1999 1998 1997 Current Deferred Tax Items: Accrued Expenses $ 3,002,000 $ 2,840,000 $ 1,584,000 Inventories 1,458,000 977,000 847,000 Other 138,000 320,000 210,000 Net Current Deferred Tax Asset 4,598,000 4,137,000 2,641,000 Non-Current Deferred Tax Items: Fixed Assets (5,086,000) (3,539,000) (3,291,000) Pensions (1,386,000) (1,273,000) (1,051,000) Intangible Assets (6,000) (13,000) 21,000 Provision for litigation costs 1,360,000 1,700,000 -- Other (341,000) 213,000 223,000 Net Non-Current Deferred Tax Liability (5,459,000) (2,912,000) (4,098,000) Net Deferred Tax Asset (Liability) $ (861,000) $ 1,225,000 $(1,457,000) Management expects that future operations will generate sufficient taxable income to realize the existing net temporary differences. As a result, the Corporation has not recorded any valuation allowances against its deferred tax assets. In 1999, 1998 and 1997 the Corporation's effective tax rates were 33.0%, 37.0% and 36.2%, respectively, of income before income taxes. An analysis of the differences between these rates and the US federal statutory income tax rate is as follows: 1999 1998 1997 Computed income taxes at statutory rate $ 4,385,000 $ 861,000 $ 4,678,000 State and local taxes, net of federal tax benefit 283,000 64,000 368,000 Dividend income -- -- 1,303,000 Amortization of goodwill 51,000 9,000 9,000 Foreign income taxed at different rates 107,000 (98,000) (69,000) Tax credits (13,000) (31,000) (1,182,000) Benefit of Foreign Sales Corporation (473,000) (270,000) (289,000) Other, net (83,000) 402,000 169,000 Provision for income taxes $ 4,257,000 $ 937,000 $ 4,987,000 Provision has not been made for US income taxes on approximately $3.7 million of undistributed earnings of international subsidiaries. These earnings could become subject to additional tax if they were remitted as dividends or if the Corporation should sell its stock in the subsidiaries. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings; however, the Corporation believes that US foreign tax credits would largely eliminate any US income tax incurred. (6) Accrued Expenses Accrued expenses consisted of the following as of December 31, 1999 and 1998, respectively: 1999 1998 Salaries and wages $ 3,114,000 $ 2,669,000 Income taxes 550,000 633,000 Insurance 3,581,000 2,462,000 Litigation 2,588,000 3,580,000 Other accrued expenses 4,709,000 4,848,000 Total accrued expenses $14,542,000 $14,192,000 (7) Debt Long-term debt consisted of the following as of December 31, 1999 and 1998, respectively: 1999 1998 Revolving Credit Notes $23,591,000 $30,471,000 Industrial Revenue Bonds 3,000,000 3,000,000 Total $26,591,000 $33,471,000 The Corporation's has a credit agreement (the "Credit Agreement") with a consortium of four banks led by Bank of America, N.A., and including SunTrust Bank, First Union National Bank, N.A., and Allfirst Bank. The Credit Agreement provides a secured, reducing revolving credit facility for a maximum loan commitment at December 31, 1999 of $43 million and a letter of credit facility of $7 million, although the letter of credit facility may be increased up to $20 million with a corresponding decrease in the revolving credit facility. Effective December 31, 1998, the letter of credit facility was increased by $2.0 million to $9.0 million with a corresponding decrease in the revolving credit facility. At December 31, 1999, $23.6 million of revolving credit was outstanding and payable from 2001 through 2003. In addition, approximately $7.5 million of irrevocable standby letters of credit were outstanding under the Credit Agreement, which are not reflected in the accompanying consolidated financial statements. $4.5 million of the letters of credit guarantee various insurance activities. An outstanding $3.0 million letter of credit supports the Industrial Revenue Bonds. Interest rates vary on the revolving credit and are set at the time of borrowing in relationship to one of several reference rates, as selected by the Corporation at the time of the borrowing. Interest rates on the revolving credit outstanding at December 31, 1999, were approximately 7.4% on US borrowings and 4.4% on European borrowings. A commitment fee is paid on the unused portion of the total credit. The interest rate on the Industrial Revenue Bonds was approximately 4.7% at December 31, 1999. Substantially all of the assets of the Corporation and its US subsidiaries are pledged as collateral under the Credit Agreement, which expires on December 31, 2003. The Credit Agreement contains covenants, which require the Corporation to meet minimum interest coverage ratios, and which limit the ratio of total debt to capital employed as defined in the Credit Agreement. In addition, minimum levels of stockholders' investment must be maintained. At December 31, 1999 the Corporation was in compliance with all covenants contained in the Credit Agreement. The Corporation has other short-term debt outstanding at rates of 6.1% to 6.5% due in 2000. The annual maturity requirements for long-term debt due after December 31, 1999, are summarized as follows: Year Ended December 31, 2000 $ -- 2001 1,000,000 2002 1,500,000 2003 24,091,000 Total Long-term Debt $ 26,591,000 (8) Stock Options The Corporation has a stock incentive plan which was established in 1990 ("1990 Plan"). The 1990 Plan permits the grant of options to purchase not more than 2,500,000 shares of common stock. The 1990 Plan provides for the grant of non-qualified options and options qualifying as incentive stock options under the Internal Revenue Code to key employees and each outside Director of the Corporation at an option price equal to the fair market value on the date of grant. Non-qualified stock options may also be granted at book value. The term of each option may not exceed 10 years from the date the option becomes exercisable (or, in the case of an incentive stock option, 10 years from the date of grant). A senior executive of the Corporation presently holds performance based, non-qualified stock options granted under the 1990 Plan to purchase a total of 250,000 shares of common stock at option prices equal to the fair market value on the date of grant. Two-thirds of these performance options became exercisable as a result of the Corporation's earnings performance in 1992 and 1995 with the remaining one-third becoming fully exercisable on the tenth anniversary of the date of grant if the executive is still employed by the Corporation. These options remain exercisable for ten years from the date they first become exercisable. Changes in the stock options granted under the 1990 Plan during 1999, 1998 and 1997 were as follows: 1999 1998 1997 Wtd Avg Wtd Avg Wtd Avg Exercise Exercise Exercise Options Price Options Price Options Price Outstanding at beginning of year 646,950 $6.09 633,750 $5.89 684,225 $5.71 Granted 96,500 6.62 52,625 8.20 33,400 8.24 Exercised (11,625) 6.04 (26,450) 5.13 (5,275) 4.93 Canceled (43,600) 6.83 (12,975) 6.75 (78,600) 5.39 Outstanding at end of year 688,225 $6.12 646,950 $6.09 633,750 $5.89 Exercisable at end of year 465,964 $5.86 461,813 $5.79 465,563 $5.70 At December 31, 1999, 1998 and 1997, 1,397,925, 1,450,825 and 1,490,475 shares, respectively, were available for option grants under the 1990 Plan. The weighted average contractual life of the 688,225 options outstanding at December 31, 1999 was 2.83 years. There were no charges to income in connection with stock option grants or exercises during 1999, 1998 and 1997. (9) Pension Plans The Corporation has several pension plans which cover substantially all of its employees. The benefits paid under these plans generally are based on employees' years of service and compensation during the last years of employment. Annual contributions made to the US plans are determined in compliance with the minimum funding requirements of ERISA using a different actuarial cost method and actuarial assumptions than are used for determining pension expense for financial reporting purposes. Plan assets consist primarily of publicly traded equity and debt securities. The Corporation maintains unfunded supplemental plans in the United States to provide retirement benefits in excess of levels provided under the Corporation's other plans. The Corporation's foreign subsidiaries provide retirement benefits for employees consistent with local practices. The foreign plans are not significant in the aggregate and therefore are not included in the following disclosures. The following table describes the funded status of US pension plans: 1999 1998 Change in Benefit Obligation: Benefit obligation at September 30, 1998 and 1997, respectively $ 28,903,000 $ 25,638,000 Service cost 867,000 756,000 Interest cost 1,935,000 1,895,000 Actuarial (gain) loss (2,390,000) 2,071,000 Benefits paid (1,525,000) (1,457,000) Benefit obligation at September 30, 1999 and 1998, respectively 27,790,000 28,903,000 Change in Plan Assets: Fair value of plan assets at September 30, 1998 and 1997, respectively 30,806,000 30,433,000 Actual return on plan assets 4,340,000 1,142,000 Employer contributions 216,000 667,000 Benefits paid (1,504,000) (1,436,000) Fair value of plan assets at September 30, 1999 and 1998, respectively 33,858,000 30,806,000 Funded status 6,068,000 1,903,000 Unrecognized net transition obligation 250,000 349,000 Unrecognized prior service cost 211,000 266,000 Unrecognized net actuarial (gain) loss (3,032,000) 744,000 Prepaid pension costs at September 30, 1999 and 1998, respectively 3,497,000 3,262,000 Fourth quarter accruals 8,000 (26,000) Fourth quarter contributions 58,000 52,000 Prepaid pension costs at yearend $ 3,563,000 $ 3,288,000 The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plan with plan assets in excess of accumulated benefit obligations were $25,013,000, $22,879,000 and $31,622,000, respectively, at September 30, 1999, and $25,448,000, $22,705,000 and $28,380,000, respectively, at September 30, 1998. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $2,777,000, $2,734,000 and $2,235,000, respectively, at September 30, 1999, and $3,455,000, $3,396,000 and $2,426,000, respectively, at September 30, 1998. The discount rate used in determining the actuarial present value of the projected benefit obligations in the table above was 7.5% at September 30, 1999 and 7.0% at September 30, 1998. The rate of projected pay increases, where applicable, was 5% at both September 30, 1999 and 1998. The expected long-term rate of return on retirement plan assets was 9% at both September 30, 1999 and 1998. Amounts recognized in the consolidated balance sheets of the Corporation consist of the following: 1999 1998 Prepaid benefit cost $ 3,620,000 $ 3,382,000 Accrued benefit liability (499,000) (969,000) Intangible asset 376,000 849,000 Net amount recognized at September 30 3,497,000 3,262,000 Fourth quarter accruals 8,000 (26,000) Fourth quarter contributions 58,000 52,000 Net amount recognized at December 31 $ 3,563,000 $ 3,288,000 Net periodic pension cost for the US plans included the following: 1999 1998 1997 Service cost-benefits earned during the year $ 905,000 $ 752,000 $ 771,000 Interest cost on projected benefit obligation 1,940,000 1,918,000 1,823,000 Expected return on plan assets (3,027,000) (2,722,000) (2,252,000) Amortization of net obligation at date of transition 99,000 99,000 99,000 Amortization of prior service cost 53,000 56,000 61,000 Net periodic pension cost $ (30,000) $ 103,000 $ 502,000 (10) Reportable Segment Data Operating segments are components of an enterprise that: a.Engage in business activities from which they may earn revenues and incur expenses, b.Whose operating results are regularly reviewed by the company's chief operating decision-maker to make decisions about resources to be allocated to the segment and assess its performance, and c.For which discrete financial information is available. Operating segments with similar products and services, production processes, types of customers, and sales channels are combined into reportable segments for disclosure purposes. Bairnco has two reportable segments - the Arlon Engineered Materials and Components segment and the Kasco Replacement Products and Services segment. The Arlon Engineered Materials and Components segment designs, manufactures and sells laminated and coated materials to the electronic, industrial and commercial markets under the Arlon and Calon brand names. These products are based on common technologies in coating, laminating, polymers, and dispersion chemistry. Among the products included in this segment are high technology materials for the printed circuit board industry, vinyl films for graphics art applications, foam tapes used in window glazing, electrical and thermal insulation products, and silicone rubber products for insulating tapes and flexible heaters. The Kasco Replacement Products and Services segment manufactures, sells and services products and equipment used in supermarkets, meat and deli operations, and meat, poultry, and fish processing plants throughout the United States, Canada and Europe. It also manufactures and sells small band saw blades for cutting wood and metal, and large band saw blades for use at lumber mills. Bairnco evaluates segment performance based on income before interest and taxes and excluding allocation of headquarters expense. Segment income and assets are measured on a basis that is consistent with the methods described in the summary of significant accounting policies. Segment assets exclude US deferred income taxes and assets attributable to US employee benefit programs. Inter-segment transactions are not material. No customer accounts for 10% or more of consolidated revenue. Financial information about the Corporation's operating segments for the years ended December 31, 1999, 1998 and 1997 is as follows:
Operating Capital Depreciation/ Net Sales Profit (Loss) Assets Expenditures Amortization 1999 Arlon $120,640,000 $ 15,815,000 $ 69,915,000 $1,761,000 $4,407,000 Kasco 48,241,000 3,319,000 39,294,000 3,719,000 2,871,000 Headquarters -- (4,132,000) 9,936,000 190,000 87,000 Total $168,881,000 $ 15,002,000 $119,145,000 $5,670,000 $7,365,000 1998 Arlon $107,736,000 $ 12,698,000 $ 72,880,000 $2,925,000 $3,952,000 Kasco 48,720,000 3,085,000 38,215,000 3,022,000 2,676,000 Headquarters -- (11,254,000)(a) 7,460,000 29,000 60,000 Total $156,456,000 $ 4,529,000 $118,555,000 $5,976,000 $6,688,000 1997 Arlon $112,036,000 $ 15,873,000 $ 64,530,000 $5,438,000 $3,665,000 Kasco 46,672,000 3,495,000 37,703,000 3,252,000 2,791,000 Headquarters -- (3,776,000) 7,053,000 99,000 60,000 Total $158,708,000 $ 15,592,000 $109,286,000 $8,789,000 $6,516,000 (a) Includes impact of $7.5 million (pre-tax) provision for litigation costs. The Corporation has operations in Canada and several European countries. Information about the Corporation's operations by geographical area for the years ended December 31, 1999, 1998 and 1997 is as follows: Sales to External Long-lived Segment Customers Assets 1999 United States $145,454,000 $46,815,000 France 13,125,000 253,000 Other Foreign 10,302,000 4,370,000 1998 United States $133,005,000 $48,109,000 France 12,821,000 218,000 Other Foreign 10,630,000 4,997,000 1997 United States $136,010,000 $42,478,000 France 12,238,000 209,000 Other Foreign 10,460,000 5,169,000 (11)Contingencies Bairnco and its subsidiaries are among the defendants in a lawsuit pending in the U.S. District Court for the Southern District of New York (the "Transactions Lawsuit") in which it is alleged that Bairnco and others are derivatively liable for the asbestos-related claims against its former subsidiary, Keene Corporation ("Keene"). The plaintiffs in the Transactions Lawsuit are the trustees of Keene Creditors Trust ("KCT"), a successor in interest to Keene. In the Transactions Lawsuit complaint, the KCT alleges that certain sales of assets by Keene to other subsidiaries of Bairnco were fraudulent conveyances and otherwise violative of state law, as well as being violative of the civil RICO statute, 18 U.S.C. Section 1964. The complaint seeks compensatory damages of $700 million, interest, punitive damages, and trebling of the compensatory damages pursuant to civil RICO. In a series of decisions that remain subject to appeal, the court has dismissed plaintiff's civil RICO claims; dismissed 14 of the 21 defendants named in the complaint; and partially granted defendants' motions for summary judgment on statute of limitations grounds. Discovery is now underway as to the remaining claims and defendants. The court has entered a scheduling order requiring the completion of all discovery (including expert discovery) by May 11, 2001. A trial date has not been set, but the Court has scheduled a conference for June 19, 2001, to determine dates for filing a pretrial order, for trial, and/or for any pretrial motions. Keene was spun off in 1990, filed for relief under Chapter 11 of the Bankruptcy Code in 1993, and emerged from Chapter 11 pursuant to a plan of reorganization approved in 1996 (the "Keene Plan"). The Keene Plan provided for the creation of the KCT, and transferred the authority to prosecute the Transactions Lawsuit from the Official Committee of Unsecured Creditors of Keene (which initiated the lawsuit in the Bankruptcy Court in 1995) to the KCT. The Keene Plan further provided that only the KCT, and no other entity, can sue Bairnco in connection with the claims in the Transactions Lawsuit complaint. Therefore, although a number of other asbestos-related personal injury and property damage cases against Bairnco nominally remain pending in courts around the country, it is expected that the resolution of the Transactions Lawsuit in substance will resolve all such claims. Bairnco also is the defendant in a separate action by the KCT (the "NOL Lawsuit"), also pending in the United States District Court for the Southern District of New York, in which the KCT seeks the exclusive benefit of tax refunds attributable to the carryback by Keene of certain net operating losses ("NOL Refunds"), notwithstanding certain provisions of applicable tax sharing agreements between Keene and Bairnco. (As with the Transactions Lawsuit, the NOL Lawsuit was commenced during Keene's Chapter 11 case and, pursuant to the Keene Plan, the KCT became the plaintiff in the lawsuit and the lawsuit was moved from the Bankruptcy Court to the District Court.) Pending resolution of the NOL Lawsuit, any refunds actually received are to be placed in escrow. Through December 31, 1999, approximately $28.5 million of NOL Refunds had been received and placed in escrow. There can be no assurance whatsoever that resolution of the NOL Lawsuit will result in the release of any portion of the NOL Refunds to Bairnco. Bairnco and its Arlon subsidiary ("Arlon") also are among the defendants in a third action by the KCT (the "Properties Lawsuit"), commenced December 8, 1998 and pending in the United States District Court for the Southern District of New York. In the Properties Lawsuit complaint, the KCT seeks a declaratory judgment that it owns certain patents and real property purchased by Arlon from Keene in 1989, based on the allegations that technical title to these assets was not conveyed at the time of the sale and that no proof of claim specifically referencing these assets was filed during Keene's Chapter 11 case. In an answer and counterclaims, Bairnco and Arlon have denied the KCT's claims and have requested a declaratory judgment that full title to the patents and real property in question in fact was transferred to Arlon at the time of the 1989 asset sale. The Properties Lawsuit has been transferred to the Transactions Lawsuit Judge for consolidated discovery and other proceedings. Management believes that Bairnco has meritorious defenses to all claims or liability purportedly derived from Keene and that it is not liable, as an alter ego, successor, fraudulent transferee or otherwise, for the asbestos-related claims against Keene or with respect to Keene products. Bairnco Corporation and its subsidiaries are defendants in a number of other actions. Management of Bairnco believes that the disposition of these other actions, as well as the actions and proceedings described above, will not have a material adverse effect on the consolidated results of operations or the financial position of Bairnco Corporation and its subsidiaries as of December 31, 1999. (12) Subsequent Events Amendment to Credit Agreement: On February 15, 2000, the Corporation's Credit Agreement was amended. The amendment effectively increased the credit facility from $50 million at December 31, 1999 to $75 million, including a five-year term loan credit facility of $20 million subject to quarterly amortization of principal of $500,000 in 2000, $750,000 in 2001, $1,000,000 in 2002, $1,250,000 in 2003 and $1,500,000 in 2004. The amended credit facility also includes a letter of credit facility for $9 million which may be increased up to $15 million or decreased to $5 million with a corresponding change in the loan commitment under the revolving credit facility. The amendment extended the expiration date of the Credit Agreement from December 31, 2003 to February 22, 2005, although the term loan expires on December 31, 2004. Acquisition: On February 16, 2000, Bairnco purchased certain assets of the materials business ("Signtech") of Signtech USA, Ltd. for approximately $14.5 million. Signtech manufactures and distributes flexible reinforced vinyl materials used as the substrate in flexible faced sign systems. Signtech's products are sold primarily on a specification basis for corporate specified programs using various striping, heat transfer and screen print applications. Signtech's sales for the year ended December 31, 1999 were approximately $16.0 million. The transaction was accounted for as a purchase and was financed with long-term debt. The purchase price was allocated to the assets acquired based on their estimated fair values. CORPORATE INFORMATION Corporate Office 300 Primera Boulevard, Suite 432 Lake Mary, Florida 32746 (407) 875-2222 www.bairnco.com Principal Facilities Bear, Delaware East Providence, Rhode Island Northbrook, Illinois Rancho Cucamonga, California St. Louis, Missouri San Antonio, Texas Santa Ana, California Gwent, Wales, United Kingdom Paris, France Pansdorf, Germany Transfer Agent and Registrar Trust Company Bank P.O. Box 4625 Atlanta, Georgia 30302 (404) 588-7815 Independent Certified Public Accountants Arthur Andersen LLP 200 South Orange Avenue, Suite 2100 Orlando, Florida 32801 (407) 841-4601 Stock Listing Bairnco common stock is listed on the New York Stock Exchange. Symbol - BZ. Annual Meeting The annual stockholders meeting will be held at Bairnco's Corporate Office on April 21, 2000 at 9:00 a.m. Form 10-K Stockholders may obtain without charge a copy of Bairnco's Form 10-K filed with the Securities and Exchange Commission by writing to Investor Relations at the Corporate Office address. Investor Relations Information Contact James W. Lambert, Vice President Finance and Treasurer, Bairnco Corporation (407) 875-2222, extension 227. BAIRNCO CORPORATION 300 Primera Boulevard, Suite 432 Lake Mary, Florida 32746 407-875-2222 FAX 407-875-3398 www.bairnco.com
EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 BAIRNCO CORPORATION AND SUBSIDIARIES Subsidiaries of Registrant as of March 27, 2000 Percentage State/Country of Ownership Incorporation Arlon, Inc. 100% Delaware Kasco Corporation 100% Delaware Bairnco Foreign Sales Corporation 100% Barbados MII International, Inc. (1) 100% Delaware Arlon Adhesives & Films, Inc. (1) 100% Texas Arlon Partners, Inc. (1) 100% Delaware Arlon Signtech, Ltd. (1) 100% Texas Bertram & Graf Gmbh (1) 100% Germany Atlantic Service Co. Ltd. (1) 100% Canada Atlantic Service Co. (UK) Ltd. (1) 100% United Kingdom EuroKasco S.A. (1) 100% France (1) Indirect wholly-owned subsidiary of Bairnco Corporation. EX-23 7 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO BAIRNCO CORPORATION: As independent certified public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (Files 33-36330 and 33- 41313). Orlando, Florida March 27, 2000 EX-27 8 FINANCIAL DATA SCHEDULES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM BAIRNCO'S ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS YEAR DEC-31-1999 DEC-31-1999 DEC-31-1999 DEC-31-1999 660,000 660,000 0 0 30,243,000 30,243,000 1,136,000 1,136,000 25,204,000 25,204,000 63,209,000 63,209,000 101,672,000 101,672,000 61,990,000 61,990,000 119,145,000 119,145,000 29,953,000 29,953,000 26,591,000 26,591,000 0 0 0 0 112,000 112,000 50,055,000 50,055,000 119,145,000 119,145,000 41,436,000 168,881,000 41,436,000 168,881,000 28,208,000 113,734,000 28,208,000 113,734,000 0 0 0 0 506,000 2,104,000 3,051,000 12,898,000 1,007,000 4,257,000 2,044,000 8,641,000 0 0 0 0 0 0 2,044,000 8,641,000 0.26 1.08 0.26 1.08
EX-99 9 FORM 11-K SECURITIES 1AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K FOR ANNUAL REPORT OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 33-41313 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: Bairnco Corporation 401(k) Savings Plan and Trust B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: Bairnco Corporation 300 Primera Boulevard, Suite 432 Lake Mary, Florida 32746 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Advisory Committee of Bairnco Corporation 401(k) Savings Plan and Trust: We have audited the accompanying statements of net assets available for benefits of Bairnco Corporation 401(k) Savings Plan and Trust as of December 31, 1999 and 1998, and the related statement of changes in net assets available for benefits for the year ended December 31, 1999. These financial statements and the supplemental schedules referred to below are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and supplemental schedules 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 net assets available for benefits of the Plan as of December 31, 1999 and 1998, and the changes in its net assets available for benefits for the year ended December 31, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of reportable transactions, assets held for investment and transactions with parties in interest are presented for purposes of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Orlando, Florida, March 3, 2000 BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AS OF DECEMBER 31, 1999 AND 1998 1999 1998 ASSETS CASH $ 300,000 $ -- INVESTMENTS, at fair market value (Notes 2 & 3) Bairnco Corporation common stock fund 179,432 194,962 Mutual funds 8,698,207 5,131,997 Participant notes receivable 482,552 193,146 TOTAL INVESTMENTS 9,360,191 5,520,105 PARTICIPANTS' CONTRIBUTIONS RECEIVABLE 92,387 71,745 TOTAL ASSETS 9,752,578 5,591,850 NET ASSETS AVAILABLE FOR BENEFITS $ 9,752,578 $ 5,591,850 The accompanying notes are an integral part of these financial statements. BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1999 1999 NET ASSETS AVAILABLE FOR BENEFITS, beginning of year $ 5,591,850 ADDITIONS: Participants' contributions (Note 1) 1,170,312 Interest and dividends 491,177 Net realized and unrealized appreciation on investments (Note 2) 1,518,546 3,180,035 DEDUCTIONS: Distributions 1,276,579 Administrative expenses 7,715 1,284,294 TRANSFER OF ASSETS FROM MERGED PLAN 2,264,987 NET INCREASE 4,160,728 NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 9,752,578 The accompanying notes are an integral part of this financial statement. BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 1. PLAN DESCRIPTION: The following description of the Bairnco Corporation 401(k) Savings Plan and Trust (the "Plan") provides only general information. Participants of the Plan should refer to the Plan document for a complete description of the Plan's provisions. The Plan document is available from Bairnco Corporation ("Bairnco" or the "Corporation") at its offices in Lake Mary, Florida. General Bairnco established the Plan effective July 1, 1991. The Plan is a defined contribution plan under which all full-time employees become eligible for participation on the first day of the month following completion of thirty days of service. Once an employee becomes eligible for participation, salary deferrals (contributions) may commence on any subsequent date. The Plan excludes non-resident aliens, leased employees and independent contractors from participating in the Plan. Union employees of the Corporation are permitted to participate in the Plan. The Plan is subject to the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 ("ERISA"). Effective October 31, 1998, Bairnco purchased MII International, Inc. ("MII"). On December 11, 1998, Bairnco's Board of Directors elected to merge the MII 401(k) plan into the Plan effective January 1, 1999, at which time the employees of MII began participating in the Plan. In February 1999, the MII 401(k) plan assets were transferred to the Plan, resulting in an increase of investments by $2,264,987. Contributions Under the terms of the Plan, allowable contributions are outlined as follows: Participant Contributions - The participants may elect to defer a minimum of 1 percent and a maximum of 20 percent of compensation, as defined in the Plan, not to exceed $10,000 for 1999. The maximum dollar amount that may be deferred is adjusted annually by the Internal Revenue Service. The amount of the compensation which is deferred, plus any earnings or losses on that amount, is not subject to federal income tax until the funds are actually distributed to the participant by the Plan. However, contributions are subject to FICA (Social Security and Medicare Taxes). Employer Contributions - The Corporation does not match elective deferrals pursuant to the Plan. Participant Accounts Each participant's account is credited with the participant's contribution and allocations of Plan earnings or losses, and charged with an allocation of administrative expenses. Allocations are based on participant account balances, as defined in the Plan. The benefit to which a participant is entitled is the amount that can be provided from the participant's vested account. Vesting A participant shall at all times have a 100 percent nonforfeitable interest in the value of his/her account attributable to all contributions made plus or minus investment earnings and losses thereon and related administrative costs. Transfers From Other Qualified Plans Participants who have an interest in any other qualified employee benefit plan (as described in Section 401(a) of the Internal Revenue Code) may transfer the distributions from these plans directly into the Plan at the discretion of the Administrative Committee (see Note 4). Distributions A participant who has attained age 59-1/2 may elect, by filing a written application with the Administrative Committee, to withdraw any amount up to 100 percent of the vested portion of his/her account, for any reason. For participants who have not attained age 59-1/2, the reasons for such withdrawals are restricted to those defined in the Plan. Upon termination of employment, a participant can elect to have the balance in the participant's account distributed to the participant in a single lump sum cash distribution or a partial distribution, if requested in writing by the participant. As an alternative, the participant may also elect to leave the related funds in the Plan or transfer the related funds into another qualified plan. Participant Notes Receivable An active participant may borrow from his/her account a minimum of $1,000 up to a maximum equal to the lesser of (1) a total of $50,000 of borrowings within one year or (2) 50 percent of the participant's account balance. Loan transactions are treated as transfers between the investment fund and the participant notes receivable account. Loan terms range from 1-5 years or up to 15 years for the purchase of a primary residence. The loans are secured by the balance in the participant's account and bear interest at the prime rate at the time of borrowing plus 2 percent. During 1999, interest rates ranged from 9.75 percent to 10.5 percent. Principal and interest are paid quarterly through payroll deductions. As of December 31, 1999 and 1998, there were 84 and 61 loans outstanding, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions to and deductions from the net assets available for benefits during the reporting period. Actual results could differ from those estimates. Basis Of Accounting For the year ended December 31, 1999, the accounting records of the Plan and the Plan's assets were maintained by Schwab Retirement Plan Services, Inc. ("Schwab"), a subsidiary of the Charles Schwab Corporation. The participants' account balances are determined on the cash basis of accounting; however, the Plan's financial statements contained herein are presented on the accrual basis. Investment Valuation and Income Recognition Investments are stated at fair market value. Securities which are traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. Any unlisted securities are valued at the bid price next preceding the close of business on the valuation date. Participant notes receivable are valued at cost, which approximates fair market value. Any unrealized appreciation/depreciation on investments represents the difference between fair market value of investments at the beginning of the Plan year or when acquired, whichever is later, and the fair market value of investments at the end of the Plan year. Interest income is recognized on the accrual basis of accounting. Administrative Expenses Certain administrative expenses of the Plan are paid directly by Bairnco on behalf of the Plan. During the year ended December 31, 1999, Bairnco paid administrative expenses of approximately $22,400. Benefit Payments Benefits are recorded when paid. New Accounting Pronouncement The Accounting Standards Executive Committee issued Statement of Position 99-3, "Accounting For and Reporting of Certain Defined Contribution Plan Investments and Other Disclosure Matters" (SOP 99- 3), which eliminates the requirement for a defined contribution plan to disclose participant-directed investment options. SOP 99-3 was adopted for the 1999 financial statements and, as such, the 1998 financial statements have been reclassified to eliminate the participant-directed investment option disclosures. 3. INVESTMENTS: There are currently eight investment options into which participants may direct the investment of their accounts. These are Invesco Strategic Technology Fund, Founders Growth Fund, Schwab 1000 Equity Fund, Strong Government Securities Fund, Schwab Retirement Money Fund, Neuberger & Berman Partners Fund and Neuberger & Berman Guardian Fund (collectively the "mutual funds"), and Bairnco Corporation Common Stock Fund. Participants invest in units of participation of the fund which represents an undivided interest in the underlying assets of the fund. Participants may separately direct the investment of future deferrals and existing account balances into these eight investment options in increments of 5 percent. Participants are permitted to modify their elections for future deferrals and existing account balances between investment funds on a daily basis. Investments that represent 5 percent or more of the Plan's net assets available for benefits, as of December 31, 1999 and 1998, are as follows: December 31, 1999 1998 Invesco Strategic Technology Fund $1,619,941 $ 476,615 Founders Growth Fund 1,950,554 844,891 Schwab 1000 Equity Fund 3,399,751 2,379,812 Strong Government Securities Fund 730,935 758,197 Schwab Retirement Money Fund 826,741 637,965 During 1999, the Plan's investments (including gains and losses on investments bought, sold and held during the year) appreciated in value $1,518,546, as follows: Amount Mutual Funds $1,544,469 Bairnco Corporation Common Stock Fund (25,923) $1,518,546 4. TRUST AGREEMENT: Schwab is the Plan's Trustee pursuant to the Plan document which is signed by the Corporation and Plan Trustee. Schwab manages the Plan assets and makes distributions to participants as directed by the Administrative Committee of the Corporation (the "Plan Administrator"). Expenses incurred by the Plan Trustee or the Plan Administrator in the performance of their duties may be paid by the Plan or the Corporation at the Corporation's discretion. During 1999, all investment managers' fees were paid directly by the Plan. 5. PLAN TERMINATION: Although it has not expressed any intent to do so, the Corporation reserves the right under the Plan to terminate the Plan, in whole or in part, at any time. In the event of the Plan's termination, the Plan assets will be distributed to the participants in lump sum distributions or transferred to another qualified plan at the direction of the participant. 6. TRANSACTIONS WITH PARTIES IN INTEREST: Under ERISA, the Plan is required to report investment transactions with and compensation paid to a "party in interest". The term "party in interest" is broadly defined but includes Bairnco as the Plan's sponsor, Schwab, as Plan Trustee, and any person or corporation which renders services to the Plan. Certain fees for legal and accounting services provided in connection with the Plan were paid by the Plan sponsor on behalf of the Plan during these years and are not included in the accompanying financial statements. Additional fees paid by the Plan during 1999 for services rendered by parties in interest were based on rates which the Plan's Administrator believes were customary and reasonable. 7. INCOME TAX STATUS: The Plan obtained its latest determination letter on April 29, 1997, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The plan administrator and legal counsel believe that the Plan is currently being operated in compliance with the applicable requirements of the Internal Revenue Code. 8. SUPPLEMENTAL SCHEDULES: Supplemental Schedule I lists the reportable transactions of the Plan for the year ended December 31, 1999. Purchases and sales are made at fair market value on the date of transaction. Supplemental Schedule II lists the Plan assets held for investment as of December 31, 1999. Supplemental Schedule III lists transactions with parties in interest of the Plan for the year ended December 31, 1999. SCHEDULE I BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1999 Series of Transactions in excess of 5 percent of the fair value Sales of plan assets at the beginning Sales Sales Gain of the year Purchases Cost Proceeds (Loss) Invesco Strategic Technology Fund $ 656,092 $ 241,226 $ 318,299 $ 77,073 Founders Growth Fund 2,045,901 1,106,940 1,189,156 82,216 Schwab 1000 Equity Fund 1,554,323 842,662 1,100,007 257,345 Strong Government Securities Fund 374,849 358,821 354,485 (4,336) Schwab Retirement Money Fund 1,120,240 931,464 931,464 -- Neuberger & Berman Guardian Fund 239,401 116,212 115,356 (856) Participant Notes Receivable 399,098 109,692 109,692 -- Individual Transactions in excess of 5 percent of the fair value of plan assets at the beginning of the year Founders Growth Fund $1,089,174 $ 344,258 $ 381,956 $ 37,698 Schwab 1000 Equity Fund 708,012 233,313 254,883 21,570 Schwab Retirement Money Fund 639,820 300,000 300,000 -- The preceding notes are an integral part of this schedule. SCHEDULE II BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST SCHEDULE OF ASSETS HELD FOR INVESTMENT AS OF DECEMBER 31, 1999 Fair Market Description Value (Note 2) Cost Bairnco Corporation Common Stock Fund: Schwab Money Market Fund $ 764 $ 764 Bairnco Corporation Common Stock 178,668 192,439 Total Bairnco Corporation Common Stock Fund 179,432 193,203 Mutual Funds: Invesco Strategic Technology Fund 1,619,941 833,908 Founders Growth Fund 1,950,554 1,699,924 Schwab 1000 Equity Fund 3,399,751 2,232,997 Strong Government Securities Fund 730,935 757,985 Schwab Retirement Money Fund 826,741 826,741 Neuberger & Berman Partners Fund 61,778 69,167 Neuberger & Berman Guardian Fund 108,507 130,681 Total Mutual Funds 8,698,207 6,551,403 Other Investments: Participant Notes Receivable 482,552 482,552 Total $9,360,191 $7,227,158 The preceding notes are an integral part of this schedule. SCHEDULE III BAIRNCO CORPORATION 401(k) SAVINGS PLAN AND TRUST SCHEDULE OF TRANSACTIONS WITH PARTIES IN INTEREST FOR THE YEAR ENDED DECEMBER 31, 1999 Description Amount Sold 10,438.924 units of Bairnco Corporation Common Stock between $2.435 and $7.50 per unit $ 71,714 Purchased 13,051.924 units of Bairnco Corporation Common Stock between $5.0599 and $7.9239 per unit $ 82,755 The preceding notes are an integral part of this schedule. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Administrative Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. BAIRNCO CORPORATION 401(K) SAVINGS PLAN AND TRUST (Name of Plan) Date: March 10, 2000 By: /s/ JAMES W. LAMBERT JAMES W. LAMBERT Administrative Committee Member -----END PRIVACY-ENHANCED MESSAGE-----