<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1996.
REGISTRATION NO. 333- .
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
Q.E.P. CO., INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5072 13-2983807
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code) Identification No.)
LEWIS GOULD
990 SOUTH ROGERS CIRCLE 990 SOUTH ROGERS CIRCLE
BOCA RATON, FLORIDA 33487 BOCA RATON, FLORIDA 33487
TELEPHONE: (561) 994-5550 TELEPHONE: (561) 994-5550
(Address and telephone number of registrant's (Name, address and telephone number
principal executive offices) of agent for service)
</TABLE>
Copies to:
<TABLE>
<S> <C>
ROBERT W. WALTER, ESQ. JOSEPH J. HERRON, ESQ.
DAVID C. ROOS, ESQ. KAREN K. DREYFUS, ESQ.
BERLINER ZISSER WALTER & GALLEGOS, P.C. CHRISTOPHER R. DI MAURO, ESQ.
SUITE 4700 610 NEWPORT CENTER DRIVE, SUITE 1700
1700 LINCOLN STREET O'MELVENY & MYERS LLP
DENVER, COLORADO 80203 NEWPORT BEACH, CALIFORNIA 92660
TELEPHONE: (303) 830-1700 TELEPHONE: (714) 760-9600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2)............................. 1,380,000 $ 10.50 $14,490,000 $4,996.56
- -----------------------------------------------------------------------------------------------------------
Common Stock(3)............................. 4,597 $ 10.50 $ 48,269 $ 16.65
- -----------------------------------------------------------------------------------------------------------
Representative's Warrants for Common
Stock..................................... 120,000 $ .001 $ 120 $ .03
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Common Stock underlying Representative's
Warrants(4)............................... 120,000 $ 12.60 $ 1,512,000 $ 521.38
- -----------------------------------------------------------------------------------------------------------
Total............................. $16,050,389 $5,534.62
===========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Includes 180,000 shares of Common Stock contained in the over-allotment
option and 200,000 shares of Common Stock to be offered by certain selling
shareholders.
(3) Issuable in exchange for 183,889 shares of the Company's outstanding
Preferred Stock.
(4) Pursuant to Rule 416, includes such indeterminate number of additional
shares of Common Stock as may be required for issuance on exercise of the
Representative's Warrants as a result of any adjustment in the number of
shares of Common Stock issuable on such exercise by reason of the
anti-dilution provisions of the Representative's Warrants.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
Q.E.P. CO., INC.
CROSS REFERENCE SHEET BETWEEN ITEMS OF FORM S-1
AND PROSPECTUS PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN PROSPECTUS
------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover of Prospectus....... Facing Page; Cross Reference Sheet;
Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front Cover Page; Outside Back
Cover Page.
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Changes...... Prospectus Summary; Risk Factors.
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds.
5. Determination of Offering Price........... Underwriting.
6. Dilution.................................. Dilution.
7. Selling Security Holders.................. Principal and Selling Shareholders;
Selling Shareholders.
8. Plan of Distribution...................... Inside Front Cover Page; Principal and
Selling Shareholders; Selling
Shareholders; Plan of Distribution;
Underwriting.
9. Description of Securities to be
Registered.............................. Outside Front Cover Page; Capitalization;
Description of Securities; Underwriting.
10. Interest of Named Experts and Counsel..... Legal Matters; Experts.
11. Information with Respect to the
Registrant.............................. Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal and Selling Shareholders;
Certain Transactions; Consolidated
Financial Statements.
12. Discussion of Commission Position on
Indemnification for Securities Act
Liabilities............................. Management -- Limitation of Liability and
Indemnification.
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
The form of Prospectus filed as part of this Registration Statement has two
cover pages, the first of which relates to an underwritten public offering of
1,200,000 shares of Common Stock by Q.E.P. Co., Inc. and certain selling
shareholders and the second of which relates to an offering to be made
exclusively by certain other selling shareholders. All Prospectuses distributed
in the underwritten public offering will bear the first form of cover page,
appropriately completed after the Registration Statement becomes effective. Ten
copies of the form of Prospectus in the exact form in which it is to be used
after the effective date will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b) of the General Rules and Regulations under
the Securities Act of 1933, as amended.
The second cover page pertains to 4,597 shares of Common Stock to be
offered by certain selling shareholders (the "Selling Shareholders") independent
of the underwritten offering. It is anticipated that the Prospectus used by the
Selling Shareholders will bear the second form of cover page, appropriately
completed after the Registration Statement becomes effective. This form of
Prospectus will also include the additional information concerning the Selling
Shareholders and the plan of distribution disclosed under the captions "Selling
Shareholders" and "Plan of Distribution" included in this Registration Statement
and will omit sections not applicable to such sales including "Principal and
Selling Shareholders," "Underwriting" and "Legal Matters." The Selling
Shareholders and Plan of Distribution sections will not be included in the form
of Prospectus distributed in connection with the underwritten public offering.
<PAGE> 4
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 2, 1996
1,200,000 SHARES
[LOGO]
COMMON STOCK
---------------------
Of the shares of Common Stock offered hereby, 1,000,000 shares are being
sold by Q.E.P. Co., Inc. ("QEP" or the "Company") and 200,000 shares are being
sold by certain shareholders of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders. It is currently anticipated
that the initial public offering price will be between $9.50 and $10.50 per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. Application has been made to have
the Common Stock approved for quotation on the Nasdaq National Market under the
symbol "QEPC."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION
PROSPECTIVE INVESTORS SHOULD CONSIDER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
=================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $575,000 and
$20,000 payable by the Selling Shareholders, including the Representative's
nonaccountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase an
aggregate of up to 180,000 additional shares of Common Stock solely to cover
over-allotments, if any. If this option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ , $
and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale when, as and if delivered to and accepted by them, and subject to the right
of the Underwriters to withdraw, cancel or modify such offer and reject orders
in whole or in part. It is expected that delivery of the certificates for the
Common Stock will be made at the offices of Cruttenden Roth Incorporated,
Irvine, California, on or about , 1996.
[LOGO]
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 5
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* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 2, 1996
4,597 SHARES
[LOGO]
COMMON STOCK
---------------------
This Prospectus relates to 4,597 shares of Common Stock being sold by
certain Selling Shareholders. The 4,597 shares of Common Stock of Q.E.P. Co.,
Inc. (the "Company") were issued to the Selling Shareholders in exchange for a
total of 183,889 shares of the Company's Preferred Stock. The Selling
Shareholders may offer the shares of Common Stock owned by them for sale as
principals for their own accounts at any time, and from time to time, in the
over-the-counter market at prices prevailing at the time of sale, commencing
from the date of this Prospectus. This Prospectus, which forms a part of the
registration statement filed by the Company, must be current at any time during
which a Selling Shareholder sells shares of Common Stock. See "Selling
Shareholders" and "Description of Securities."
This Prospectus (without certain information concerning the Selling
Shareholders) was also used in connection with an underwritten public offering
by the Company and certain other selling shareholders of 1,200,000 shares of
Common Stock which became effective on , 1996. In connection with
the underwritten offering, the Company issued to the managing underwriter (the
"Representative") warrants to purchase up to 120,000 shares of Common Stock (the
"Representative's Warrants") for $ per share, and granted to the
Representative an option, exercisable at any time prior to , 1996,
to purchase up to 180,000 shares of Common Stock solely to cover over-allotments
(the "over-allotment option"). See "Prospectus Summary" and "Capitalization."
References in this Prospectus to the offering, unless otherwise noted, are to
the underwritten offering. References in this Prospectus to the Selling
Shareholders, except as contained under "Selling Shareholders" and "Plan of
Distribution" or unless otherwise noted, are to the selling shareholders in the
underwritten offering. The Representative will not be involved in, nor will it
receive any compensation in connection with, the sale of securities by the
Selling Shareholders.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION
PROSPECTIVE INVESTORS SHOULD CONSIDER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 6
[FOUR COLOR PICTURES TO COME]
Q.E.P.(TM), O'Tool(TM), Marion Tool(TM) and Andrews Tools(TM) are trademarks of
Q.E.P. Co., Inc. This Prospectus also contains trademarks of other companies.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
On the effective date of the Registration Statement of which this
Prospectus forms a part, the Company will become a "reporting company" under the
Securities Exchange Act of 1934 (the "1934 Act"). The Company intends to
register the Common Stock under the 1934 Act as of the effective date of the
Registration Statement. The Company intends to furnish annual reports to
shareholders containing audited consolidated financial statements, quarterly
reports and such other periodic reports as it may determine to be appropriate or
as may be required by law.
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
contained in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option or options granted or reserved under the Company's stock
option plan, and (ii) gives effect to a recapitalization effective July , 1996
in connection with the Company's reincorporation in Delaware. Unless the context
indicates otherwise, references in this Prospectus to the "Company" are to
Q.E.P. Co., Inc. and its subsidiaries.
THE COMPANY
The Company is a leading manufacturer, marketer and distributor of a broad
line of specialty tools and related products for the home improvement market.
Under the "QEP," "O'Tool," "Marion Tool" and "Andrews Tools" brand names, the
Company markets over 4,000 specialty tools and related products used primarily
for surface preparation and installation of ceramic tile, carpet, marble,
masonry, drywall and paint. The Company's products include, among other items,
trowels, floats, tile cutters, wet saws, spacers, nippers, pliers, carpet
trimmers and cutters, knives and abrasives. The Company's products are sold
through home improvement retailers including national and regional chains such
as Home Depot, Lowe's and Hechinger/Home Quarters, specialty distributors to the
hardware, construction and home improvement trades, retailers such as Ace
Hardware and New York Carpet World, and OEMs such as Stanley and Red Devil. The
Company's full line of specialty tools and related products are marketed for use
by do-it-yourself consumers as well as construction and remodeling
professionals.
Since fiscal 1992, the Company's net sales have increased at a compound
annual rate of 38.0% to $25,272,000 in fiscal 1996. In the three months ended
May 31, 1996, the Company's net sales increased 35.6% over the prior comparable
period to $7,702,000. The growth in net sales over the last four fiscal years
reflects (i) the introduction of new products and the Company's success in
cross-marketing new and existing products among its channels of distribution,
(ii) the Company's expansion of its market share through sales to additional
home improvement retailers, distributors, OEMs and specialty retail customers,
(iii) growth experienced by the Company's customers within the home improvement
market, particularly among national and regional home improvement retailers, and
(iv) growth of the home improvement market as a whole. The Company believes it
is in a position to pursue additional growth in sales as it expands its product
lines, continues marketing to new customers and seeks to capitalize on the
ongoing consolidation of the home improvement retail market by national and
regional home improvement retailers.
According to industry information published by the National Home Center
News, the U.S. home improvement market generated retail sales of approximately
$116 billion and $132 billion in 1993 and 1995, respectively. Growth in the home
improvement market is expected to continue due to a variety of factors including
the aging of U.S. homes, increased housing turnover, favorable demographic
trends and increased consumer preference for larger, personalized homes. Within
the home improvement market, national and large regional home improvement
retailers have increased their market shares by offering broad product lines,
project advice and orientation, competitive pricing and aggressive promotions.
The Company's two largest customers, Home Depot and Lowe's, are the two largest
home improvement retailers in the country. The Company's five largest customers
in fiscal 1996 were among the ten largest home improvement retailers in the
United States. The Company anticipates that its largest customers will maintain
significant positions within the home improvement retail market by establishing
additional home centers, as evidenced by Home Depot's and Lowe's recent reports
of their intention to open 477 and 335 additional stores, respectively, by the
turn of the century.
The Company's strategy is to enhance its position as a leading manufacturer
and marketer of specialty tools and related products for the home improvement
market in order to capitalize on the continued expansion of its core markets and
growth experienced by its customer base. The Company intends to implement this
strategy by (i) increasing sales by broadening existing product lines and
securing new customers in its primary channels of distribution, (ii) continuing
its practice of cross-selling existing and new products among its channels of
distribution, (iii) addressing the requirements of its key customers by
maintaining its focus on customer service, quality control and enhancement of
information systems, (iv) acquiring additional manufacturers, distributors and
other companies which will complement the Company's operations, and (v)
expanding its foreign market presence through a recently introduced foreign
sales program.
The Company was incorporated in the State of New York in March 1979 and was
reincorporated in the State of Delaware in July 1996. Its principal executive
offices are located at 990 South Rogers Circle, Boca Raton, Florida 33487, and
its telephone number is (561) 994-5550.
3
<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company................................. 1,000,000 shares
By the Selling Shareholders.................... 200,000 shares
Common Stock to be outstanding after this 2,504,597 shares(1)
offering.......................................
Use of proceeds.................................. To repay a bank credit facility, finance
growth in inventories and accounts
receivable, acquire complementary
businesses or product lines, make
capital improvements and for general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol.................... QEPC
</TABLE>
- ---------------
(1) Includes 4,597 shares of Common Stock to be issued in exchange for 183,889
shares of Preferred Stock as of the date of this Prospectus. Excludes
150,000 shares of Common Stock issuable upon the exercise of currently
outstanding options. See "Management -- Stock Option Plan" and "Description
of Securities."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
---------------------------------- ENDED MAY 31,
FEB. 28, FEB. 28, FEB. 29, ------------------
1994 1995 1996 1995 1996
-------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales............................... $ 13,407 $ 19,247 $ 25,272 $5,681 $ 7,702
Gross profit............................ 4,991 7,142 9,295 2,008 2,901
Operating income........................ 1,015 1,303 1,931 481 751
Income before income taxes.............. 880 1,154 1,736 432 707
Net income.............................. 539 725 1,068 258 439
Net income per common share(1).......... $ .36 $ .47 $ .70 $ .17 $ .29
Weighted average shares outstanding..... 1,515 1,515 1,506 1,515 1,500
PRO FORMA DATA(2):
Operating income............................................... $ 1,931 $ 751
Net income..................................................... 1,137 462
Net income per share(1)........................................ $ .68 $ .28
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1996
---------------------------
FEBRUARY 29, 1996 ACTUAL AS ADJUSTED(3)
------------------ ------ ----------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................... $2,931 $3,401 $ 12,026
Total assets............................. 7,880 7,818 15,043
Total liabilities........................ 4,455 3,961 2,561
Shareholders' equity..................... 3,425 3,857 12,482
</TABLE>
- ---------------
(1) Cash dividends on Preferred Stock are deducted from net income before
calculating net income per common share.
(2) Pro forma information gives effect to the sale of 140,000 shares of Common
Stock offered by the Company at an assumed offering price of $10.00 per
share and the application of the proceeds therefrom to repay an outstanding
bank credit facility.
(3) Adjusted to reflect the sale of 1,000,000 shares of Common Stock by the
Company at an assumed offering price of $10.00 per share, and the
application of the estimated net proceeds therefrom. Gives effect to
repayment of $1,400,000 outstanding under the Company's credit facility.
See "Use of Proceeds."
4
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors prior to making
an investment in the Common Stock offered hereby.
CUSTOMER CONCENTRATION; DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company is dependent upon a limited number of customers for a
substantial portion of its net sales. Sales to the Company's ten largest
customers accounted for 86.5%, 74.9%, 76.5% and 77.0% of the Company's net sales
for the fiscal years ended February 28, 1994 and 1995 and February 29, 1996 and
the three months ended May 31, 1996, respectively. During the same periods,
sales to The Home Depot, Inc. ("Home Depot"), the Company's largest customer,
accounted for 54.5%, 46.1%, 51.5% and 49.9% of net sales, respectively, and
sales to The Lowe's Companies, Inc. ("Lowe's") accounted for 7.4%, 9.4%, 10.1%
and 11.9% of net sales, respectively. The Company has not entered into any
long-term contracts with any of its customers, nor is any customer obligated to
order additional products from the Company. Although Home Depot has been a
customer of the Company since 1986 and Lowe's has been a customer since 1993,
there is no assurance that the Company will be successful in maintaining these
relationships in the future. The loss of, or any material reduction in, orders
from the Company's significant customers for any reason could have a material
adverse effect on the Company's results of operations and financial condition,
and any reduction in sales to Home Depot or Lowe's would have a proportionately
greater negative impact on the Company's results of operations, financial
condition and the price of the Company's Common Stock. The Company will be
substantially dependent on sales to home improvement retailers such as Home
Depot and Lowe's for the foreseeable future. Changes in the financial condition
or results of operations of national home improvement retailers, or adverse
changes in the home improvement market, may adversely impact the Company's
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Relationship with Home Depot and Lowe's."
RELIANCE ON SUPPLIERS AND SALES AGENTS
The Company estimates that it purchases finished products from outside
suppliers comprising approximately 65% of the dollar amount of net sales and
approximately 45% of the Company's sales measured by unit volume in fiscal 1996.
The Company also purchases components from various suppliers which the Company
estimates accounted for 10% of the dollar amount of net sales and 15% of sales
measured by unit volume in fiscal 1996. The Company has not entered into written
agreements with any of its suppliers. Although the Company believes that
multiple sources of supply exist for nearly all of its products purchased from
outside suppliers, and although the Company generally maintains at least two
sources of supply for each product, the Company may be vulnerable to limits or
interruptions in supply or to price changes which could have a material adverse
effect on the Company's results of operations. During fiscal 1995, the Company
purchased finished products and components through two foreign sales agents
located in Taiwan which resulted in 14.0% and 20.7% of the dollar amount of the
Company's net sales. In fiscal 1996, purchases through these two sales agents
resulted in 7.9% and 16.0% of the dollar amount of the Company's net sales. The
two foreign sales agents utilized by the Company purchase finished products and
components from a number of manufacturers located in Taiwan, China and other
countries. The Company believes these sales agents purchased products from 10 to
12 different manufacturers in fiscal 1996. Although the Company is familiar with
a number of these manufacturers and believes it could purchase products directly
from them, sales agents will generally warehouse and consolidate products to
allow more cost effective shipping and will retain title pending arrival at
United States ports. While the Company believes there are a variety of sales
agents through which the Company could source its product requirements, changes
in sales agents could disrupt product shipments or result in manufacturing
delays until new suppliers or sales agents are procured.
The Company currently relies on two foreign suppliers as the sole sources
of supply for two power tools. The two power tools are currently among the
Company's five best selling products, and while sales of each accounted for less
than 5% of the Company's net sales in fiscal 1996, aggregate sales of these
products accounted for 7.6% of fiscal 1996 net sales. The Company believes that
alternate suppliers exist for these products and is currently attempting to
locate such alternative sources. However, the Company does not
5
<PAGE> 10
maintain sufficient inventory to allow it to fill customer orders without
interruption during the time that would be required to obtain such alternate
sources. Accordingly, an extended interruption in the supply of these products
could adversely affect the Company's results of operations. See
"Business -- Manufacturing and Suppliers."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon certain of its executive officers, the loss
of any one of whom could have a material adverse effect on the Company. In
particular, loss of the services of Lewis Gould, the Company's President and
Chief Executive Officer, would have a material adverse effect on the Company's
operations. Mr. Gould devotes a considerable portion of his time to the
maintenance of customer relationships with home improvement retailers, which
relationships are integral to the Company's continued sales growth. The Company
has a three-year employment agreement with Mr. Gould and maintains key-man life
insurance, renewable annually, in the amount of $2,500,000 on the life of Mr.
Gould. The existence of the employment agreement does not assure the Company of
the continued services of Mr. Gould. There also can be no assurance that the
proceeds from the life insurance policy would be sufficient to compensate the
Company in the event of Mr. Gould's death, and this policy does not provide the
Company benefits in the event Mr. Gould becomes disabled or is otherwise unable
to render services to the Company. The continued success of the Company also is
dependent upon its ability to attract and retain other highly qualified
personnel, of which there can be no assurance. See "Management -- Directors and
Executive Officers."
PRODUCTION FORECASTING; MANAGEMENT OF INVENTORY
The Company's customers generally place orders for home improvement
products with the Company on a weekly, semiweekly or monthly basis. The
Company's ability to fill customer orders promptly is directly related to the
accuracy of its production forecasts and the sufficiency of inventory to meet
anticipated product demand. The Company reviews its production requirements
weekly and generally places orders with its foreign suppliers at least 90 to 120
days in advance of the Company's anticipated manufacturing date. Although the
Company is generally able to update its orders placed with foreign suppliers 30
days prior to the commencement of production, the Company must anticipate
shipping time of approximately 30 days for products to be received from foreign
suppliers. The Company can generally obtain home improvement products from its
subsidiaries and domestic suppliers in less than 30 days from the date ordered.
If the Company misjudges market demand for a particular product, or in the event
the Company experiences manufacturing or shipment delays from suppliers, the
Company's delivery schedules may be disrupted. Inaccurate forecasts of customer
demand, restricted availability of finished or unfinished products, quality
control difficulties, carrier strikes or damage to products during manufacture
or shipment could result in a buildup of excess inventory or an inability to
deliver products on a timely basis. There can be no assurance that the Company's
production forecasts will accurately anticipate customer demand, or that the
Company's results of operations will not be adversely affected by costs
associated with excess inventory or loss of sales due to insufficient inventory.
See "Business."
COMPETITION
The market for specialty tools and related products is highly competitive.
Although the Company believes it is one of the more significant competitors in
the market segments in which it competes, a number of large, well-capitalized
home improvement product manufacturers could, should they so choose, market
products in direct competition with the Company. Although the Company is not
presently aware of any competitors with national distribution in all of its
major product groups, the Company is subject to competition from several strong
regional manufacturers and from large tool manufacturers within certain product
groups. The Company's entry into foreign markets will also subject it to
competition from a large number of foreign manufacturers, many of which may have
greater financial, marketing and other resources than the Company. The Company
believes that competition in the home improvement product market is based
primarily on retail gross profit margin potential, delivery, brand recognition,
quality and availability of shelf space. Although the
6
<PAGE> 11
Company believes it competes favorably with respect to certain of these factors,
there can be no assurance that the Company will compete successfully in the
future with its present or potential competition.
The Company is aware that, from time to time, certain of its customers have
contacted one or more of the Company's foreign suppliers to discuss purchasing
home improvement products similar or identical to the Company's products
directly from these manufacturers. Management believes that these discussions
have not resulted in a loss of business by the Company to date. Although the
Company believes that its diversified product line, brand recognition and
customer service will continue to offer benefits unavailable from a foreign
manufacturer, the Company could experience competition from one or more foreign
manufacturers which now serve as suppliers to the Company. Increased competition
from these manufacturers or others could result in price reductions, reduced
margins or loss of market share, each of which could have a material adverse
effect on the Company's results of operations and financial condition. See
"Business -- Competition."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; ACQUISITION STRATEGY
The Company has not designated a specific use for a significant portion of
the net proceeds from the sale of the Common Stock offered by the Company. The
Company intends to use a significant portion of the net proceeds for general
corporate purposes, including working capital, capital equipment and
acquisitions. The Company has experienced a 38% compound annual growth rate
since 1992 that has created significant working capital requirements. Should
this rapid growth rate continue, the Company may not be able to satisfy its
working capital needs with internally generated funds. Additionally, the Company
will continue to pursue opportunities to manufacture products or components
in-house in order to realize potential cost savings or quality improvements.
This strategy, as well as the general expansion and upgrading of corporate
facilities, will require the purchase of additional capital equipment.
The Company's acquisition strategy is based on identifying and acquiring
businesses engaged in the manufacturing of home improvement products and
components complementary to those now produced and marketed by the Company.
Acquisitions may require investment of operational and financial resources and
could require integration of dissimilar operations, assimilation of new
employees, diversion of management time and resources, increases in
administrative costs, potential loss of key employees of the acquired company
and additional costs associated with debt or equity financing. Any future
acquisition by the Company could have an adverse effect on the Company's results
of operations or could result in dilution to existing shareholders, including
those purchasing shares of Common Stock in this offering. There can be no
assurance that the Company will complete any acquisitions or that future
acquisitions will not materially and adversely affect the Company's results of
operations and financial condition. See "Use of Proceeds" and "Business."
PRODUCT SALES CONCENTRATION
During fiscal 1995 and fiscal 1996, sales of a single tile-related product
accounted for approximately 7.0% and 4.9% of the Company's total net sales,
respectively. Although sales of this product accounted for less than 5% of the
Company's net sales in the three months ended May 31, 1996, sales of this
product are expected to account for a material portion of the Company's sales
during fiscal 1997. In addition, sales of one of the Company's power tools
accounted for approximately 5.1% of the Company's net sales in the three months
ended May 31, 1996. A decline in the demand for either of these products,
whether as a result of competition or other factors, could have a material
adverse effect on the Company's results of operations and financial condition.
There is no assurance that products on which the Company depends for a material
portion of its sales will continue to receive market acceptance. See
"Business -- Products."
LENGTHY SALES CYCLE TO NEW RETAIL CUSTOMERS
The Company's retail customers, which include national and regional home
improvement retailers and both chain and independent hardware, tile, carpet and
paint stores, generally have limited shelf space in which to place home
improvement products manufactured by the Company or others. Moreover, within the
tile, carpet, masonry, drywall and painting departments, the home improvement
retailer or other customer typically purchases only one or two lines of home
improvement tools and related products. As a result, the Company's
7
<PAGE> 12
ability to displace another manufacturer's product line depends upon the Company
presenting price, gross margin, product line, product utility, brand image or
other information which demonstrates the benefit of a change in manufacturers.
Accordingly, the Company has experienced lengthy sales cycles of as much as one
to three years before penetrating certain home improvement retailers and other
retail customer accounts. Although the Company believes that the diversity of
its product line, pricing and brand image will enable the Company to secure new
retail customer accounts, the Company's marketing personnel and other executive
officers may be required to expend substantial time and effort in marketing to
new retail customers, the results of which efforts cannot be assured. See
"Business."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Although the Company's foreign sales accounted for less than 1% of net
sales in the fiscal year ended February 29, 1996 and in the three months ended
May 31, 1996, the Company anticipates that international sales will increase as
a percentage of net sales in the future. International sales are subject to
inherent risks, including variations in local economies, fluctuating exchange
rates, increased difficulty of inventory management, greater difficulty in
accounts receivable collection, costs and risks associated with localizing
products for foreign countries, changes in tariffs and other trade barriers,
adverse foreign tax consequences, cultural differences affecting product demand,
and burdens of complying with a variety of foreign laws. There is no assurance
that these factors will not have a material adverse impact on the Company's
ability to increase its international sales. A substantial portion of the
Company's finished products and components purchased from foreign suppliers are
acquired from entities based in Taiwan, China and Japan. The Company does not
presently hedge against adverse foreign currency fluctuations. Fluctuations in
the value of the U.S. dollar against local currencies could result in an
increase in the cost of finished products and components. See "Business."
RELOCATION OF MANUFACTURING AND DISTRIBUTION FACILITIES
In the fiscal year ending February 28, 1997, the Company anticipates
consolidating its manufacturing, warehousing and executive offices located in
Boca Raton, Florida and Pompano Beach, Florida into one facility, and will be
relocating the manufacturing operations of two subsidiaries now located in
Carson, California and Carson City, Nevada to an integrated facility in Las
Vegas, Nevada. The Company is currently negotiating the lease terms for the Las
Vegas facility and has commenced its initial survey of locations suitable for
its Florida facilities. While the Company's new facilities will provide added
manufacturing capacity and are expected to allow the Company to realize certain
administrative cost savings, the Company may experience delays in all aspects of
its operations and substantial unanticipated costs in the relocation of these
facilities. There can be no assurance the Company will not encounter quality or
capacity difficulties, or experience production delays, in connection with the
relocations. These factors could have an adverse short-term effect on the
Company's results of operations. See "Business -- Facilities."
ENVIRONMENTAL MATTERS
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of certain materials used in
the Company's manufacturing facilities. The Company believes that its activities
conform to present environmental regulations. Increasing public attention has,
however, been focused on the environmental impact of many businesses. Although
the Company has not experienced any material adverse effect on its operations
from environmental regulations, there can be no assurance that changes in such
regulations will not impose the need for additional capital equipment or other
requirements that could restrict the Company's ability to maintain or expand its
operations. Any failure by the Company to adequately restrict the discharge of
hazardous substances could subject the Company to future liabilities or could
cause its manufacturing operations to be suspended. See
"Business -- Environmental Matters."
8
<PAGE> 13
SHARES ELIGIBLE FOR FUTURE SALE; RIGHTS TO ACQUIRE SHARES
Following this offering, 1,300,000, or 51.9%, of the Company's outstanding
shares of Common Stock held by officers, directors and shareholders, will be
"restricted securities" and may in the future be sold upon registration or in
compliance with an exemption from registration such as Rule 144 adopted under
the Act. Rule 144 generally provides that beneficial owners of shares who have
held such shares for two years may sell within a three-month period a number of
shares not exceeding the greater of 1% of the total outstanding shares or the
average weekly trading volume of the shares during the four calendar weeks
preceding such sale. In the absence of agreements with the Representative of the
Underwriters (the "Representative"), the outstanding restricted shares of Common
Stock could be sold in accordance with Rule 144 commencing 90 days from the date
of this Prospectus. Pursuant to the terms of the Underwriting Agreement, the
Representative has required that sales of the outstanding restricted shares of
Common Stock (other than shares to be sold by the Selling Shareholders
hereunder) may not commence until nine months from the date of this Prospectus,
without the prior written consent of the Representative. Future sales of
restricted shares of Common Stock under Rule 144 or otherwise could negatively
impact the market price of the Common Stock. See "Shares Eligible For Future
Sale."
At the date of this Prospectus, the Company has reserved 250,000 shares of
Common Stock for issuance on exercise of options granted under its stock option
plan. Options to purchase 150,000 shares were outstanding at June 30, 1996. The
exercise prices of the options outstanding range from $8.50 to $9.35 per share.
At the completion of this offering, the Representative will receive warrants
(the "Representative's Warrants") to purchase 120,000 shares of Common Stock at
an exercise price of $ (120% of the offering price of the Common Stock)
during a period of four years commencing one year from the date of this
Prospectus. During the terms of the outstanding options and the Representative's
Warrants, the holders of such securities may profit from a rise in the market
price of the Common Stock, and their exercise may dilute the ownership interest
of existing shareholders, including investors in this offering. The existence of
options and the Representative's Warrants may adversely affect the terms on
which the Company may obtain additional equity financing. Moreover, the holders
of such securities are likely to exercise their rights to acquire Common Stock
at a time when the Company would otherwise be able to obtain capital on terms
more favorable than could be obtained through the exercise of such securities.
See "Management -- Stock Option Plan" and "Underwriting."
CONTROL BY MAJORITY SHAREHOLDER
Following this offering, Lewis Gould, the Company's President and Chief
Executive Officer, will beneficially own approximately 35.3% of the Company's
outstanding shares of Common Stock. Moreover, by virtue of a voting trust
agreement with Susan J. Gould, Mr. Gould will have the power to vote
approximately 51.8% of the outstanding shares of Common Stock. As a result, Mr.
Gould will have a significant influence upon the activities of the Company, as
well as on all matters requiring approval of the shareholders, including the
election of a majority of the directors. The voting power of Mr. Gould under
certain circumstances could have the effect of delaying or preventing a change
in control of the Company. See "Management" and "Principal and Selling
Shareholders."
RIGHTS OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
2,500,000 shares of Preferred Stock. The Preferred Stock may be issued in series
with the material terms of any series determined by the Board of Directors. As
of the date of this Prospectus, the Company has 319,158 shares of Series A
Preferred Stock issued and outstanding. Holders of the Series A Preferred Stock
are entitled to receive semi-annual dividends on a cumulative basis at the rate
of $0.035 per share per annum through September 30, 2000, and at a variable rate
thereafter equal to the prime interest rate on the first day of the month in
which the dividends are payable, less 1 1/4%. None of the outstanding Preferred
Stock has any voting rights. In the event of a liquidation of the Company, the
liquidation preference of the outstanding Preferred Stock would reduce the
amount of assets available for distribution to holders of the Common Stock. The
Series A Preferred Stock was issued in connection with an acquisition in fiscal
1995. In the future, the Company could issue additional
9
<PAGE> 14
series of Preferred Stock for the purpose of undertaking additional
acquisitions. In such event, any additional series of Preferred Stock may carry
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of holders of the Common Stock. Further,
the Preferred Stock may be issued with voting, conversion or other terms
determined by the Board of Directors which could be used to delay, discourage or
prevent a change in control of the Company. See "Description of Securities."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. Except as discussed below, the Company intends
to retain profits, if any, to fund growth and expansion. The terms of the
Company's bank credit facility currently prohibit the payment of dividends
except with the lender's consent. The Company is obligated to pay cumulative
dividends on the Series A Preferred Stock, for which the lender's consent has
been obtained in the past. See "Dividend Policy" and "Description of
Securities."
DILUTION
This offering will result in immediate substantial dilution of $5.04
(50.4%) per share, which amount represents the difference between the pro forma
net tangible book value per share after the offering and the assumed public
offering price of $10.00 per share. See "Dilution."
OFFERING PRICE DETERMINATION; ABSENCE OF PUBLIC MARKET; PRICE FLUCTUATIONS
The public offering price of the Common Stock has been determined by
negotiations among the Company, the Selling Shareholders and the Representative
and does not necessarily bear any relationship to assets, book value, earnings
history or other investment criteria. Prior to this offering, there has been no
public market for the Company's Common Stock. Although the Common Stock is
expected to be approved for quotation on the Nasdaq National Market upon notice
of issuance, there can be no assurance that an active trading market will
develop. Factors such as quarterly fluctuations in results of operations,
announcements by the Company or its competitors of the development or
termination of customer relationships, variations in results of operations of
national home improvement retailers, changes in the home improvement market or
market conditions in general, may cause the market price of the Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock market
has experienced significant price and volume fluctuations. These fluctuations,
which are often unrelated to the operating performance of specific companies,
have had a substantial effect on the market price for many small capitalization
companies. Factors such as those cited above, as well as other factors which may
be unrelated to the operating performance of the Company, may adversely affect
the price of the Common Stock. See "Underwriting."
LIMITATION OF LIABILITY
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable for monetary damages to the Company or
its shareholders for a breach of fiduciary duty as a director, subject to
limited exceptions. Although such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission, the
presence of these provisions in the Certificate of Incorporation could prevent
the recovery of monetary damages against directors of the Company. See
"Management -- Limitation of Liability and Indemnification."
10
<PAGE> 15
USE OF PROCEEDS
Based on an assumed offering price of $10.00 per share, the net proceeds
from the sale of the 1,000,000 shares of Common Stock offered by the Company are
estimated to be approximately $8,625,000 ($10,236,000 if the Underwriters'
over-allotment option is fully exercised). The Company will not receive any
proceeds from the sale of shares by the Selling Shareholders.
The Company expects to use $1,400,000 of the net proceeds to reduce the
outstanding balance under its revolving bank credit facility. The balance
outstanding under the credit facility was $ as of July , 1996.
Advances under the credit facility bore interest at variable rates equal to
7 1/4% and 8 1/4% at May 31, 1996, and have been used primarily to finance
inventory purchases and accounts receivable. In addition, the Company expects
that approximately $1.2 million will be used for capital improvements, including
expansion and upgrading of existing facilities and the purchase or lease of
additional manufacturing equipment. The Company intends to use the remaining net
proceeds for working capital and general corporate purposes, including the
possible investment in, strategic acquisition of, or joint ventures with,
businesses, as well as the possible acquisition of other product lines. Although
the Company is continually evaluating potential acquisitions, the Company
currently has no agreements, understandings or commitments with respect to any
acquisition. There can be no assurance that any acquisitions will become
available on terms acceptable to the Company.
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this offering based on current planning and business
conditions. The Company reserves the right to change such uses when and if
market conditions or unexpected changes in operating conditions or results
occur. The amounts actually expended for each use may vary significantly
depending upon a number of factors, including future growth and the amount of
cash generated by the Company's operations. The Company believes that its
existing capital resources and the net proceeds of this offering will be
sufficient to maintain its current and planned operations for a period of at
least 12 months from the date of this Prospectus. Net proceeds not immediately
required for the purposes described above will be invested principally in U.S.
government securities, short-term certificates of deposit, money market funds or
other short-term, interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends or distributions on
its Common Stock. The Company anticipates that for the foreseeable future all
earnings will be retained for use in the Company's business and no cash
dividends will be paid on the Common Stock. Any payment of cash dividends in the
future on the Common Stock will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
plans for expansion and restrictions, if any, under debt obligations, as well as
other factors that the Board of Directors deems relevant. The Company's current
bank credit facility prohibits the payment of dividends except with the lender's
consent.
During the year ended February 29, 1996, the Company paid cash dividends in
the amount of $13,653 and $6,250 to the holders of its Series A and Series B
Preferred Stock, respectively. Dividends in the amount of $600 were declared in
fiscal 1996 on the Series C Preferred Stock. Based on the shares of Class A
Preferred Stock outstanding on the date of this Prospectus, the Company's
aggregate annual dividend requirement approximates $11,000, assuming dividends
are declared on an annual basis. See "Description of Securities."
11
<PAGE> 16
DILUTION
As of May 31, 1996, the Company had a net tangible book value of $3,735,000
or $2.48 per share based on 1,504,597 shares of Common Stock outstanding
(assuming the issuance of 4,597 shares of Common Stock in exchange for certain
shares of Preferred Stock). After giving effect to the sale of the 1,000,000
shares of Common Stock offered by the Company at the assumed offering price of
$10.00 per share, the pro forma net tangible book value of the Company as of May
31, 1996 would have been $12,420,000, or $4.96 per share. This amount represents
an immediate increase in net tangible book value of $2.48 per share to the
existing holders of Common Stock and an immediate dilution of $5.04 per share to
new investors. "Dilution" is determined by subtracting pro forma net tangible
book value per share after the offering from the assumed offering price per
share of Common Stock, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $10.00
Net tangible book value per share as of May 31, 1996...... $2.48
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 2.48
-----
Pro forma net tangible book value per share after the
offering.................................................. 4.96
------
Dilution per share to new investors......................... $ 5.04
======
</TABLE>
The following table sets forth as of May 31, 1996, the number of shares of
Common Stock purchased for cash, the total consideration paid and the average
cash price per share paid by existing shareholders and by new investors
(assuming sale of 1,000,000 shares of Common Stock by the Company at the assumed
offering price of $10.00 per share, before deduction of underwriting discounts
and other estimated offering expenses, and issuance of 4,597 shares of Common
Stock in exchange for 183,889 shares of Preferred Stock):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)(2)................ 1,504,597 60.1% $ 3,857,038 27.8% $ 2.56
New investors(2)........................... 1,000,000 39.9 10,000,000 72.2 $ 10.00
--------- --- ----------- ------
Total............................ 2,504,597 100.0% $13,857,038 100.0%
========= === =========== ======
</TABLE>
- ---------------
(1) Includes Common Stock of $1,505, Preferred Stock of $319,158, additional
paid-in capital of $214,646 and retained earnings of $3,379,629, less
treasury stock of $57,900.
(2) The sale of 200,000 shares by the Selling Shareholders in this offering will
reduce the number of shares held by existing shareholders to 1,304,597, or
52.1% of the total shares of Common Stock outstanding, and will increase the
number of shares held by new investors to 1,200,000, or 47.9% of the total
shares of Common Stock outstanding after this offering. See "Principal and
Selling Shareholders."
The foregoing information assumes no exercise of the over-allotment option,
no exercise of outstanding options to purchase an aggregate of 150,000 shares of
Common Stock, and no exercise of the Representative's Warrants. See
"Management -- Stock Option Plan," "Description of Securities" and
"Underwriting." To the extent that currently outstanding options or warrants are
exercised, there will be further dilution to new investors.
12
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1996, and as adjusted to give effect to the sale of shares of Common Stock
offered by the Company at an assumed offering price of $10.00 per share (and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company).
<TABLE>
<CAPTION>
MAY 31, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Bank credit facility(1)................................................. $1,688 $ 288
------ -------
Long-term liabilities................................................... 135 135
------ -------
Shareholders' equity:
Preferred Stock, par value $1.00 per share;
2,500,000 shares authorized; 503,047 issued
and outstanding, 319,158 shares issued
and outstanding, as adjusted(2).................................... 503 319
Common Stock, par value $.001 per share;
10,000,000 shares authorized; 1,500,000
shares issued and outstanding, 2,504,597
shares issued and outstanding, as adjusted(2)(3)................... 1 2
Additional paid in capital............................................ 31 8,839
Retained earnings..................................................... 3,380 3,380
Cost of stock held in treasury........................................ (58) (58)
------ -------
Total shareholders' equity............................................ 3,857 12,482
------ -------
Total capitalization............................................... $5,680 $12,905
====== =======
</TABLE>
- ---------------
(1) The Company will use $1,400,000 of the net proceeds of this offering to
reduce the outstanding balance under the bank credit facility, which at July
, 1996 totaled $ .
(2) Gives effect to the issuance of 4,597 shares of Common Stock in exchange for
183,889 shares of Preferred Stock as of the date of this Prospectus. See
"Description of Securities."
(3) Excludes 150,000 shares of Common Stock issuable on exercise of outstanding
options at June 30, 1996. See "Management -- Stock Option Plan" and
"Description of Securities."
13
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Consolidated Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected financial data as
of February 28, 1994 and 1995 and February 29, 1996 and for each of the three
years in the period ended February 29, 1996 have been derived from the
consolidated financial statements of the Company which have been audited by the
Company's independent auditors and are included elsewhere in this Prospectus.
The selected financial data as of February 29, 1992 and February 28, 1993 and
for each of the two years in the period ended February 28, 1993 have been
derived from the audited financial statements of the Company not included
herein. The selected financial data as of May 31, 1995 and 1996 and for the
three-month periods ended May 31, 1995 and 1996 have been derived from the
Company's unaudited financial statements which, in the opinion of management,
reflect all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the results for these periods and as of
such dates. The selected financial data provided below is not necessarily
indicative of the future results of operations or financial performance of the
Company.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED FEBRUARY 28 OR 29, ENDED MAY 31,
------------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1995 1996
------ ------- ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................... $6,966 $10,188 $13,407 $19,247 $25,272 $5,681 $7,702
Cost of goods sold.................................. 4,389 6,459 8,416 12,105 15,977 3,673 4,801
------ ------- ------- ------- ------- ------ ------
Gross profit........................................ 2,577 3,729 4,991 7,142 9,295 2,008 2,901
Shipping............................................ 893 1,123 1,113 1,488 1,746 235 565
General and administrative.......................... 850 1,137 1,492 2,436 3,106 734 767
Selling and marketing............................... 712 905 1,218 1,800 2,512 558 818
Foreign exchange (gains) losses..................... (70) 10 153 115 -- -- --
------ ------- ------- ------- ------- ------ ------
Total expenses.............................. 2,385 3,175 3,976 5,839 7,364 1,527 2,150
------ ------- ------- ------- ------- ------ ------
Operating income.................................... 192 554 1,015 1,303 1,931 481 751
Interest expense.................................... 88 123 135 149 195 49 44
------ ------- ------- ------- ------- ------ ------
Income before provision for
income taxes and cumulative
effect of change in accounting
principle......................................... 104 431 880 1,154 1,736 432 707
Provision for income taxes.......................... 54 176 341 429 668 174 268
------ ------- ------- ------- ------- ------ ------
Income before cumulative effect
of change in accounting principle ................ 50 255 539 725 1,068 258 439
Cumulative effect of change in accounting for income
taxes(1).......................................... -- 57 -- -- -- -- --
------ ------- ------- ------- ------- ------ ------
Net income.......................................... $ 50 $ 312 $ 539 $ 725 $ 1,068 $ 258 $ 439
====== ======= ======= ======= ======= ====== ======
Net income per common share(2)...................... $ .03 $ .21 $ .36 $ .47 $ .70 $ .17 $ .29
====== ======= ======= ======= ======= ====== ======
Weighted average number of shares of common stock
outstanding....................................... 1,515 1,515 1,515 1,515 1,506 1,515 1,500
====== ======= ======= ======= ======= ====== ======
Pro forma net income per share(2)(3)................ $ .68 $ .28
======= ======
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28 OR 29, MAY 31,
------------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1995 1996
------ ------- ------- ------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital..................................... $ 96 $ 404 $ 1,019 $ 1,948 $ 2,931 $2,234 $3,401
Total assets........................................ 2,464 3,535 4,133 6,000 7,880 6,179 7,818
Total liabilities................................... 2,105 2,864 2,798 3,502 4,455 3,435 3,961
Shareholders' equity................................ 359 671 1,335 2,498 3,425 2,744 3,857
</TABLE>
- ---------------
(1) The Company adopted in 1993 the method of accounting for income taxes
pursuant to Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes.
The Company had previously accounted for deferred income taxes pursuant to
Statement of Financial Accounting Standards No. 96, which was superseded by
SFAS No. 109. The Company elected to report the $57,200 cumulative effect on
prior years as an increase to 1993 income.
(2) Cash dividends on Preferred Stock are deducted from net income per common
share.
(3) Pro forma information gives effect to the sale of 140,000 shares of Common
Stock offered by the Company at an assumed offering price of $10.00 per
share and the application of the proceeds therefrom to repay an outstanding
bank credit facility.
14
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company manufactures, markets and distributes a broad line of specialty
tools and related products for the home improvement market. The Company markets
over 4,000 products used primarily for surface preparation and installation of
ceramic tile, carpet, marble, masonry, drywall and paint. The Company's products
are sold through home improvement retailers, specialty distributors, original
equipment manufacturers and chain or independent hardware, tile, carpet and
painting retailers for use by the do-it-yourself consumer as well as the
construction or remodeling professional.
The Company attributes its growth in sales and earnings to increased market
penetration which has been achieved through additions to its product lines,
expansion of its customer base in each of its channels of distribution, and its
success in cross-selling existing and new product lines among its channels of
distribution. Management estimates that the Company's net sales through its
primary distribution channels in fiscal 1996 were as follows: 70% through
national and regional home improvement retailers, 13% through specialty
distributors, 10% to chain or independent retailers in the hardware, tile,
carpet and paint markets and 7% to OEMs.
The Company's strategic acquisitions of specialty tool manufacturers and
distributors have also contributed to increased sales. The Company acquired
O'Tool Company and Marion Tool Company in June and October of 1994,
respectively, and acquired the Andrews Tools Company in January 1995
(collectively, the "Acquired Companies"). The acquisition of O'Tool Company was
funded with cash and promissory notes, which have since been paid in full. The
acquisitions of Andrews Tools Company and Marion Tool Company were funded
primarily through the issuance of Preferred Stock. See "Business" and Notes to
Consolidated Financial Statements.
As national home improvement retailers have consolidated the home
improvement retail market, the Company has become increasingly dependent upon a
limited number of customers. In fiscal 1996, the Company's five largest
customers were among the ten largest home improvement retailers in the United
States. Sales to the Company's ten largest customers accounted for 74.9%, 76.5%
and 77.0% of the Company's net sales for fiscal 1995, fiscal 1996 and the three
months ended May 31, 1996, respectively. Sales to Home Depot accounted for
46.1%, 51.5% and 49.9% of net sales in fiscal 1995, fiscal 1996 and the three
months ended May 31, 1996, respectively, while sales to Lowe's accounted for
9.4%, 10.1% and 11.9% during the same periods, respectively. The Company
anticipates that sales to national home improvement retailers will continue to
constitute a significant portion of the Company's total net sales in future
periods. See "Risk Factors."
The Company's net sales consist of gross sales less the amount of cash
discounts, returns and allowances. Cash discounts, returns and allowances vary
from year to year, and were 3.4% for fiscal 1996 and 4.6% for the three months
ended May 31, 1996. Sale terms generally are net 30 days. Sales are recognized
when products are shipped.
15
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Consolidated
Statements of Income:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY THREE MONTHS
28 OR 29, ENDED MAY 31,
-------------------------- ----------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................. 62.8 62.9 63.2 64.7 62.3
------ ------ ------ ------ ------
Gross profit.................................... 37.2 37.1 36.8 35.3 37.7
------ ------ ------ ------ ------
Shipping........................................ 8.3 7.7 6.9 4.1 7.3
General and administrative...................... 11.1 12.6 12.3 12.9 10.0
Selling and marketing........................... 9.1 9.4 10.0 9.8 10.6
Foreign exchange losses......................... 1.1 0.6 -- -- --
------ ------ ------ ------ ------
Total expenses.................................. 29.6 30.3 29.2 26.8 27.9
------ ------ ------ ------ ------
Operating income................................ 7.6 6.8 7.6 8.5 9.8
Interest expense................................ 1.0 0.8 0.7 0.9 0.6
------ ------ ------ ------ ------
Income before provision for income taxes........ 6.6 6.0 6.9 7.6 9.2
Provision for income taxes...................... 2.6 2.2 2.7 3.1 3.5
------ ------ ------ ------ ------
Net income...................................... 4.0 3.8 4.2 4.5 5.7
====== ====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED MAY 31, 1996 AND 1995
Net sales for the three months ended May 31, 1996 (the "fiscal 1997
period") were $7,702,000 compared to $5,681,000 in the same three months of the
prior fiscal year (the "fiscal 1996 period"), an increase of $2,021,000 or
35.6%. The increase was primarily due to growth in sales to home improvement
retailers in the amount of $1,761,000, which was achieved through the
introduction of new products in late fiscal 1996 as well as an increase in the
number of stores operated by the Company's home improvement customers. Sales to
specialty distributors increased during the fiscal 1997 period by $239,000 as a
result of the Acquired Companies' improved operating efficiencies resulting in
more timely shipments of customer orders.
Gross profit for the fiscal 1997 period was $2,901,000 compared to
$2,008,000 in the fiscal 1996 period, an increase of $893,000 or 44.5%. As a
percentage of sales, gross profit increased to 37.7% in the fiscal 1997 period
from 35.3% in the fiscal 1996 period. The increase in gross profit margin was
due to the Company's ability to secure lower cost foreign suppliers and achieve
volume discounts with existing suppliers as a result of increased purchasing
levels.
Shipping expenses for the fiscal 1997 period were $565,000 compared to
$235,000 for the fiscal 1996 period, an increase of $330,000 or 140.4%. As a
percentage of sales, these expenses increased to 7.3% in the fiscal 1997 period
from 4.1% in the fiscal 1996 period. The increase in these expenses was due to a
higher number of shipments per sales dollar and an increase in the number of
retail locations to which shipments were made.
General and administrative expenses for the fiscal 1997 period were
$767,000 compared to $734,000 for the fiscal 1996 period, an increase of $33,000
or 4.5%. As a percentage of sales, these expenses decreased to 10.0% in the
fiscal 1997 period from 12.9% in the fiscal 1996 period due to a reduction in
administrative staff.
Selling and marketing expenses for the fiscal 1997 period were $818,000
compared to $558,000 for the fiscal 1996 period, an increase of $260,000 or
46.6%. As a percentage of sales, these expenses increased to 10.6% in the fiscal
1997 period from 9.8% in the fiscal 1996 period. The increase was primarily
attributable to an increase in the number of retail customers participating in
the Company's co-op advertising program, as well as an increase in the co-op
advertising costs borne by the Company with respect to certain retail customers.
An increase in sales and marketing personnel, particularly in the western United
States, also contributed to the increase in these expenses.
16
<PAGE> 21
Interest expense for the fiscal 1997 period was $44,000 compared to $49,000
for the fiscal 1996 period, a decrease of $5,000 or 10.2%. As a percentage of
sales, these expenses decreased to 0.6% in the fiscal 1997 period from 0.9% in
the fiscal 1996 period.
Provision for income taxes was $268,000 for the fiscal 1997 period compared
to $174,000 for the fiscal 1996 period, an increase of $94,000 or 54.0%. The
effective tax rate was approximately 37.9% in the fiscal 1997 period as compared
to 40.2% in the fiscal 1996 period. The change in the effective tax rate
reflects a reduction in the provision for income taxes in the 1997 period based
upon the most recent effective tax rates.
As a result of the above, net income for the fiscal 1997 period was
$439,000 compared to $258,000 for the fiscal 1996 period, an increase of
$181,000 or 70.2%. This represents an increase in net income as a percentage of
net sales to 5.7% in the fiscal 1997 period from 4.5% in the fiscal 1996 period.
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
Net sales for fiscal 1996 were $25,272,000 compared to $19,247,000 in
fiscal 1995, an increase of $6,025,000 or 31.3%. The increase was attributable
to new product offerings, increased sales to home improvement retailers and a
full year of sales by the Acquired Companies. Sales to the Company's two largest
customers increased by $4,862,000, a majority of which was attributable to an
increase in retail store locations. A portion of the increase in sales to these
customers was attributable to sales of new products introduced during the third
quarter of fiscal 1996, which on a Company-wide basis totaled $1,926,000. The
addition of a national home improvement customer accounted for $364,000 of the
net sales increase, while a full year of sales attributable to the Acquired
Companies increased net sales by $1,249,000. These increases were partially
offset by reduced sales to smaller customers affected by the consolidation of
the home improvement industry.
Gross profit for fiscal 1996 was $9,295,000 compared to $7,142,000 in
fiscal 1995, an increase of $2,153,000 or 30.1%. As a percentage of sales, gross
profit decreased to 36.8% in fiscal 1996 from 37.1% in fiscal 1995. The decrease
in gross profit margin was attributable to the introduction of two new products
which accounted for $1,926,000 in net sales during fiscal 1996. The lower profit
margin on these products and other shifts in the product mix resulted in a net
reduction in the gross profit margin of 0.3%.
Shipping expenses for fiscal 1996 were $1,746,000 compared to $1,488,000 in
fiscal 1995, an increase of $258,000 or 17.3%. As a percentage of sales, these
expenses decreased to 6.9% in fiscal 1996 from 7.7% in fiscal 1995 due to
economies of scale and more efficient use of the Acquired Companies' shipping
and warehouse facilities.
General and administrative expenses for fiscal 1996 were $3,106,000
compared to $2,436,000 in fiscal 1995, an increase of $670,000 or 27.5%. As a
percentage of sales, these expenses decreased to 12.3% in fiscal 1996 from 12.6%
in fiscal 1995. Of the dollar increase, $140,000 represented increased rent and
payroll costs of the Acquired Companies, $130,000 represented increased
professional fees in connection with financing and other corporate matters,
$81,000 represented increased bad debt expense, of which $53,000 was due to the
insolvency of two customers, and $50,000 represented increased discretionary
contribution to the employee profit sharing plan. The remaining increase was
attributable to additional general and administrative expenses of the Acquired
Companies.
Selling and marketing expenses for fiscal 1996 were $2,512,000 compared to
$1,800,000 for fiscal 1995, an increase of $712,000 or 39.6%. As a percentage of
sales, these expenses increased to 10.0% in fiscal 1996 from 9.4% in fiscal
1995. The increase was primarily attributable to the Company's integration of
the sales and marketing functions of the Acquired Companies. In particular, the
Company incurred certain costs to publish catalogues and sales materials for the
Acquired Companies and to hire sales and marketing employees during fiscal 1996
who had not yet achieved the productivity level of existing employees.
Interest expense for fiscal 1996 was $195,000 compared to $149,000 in
fiscal 1995, an increase of $46,000 or 30.9%. As a percentage of sales, these
expenses decreased to 0.7% in fiscal 1996 from 0.8% in fiscal 1995. The dollar
increase in interest expense was attributable to increased borrowings on the
line of credit required to finance the Company's growth. The decrease in dollar
expense as a percentage of sales was attributable to the Company's ability to
fund growth with a relatively lower level of borrowing.
17
<PAGE> 22
Provision for income taxes in fiscal 1996 was $668,000 compared to $429,000
in fiscal 1995, an increase of $239,000 or 55.7%. The effective tax rate
increased to 38.5% in fiscal 1996 from 37.2% in fiscal 1995. The increase in the
effective tax rate is primarily attributable to the non-tax deductible expenses.
As a result of the above, net income in fiscal 1996 was $1,068,000 compared
to $725,000 in fiscal 1995, an increase of $343,000 or 47.3%. This represents an
increase in net income as a percentage of net sales to 4.2% in fiscal 1996 from
3.8% in fiscal 1995.
YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
Net sales were $19,247,000 in fiscal 1995 compared to $13,407,000 in fiscal
1994, an increase of $5,840,000 or 43.6%. The Acquired Companies, all of which
were acquired in fiscal 1995, contributed a total of $3,238,000 to net sales
during fiscal 1995. In addition, net sales to the Company's seven largest home
improvement customers increased by $2,291,000 during fiscal 1995 due primarily
to new store openings.
Gross profit for fiscal 1995 was $7,142,000 compared to $4,991,000 in
fiscal 1994, an increase of $2,151,000 or 43.1%. Gross profit as a percentage of
sales decreased to 37.1% in fiscal 1995 from 37.2% in fiscal 1994. The slightly
lower gross profit margin in fiscal 1995 was partially attributable to certain
operating inefficiencies which existed in the Acquired Companies. Subsequent to
each acquisition, the Company has taken steps to address such inefficiencies.
Shipping expenses during fiscal 1995 were $1,488,000 compared to $1,113,000
in fiscal 1994, an increase of $375,000 or 33.7%. As a percentage of sales,
these expenses decreased to 7.7% in fiscal 1995 from 8.3% in fiscal 1994 The
reduction in these expenses as a percentage of sales was attributable to the
consolidation of two distribution facilities located in California and the
closing of a distribution facility located in New York. Redesign of the
Company's distribution facilities and operating procedures during fiscal 1995
also contributed to the decrease in shipping expenses as a percentage of sales.
General and administrative expenses were $2,436,000 in fiscal 1995 compared
to $1,492,000 in fiscal 1994, an increase of $944,000 or 63.3%. As a percentage
of sales, these costs increased to 12.6% in fiscal 1995 from 11.1% in fiscal
1994. The increase was primarily attributable to approximately $445,000 of
general and administrative expenses incurred with respect to the Acquired
Companies, $141,000 of increased payroll costs, $70,000 of increased
professional fees and a $66,000 increase in the Company's discretionary
contribution to the employee profit sharing plan.
Selling and marketing expenses were $1,800,000 in fiscal 1995 compared to
$1,218,000 in fiscal 1994, an increase of $582,000 or 47.8%. As a percentage of
sales, these expenses increased to 9.4% in fiscal 1995 from 9.1% in fiscal 1994.
The increase in these expenses was partially due to higher sales and marketing
expenses as a percentage of sales within the Acquired Companies.
Interest expense for fiscal 1995 was $149,000 compared to $135,000 in
fiscal 1994, an increase of $14,000 or 10.4%. As a percentage of sales, these
expenses decreased to 0.8% in fiscal 1995 from 1.0% in fiscal 1994. The dollar
increase in interest expense was attributable to increased borrowings on the
line of credit required to finance the Company's growth. The decrease in
interest expense as a percentage of sales was due to the Company's ability to
fund growth with a relatively lower level of borrowing.
Provision for income taxes in fiscal 1995 was $429,000 compared to $341,000
in fiscal 1994, an increase of $88,000 or 25.8%. The effective tax rate
decreased to 37.2% in fiscal 1995 from 38.7% in fiscal 1994. The improvement in
the effective tax rate reflects an increase in allowable tax deductible items.
As a result of the above, net income in fiscal 1995 was $725,000 compared
to $539,000 in fiscal 1994, an increase of $186,000 or 34.5%. This represents a
decrease in net income as a percentage of net sales to 3.8% in fiscal 1995 from
4.0% in fiscal 1994.
18
<PAGE> 23
QUARTERLY RESULTS
The following table sets forth certain unaudited selected quarterly
financial information for fiscal 1995, fiscal 1996 and the quarter ended May 31,
1996 which, in the opinion of management, reflects all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
such information. Results of operations for any one or more quarters are not
necessarily indicative of results for an entire year or of continuing trends.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996 FISCAL 1997
---------------------------------------- ---------------------------------------- -----------
MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30 FEB. 29, MAY 31,
1994 1994 1994 1995 1995 1995 1995 1996 1996
------- -------- -------- -------- ------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $4,013 $4,676 $5,265 $5,293 $5,681 $6,355 $6,357 $6,879 $ 7,702
Cost of goods sold............. 2,540 2,970 3,392 3,203 3,673 4,200 3,925 4,179 4,801
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit................... 1,473 1,706 1,873 2,090 2,008 2,155 2,432 2,700 2,901
------ ------ ------ ------ ------ ------ ------ ------ ------
Shipping....................... 250 346 304 588 235 433 417 661 565
General and administrative..... 442 646 690 657 734 708 826 838 767
Selling and marketing.......... 326 400 493 581 558 628 638 688 818
Foreign exchange losses, net... 58 57 -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total expenses................. 1,076 1,449 1,487 1,826 1,527 1,769 1,881 2,187 2,150
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income............... 397 257 386 264 481 386 551 513 751
Interest expense............... 22 45 37 45 49 49 45 52 44
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before provision for
income taxes................. 375 212 349 219 432 337 506 461 707
Provision for income taxes..... 147 83 137 62 174 154 173 167 268
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income..................... 228 129 212 157 258 183 333 294 439
====== ====== ====== ====== ====== ====== ====== ====== ======
Net income per common share.... $ .15 $ .08 $ .14 $ .10 $ .17 $ .12 $ .22 $ .19 $ .29
====== ====== ====== ====== ====== ====== ====== ====== ======
Weighted average number of
shares outstanding........... 1,515 1,515 1,515 1,515 1,515 1,507 1,500 1,500 1,500
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
------------------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996 FISCAL 1997
---------------------------------------- ---------------------------------------- -----------
MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30 FEB. 29, MAY 31,
1994 1994 1994 1995 1995 1995 1995 1996 1996
------- -------- -------- -------- ------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross profit................... 36.7% 36.5% 35.6% 39.5% 35.3% 33.9% 38.3% 39.2% 37.7%
Operating income............... 9.9 5.5 7.5 5.0 8.5 6.1 8.7 7.5 9.8
Net income..................... 5.7 2.8 4.0 2.9 4.5 2.9 5.2 4.3 5.7
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced a 38.0% compound growth rate since 1992, with
its net sales increasing from $6,966,000 in fiscal 1992 to $25,272,000 in fiscal
1996. The Company has financed its cash requirements primarily through
operations and borrowings on its bank credit line. The Company also issued
shares of its Preferred Stock in order to finance the acquisitions of Marion
Tool and Andrews Tools during fiscal 1995.
The Company's bank credit facility currently permits borrowings of up to
$3,250,000 as a revolving credit against a fixed percentage of eligible accounts
receivable and inventory. The interest rate on the line is determined by
reference to certain base lending and LIBOR rates. As of May 31, 1996, the
interest rates in effect were the bank's base lending rate of 8 1/4% plus 1/2%
and the LIBOR rate of 7 1/4% plus 225 basis points. The amount borrowed under
the credit facility varies based on the Company's cash requirements. The credit
facility is collateralized by substantially all of the assets of the Company and
is partially guaranteed by the Company's majority shareholder. As of May 31,
1996, the Company had $1,688,000 of outstanding direct borrowings and $101,000
of contingent liability under open letters of credit as compared to $2,448,000
of direct borrowings and $67,000 of contingent liability under open letters of
credit as of February 29, 1996. The Company intends to use $1,400,000 of the net
proceeds of this offering to reduce the outstanding balance of direct borrowings
under the credit facility. The credit facility terminates on June 30, 1998.
19
<PAGE> 24
As of May 31, 1996, the Company's principal sources of liquidity included
cash of $316,000 and net accounts receivable of $3,061,000. The Company had
working capital of $3,401,000 and long-term debt of $75,000 as of May 31, 1996.
For the three months ended May 31, 1996, operating activities provided cash
of $570,000, primarily from net income of $439,000. Net cash used in investing
activities during the three months ended May 31, 1996 was $1,000, reflecting the
purchase of certain fixed assets, while net cash used in financing activities
during the same period was $432,000, consisting primarily of payments on the
Company's bank credit facility.
During fiscal 1996, operating activities used cash of $1,079,000 primarily
due to increases in accounts receivable and inventories of $1,223,000 and
$435,000, respectively, which were partially offset by net income of $1,068,000.
Net cash used in investing activities during fiscal 1996 was $46,000, consisting
entirely of capital expenditures. Net cash provided by financing activities
during fiscal 1996 was $1,189,000, reflecting net borrowings of $1,051,000 under
the Company's bank credit facility.
Historically, the Company's business has not required significant capital
expenditures. The Company's capital expenditures were approximately $30,000,
$91,000 and $46,000 in fiscal 1994, 1995 and 1996, respectively. The Company
intends to use approximately $1,200,000 of the net proceeds from this offering
to make certain capital expenditures in connection with the expansion and
upgrading of facilities and the purchase of manufacturing equipment. The Company
intends to rely on cash generated from operations, borrowings under its credit
facility and the proceeds from this offering to finance its working capital
requirements for at least the next 12 months.
20
<PAGE> 25
BUSINESS
INTRODUCTION
Founded in 1979, the Company is a leading manufacturer, marketer and
distributor of a broad line of specialty tools and related products for the home
improvement market. Under the "QEP," "O'Tool," "Marion Tool" and "Andrews Tools"
brand names, the Company markets over 4,000 specialty tools and related products
used primarily for surface preparation and installation of ceramic tile, carpet,
marble, masonry, drywall and paint. The Company's products include, among other
items, trowels, floats, tile cutters, wet saws, spacers, nippers, pliers, carpet
trimmers and cutters, knives and abrasives. The Company's products are sold
through home improvement retailers including national and regional chains such
as Home Depot, Lowe's and Hechinger/Home Quarters, specialty distributors to the
hardware, construction and home improvement trades, retailers such as Ace
Hardware and New York Carpet World, and OEMs such as Stanley and Red Devil. The
Company's full line of specialty tools and related products are marketed for use
by do-it-yourself consumers as well as construction and remodeling
professionals.
Since fiscal 1992, the Company's net sales have increased at a compound
annual rate of 38.0% to $25,272,000 in fiscal 1996. In the three months ended
May 31, 1996, the Company's net sales increased 35.6% over the prior comparable
period to $7,702,000. The growth in net sales over the last four fiscal years
reflects (i) the introduction of new products and the Company's success in
cross-marketing new and existing products among its channels of distribution,
(ii) the Company's expansion of its market share through sales to additional
home improvement retailers, distributors, OEMs and specialty retail customers,
(iii) growth experienced by the Company's customers within the home improvement
market, particularly among national and regional home improvement retailers, and
(iv) growth of the home improvement market as a whole. The Company believes it
is in a position to pursue additional growth in sales as it expands its product
lines, continues marketing to new customers and seeks to capitalize on the
ongoing consolidation of the home improvement retail market by national and
regional home improvement retailers.
In fiscal 1995, the Company completed the acquisitions of O'Tool Company, a
distributor of hardware, masonry, carpentry and tiling tools, Marion Tool
Company, a manufacturer of striking tools since 1924, and the Andrews Tools
Company, a drywall and paint tool manufacturer organized in 1959. Through these
strategic acquisitions, the Company broadened its product lines, increased its
customer base of home improvement retailers, distributors and OEMs, and
integrated manufacturing and marketing activities. The Company intends to pursue
acquisitions of or joint ventures with other manufacturers and distributors
which sell products complementary to those now offered by the Company.
MARKET OVERVIEW
The Company currently competes in the specialty tool segment of the tool
industry which sells to the home improvement market. Because published industry
data available to the Company does not differentiate between tools and other
products marketed within the home improvement industry, the market information
set forth below provides data concerning the broad trends affecting the home
improvement market in general. The Company believes that the trends in the home
improvement market reflect the particular trends affecting the Company's
business within the specialty tool segment.
According to industry information published by the National Home Center
News ("NHCN"), the United States home improvement market generated retail sales
of over $132 billion in 1995, including sales in both the "do-it-yourself" and
professional market segments. This is an increase of $16 billion over 1993
retail sales of $116 billion. NHCN projects that these sales will reach
approximately $189 billion by the year 2000, which would represent a compound
annual growth rate of approximately 7.5% for the five year period.
Within the home improvement market, distribution channels have continued to
consolidate as a result of the success of the warehouse home center format used
by large home improvement retailers such as Home Depot and Lowe's. The
increasing dominance of national home improvement retailers results from their
ability to offer broad product lines, project advice and orientation,
competitive pricing, aggressive promotions and large-format stores. Estimates
published by the NHCN indicate that from 1993 to 1995, the average size
21
<PAGE> 26
of home improvement centers operated by the top ten retailers increased from
60,600 square feet to 62,700 square feet, while the average annual sales per
store increased from $14.8 million to $18.3 million. In 1995, the ten largest
home improvement retailers accounted for approximately 28.3% of the industry's
total sales, up from 23.6% in 1993. The following table sets forth selected
information concerning sales and percentage growth, number of stores and square
footage for each of the top ten home improvement retailers for 1993, 1994 and
1995, as reported by the NHCN.
<TABLE>
<CAPTION>
SQUARE FOOTAGE
-------------------------
ANNUAL SALES % STORES (IN THOUSANDS)
RANK (IN MILLIONS) CHANGE (YEAR-END) AVERAGE
---------------- ------------------------- 1994- ---------------- TOTAL TOTAL PER STORE
1993 1994 1995 COMPANY 1993 1994 1995 1995 1993 1994 1995 1994 1995 1995
---- ---- ---- -------------------------- ------- ------- ------- ------ ---- ---- ---- ------ ------ ---------
<C> <C> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1 1 Home Depot................ $ 9,239 $12,477 $15,470 24.0 264 340 423 35,133 44,356 105
2 2 2 Lowe's Cos................ 4,538 6,111 7,075 15.8 311 336 365 18,604 23,945 66
6 6 3 Menard.................... 1,700 2,300 2,700 17.4 88 102 115 8,415 10,300 90
4 4 4 Payless Cashways.......... 2,601 2,723 2,685 (1.4 ) 196 201 200 6,400 6,400 32
3 3 5 Builders Square........... 2,719 2,952 2,639 (10.6 ) 181 166 174 15,620 16,450 95
5 5 6 Hechinger/Home Quarters... 2,095 2,454 2,256 (8.1 ) 128 133 118 10,842 9,340 79
7 7 7 HomeBase.................. 1,586 1,357 1,449 6.7 83 77 79 8,393 8,611 109
8 8 8 Eighty-Four Lumber........ 1,058 1,275 1,250 (2.0 ) 377 377 375 5,278 5,250 14
10 9 9 Wickes Lumber............. 847 987 973 (1.4 ) 125 132 110 1,200 1,057 10
9 10 10 Sutherland Lumber......... 850 900 920 2.2 85 85 85 2,380 2,380 28
</TABLE>
As illustrated above, the Company's two largest customers, Home Depot and
Lowe's, each experienced compound annual sales growth rates of 29% and 25%,
respectively, from 1993 to 1995. According to Home Depot's most recent annual
report, Home Depot operated 423 retail stores as of the end of its 1995 fiscal
year, as compared to 340 at the end of 1994. Home Depot's 1995 annual report
stated that it plans to have 900 stores in operation by the year 2000. Lowe's
1995 annual report stated that it had 365 stores at January 31, 1996 (its fiscal
year end) and that it is committed to having 600 stores in operation by the year
2000. NHCN has reported that Home Depot and Lowe's are expected to open 97 and
60 stores, respectively, during 1996. As consolidation continues in the home
improvement market, the Company expects that sales of the largest national and
regional home improvement retailers will continue to grow faster than the
overall market. The following table sets forth certain historical and projected
information concerning market concentration within the home improvement retail
market, including the historical and projected market share for Home Depot.
BAR CHART ENTITLED "COMBINED RETAIL
SALES AS % OF INDUSTRY TOTAL"
The vertical axis measures percentage, ranging from 0% to 70%. Rising above
the horizontal axis are 13 bars. Each bar relates to a separate year, commencing
in 1988 and ending in 2000. The chart presents historical information for the
years 1988 through 1994, and projected information for the years 1995 through
2000. The bar for each year illustrates sales by Home Depot, the ten largest
home improvement retailers, and the 100 largest home improvement retailers as a
percentage of total sales in the home improvement industry. The chart shows
consistent growth from 1988 through 2000, with sales by Home Depot projected to
reach 30% of industry sales in 2000; sales by the top ten retailers projected to
reach 55% of industry sales in 2000; and sales by the top 100 retailers
projected to reach 70% of industry sales by 2000.
Source: National Home Center News; U.S. Department of Commerce.
The Company believes that growth in the home improvement market is being
driven by several factors, including (i) aging of the United States housing
stock, which requires greater repair and maintenance expenditures, (ii)
increased housing turnover of both new and existing homes, (iii) favorable
demographic trends, with "baby boomers" now reaching the 35 to 54 year old
category which historically has accounted for the largest home improvement
expenditures of any age group, and (iv) changes in consumer preferences, which
have caused an increase in the median size of new homes and which have
contributed to demand for remodeling and expansion of older homes.
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<PAGE> 27
The United States housing stock consists of over 100 million units, of
which approximately 70% are nearly 20 years old and nearly half are over 40
years old. Due to a decline in housing starts from the peak level of the 1970s,
the average age of U.S. homes is expected to increase. In addition to repair and
maintenance expenditures, aging homes will continue to drive spending on
remodeling and renovations. The following table sets forth information
concerning millions of homes built by decade through the 1980s.
BAR CHART ENTITLED "AGING STOCK OF AMERICAN HOMES."
The vertical axis at the left side of the chart measures millions of homes
constructed in the United States ranging from zero to 26 million. Rising above
the horizontal axis are eight bars. The first bar represents homes constructed
before 1920. The next seven bars represent (from left to right) the number of
homes constructed per decade, commencing with the 1930s and concluding with the
1980s. The chart shows that approximately 11 million homes were constructed
before 1920, and that the approximate number of homes constructed in the 1920s
through the 1980s, respectively, were as follows: 7 million homes; 8 million
homes; 9 million homes; 16 million homes; 17 million homes; 25 million homes;
and 18 million homes.
Source: The Census Bureau
Because a majority of home improvement expenditures is believed to occur
within the first two years of ownership, as existing homes are updated and new
homes are personalized to the tastes of their owners, housing turnover is a
critical factor in the level of home improvement activity. According to
published industry data, sales of existing homes account for 85% of total
housing turnover, with the balance generated by sales of newly constructed
homes. The following table sets forth housing turnover of new and existing homes
from 1983 to 1994.
BAR CHART ENTITLED "HOUSING TURNOVER BY TYPE."
The vertical axis at the left side of the chart measures millions of homes
sold in the United States ranging from 0 to 5 million. Rising above the
horizontal axis are 12 bars. Each bar represents the number of homes sold in the
United States in a particular year, commencing in 1983 and ending in 1994. The
chart shows that the approximate number of homes sold on an annual basis from
1983 to 1994, respectively, were as follows: 3.4 million homes; 3.5 million
homes; 3.9 million homes; 4.3 million homes; 4.1 million homes; 4.2 million
homes; 4.1 million homes; 3.7 million homes; 3.6 million homes; 4.2 million
homes; 4.5 million homes; and 4.6 million homes.
Source: U.S. Department of Commerce
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leading manufacturer
of specialty tools and related products by introducing new products and
cross-selling products among its channels of distribution, expanding market
share by obtaining new customers, and capitalizing on expected growth of its
largest customers and of the home improvement market as a whole. Key elements of
the Company's strategy include:
Increase Sales By Expanding Product Lines and Adding New Customers.
The Company continuously seeks to expand its product lines by adding
specialty tools and related products which can be marketed to the Company's
existing customer base. In fiscal 1996, the Company identified a market
opportunity to introduce two power tools, which became two of the Company's
five best selling products during this period. The Company believes that
broadening its product lines will increase the Company's market penetration
and allow the Company to serve its national and regional home improvement
retail customers more effectively. The Company intends to expand its market
share by actively marketing its products to home improvement retailers,
distributors, OEMs and specialty retail accounts not currently served by
the Company.
Capitalize on Cross-Selling of Existing and New Products. A number of
the products manufactured and distributed by the Company may be used in
multiple applications and are therefore suitable for
23
<PAGE> 28
marketing to several categories of customers. For example, floats used in
the tile trades are also frequently used in drywall and paint applications.
The Company expects to continue its practice of marketing products with
multiple applications to a variety of customers within different channels
of distribution. As the Company introduces new products or adds products
through acquisitions, the Company will evaluate these products for sale
through multiple channels of distribution. The Company believes that this
strategy will permit the Company to further leverage its product line and
customer base in an efficient and cost-effective manner.
Emphasize Customer Service. The Company has developed and implemented
a multi-faceted customer service program to address the requirements of its
retail, distributor and OEM customers. Under this customer service program
the Company maintains inventories of tools and related products in multiple
locations to permit prompt deliveries, offers a customer service hotline,
provides parts and repair service for tools, provides education classes for
store personnel and participates in cooperative promotions and special
sales events. The Company also offers certain of its customers electronic
order acceptance and billing and prepaid delivery for product shipments
with a minimum purchase. Because home improvement retailers place
considerable value on the customer service provided by their vendors, the
Company anticipates expanding its customer service program in the future in
order to respond to the needs of its customers.
Pursue Additional Strategic Acquisitions. The Company intends to
continue to pursue acquisitions of specialty tool and component
manufacturers, distributors and other companies which will complement the
Company's business, products, distribution channels and brand names. By
consolidating the manufacturing and marketing of related products now
manufactured by others, and by capitalizing on additions to its customer
base through acquisitions, the Company believes it can successfully enhance
its market presence and increase sales.
Expand Foreign Market Presence. The Company believes that
international markets provide a significant opportunity to increase sales
of its specialty tools and related products. The Company recently hired a
multilingual director of foreign sales and has also retained the services
of an independent representative skilled in foreign sales of specialty
tools. Through these and other personnel, the Company has commenced the
implementation of a foreign sales marketing program which is designed to
increase the Company's presence in foreign markets including, among others,
Canada, Central America, Mexico, Europe and South America. The Company
intends to pursue additional international sales opportunities through
marketing initiatives that will capitalize on its broad product line and
comprehensive customer service.
Enhance Manufacturing Capabilities. The Company's manufacturing
objectives include controlling manufacturing costs, assuring continued high
quality of its products, and reducing product manufacturing and shipment
times. The Company continually reviews its product line with a view toward
identifying products for which in-house manufacturing is appropriate based
upon a comparison of purchase and manufacturing costs, quality assurance,
shipment times and product demand. The Company has allocated a portion of
the proceeds of this offering to the purchase of capital equipment which
will be used to increase manufacturing capacity for certain specialty tools
now purchased by the Company from outside suppliers.
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<PAGE> 29
PRODUCTS
The Company manufactures and distributes a broad line of over 4,000
specialty tools and related products. The Company's products are offered under
the "QEP" "O'Tool," "Marion Tool" and "Andrews Tools" brand names and are used
primarily for surface preparation and installation of ceramic tile, carpet,
marble, masonry, drywall and paint. The following table sets forth certain
information concerning the Company's principal tool groups and their markets,
distribution channels and price positioning.
<TABLE>
<CAPTION>
TOOL OR RELATED PRODUCT GROUP
--------------------------------------------------------------------------
TILE CARPET STRIKING TOOLS DRYWALL AND PAINT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Markets
Primary.............. Do-it-yourself Do-it-yourself Contractor Contractor
Secondary............ Contractor Contractor Do-it-yourself Do-it-yourself
Distribution Channels
Home improvement Home improvement Distributors and
Primary.............. retailers retailers retailers OEMs
Tile retailers
Secondary............ and distributors Carpet retailers OEMs Distributors
Product Offerings...... Full line Limited line Popular products High end
Multiple price Multiple price
Price Positioning...... points points Middle to high Middle to high
</TABLE>
The Company believes that a majority of its products are purchased by
"do-it-yourself" consumers, although certain of the Company's products are
designed and priced for sale to remodeling and construction professionals. A
number of the products manufactured by the Company such as trowels, floats,
pliers, blades and abrasives, among others, are marketed through multiple
distribution channels for use in installation of a variety of products. For
example, floats used in tile applications are also frequently used in drywall
and paint applications. Other tools such as drywall taping knives, tile cutters,
electric wet saws, nippers, sanders, scrapers, carpet trimmers and rollers are
used in single applications. The Company's products generally retail for prices
ranging from $2 to $150, although certain types of electric wet saws retail for
up to $600. A majority of the Company's revenue is generated by sales of
products priced at less than $10 retail.
Net sales of a single product accounted for over 5% of the Company's net
sales in both fiscal 1995 and fiscal 1996. In the three months ended May 31,
1996, one additional product accounted for over 5% of net sales. As the Company
introduces new products or product lines, management anticipates that products
which account for 5% or more of the Company's net sales will vary from period to
period. See "Risk Factors."
The Company maintains an informal research and development program through
which it seeks to identify new product opportunities within its primary markets.
Methods by which the Company seeks to identify product opportunities include
soliciting product feedback from customers through its outside sales force and
manufacturers' representatives, review of product brochures and catalogs issued
by foreign and domestic manufacturers of specialty tools, review of product
concepts with buyers employed by its customers, and attendance at industry trade
shows and conventions at which new product concepts are introduced and
discussed. The Company also considers participation in joint ventures and
valuation of product samples to be an important part of its effort to identify
new product opportunities. Although the Company does not maintain a formal
research and development department, the Company's executive officers and sales
personnel are active in identifying opportunities for the Company on a
continuous basis.
Although the Company manufactures and distributes over 4,000 products, a
majority of the Company's customers purchase between 20 and 150 individual
stock-keeping units ("SKUs"). As the Company's product mix changes or as
customers add or delete products, the number of SKUs carried by customers will
vary. The Company's products or packaging are encoded with bar code product
identification information, which expedites checkout and pricing. A majority of
the Company's customers utilize bar code information for automatic inventory
analysis and, in certain cases, for automatic ordering of inventory from the
Company.
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<PAGE> 30
RELATIONSHIP WITH HOME DEPOT AND LOWE'S
In 1986, the Company began doing business with Home Depot, currently the
largest home improvement retailer in the United States, with 1995 sales of $15.5
billion. In 1993, the Company added Lowe's as a customer, which is now the
second largest home improvement retailer in the country, with 1995 sales of $7.1
billion. Home Depot and Lowe's are the Company's two largest customers,
accounting for 51.5% and 10.1% of the Company's fiscal 1996 net sales,
respectively. In the three months ended May 31, 1996, Home Depot and Lowe's
accounted for 49.9% and 11.9% of the Company's net sales, respectively.
Because of the importance of home improvement retailers to the Company, the
Company has, in cooperation with its customers, developed a multifaceted
customer service program. The Company has also tailored its customer service
programs to ensure that each customer's specific needs are given a high priority
with direct attention from senior officers of the Company. The Company's
customer service programs include:
- Providing a range of in-store services, including assistance with
inventory control, maintenance of product displays and introduction of
new products
- Maintaining inventories of tools and related products in multiple
locations to permit rapid shipping
- Delivering orders promptly
- Holding education classes for retail store personnel
- Packaging with multilingual labels
- Prepaying delivery for product shipments with minimum purchase
- Participating in cooperative promotions and special sales events
- Providing product research for buyers on a continuous basis
- Operating a customer service hotline
- Providing parts and repair service
- Assisting in tool and product sourcing
- Extending of advertising allowances and special credit terms
- Accepting orders electronically and billing through electronic data
interchange
- Bar coding for each individual SKU
- Incorporating anti-theft tags in packaging
- Using slip sheets in lieu of pallets for delivery
According to the NHCN, home improvement retailers place considerable value
on service and promotional support. The Company believes that the development of
its extensive customer service program for Home Depot, Lowe's and others has
been instrumental in increasing the Company's sales to these home improvement
retailers. The Company continually evaluates its service and promotional
activities undertaken on behalf of Home Depot, Lowe's and others in order to
identify other means by which it can more effectively serve these customers.
The Company believes that national and large regional home improvement
retailers such as Home Depot and Lowe's will continue to consolidate the home
improvement retail market in the near future. According to Home Depot's most
recent annual report, Home Depot operated 423 retail stores as of the end of its
1995 fiscal year, as compared to 340 at the end of 1994, and plans to have 900
stores in operation by the year 2000. Lowe's 1995 annual report stated that it
had 365 stores at January 31, 1996 (its fiscal year end) and that it is
committed to having 600 stores in operation by the year 2000. Further, NHCN has
reported that Home Depot and Lowe's plan to open 97 and 60 home centers,
respectively, in 1996. From 1993 to 1995, Home Depot and Lowe's experienced
compound annual sales growth rates of 29% and 25%, respectively. The Company
believes
26
<PAGE> 31
that Home Depot and Lowe's will continue to hold significant market shares in
the home improvement retail market and will continue to expand the number of
their home centers at a rapid pace. While the Company expects to expand its
customer base in the future, sales to Home Depot and Lowe's will continue to
significantly impact the Company's overall level of net sales and profitability.
See "Risk Factors."
MANUFACTURING AND SUPPLIERS
The Company estimates that in fiscal 1996 products it manufactured
accounted for approximately 25% of its net sales, and that finished products it
purchased from outside suppliers accounted for approximately 65% of its net
sales. Parts and components purchased and later assembled or finished by the
Company accounted for the remaining 10% of net sales. The Company has chosen to
integrate its own manufacturing of specialty tools and related products with
manufacturing services provided by outside suppliers in order to (i) reduce
overall manufacturing costs by purchasing finished products and components from
efficient and cost-effective sources, (ii) establish domestic production of
products or parts which are critical for domestic supply due to shipping costs,
frequency of deliveries or marketing concerns, (iii) maintain the traditional
high quality of the Company's specialty tools and related products, and (iv)
capitalize on the Company's production expertise in instances where production
volumes warrant in-house manufacturing.
The Company conducts its in-house manufacturing through its subsidiaries,
which include American Trowel & Float Company, O'Tool Company, Marion Tool
Company/Westpoint Foundry and Andrews Tools Company. The Company acquired O'Tool
Company, Marion Tool Company/Westpoint Foundry and Andrews Tools Company in
fiscal 1995. The following table sets forth certain information concerning the
Company as well as each of its subsidiaries.
<TABLE>
<CAPTION>
COMPANY OR YEAR DATE
SUBSIDIARY FOUNDED ACQUIRED PRODUCT LINES PRIMARY CUSTOMERS
- ------------------------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Q.E.P. Co., Inc........ 1979 N/A All types of specialty National and regional
hand and power tools home improvement
retailers
American Trowel & 1993 N/A Trowels, floats and Q.E.P.
Float Company........ misc. tools
O'Tool Company......... 1979 June Masonry, carpentry, Small retailers and
1994 tiling and misc. tools dealers
Marion Tool Company/ 1924 October Striking tools Hardware chains and
Westpoint Foundry.... 1994 distributors
Andrews Tools Company.. 1959 January Drywall and paint tools Small retailers and
1995 O'Tool Company
</TABLE>
Due to the rapid increase in the Company's sales in recent years, the
Company has periodically reviewed its product requirements and manufacturing
sources in order to identify areas in which efficiencies can be realized. As a
result of one of these reviews, the Company has budgeted a portion of the
proceeds of this offering to capital expenditures, a portion of which will
include the purchase or lease of production equipment which will enable the
Company to commence domestic manufacturing of certain products or components now
purchased from offshore suppliers. The Company intends to continue to evaluate
the efficacy of manufacturing or purchasing products or components, and intends
to continue to increase its manufacturing of products or components where volume
or shipping requirements indicate that manufacturing will lead to lower costs or
improved quality. In certain cases, the Company has commenced manufacturing of
products for which a "Made in the USA" label will enhance the Company's
marketing efforts.
The Company estimates that it purchased products and components from
approximately 75 different manufacturers in fiscal 1996, of which less than 25%
were foreign sources. The Company has not entered into written agreements with
any of its suppliers and believes that multiple sources of supply exist for
nearly all of the products purchased from outside suppliers. The Company
currently relies on two foreign suppliers as the sole sources of supply for two
power tools which are currently among the Company's five best selling products.
The Company intends to develop alternate sources of supply for these products,
although an extended
27
<PAGE> 32
interruption prior to the location of alternate suppliers could adversely affect
the Company's results of operations. See "Risk Factors."
During fiscal 1996, the Company purchased finished products and components
through two foreign sales agents located in Taiwan which accounted for 7.9% and
16.0% of the dollar amount of the Company's net sales. These foreign sales
agents purchased finished products and components from a number of manufacturers
located in Taiwan, China and other countries. The Company believes that these
sales agents purchased products from 10 to 12 different manufacturers in fiscal
1996. Although the Company believes it could purchase products directly from
these manufacturers, foreign sales agents will generally warehouse finished and
unfinished products and will consolidate products to allow more cost effective
shipping. In addition, foreign sales agents will retain title to products
pending arrival at United States ports. For these reasons, the Company
anticipates continuing to utilize foreign sales agents for the foreseeable
future. While the Company believes that other sales agents could be located if
necessary, the Company intends to rely on its existing sales agents for as long
as these sales agents continue to meet the Company's foreign manufacturing and
delivery requirements.
Although the Company can generally obtain finished products and components
from domestic suppliers within 30 days of the date it places an order, foreign
orders must generally be placed at least 90 to 120 days in advance of the
intended shipment date. Shipping from foreign suppliers usually requires 30
additional days. The Company generally reviews its production requirements
weekly and updates its orders placed with foreign manufacturers approximately 30
days prior to commencement of manufacturing. Because the Company seeks to fill
customer orders promptly, the Company must anticipate customer demand for
specific products and establish its production forecasts accordingly. The
Company intends to rely on multiple suppliers for nearly all products in order
to permit the Company to meet its goal of fulfilling customer orders on a timely
basis. See "Risk Factors."
The Company utilizes a management information system which is currently
being updated to permit each of its facilities to be on-line for production
scheduling, product tracking, and cost and inventory control. The management
information system now being installed will also permit customer service
personnel to have access to inventory availability. The Company has established
on-line ordering and billing systems with its largest customers which it
anticipates expanding in the future to accommodate the requirements of its
medium-sized and smaller customers.
The Company inspects and periodically tests products manufactured in-house
and by outside suppliers, and provides a limited 90-day warranty on select
products. In fiscal 1996 and the three months ended May 31, 1996, returns and
allowances totalled 3.4% and 4.6% of net sales, respectively.
DISTRIBUTION, SALES AND MARKETING
Product Distribution
The Company's specialty tools and related products are currently sold
through four distinct distribution channels. Management estimates that sales
through its primary distribution channels in fiscal 1996 were as follows: 70% to
national and regional home improvement retailers, 13% to specialty distributors,
10% to chain or independent retailers in the hardware, tile, carpet and paint
markets, and 7% to OEMs, export and other specialty retailers. The following
briefly describes each of these distribution channels:
National and Regional Home Improvement Retailers. The Company's
products are primarily sold through national and regional home improvement
retailers. Home Depot, Lowe's and Hechinger/Home Quarters accounted for
51.5%, 10.1% and 5.7%, respectively, of net sales in fiscal 1996. Three
regional home improvement retailers were also among the Company's ten
largest customers in fiscal 1996. National home improvement retailers are
expected to continue their effort to consolidate the home improvement
industry by establishing additional retail locations and purchasing
regional and local competitors. Because the Company believes that national
and regional home improvement retailers are focused on marketing and
merchandising, these retailers are expected to seek strong suppliers which
are
28
<PAGE> 33
able to satisfy their requirements across many product lines. Home
improvement retailers market to both do-it-yourself consumers and
professionals in the construction and remodeling trades.
Specialty Distributors. The Company's products are sold to a variety
of specialty distributors, which in turn supply a broad range of small and
medium-size retail accounts. Although certain of the Company's specialty
distributors supply a particular segment of the market such as tile or
carpet, a number of these distributors provide full service distribution to
their retail customers. Products sold through specialty distributors are
suitable for both do-it-yourself consumers and professional remodelers or
contractors.
Chain and Independent Retail Stores. The Company's products are sold
to a significant number of small and medium-size retail accounts including
chains or independent hardware stores, tile centers, paint stores and
lumber yards. Many of these retail accounts purchase only a portion of the
Company's product line. Customers of these retailers are typically
professional contractors or semi-professional do-it-yourself consumers.
Original Equipment Manufacturers. The Company performs contract
manufacturing of certain products in its product line for OEMs such as
Stanley, Red Devil and Color Tile. The Company believes that its OEM
opportunities have expanded in recognition of its manufacturing
capabilities and due to the broadening of its product line within the last
two fiscal years. As a result, the Company has realized increased sales in
this distribution channel.
Sales
The Company's strategy is to increase sales by (i) capitalizing on growth
among its existing customer base, (ii) adding new national and regional home
improvement retailers as customers, (iii) extending its product lines through
introduction of new products, acquisitions and joint ventures, (iv)
cross-marketing existing and new products among its channels of distribution,
and (v) expanding international sales through a recently introduced foreign
sales program.
The Company employs 24 individuals in its sales and marketing department.
The Company's sales and marketing employees are responsible for implementing
marketing plans and sales programs, coordinating with independent manufacturers'
representatives which also market the Company's specialty tools and related
products, providing customer service and addressing customer inquiries, and
coordinating customer orders and shipments. The Company maintains an inside
telemarketing sales force of four individuals, an outside salaried and
commissioned sales force of six individuals and four sales managers, each of
whom is responsible for a different distribution channel. The remaining sales
and marketing personnel are employed in customer service capacities. The Company
also maintains a network of 29 independent manufacturers' representatives/firms
through which the Company's specialty tools and related products are sold on a
commission basis. The sales efforts of the manufacturers' representatives are
supported by the Company's marketing personnel.
Marketing
The Company maintains an emphasis on sales and marketing which management
considers to be integral to the Company's continued growth. At least once a
calendar quarter, the Company's marketing and sales representatives, or its
manufacturers' representatives, attempt to visit a high percentage of customers'
individual retail stores. In addition, the Company provides product knowledge
classes for retail store personnel and periodically provides education classes
for in-store personnel. The Company also evaluates the product mix at its
customers' locations from time to time with a view toward changing the product
mix, if necessary, to increase sales per square foot. When the Company secures a
new customer, the Company generally resets all displays and assists store
personnel in becoming familiar with the Company's product line.
The Company has also developed a comprehensive direct mail marketing
program under which approximately 3,000 brochures are mailed monthly to
customers. These brochures highlight the Company's new product introductions,
existing products and, in some cases, are used in conjunction with trade
advertising. The Company also coordinates its telemarketing sales force with
direct mail contacts in order to
29
<PAGE> 34
maximize the success of its marketing program as a whole. The Company has
prepared extensive product catalogs, including color catalogs covering most
product lines. The Company has also developed distinctive packaging which uses
uniform colors and stylistic letters to reinforce the Company's brand image.
The Company attends two major and numerous other industry trade shows each
year. The major industry trade shows, comprised of a tile show and a national
hardware show, are attended by national home improvement retailers,
distributors, retail chains and other customers.
The Company is also evaluating the implementation of a sales program under
which certain of the Company's customers would receive specialty tools and
related products directly from the Company's suppliers. This program, which is
designed for high volume retailers and distributors, would enable the Company to
limit its warehousing requirements even as volume shipments are increased. The
Company expects to evaluate this and other programs which are expected to result
in the Company achieving its marketing and sales objectives, while creating
additional efficiencies in operations.
COMPETITION
The home improvement industry is characterized by a number of large,
well-capitalized home improvement product manufacturers that could, should they
so choose, market products in direct competition with the Company. For example,
within the drywall tool market segment, the Company currently competes with
Marshalltown Tools and Goldblatt Tools, a brand owned by Stanley. Stanley is a
significant competitor within the home improvement tool industry and could enter
additional market segments in competition with the Company, thereby intensifying
competitive pressures experienced by the Company. The Company believes that
competition in the home improvement product market is based primarily on retail
gross profit margin potential, delivery, brand recognition, quality and
availability of shelf space. The Company is not presently aware of any
competitors which compete on a nationwide basis with the Company in all of its
primary markets. However, the Company is subject to competition from several
regional competitors, the most significant of which are Superior Featherweight
Corporation and Walton Tool Company. The Company believes that these
competitors, while significant, have more limited revenues and a less extensive
product line than the Company.
Although the Company has had limited foreign sales to date, the Company is
aware of a number of foreign competitors, many of which may have greater
financial, marketing and other resources than the Company. As the Company seeks
to penetrate more foreign markets, the Company's margins may decline due to
competitive pressures. The Company anticipates addressing its competitive
position in foreign markets by continuing to source specialty tools and related
products from low-cost manufacturing sources, increasing operating efficiencies
for Company-owned facilities and considering joint ventures or acquisitions
where appropriate.
The Company is aware that, from time to time, certain of its larger
customers have contacted one or more of the Company's foreign suppliers to
discuss purchasing home improvement products directly from these manufacturers.
The Company does not believe it has suffered a loss of sales to date as a result
of these discussions. Although the Company believes that its diversified product
line, brand recognition and customer service will continue to offer benefits not
otherwise available to the Company's customers from foreign manufacturers, the
Company could experience competition from one or more foreign manufacturers
which now serve as suppliers to the Company. In the event one or more of the
Company's ten largest customers begin purchasing specialty tools and related
products directly from foreign manufacturers, the Company's business would be
materially adversely impacted. Increased competition from these manufacturers or
others could result in price reductions or loss of market share, each of which
would have a material adverse effect on the Company's results of operations and
financial condition.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid, special and hazardous waste, and (ii) impose
liability for the
30
<PAGE> 35
cost of cleaning up, and certain damages resulting from, sites of past spills,
disposal or other releases of hazardous substances (together, "Environmental
Laws").
In October 1994, the Company acquired all of the outstanding common stock
of Marion Tool Company, which manufactures specialty tools and related castings,
for an acquisition price of 425,547 shares of the Company's Series A Preferred
Stock. In connection with this acquisition, the Company also acquired the Marion
Tool facility and warehouse and the foundry operations known as Westpoint
Foundry, located approximately one block from those of Marion Tool Company in
Marion, Indiana. Prior to undertaking the acquisition, the Company commissioned
an independent consulting firm to prepare a series of environmental reports
covering both the Marion Tool Company and Westpoint Foundry facilities and the
associated real estate. The consultant's environmental report stated that
samples of foundry sand and slag deposited on the real estate were tested and
determined not to constitute hazardous waste. As a result of the testing the
consultants indicated that it was unlikely that deposits of sand or slag would
be considered hazardous waste and that such deposits were unlikely to threaten
ground water resources. Two of the samples of foundry sand with the highest
concentrations of metals were tested and it was determined that the metals
detected were not readily leachable. In addition, the consultant noted the
presence of above ground storage tanks from which some petroleum contamination
was evident. The above ground storage tanks were removed at the time of the
acquisition and the Company caused contaminated soil to be removed in accordance
with applicable Environmental Laws. Because of the proximity of soil
contamination to several structures and improvements at the site and the risk
that removal could undermine the structures, all contaminated soil was not
removed. A report of the excavation results was submitted to the Indiana
Department of Environmental Management and, based upon its discussions with such
department, the Company believes that no further action will be required
concerning the remaining contamination.
The environmental reports prepared by the consultant also noted that Marion
Tool Company was identified as a potentially responsible party ("PRP") pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") for the cleanup of contamination resulting from past
disposal of hazardous wastes at a certain site to which Marion Tool Company,
among others, sent wastes in the past. CERCLA requires PRPs to pay for cleanup
of sites from which there has been a release or threatened release of hazardous
substances. Courts have interrupted CERCLA to impose strict, joint and several
liability upon all persons liable for cleanup costs. As a practical matter,
however, at sites where there are multiple PRPs, the costs of cleanup typically
are allocated among the parties according to a volumetric or other standard.
Based upon, among other things, a review of the data available to the Company
regarding the site at which Marion Tool Company is alleged to have deposited a
portion of the waste located thereon, and a comparison of the potential
liability at this site to settlements reached by other parties in similar cases,
the Company believes that Marion Tool Company's liability for this matter will
not be material. Nonetheless, until Marion Tool Company's proportionate share is
finally determined at this site, there can be no assurance that such matters, or
any similar liabilities that arise in the future, will not have a material
adverse effect on the Company's results of operations or financial condition.
Although the Company does not believe that Marion Tool Company has other
potential off-site liability, if other disposal sites where Marion Tool Company
sent waste are determined to require cleanup under CERCLA or other similar laws,
Marion Tool Company could face similar claims in the future.
The stock purchase agreement between the Company and the seller of Marion
Tool Company provides that, in the event the Company or Marion Tool Company
becomes liable in the future for the payment of any claims or damages in
connection with any violation of Environmental Laws by Marion Tool Company prior
to the date of the acquisition, the seller will return to the Company, at no
cost to the Company, a number of preferred shares (valued at $1.00 per share)
equal in value to the damages paid by Marion Tool Company or the Company for
violations by Marion Tool Company of applicable Environmental Laws. On the date
hereof, 106,389 shares of Series A Preferred Stock will convert into Common
Stock, thereby reducing the Preferred Stock available for return to the Company
by $106,389. Based upon the environmental reports obtained by the Company, the
Company currently believes that the aggregate amount of any claims or damages
for violations of Environmental Laws by Marion Tool Company will not exceed the
value of the Preferred Stock issued by the Company in such acquisition.
31
<PAGE> 36
INTELLECTUAL PROPERTY
The Company markets its specialty tools and related products under the QEP
trademark. The Company has applied for registration of the QEP trademark, as
well as the O'Tool trademark and a stylistic logo, on the Principal Register of
the United States Patent and Trademark Office. Management believes that the
Company and its subsidiaries have developed proprietary rights in the O'Tool,
Marion Tool and Andrews Tools trade names and associated common law trademarks.
The Company has not yet adopted a formal intellectual property protection
program, but intends to pursue registration of its trademarks and service marks
as advised by counsel. The Company has devoted substantial time, effort and
expense to the development of name recognition and goodwill for products under
the QEP, O'Tool, Marion Tool and Andrews Tools names. The Company intends to
maintain the integrity of its trade names and trademarks and other proprietary
names and marks against unauthorized use and to protect against infringement and
unfair competition where circumstances warrant. The Company is not aware of any
currently infringing uses.
EMPLOYEES
At May 31, 1996, the Company had 147 full-time employees, including 25
administrative employees, 24 sales and marketing employees, 67 manufacturing
employees and 31 employees engaged in packaging and shipping. Marion Tool
Company's ten manufacturing employees are represented by the Metal Polishers,
Buffers, Platers and Allied Workers International Union. The collective
bargaining agreement which covers these employees expires, unless renewed, in
October 1997. The Company has not experienced any work stoppages since acquiring
Marion Tool Company. The Company considers its relations with its employees to
be good.
FACILITIES
The Company currently leases five facilities located in Florida,
California, Nevada and New Jersey which consist of an aggregate of approximately
75,000 square feet. In addition, the Company owns a 40,000 square foot
manufacturing facility in Marion, Indiana, which was purchased at the time of
the acquisition of Marion Tool Company. The following table sets forth certain
information concerning facilities leased and owned by the Company as of May 31,
1996.
<TABLE>
<CAPTION>
SQUARE ANNUALIZED RENEWAL
LOCATION USE FEET COST LEASE EXPIRATION OPTION
- ------------------ ------------------------------- ------ ---------- ---------------- --------
<S> <C> <C> <C> <C> <C>
Boca Raton, FL Executive offices; warehouse... 25,675 $212,310 11/30/97 --
Mahwah, NJ Administrative offices......... 2,400 29,001 11/30/97 --
Marion, IN Manufacturing; warehouse;
assembly..................... 40,000 N/A Company owned --
Carson, CA Administrative, sales;
marketing; warehouse......... 29,200 145,448 08/14/96 5 yrs.
Pompano Beach, FL Manufacturing.................. 10,000 39,204 09/30/96 3 yrs.
Carson City, NV Manufacturing; administrative;
sales; marketing;
warehouse.................... 8,000 30,000 10/31/96 --
</TABLE>
As a result of the pending expiration of the lease of the Company's
facility in Carson, California, the Company has entered into negotiations to
lease a new facility presently being constructed in Las Vegas, Nevada. The
Company anticipates consolidating its manufacturing and warehousing operations
located in Carson, California and Carson City, Nevada to the proposed Las Vegas
facility in the quarter ending November 30, 1996. Although a lease has not yet
been executed, the Company anticipates that the monthly rental of the new
facility will somewhat exceed the combined monthly rentals of its Carson,
California and Carson City, Nevada facilities.
The Company is also currently engaged in a review of possible locations in
and around the Boca Raton, Florida area into which the executive offices and
warehouse space now located in Boca Raton, as well as the manufacturing facility
located in Pompano Beach, may be consolidated. In anticipation of future growth,
the Company expects that the size of the combined facility will be increased to
at least 50,000 square feet. Subject
32
<PAGE> 37
to leasing of the new facilities in Las Vegas, Nevada and Boca Raton, Florida,
the Company believes that its facilities will be adequate to serve its
requirements for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings. The Company
is the subject of claims made from time to time that its tools or related
products caused personal injury or property damage. The Company routinely refers
these claims to its insurance carrier.
33
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -------------------------------------------
<S> <C> <C>
Lewis Gould........................... 53 President, Chief Executive Officer and
Director
Susan J. Gould........................ 50 Vice President -- Administration and
Director
Patrick L. Daggett.................... 48 Chief Financial Officer and Director
Marjorie K. Rosenberg................. 52 Vice President -- Purchasing
Sydney A. Levy........................ 59 Vice President -- Operations
Robert C. Doda, Jr.................... 31 Vice President -- Manufacturing
Lee R. Collins........................ 56 Vice President -- Distribution Sales
Steven D. Schohan..................... 28 Vice President -- Western Operations
Leonard J. Gould...................... 27 Vice President -- Sales
Edward F. Ronan, Jr.(1)(2)............ 44 Director
Mervyn D. Fogel(1)(2)................. 54 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Officers are appointed by and serve at the discretion of the Board of
Directors. Each director holds office until the next annual meeting of
shareholders or until a successor has been duly elected and qualified. All of
the Company's officers devote their full-time to the Company's business and
affairs. Leonard J. Gould is the son of Lewis Gould and Susan J. Gould, who were
formerly husband and wife.
Lewis Gould co-founded the Company and has served as a director and as
President and Chief Executive Officer since its inception in 1979. Mr. Gould
oversees the Company's marketing and sales activities as well as its overall
operations.
Susan J. Gould co-founded the Company and has served as a director and as
Vice President -- Administration since its inception in 1979. Ms. Gould is
responsible for billing, collection, customer service and related functions.
Patrick L. Daggett has served as a director and as Chief Financial Officer
since 1992. From 1985 to 1992, Mr. Daggett served as controller of the Company.
Prior to joining the Company, Mr. Daggett held various accounting positions with
publishing companies based in New York.
Marjorie K. Rosenberg has served as Vice President -- Purchasing since 1990
and has been responsible for all domestic and international purchasing since
1988. Prior to joining the Company, Ms. Rosenberg was employed by Barr
Laboratories, a pharmaceuticals company, in various sales and administrative
positions.
Sydney A. Levy has served as Vice President -- Operations since July 1992.
His responsibilities include supervision of all warehouse facilities and
distribution functions. From 1983 to June 1992, Mr. Levy served as vice
president of operations at H. Cotler Co., a New York City garment manufacturer.
From 1974 to 1983, he was employed as Eastern Region Operations Manager for U.S.
Pioneer Electronics Corporation, a multi-national electronics manufacturer. From
1964 to 1974, he was employed by Saxton Industries, a manufacturer of home
improvement products.
Robert C. Doda, Jr. has served as Vice President -- Manufacturing since
January 1992. Mr. Doda has been employed by the Company or its subsidiaries
since 1983 in various production management positions. Mr. Doda is currently
responsible for manufacturing activities at the Company's three manufacturing
facilities.
34
<PAGE> 39
Lee R. Collins has served as Vice President -- Distribution Sales since
joining the Company in March 1993. Mr. Collins has over 30 years experience in
the home improvement industry. From February 1992 through February 1993, he was
employed as the sales manager for Standard Tile Corporation, a ceramic tile
distributor based in New Jersey. From 1973 through January 1993, he served as a
master distributor for Miracle Adhesives Corporation, a manufacturer of home
improvement products. Mr. Collins was employed by Miracle Adhesives Corporation
from 1964 to 1973 in various sales and marketing positions, including Vice
President of Sales and Marketing.
Steven D. Schohan has served as Vice President -- Western Operations since
September 1995, and is responsible for the Company's west coast operations. From
January 1992 through August 1995, he was employed as the Company's west coast
sales manager. From January 1989 through December 1991, he was employed as a
buyer for Standard Brands Paint Company in Torrance, California.
Leonard J. Gould has been a full-time employee since December 1993 and has
served as a Vice President since March 1995. Mr. Gould currently serves as Vice
President -- Sales and is responsible for certain of the Company's sales and
marketing activities. From May 1991 through November 1993, he was employed as a
publicist for St. Martins Press.
Edward F. Ronan, Jr. has served as a director of the Company from 1993 to
1995 and since April 1996. Mr. Ronan is a Certified Public Accountant and has
practiced with the accounting firm of Actis-Grande, Ronan & Company, LLC since
February 1984. Mr. Ronan's accounting firm provided various accounting services
to the Company during fiscal years 1988 through 1993.
Mervyn D. Fogel has served as a director of the Company since June 1996.
Mr. Fogel has over 30 years experience in the home improvement industry. Since
1986, he has served as an executive officer of certain home improvement
subsidiaries and operating divisions of Pentland, TLC, a publicly-held British
corporation. Since 1992 Mr. Fogel has served as Vice President of Business
Development for Pentland, USA, a division of Pentland, TLC. From February 1986
through November 1995, Mr. Fogel served as Chairman of Tilepak, a
California-based division of Pentland, TLC engaged in the distribution of tile
products.
BOARD COMMITTEES
The Board of Directors maintains a Compensation Committee and an Audit
Committee. The Compensation Committee is composed of Messrs. Ronan and Fogel,
the Company's non-management directors. The primary function of the Compensation
Committee is to review and make recommendations to the Board with respect to the
compensation, including bonuses, of the Company's officers and to administer the
Company's stock option plan. The Audit Committee is comprised of Messrs. Ronan
and Fogel. The function of the Audit Committee is to review and approve the
scope of audit procedures employed by the Company's independent auditors, to
review and approve the audit reports rendered by the Company's independent
auditors and to approve the audit fee charged by the independent auditors. The
Audit Committee reports to the Board of Directors with respect to such matters
and recommends the selection of independent auditors.
35
<PAGE> 40
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company in the
three fiscal years in the period ended February 29, 1996 of Lewis Gould, Susan
J. Gould and Patrick L. Daggett, the only executive officers of the Company
whose total annual salary and bonus exceeded $100,000 during the year ended
February 29, 1996 (the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ---------------------------------- ------ -------- ------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Lewis Gould,...................... 1996 $231,562 $20,400 $18,086 $27,228
President and Chief 1995 183,292 14,600 18,483 27,293
Executive Officer 1994 156,206 15,200 10,732 11,325
Susan J. Gould,................... 1996 $ 91,805 $34,000 $10,635 $15,490
Vice President and 1995 85,586 13,600 8,534 12,515
Secretary 1994 78,219 11,070 5,501 5,181
Patrick L. Daggett,............... 1996 $107,576 $23,500 $ 9,424 $16,393
Chief Financial 1995 96,894 12,150 9,707 16,448
Officer 1994 86,088 5,600 7,512 4,909
</TABLE>
- ---------------
(1) Represents deferred compensation and, in the case of Mr. Gould, an
automobile allowance in the amount of $7,848, $7,848 and $1,308 in 1996,
1995 and 1994, respectively.
(2) Represents contributions made by the Company under its 401(k) and profit
sharing plans.
Option Grants. Effective June 30, 1996, the Company granted incentive stock
options to purchase a total of 150,000 shares of Common Stock to certain
employees of the Company, including the Named Officers. Mr. Gould and Ms. Gould
each received options to purchase 15,000 shares of Common Stock at an exercise
price of $9.35 per share, and Mr. Daggett received options to purchase 50,000
shares of Common Stock at an exercise price of $8.50 per share. Certain vesting
requirements apply to Mr. Daggett's options to purchase 30,000 shares of Common
Stock. The remainder of Mr. Daggett's options, as well as the options granted to
all other persons, are exercisable commencing January 1, 1997. The remaining
options were granted to certain employees of the Company and others at an
exercise price of $8.50 per share.
No employee of the Company receives any additional compensation for his or
her services as a director. Non-management directors receive no salary for their
services as such, but receive a fee of $500 per meeting attended. The Board of
Directors has also authorized payment of reasonable travel or other
out-of-pocket expenses incurred by non-management directors in attending
meetings of the Board of Directors.
Employment Agreement. Effective June 1996, the Company entered into an
employment agreement with Lewis Gould. The agreement provides that he shall
devote his full business time to the Company, may be terminated by the Company
for "cause" (as defined in the agreement) and that he will receive an annual
base salary of $275,000, subject to adjustment for cost of living increases. The
agreement provides that Mr. Gould may receive an annual bonus at the discretion
of the Board of Directors. The Company also provides Mr. Gould with an
automobile allowance. The employment agreement extends for a three-year term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during the fiscal year
ended February 29, 1996. Lewis Gould and Susan J. Gould each participated in
deliberations concerning executive compensation paid during such year. Effective
June 1996, the Board of Directors established a Compensation Committee, a
majority of the members of which will be independent directors. The initial
members of the Compensation Committee are Edward F. Ronan, Jr. and Mervyn D.
Fogel. No executive officer of the Company serves as a
36
<PAGE> 41
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board of
Directors.
STOCK OPTION PLAN
The Company adopted a stock option plan effective June 20, 1996 (the
"Option Plan"). An aggregate of 250,000 shares of Common Stock are currently
reserved for issuance under the Option Plan.
The Option Plan provides for the granting of incentive stock options
("Incentive Stock Options") within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code") and non-qualified stock options.
Non-qualified stock options may be granted to employees, directors and
consultants of the Company, while Incentive Stock Options may be granted only to
employees. The Option Plan is currently administered by the Compensation
Committee of the Board of Directors, which determines the terms and conditions
of the options granted under the Option Plan, including the exercise price,
number of shares subject to the option and the exercisability thereof.
The exercise price of all Incentive Stock Options granted under the Option
Plan must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant, and must be 110% of fair market value when granted
to a 10% or more shareholder. The exercise price of all non-qualified stock
options granted under the Option Plan shall be not less than 85% of the fair
market value of the Common Stock. The term of all options granted under the
Option Plan may not exceed ten years, except the term of incentive options
granted to a 10% or more shareholder may not exceed five years. The Option Plan
may be amended or terminated by the Board of Directors, but no such action may
impair the rights of a participant under a previously granted option.
The Option Plan provides the Board of Directors or the Compensation
Committee with the discretion to determine when options granted thereunder shall
become exercisable and the vesting period of such options. Upon termination of a
participant's employment or consulting relationship with the Company, all
unvested options terminate and are no longer exercisable. Vested non-qualified
options remain exercisable for a period of 60 days to one year following the
termination date, depending on the circumstances of the termination.
The Option Plan provides that, in the event the Company enters into an
agreement providing for the merger of the Company into another corporation or
the sale of substantially all of the Company's assets, any outstanding unvested
options shall become immediately exercisable as of the date of such agreement.
Upon the consummation of the merger or sale of assets such options shall
terminate unless they are assumed or another option is substituted therefor by
the successor corporation.
As of June 30, 1996, a total of 150,000 options were outstanding with
exercise prices ranging from $8.50 to $9.35 per share and a weighted average
exercise price per share of $8.67.
401(K) PLAN
Effective March 1, 1995, the Company merged, amended and restated its prior
defined contribution profit sharing plan and its prior 401(k) plan into a
revised plan (the "401(k) Plan") to provide retirement income to employees of
the Company. The prior plans were, and the 401(k) Plan is intended to remain,
qualified under Section 401(a) of the Code. The 401(k) Plan covers all employees
who are at least age 21 and have completed one year of service. It is funded
each year by the following contributions: (i) voluntary pre-tax ("salary
reduction") contributions from employees up to a maximum dollar limit set by law
(and increased for cost of living changes), (ii) discretionary matching
contributions by the Company equal to a percentage of the amount of the
employee's salary reduction contribution, which percentage is to be determined
each year by the Company (and may be zero), and (iii) a profit sharing
contribution, the amount of which, if any, is determined by the Company in its
sole discretion. Upon leaving the Company, each participant is 100% vested with
respect to the participant's contributions and is vested based on years of
service with respect to the Company's matching contributions. Contributions are
invested as directed by the participant in investment funds available under the
401(k) Plan. Full retirement benefits are payable to each participant in a
single cash payment or property upon the participant's retirement, termination
of employment, death or disability.
37
<PAGE> 42
CERTAIN TRANSACTIONS
The Company entered into a Revolving Loan and Security Agreement in 1988
(the "Loan Agreement") with Connecticut National Bank, as predecessor in
interest to Shawmut Bank Connecticut, N.A. (the "Lender"). At the time of
execution of the Loan Agreement, the Company had the right to borrow up to $2
million. The Company's President and majority shareholder, Lewis Gould,
unconditionally guaranteed all of the Company's obligations under the Loan
Agreement. Effective as of October 13, 1995, the Loan Agreement was modified in
order to (i) permit borrowings of up to $3.25 million and (ii) reduce Mr.
Gould's maximum obligation under his guaranty to $500,000. Mr. Gould receives no
compensation for such guaranty. A portion of the net proceeds from this offering
will be used to repay the entire outstanding balance under the Loan Agreement.
Such payment will benefit Mr. Gould indirectly inasmuch as he has guaranteed a
portion of the Company's obligations under the Loan Agreement.
The Company entered into a lease agreement dated March 1, 1989 covering the
Company's executive office and warehouse facility located in Boca Raton,
Florida. The Company's obligations under the lease are personally guaranteed by
Lewis Gould. Mr. Gould receives no compensation for such guaranty. See
"Business -- Facilities."
The Company formerly leased certain of its facilities from Lewis Gould and
Susan J. Gould. The Company leased a warehouse facility located in Stony Point,
New York from Mr. Gould in 1995 and 1994, rent expense for which was
approximately $86,000 and $83,000, respectively. The Company also leased a
condominium located in Boca Raton, Florida from Ms. Gould in 1995 and 1994, rent
expense for which was approximately $7,000 and $18,000, respectively. All of the
Company's facilities are currently leased from unrelated third parties.
The Company believes the terms of such transactions were on terms no less
favorable than could be obtained from unaffiliated third parties.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation which provide
that directors of the Company shall not be personally liable for monetary
damages to the Company or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of: (i) a breach of the director's
duty of loyalty to the Company or its stockholders; (ii) acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law; (iii) an act related to the unlawful stock repurchase or payment of a
dividend under Section 174 of Delaware General Corporation Law; and (iv)
transactions from which the director derived an improper personal benefit. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the full extent permitted under Delaware law. The Company intends
to enter into separate indemnification agreements with its directors and
officers which may, in some cases, be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission (the "Commission"), such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
38
<PAGE> 43
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 1996 and as adjusted to
reflect the sale of Common Stock offered by this Prospectus, by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's executive officers and
directors, (iii) each of the Selling Shareholders, and (iv) all executive
officers and directors as a group. Except as noted, each person or entity has
sole voting and sole investment power with respect to the shares shown. The
address of each person listed is 990 South Rogers Circle, Boca Raton, Florida
33487, except as otherwise indicated.
<TABLE>
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER THE OFFERING
-------------------- SHARES TO BE SOLD --------------------
NAME NUMBER PERCENT IN THE OFFERING NUMBER PERCENT
-------------------------------- --------- ------- ----------------- --------- -------
<S> <C> <C> <C> <C> <C>
Lewis Gould(1).................. 1,498,000 99.6% 100,000 1,298,000 51.8%
Susan J. Gould(2)............... 514,152 34.2 100,000 414,152 16.5
Patrick L. Daggett.............. -- -- -- -- --
Marjorie K. Rosenberg........... -- -- -- -- --
Sydney A. Levy.................. -- -- -- -- --
Leonard J. Gould................ 1,000 * -- 1,000 *
Robert C. Doda, Jr..............
Lee R. Collins..................
Steven D. Schohan...............
Edward F. Ronan, Jr............. -- -- -- -- --
30 Main Street, Suite 500
Danbury, Connecticut 06810
Mervyn D. Fogel................. -- -- -- -- --
7 Oak Lodge
Marloes Road
London, W82SUL England
All directors and officers as a
group (11 persons)............ 1,499,000 99.6 200,000 1,299,000 51.9
</TABLE>
- ---------------
* Less than 1%.
(1) Includes the 514,152 shares of Common Stock owned by Susan J. Gould. Mr.
Gould has the right to vote such shares until June 2006 pursuant to the
terms of a voting trust agreement.
(2) Lewis Gould has the right to vote all such shares until June 2006 pursuant
to the terms of a voting trust agreement. Excludes 2,000 shares of Common
Stock gifted by Ms. Gould to two adult children as to which Ms. Gould
disclaims beneficial ownership.
39
<PAGE> 44
SELLING SHAREHOLDERS
The Selling Shareholders may offer the 4,597 shares of Common Stock owned
by them for sale as principals for their own accounts at any time, and from time
to time, in the over-the-counter market at prices prevailing at the time of
sale, commencing nine months from the date of this Prospectus, or earlier with
the Representative's consent. The Selling Shareholders may also offer the Common
Stock in private sales at prices to be negotiated. The Company will not receive
any proceeds from the sale of shares by the Selling Shareholders.
Except for their ownership of Common Stock of the Company, the Selling
Shareholders have no material relationship with the Company. The following table
sets forth certain information regarding the Selling Shareholders. Assuming all
of the shares registered hereunder are sold, the Selling Shareholders will not
own any shares of Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK TO BE
SELLING SHAREHOLDER OWNED OFFERED
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Russell White.................................................... 2,659 2,659
Kanzawa Precision Tools Manufacturing Co., Ltd................... 1,250 1,250
Beacon Hill Tools Co............................................. 250 250
John Andrews..................................................... 197 197
James Andrews.................................................... 66 66
Nancy Andrews.................................................... 66 66
Robert Andrews................................................... 66 66
Mary Porras...................................................... 43 43
</TABLE>
PLAN OF DISTRIBUTION
The shares of Common Stock will be offered by the Selling Shareholders from
time to time in the over-the-counter market, in privately negotiated sales or on
other markets. Any securities sold in brokerage transactions will involve
customary brokers' commissions.
40
<PAGE> 45
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, par value $0.001 per share, and 2,500,000 shares of Preferred
Stock, par value $1.00 per share.
COMMON STOCK
Upon consummation of this offering, 2,504,597 shares of Common Stock will
be issued and outstanding (assuming no options are exercised and assuming the
Underwriters' over-allotment option is not exercised).
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. The Company's
Certificate of Incorporation denies cumulative voting rights in the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in the assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, conversion or redemption rights. All
of the outstanding shares of Common Stock are, and the shares to be sold in this
offering when issued and paid for will be, fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority, without further shareholder
approval, to issue up to 2,500,000 shares of Preferred Stock from time to time
in one or more series, to establish the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof. The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuances could have the effect of decreasing the market
price of the Common Stock.
Prior to the date hereof, the Company designated 500,000 shares as Series A
Preferred Stock, 1,000,000 shares as Series B Preferred Stock and 1,000,000
shares as Series C Preferred Stock. As of the date of this Prospectus, and as
adjusted to reflect the exchange of certain shares of Preferred Stock for shares
of Common Stock, there were 319,158 shares of Series A Preferred Stock, no
shares of Series B Preferred Stock and no shares of Series C Preferred Stock
issued and outstanding. The Company currently has no plans to issue any
additional shares of Preferred Stock.
Holders of the Series A Preferred Stock are entitled to receive out of
legally available funds a cumulative dividend at the rate of $0.035 per share
per annum. Commencing on October 1, 2000, the dividend rate shall equal $1.00
multiplied by the prime interest rate published by the Wall Street Journal as of
the first day of the month in which the dividends are payable, less 1 1/4%.
Dividends must be paid on the Series A Preferred Stock before any dividend may
be declared or paid on the Common Stock. The Company is permitted to redeem the
Series A Preferred Stock during the first year following its issuance at a price
per share of $1.07 plus the amount of any accrued but unpaid dividends. The
redemption price is reduced by 1% each year thereafter to a minimum redemption
price of $1.00 per share. In the event of any liquidation or dissolution of the
Company, holders of the Series A Preferred Stock shall be entitled to receive
$1.00 per share plus any declared but unpaid dividends before any payment or
distribution may be made to the holders of Common Stock. Holders of the Series A
Preferred Stock have no voting rights.
The Series B Preferred Stock entitles the holders thereof to receive out of
legally available funds a noncumulative dividend at the rate of $0.05 per share
per annum. Dividends must be paid on the Series B Preferred Stock before any
dividend may be declared or paid on the Common Stock. The Company may redeem the
Series B Preferred Stock at a price per share of $1.00. In the event of any
liquidation or dissolution
41
<PAGE> 46
of the Company, holders of the Series B Preferred Stock shall be entitled to
receive $1.00 per share plus any declared but unpaid dividends before any
payment or distribution may be made to the holders of Common Stock. Holders of
the Series B Preferred Stock have no voting rights.
The Series C Preferred Stock entitles the holders thereof to receive out of
legally available funds cumulative dividends at the rate of $0.035 per share per
annum. The Company may redeem the Series C Preferred Stock during the first year
following its issuance at a price per share of $1.00. In the event of any
liquidation or dissolution of the Company, holders of the Series C Preferred
Stock shall be entitled to receive $1.00 per share plus any declared but unpaid
dividends before any payment or distribution may be made to the holders of
Common Stock. Holders of the Series C Preferred Stock have no voting rights.
DELAWARE BUSINESS COMBINATION PROVISIONS
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which regulates large
accumulations of shares, including those made by tender offers. Section 203 may
have the effect of significantly delaying a purchaser's ability to acquire the
entire interest in the Company if such acquisition is not approved by the
Company's Board of Directors. In general, Section 203 prevents an "Interested
Stockholder" (defined generally as a person with 15% or more of a corporation's
outstanding voting stock) from engaging in a "Business Combination" (defined
below) with a Delaware corporation for three years following the date such
person became an Interested Stockholder. For purposes of Section 203, the term
"Business Combination" is defined broadly to include mergers and certain other
transactions with or caused by the Interested Stockholder; sales or other
dispositions to the Interested Stockholder (except proportionately with the
corporation's other stockholders) of assets of the corporation or a subsidiary
equal to 10% or more of the aggregate market value of the corporation's
consolidated assets or its outstanding stock; the issuance or transfer by the
corporation or a subsidiary of stock of the corporation or such subsidiary to
the Interested Stockholder (except for transfers in a conversion or exchange or
a pro-rata distribution or certain other transactions, none of which increase
the Interested Stockholder's proportionate ownership of any class or series of
the corporation's or such subsidiary's stock); or receipt by the Interested
Stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on Business Combinations by Section 203
does not apply if: (a) prior to the date on which a stockholder becomes an
Interested Stockholder, the Board approves either the Business Combination or
the transaction which resulted in the person becoming an Interested Stockholder;
(b) the Interested Stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him or her an Interested Stockholder
(excluding from the 85% calculation shares owned by directors who are also
officers of the corporation and shares held by employee stock plans which do not
permit employees to decide confidentially whether to accept a tender or exchange
offer); or (c) on or after the date a person becomes an Interested Stockholder,
the Board approves the Business Combination, and it is also approved at a
stockholder meeting by 66 2/3% of the voting stock not owned by the Interested
Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things, the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203. The Company's
Certificate of Incorporation does not contain such a provision. The restrictions
described above also do not apply to certain Business Combinations proposed by
an Interested Stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an Interested Stockholder during the previous three years or who
became an Interested Stockholder with the approval of a majority of the
corporation's directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Securities Transfer, Inc.
42
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 2,504,597 shares of
Common Stock outstanding. Of these shares, the 1,200,000 shares sold in this
offering (and any shares sold by the Company upon exercise of the Underwriters'
over-allotment option) will be freely transferable by persons other than
"affiliates" of the Company (as that term is defined under the Act) without
restriction or further registration under the Act. An additional 4,597 shares of
Common Stock have been registered under the Act and are freely transferable by
the holders thereof commencing nine months from the date of this Prospectus.
The remaining 1,300,000 outstanding shares of Common Stock are "restricted
securities" within the meaning of Rule 144 under the Act and may not be sold in
the absence of registration under the Act unless an exemption from registration
is available, including the exemption contained in Rule 144. All of such shares
would be eligible for sale under Rule 144 commencing 90 days after the date of
this Prospectus. However, pursuant to the terms of the Underwriting Agreement,
the Representative has required that the Common Stock owned by current
shareholders not be sold until nine months from the date of this Prospectus
without the prior written consent of the Representative.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years is entitled to sell, within any
three-month period, a number of "restricted" shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale limitations, notice
requirements and the availability of current public information about the
Company. Rule 144(k) provides that a person who is not deemed an "affiliate" and
who has beneficially owned shares for at least three years is entitled to sell
such shares at any time under Rule 144 without regard to the limitations
described above.
In addition to the shares of Common Stock that are currently outstanding, a
total of 250,000 shares of Common Stock have been reserved for issuance upon
exercise of options granted under the Option Plan, under which options have been
granted to acquire 150,000 shares of Common Stock at a weighted average exercise
price equal to 86.7% of the assumed offering price of the Common Stock offered
hereby. Shares underlying such options are "restricted securities" and are
subject to the restrictions on transfer described above until registered.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that sales of
shares by such shareholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing shareholders could adversely affect prevailing market prices.
43
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for which Cruttenden Roth Incorporated is acting as
the representative (the "Representative"), have severally agreed to purchase
from the Company and the Selling Shareholders the shares of Common Stock offered
hereby. Each Underwriter will purchase the number of shares set forth opposite
its name below, and will purchase the shares at the price to public less
underwriting discounts and commissions set forth on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Cruttenden Roth Incorporated
---------
Total..................................................................... 1,200,000
========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if the Underwriters purchase any
shares.
The Representative has advised the Company that the several Underwriters
propose to offer the shares of Common Stock in part directly to the public at
the price to public set forth on the cover page of this Prospectus, and in part
to certain dealers at the price to public less a concession not exceeding
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not exceeding $ per share to other dealers. After the
shares of Common Stock are released for sale to the public, the Representative
may change the initial price to public and other selling terms. No change in
such terms shall change the amount of proceeds to be received by the Company and
the Selling Shareholders as set forth on the cover page of this Prospectus. The
Representative will also receive a non-accountable expense allowance equal to
2 1/2% of the gross proceeds of the offering, of which $25,000 has been paid.
The Company has granted the Underwriters an option, exercisable for 45 days
after the date of this Prospectus, to purchase up to 180,000 additional shares
of Common Stock at the same price per share as the initial shares. The
Underwriters may purchase these shares solely to cover over-allotments, if any,
in connection with the sale of the shares of Common Stock offered hereby. If the
Underwriters exercise the over-allotment option, the Underwriters will purchase
additional shares in approximately the same proportions as those in the above
table.
The Representative has informed the Company and the Selling Shareholders
that it does not expect any sales of the shares of Common Stock offered hereby
to be made to discretionary accounts by the Underwriters.
The Underwriting Agreement provides that the Company, the Selling
Shareholders and the Underwriters will indemnify each other against certain
liabilities under the Act.
44
<PAGE> 49
The Company's existing shareholders have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock (excepting those offered by the
Selling Shareholders) for a period of nine months after the date of this
Prospectus without the prior written consent of the Representative.
The Company has also agreed to sell to the Representative, for nominal
consideration, warrants (the "Representative's Warrants") to purchase 120,000
shares of Common Stock. The Representative's Warrants will be exercisable, at a
price per share equal to 120% of the initial price to public, commencing one
year from the date hereof and for a period of four years thereafter. During the
exercise period, holders of the Representative's Warrants are entitled to
certain demand and incidental registration rights with respect to the securities
issuable upon exercise of the Representative's Warrants. The shares of Common
Stock issuable on exercise of the Representative's Warrants are subject to
adjustment in certain events to prevent dilution. The Representative's Warrants
cannot be transferred, assigned or hypothecated for a period of one year from
the date of issuance except to Underwriters, selling group members and their
officers or partners.
Prior to this offering, there has not been a public market for the Common
Stock. The public offering price of the Common Stock has been determined by
arms-length negotiation among the Company, the Selling Shareholders and the
Representative. There is no direct relation between the offering price of the
Common Stock and the assets, book value or net worth of the Company. Among the
factors considered in pricing the Common Stock were the Company's results of
operations, the current financial condition and future prospects of the Company,
the experience of management, the amount of ownership to be retained by present
shareholders, the general condition of the economy and the securities markets,
and the demand for similar securities of companies considered comparable to the
Company.
45
<PAGE> 50
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon by
Berliner Zisser Walter & Gallegos, P.C., Denver, Colorado. A partner of such
firm holds options to acquire 5,000 shares of Common Stock of the Company.
Berliner Zisser Walter & Gallegos, P.C. has represented the Representative from
time to time in other matters. Certain legal matters will be passed upon for the
Underwriters by O'Melveny & Myers LLP, Newport Beach, California.
EXPERTS
The consolidated balance sheets of the Company as of February 28, 1995 and
February 29, 1996, and the consolidated statements of income, shareholders'
equity and cash flows for the years ended February 28, 1994 and 1995 and
February 29, 1996, have been included herein in reliance on the report of Grant
Thornton LLP, independent certified public accountants, and upon the authority
of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a registration statement
(together with all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock of the Company offered hereby. This
Prospectus, filed as part of the Registration Statement, omits certain
information contained in the Registration Statement in accordance with the rules
and regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
46
<PAGE> 51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets -- February 28, 1995, February 29, 1996 and May 31, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Income -- For the fiscal years ended February 28, 1994 and
1995 and February 29, 1996 and the three months ended May 31, 1995 and 1996
(unaudited)......................................................................... F-4
Consolidated Statement of Shareholders' Equity -- For the fiscal years ended February
28, 1994 and 1995 and February 29, 1996 and the three months ended May 31, 1996
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows -- For the fiscal years ended February 28, 1994
and 1995 and February 29, 1996 and the three months ended May 31, 1995 and 1996
(unaudited)......................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Shareholders
Q.E.P. Co., Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Q.E.P. Co.,
Inc. and Subsidiaries (the "Company") as of February 29, 1996 and February 28,
1995, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended February 29,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Q.E.P. Co.,
Inc. and Subsidiaries as of February 29, 1996 and February 28, 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended February 29, 1996, in conformity
with generally accepted accounting principles.
We have also audited Schedule II of Q.E.P. Co., Inc. and Subsidiaries as of
February 29, 1996 and February 28, 1995, and for the periods then ended. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
New York, New York
April 30, 1996 (except for Note N, as to
which the date is June 25, 1996)
F-2
<PAGE> 53
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY
28, 29, MAY 31,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash................................................... $ 114,767 $ 179,138 $ 316,074
Accounts receivable, less allowance for doubtful
accounts of $26,400 as of February 28, 1995 and
$54,500 as of February 29, 1996 and May 31, 1996.... 2,357,535 3,580,554 3,060,879
Inventories............................................ 2,704,161 3,138,681 3,370,860
Other current assets................................... 118,616 350,443 479,455
---------- ---------- ----------
Total current assets........................... 5,295,079 7,248,816 7,227,268
PROPERTY AND EQUIPMENT -- net............................ 294,686 266,610 240,666
DEFERRED INCOME TAXES.................................... 104,000 84,000 81,000
OTHER ASSETS............................................. 306,678 280,538 269,204
---------- ---------- ----------
$6,000,443 $7,879,964 $ 7,818,138
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities............... $1,899,002 $1,820,555 $ 2,131,871
Loans payable.......................................... 1,396,391 2,447,887 1,687,990
Other current liabilities.............................. 51,382 49,109 6,274
---------- ---------- ----------
Total current liabilities...................... 3,346,775 4,317,551 3,826,135
OTHER LIABILITIES........................................ 155,930 137,088 134,965
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value; 2,500,000 shares
authorized, $1 par value; 568,047 issued and
outstanding at February 28, 1995 and 503,047 shares
issued and outstanding at February 29, 1996 and May
31, 1996, respectively.............................. 568,047 503,047 503,047
Common stock; 10,000,000 shares authorized, $.001 par
value; 1,515,152 shares issued and outstanding at
February 28, 1995 and 1,500,000 shares issued and
outstanding February 29, 1996 and May 31, 1996,
respectively........................................ 1,515 1,500 1,500
Additional paid-in capital............................. 30,747 30,762 30,762
Retained earnings...................................... 1,897,429 2,947,916 3,379,629
Cost of stock held in treasury......................... -- (57,900) (57,900)
---------- ---------- ----------
2,497,738 3,425,325 3,857,038
---------- ---------- ----------
$6,000,443 $7,879,964 $ 7,818,138
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 54
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------------- ------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, MAY 31, MAY 31,
1994 1995 1996 1995 1996
------------ ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 13,407,673 $ 19,247,549 $ 25,271,715 $5,680,934 $7,702,148
Cost of goods sold............. 8,416,219 12,105,099 15,976,971 3,673,139 4,800,998
----------- ----------- ----------- ---------- ----------
Gross profit......... 4,991,454 7,142,450 9,294,744 2,007,795 2,901,150
Costs and expenses
Shipping..................... 1,113,125 1,488,243 1,745,745 234,761 565,242
General and administrative... 1,491,726 2,435,574 3,105,861 734,295 767,318
Selling and marketing........ 1,218,460 1,799,822 2,511,898 557,783 817,748
Foreign exchange losses,
net....................... 152,636 114,635 472 -- 256
----------- ----------- ----------- ---------- ----------
3,975,947 5,838,274 7,363,976 1,526,839 2,150,564
----------- ----------- ----------- ---------- ----------
Operating income..... 1,015,507 1,304,176 1,930,768 480,956 750,586
Interest expense............... 135,059 149,414 194,565 48,707 43,925
----------- ----------- ----------- ---------- ----------
Income before
provision for
income taxes....... 880,448 1,154,762 1,736,203 432,249 706,661
Provision for income taxes..... 341,032 429,312 668,452 173,800 267,500
----------- ----------- ----------- ---------- ----------
NET INCOME........... $ 539,416 $ 725,450 $ 1,067,751 $ 258,449 $ 439,161
=========== =========== =========== ========== ==========
Primary and fully diluted net
income per common share...... $ .36 $ .47 $ .70 $ .17 $ .29
=========== =========== =========== ========== ==========
Weighted average number of
shares outstanding........... 1,515,152 1,515,152 1,505,682 1,515,152 1,500,000
=========== =========== =========== ========== ==========
Pro forma net income per common
share........................ $ .68 $ .28
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 55
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ -------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK
------- -------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 1, 1993............ -- $ -- 200 $ 12,037 $ 20,225 $ 638,813 $ --
Issuance of preferred stock......... 125,000 125,000 -- -- -- -- --
Net income.......................... -- -- -- -- -- 539,416 --
------- -------- --------- -------- ------- ---------- --------
Balance at February 28, 1994........ 125,000 125,000 200 12,037 20,225 1,178,229 --
Issuance of preferred stock......... 443,047 443,047 -- -- -- -- --
Dividends........................... -- -- -- -- -- (6,250) --
Net income.......................... -- -- -- -- -- 725,450 --
------- -------- --------- -------- ------- ---------- --------
Balance at February 28, 1995........ 568,047 568,047 200 12,037 20,225 1,897,429 --
Redemption of preferred stock....... (65,000) (65,000) -- -- -- -- --
Stock split -- 7,575.76 for 1 and
change in par value............... -- -- 1,514,952 (10,522) 10,522 -- --
Dividends........................... -- -- -- -- -- (17,264) --
Purchase of treasury stock.......... -- -- (15,152) (15) 15 -- (57,900)
Net income.......................... -- -- -- -- -- 1,067,751 --
------- -------- --------- -------- ------- ---------- --------
Balance at February 29, 1996........ 503,047 503,047 1,500,000 1,500 30,762 2,947,916 (57,900)
(unaudited)
Dividends........................... -- -- -- -- -- (7,448) --
Net income.......................... -- -- -- -- -- 439,161 --
------- -------- --------- -------- ------- ---------- --------
Balance at May 31, 1996............. 503,047 $503,047 1,500,000 $ 1,500 $ 30,762 $3,379,629 $(57,900)
======= ======== ========= ======== ======= ========== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 56
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------------- ----------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, MAY 31, MAY 31,
1994 1995 1996 1995 1996
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income........................................ $ 539,416 $ 725,450 $ 1,067,751 $ 258,449 $ 439,161
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Depreciation and amortization................... 40,590 52,209 85,131 47,479 29,831
Amortization of fair market value in excess of
cost of business acquired..................... -- (22,500) (30,000 ) (7,500) (7,500)
Deferred income taxes........................... 5,000 (69,500) 20,000 5,000 3,000
Changes in assets and liabilities
Accounts receivable............................. (272,321) 39,494 (1,223,019 ) (157,532) 519,675
Inventories..................................... (451,522) (465,224) (434,520 ) 95,931 (232,179)
Other current assets............................ 109,868 (13,820) (228,744 ) (141,155) (69,012)
Other assets.................................... 32,579 (1,929) 11,673 3,670 8,489
Accounts payable and accrued liabilities........ 67,369 (342,780) (347,220 ) (367,330) (121,101)
--------- --------- ----------- --------- ---------
Net cash provided by (used in) operating
activities.................................... 70,979 (98,600) (1,078,948 ) (262,988) 570,364
--------- --------- ----------- --------- ---------
Cash flows from investing activities
Capital expenditures.............................. (30,396) (90,501) (45,671 ) (13,138) (1,042)
Acquisitions, net of cash acquired................ -- (366,115) -- -- --
--------- --------- ----------- --------- ---------
Net cash used in investing activities........... (30,396) (456,616) (45,671 ) (13,138) (1,042)
--------- --------- ----------- --------- ---------
Cash flows from financing activities
Redemption of preferred stock..................... -- -- (65,000 ) (12,000) --
Net borrowings (payments) under line of credit.... (159,463) 328,329 1,051,496 137,032 (759,897)
Net borrowings (payments) of debt................. (76,437) (14,393) 8,885 (36,345) (37,458)
Cash overdraft.................................... 103,126 275,392 268,773 206,639 432,417
Dividends......................................... -- (6,250) (17,264 ) -- (7,448)
Issuance of preferred stock....................... 125,000 -- -- -- --
Purchase of treasury stock........................ -- -- (57,900 ) -- --
Payment of deferred offering costs................ -- -- -- -- (60,000)
--------- --------- ----------- --------- ---------
Net cash provided by (used in) financing
activities.................................... (7,774) 583,078 1,188,990 295,326 (432,386)
--------- --------- ----------- --------- ---------
NET INCREASE IN CASH............................ 32,809 27,862 64,371 19,200 136,936
Cash and cash equivalents at beginning of year...... 54,096 86,905 114,767 114,767 179,138
--------- --------- ----------- --------- ---------
Cash and cash equivalents at end of year............ $ 86,905 $ 114,767 $ 179,138 $ 133,967 $ 316,074
========= ========= =========== ========= =========
Noncash investing and financing activities:
In fiscal 1995, the Company purchased three
companies. In conjunction with the acquisitions,
liabilities were as follows:
Fair value of assets acquired................. $1,087,094
Less
Cash paid................................... 400,000
Note issued................................. 180,000
Preferred stock issued...................... 443,047
---------
Liabilities assumed......................... $ 64,047
=========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 57
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
NOTE A -- DESCRIPTION OF BUSINESS
Q.E.P. Co., Inc. (the "Company") manufactures and distributes, principally
through major home center chains predominantly located throughout the United
States, tools and related products used in the ceramic tile, masonry, dry wall
and carpeting trades.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation. The consolidated financial statements
include the accounts of Q.E.P. Co., Inc. and its wholly-owned subsidiaries after
eliminating all significant intercompany accounts and transactions.
2. Inventories. Inventories are stated at the lower of average cost or
market.
3. Income Taxes. Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end.
4. Intangible Assets. Intangible assets are recorded at cost and are
amortized over the estimated periods of related benefit using the straight-line
method.
5. Leases. Leases which meet certain criteria are classified as capital
leases. For such leases, assets and obligations are recorded initially at the
fair market values of the leased assets. The capitalized leases are amortized
using the straight-line method over the assets' estimated economic lives.
Interest expense relating to the lease liabilities is recorded to effect a
constant rate of interest over the terms of the obligations. Leases not meeting
capitalization criteria are classified as operating leases and related rentals
are charged to expense as incurred.
6. Revenue Recognition. Sales are recognized when merchandise is shipped.
7. Property and Equipment. Property and equipment are stated at cost.
Depreciation and amortization are provided by straight-line methods in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the life of
the respective lease.
The following are the estimated lives of the Company's fixed assets:
<TABLE>
<S> <C>
Machinery and warehouse equipment..................... 3 to 10 years
Furniture and equipment............................... 3 to 5 years
Capital leases........................................ 3 to 5 years
Building.............................................. 30 to 33 years
</TABLE>
Maintenance and repairs are charged to expense, while significant renewals
and betterments are capitalized. When property is sold or otherwise disposed of,
the cost and related depreciation are removed from the accounts, and any
resulting gain or loss is reflected in operations for the period.
8. Advertising Costs. All costs related to advertising are expensed in the
period incurred.
9. Net Income per Common Share. Primary and fully diluted net income per
common share is computed using the weighted average number of common shares
outstanding. The computation reduces the net income available per common share
by the amount of preferred stock dividends.
10. Use of Estimates. In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
F-7
<PAGE> 58
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
11. Fair Value of Financial Instruments. Based on borrowing rates currently
available to the Company for bank loans with similar terms and maturities, the
fair value of the Company's short-term debt approximates the carrying value.
Furthermore, the carrying value of all other financial instruments potentially
subject to valuation risk (principally consisting of cash, accounts receivable
and accounts payable) also approximates fair value.
12. Interim Financial Statements. The consolidated financial statements at
May 31, 1996 and for the three months ended May 31, 1995 and 1996 are unaudited.
In the opinion of the Company, the unaudited consolidated financial statements
at May 31, 1996 and for the three months ended May 31, 1995 and 1996, include
all adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
periods. Results of operations for the three months ended May 31, 1996 are not
necessarily indicative of results to be expected for the full year.
13. Cash Equivalents. The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
14. Reclassification. Certain reclassifications have been made to conform
to the 1996 presentation.
NOTE C -- ACQUISITIONS
1. Andrews Enterprises. Effective January 1, 1995, the Company purchased
all of the assets of Andrews Enterprises, which manufactures drywall and paint
tools for 17,500 shares of $1 par value preferred stock. The acquisition has
been accounted for as a purchase, and, accordingly, the operating results since
the date of the acquisition of Andrews have been included in the accompanying
financial statements. The purchase price was allocated to assets acquired based
on their estimated fair values. The excess of the total acquisition cost over
the fair value of net assets acquired in the amount of $17,400 (included in
other assets) is being amortized on a straight-line basis over fifteen years.
Accumulated amortization at February 28, 1995, February 29, 1996 and May 31,
1996 was $200, $1,400, and $1,600, respectively.
2. Marion Tool and Westpoint Foundry. Effective October 31, 1994, the
Company purchased all the common stock of Marion Tool, which manufactures grey
iron castings, trowels, other small hand tools, and assembles striking tools and
garden tools, for 425,547 shares of $1 par value preferred stock. The
acquisition has been accounted for as a purchase, and, accordingly, the
operating results of Marion Tool have been included in the accompanying
financial statements since the date of acquisition. The purchase price was
allocated to assets acquired based on their estimated fair values. The excess
total acquisition cost over the fair value of net assets acquired of
approximately $52,000 (included in other assets) is to be amortized on a
straight-line basis over fifteen years. Accumulated amortization at February 28,
1995, February 29, 1996 and May 31, 1996 was $2,000, $3,600, and $4,200,
respectively.
3. O'Tool Company. On June 9, 1994, the Company purchased all the assets
and assumed certain liabilities of O'Tool Company, which distributes masonry and
carpentry tiling tools for $400,000 in cash and $180,000 in notes, which have
since been paid in full. The acquisition has been accounted for as a purchase,
and, accordingly, the operating results of O'Tool since the acquisition have
been included in the accompanying financial statements since the date of
acquisition. The excess of the fair value of net assets over the acquisition
cost in the amount of $150,000 (included in other liabilities) is being
amortized on a straight-line basis over five years. Accumulated amortization at
February 28, 1995, February 29, 1996 and May 31, 1996 was $22,500, $52,500, and
$60,000, respectively.
F-8
<PAGE> 59
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
The following unaudited pro forma consolidation shows the results of
operations assuming that the above purchases occurred on March 1, 1993. The
unaudited pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net sales......................................... $18,492,058 $22,259,245
Net income........................................ 458,512 267,936
</TABLE>
NOTE D -- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, MAY 31,
1995 1996 1996
------------ ------------ ----------
<S> <C> <C> <C>
Raw materials and work-in-progress............... $ 444,006 $ 376,433 $ 569,468
Finished goods................................... 2,260,155 2,762,248 2,801,392
---------- ---------- ----------
$ 2,704,161 $ 3,138,681 $3,370,860
========== ========== ==========
</TABLE>
NOTE E -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, MAY 31,
1995 1996 1996
------------ ------------ ---------
<S> <C> <C> <C>
Land.............................................. $ 7,509 $ 7,509 $ 7,509
Machinery and warehouse equipment................. 313,864 292,278 295,415
Office furniture and equipment.................... 110,813 178,069 175,974
Capital leased equipment.......................... 48,300 48,300 48,300
Building and leasehold improvements............... 162,533 132,727 132,727
--------- --------- ---------
643,019 658,883 659,925
Less accumulated depreciation and amortization.... (348,333) (392,273) (419,259)
--------- --------- ---------
$ 294,686 $ 266,610 $ 240,666
========= ========= =========
</TABLE>
F-9
<PAGE> 60
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
NOTE F -- LOANS PAYABLE
The Company has a bank credit facility which permits borrowings of up to
$3,250,000 as revolving credit against a fixed percentage of eligible accounts
receivable and inventory, as defined. Interest is payable monthly at the bank's
base lending rate (8.25% at February 29, 1996 and May 31, 1996) plus 1/2%, or
the LIBOR plus 225 basis points (7.56% at February 29, 1996 and 7.25% at May 31,
1996). The loan agreement is through June 30, 1998. Under the most restrictive
covenants of the loan agreement, the Company is required to maintain a minimum
tangible net worth of $2,600,000. The Company is also required to maintain a
minimum Interest Coverage Ratio, and a specified debt to tangible net worth
ratio for each fiscal year. As of February 28, 1995, February 29, 1996 and May
31, 1996, the Company was in compliance with these covenants.
The line of credit is collateralized by substantially all of the assets of
the Company and is guaranteed up to $500,000, by the Company's majority
shareholder.
The terms of the Company's bank credit facility prohibit the payment of
dividends, except with the lender's consent. The Company is obligated to pay
cumulative dividends, for which lender's consent has been obtained, in varying
amounts on the Series A and Series C Preferred Stock and a fixed, noncumulative
dividend on the Series B Preferred Stock (Note L).
Letters of credit are issued by the Company during the ordinary course of
business through major domestic banks as required by certain vendor agreements.
The Company had approximately $331,000 and $67,000 as of February 28, 1995 and
February 29, 1996, respectively, and $575,000, and $101,000 as of May 31, 1995
and 1996, respectively, of outstanding letters of credit.
Interest paid for all debt was $136,834, $151,639 and $218,367 in fiscal
1994, 1995 and 1996, respectively, and $45,836 and $50,916 for the three months
ended May 31, 1995 and 1996, respectively.
NOTE G -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, MAY 31,
1995 1996 1996
------------ ------------ ----------
<S> <C> <C> <C>
Accounts payable................................ $ 1,065,909 $ 1,055,759 $ 918,853
Accrued payroll and employee benefits........... 302,435 399,127 413,051
Accrued liabilities............................. 355,944 365,669 617,508
Accrued income taxes............................ 174,714 -- 182,459
---------- ---------- ----------
$ 1,899,002 $ 1,820,555 $2,131,871
========== ========== ==========
</TABLE>
F-10
<PAGE> 61
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
NOTE H -- COMMITMENTS AND CONTINGENCIES
1. Future Minimum Obligation. The Company conducts its operations from
various leased facilities. Future minimum payments under noncancellable
operating leases consist of the following in fiscal years ending after February
29, 1996:
<TABLE>
<S> <C>
1997...................................................... $277,778
1998...................................................... 55,691
1999...................................................... 34,046
2000...................................................... 5,674
--------
Total minimum lease payments.............................. $373,189
========
</TABLE>
Total rent expense under noncancellable operating leases approximated
$404,000, $350,000 and $232,000 in fiscal 1996, 1995 and 1994, respectively, and
$53,000 and $60,000 for the three months ended May 31, 1995 and 1996,
respectively.
In fiscal 1995 and 1994, the President and majority shareholder subleased
an operating facility to the Company at a rate equivalent to what the President
and majority shareholder was being charged. Rent expense for this facility
included in total rent expense above was approximately $83,000 and $86,000 in
fiscal 1994 and 1995, respectively. The Company also rented another facility on
a month-to-month basis from a shareholder. Rent expense for this facility was
approximately $18,000 and $7,000 in fiscal 1994 and 1995, respectively.
2. Marion Tool Company. In October 1994, the Company acquired all of the
outstanding common stock of Marion Tool Company which manufactures specialty
tools and related castings (Note C). In connection with this acquisition, the
Company also acquired the land underlying the Marion Tool facility and warehouse
and the foundry operations known as Westpoint Foundry in Marion, Indiana. Prior
to undertaking the acquisition, the Company commissioned a series of
environmental reports by an independent consulting firm of both the Marion Tool
Company and Westpoint Foundry facilities and the associated real estate. As a
result of the testing the consultants indicated that it was unlikely that
deposits of sand or slag would be considered hazardous waste and that such
deposits were unlikely to threaten ground water resources. In addition, the
consultant noted the presence of above ground storage tanks from which some
petroleum contamination was evident. The above ground storage tanks were removed
at the time of the acquisition and the Company caused the contaminated soil to
be removed in accordance with applicable environmental laws. Because of the
proximity of soil contamination to several structures and improvements at the
site and the risk that removal could undermine the structures, all contaminated
soil was not removed. A report of the excavation results were submitted to the
Indiana Department of Environmental Management and, based upon its discussions
with such department, the Company believes that no further action will be
required concerning the remaining contamination.
The environmental reports prepared by the consultant also noted that Marion
Tool Company was identified as a potentially responsible party ("PRP"), pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980 as amended ("CERCLA"), for the cleanup of contamination resulting from past
disposal of hazardous wastes at certain sites to which Marion Tool Company,
among others, sent wastes in the past. CERCLA requires PRPs to pay for cleanup
of sites from which there has been a release or threatened release of hazardous
substances. Based upon, among other things, a review of the data available to
the Company regarding the site at which Marion Tool Company is alleged to have
deposited a portion of the waste located thereon, and a comparison of the
potential liability at this site to
F-11
<PAGE> 62
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
settlements reached by other parties in similar cases, the Company believes that
Marion Tool Company's liability for this matter will not be material.
Nonetheless, until Marion Tool Company's proportionate share is finally
determined at this site, there can be no assurance that such matters, or any
similar liabilities that arise in the future, will not have a material adverse
effect on the Company's results of operations or financial condition.
The stock purchase agreement between the Company and the seller of Marion
Tool Company provides that, in the event the Company or Marion Tool Company
becomes liable in the future for the payment of any claims or damages in
connection with violation of environmental laws by Marion Tool Company prior to
the date of the acquisition, the seller will return to the Company, at no cost
to the Company, a number of preferred shares (valued at $1.00 per share) equal
in value to the damages paid by Marion Tool Company or the Company for
violations by Marion Tool Company of applicable environmental laws. Based upon
the environmental reports obtained by the Company, the Company currently
believes that the aggregate amount of any claims or damages for violation of
environmental laws by Marion Tool Company will not exceed the value of the
Preferred Stock issued by the Company in such acquisition. See Note N.
NOTE I -- PENSION PLAN
Profit Sharing and 401(k) Plan. Effective March 1, 1995, the Company
merged, and amended and restated, its prior defined contribution profit sharing
plan and its prior 401(k) plan into a revised plan to provide retirement income
to substantially all employees. Matching contributions to the plan are
discretionary and are determined annually by the Board of Directors. For the
years ended February 28, 1994 and 1995 and February 29, 1996, the Company
contributed $116,000, $172,000 and $225,000, respectively. No amounts were
contributed by the Company for the three months ended May 31, 1995 and 1996,
respectively, to the plan.
NOTE J -- INCOME TAXES
The components of the provision for taxes on income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------------- --------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, MAY 31, MAY 31,
1994 1995 1996 1995 1996
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
U. S. Federal
Current tax provision.............. $284,232 $420,150 $558,118 $146,800 $226,000
Deferred tax (benefit) provision... 4,000 (60,000) 15,500 5,000 3,000
------- ------- ------- ------- -------
288,232 360,150 573,618 151,800 229,000
------- ------- ------- ------- -------
State
Current tax provision.............. 51,800 78,662 90,334 22,000 38,500
Deferred tax (benefit) provision... 1,000 (9,500) 4,500 -- --
------- ------- ------- ------- -------
52,800 69,162 94,834 22,000 38,500
------- ------- ------- ------- -------
Total income tax provision........... $341,032 $429,312 $668,452 $173,800 $267,500
======= ======= ======= ======= =======
</TABLE>
The provision for income taxes reflects the use of the liability method
under SFAS No. 109.
Cash paid for income taxes was $155,542, $300,352 and $897,364 in fiscal
1994, 1995 and 1996, respectively, and $120,337 and $13,000 for the three months
ended May 31, 1995 and 1996, respectively.
F-12
<PAGE> 63
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
The tax effects of temporary differences which gave rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, MAY 31,
1995 1996 1996
------------ ------------ ---------
<S> <C> <C> <C>
Provision for doubtful accounts................... $ 22,655 $ 20,745 $ 20,745
Accrued expenses.................................. 20,256 10,456 7,557
Fixed assets...................................... 61,089 61,654 60,437
Inventory......................................... -- (8,855) (7,739)
Net operating loss carryforward................... 137,000 137,000 137,000
--------- --------- ---------
241,000 221,000 218,000
Valuation allowance............................... (137,000) (137,000) (137,000)
--------- --------- ---------
Net deferred tax asset............................ $ 104,000 $ 84,000 $ 81,000
========= ========= =========
</TABLE>
On October 31, 1994, the Company acquired Marion Tool Corp. ("Marion") (see
Note C). Marion has a $356,000 net operating loss carryforward that begins to
expire in February 2006 and is subject to two limitations: first, IRC Section
382 limits the Company's utilization of its net operating losses to an annual
amount; second, the separate return limitation year ("SRLY") limitation permits
an offset to the current consolidated taxable income only to the extent of
taxable income attributable to the member with the SRLY loss. Since the
potential utilization of the net operating loss is uncertain, a valuation
allowance has been established to reduce this deferred tax asset to zero.
The Company's Federal tax returns have been examined by the Internal
Revenue Service through February 28, 1991.
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------------------------ ---------------------------------------
FEBRUARY 28, 1994 FEBRUARY 28, 1995 FEBRUARY 29, 1996 MAY 31, 1995 MAY 31, 1996
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Provision for Federal
income taxes at the
statutory rate......... $299,352 34.0% $392,619 34.0% $590,309 34.0% $146,965 34.0% $240,265 34.0%
State and local income
taxes, net of Federal
income tax benefit..... 34,188 3.9 51,917 4.5 59,620 3.4 14,520 3.4 25,410 3.6
Other.................... 7,492 0.8 (15,224) (1.3) 18,523 1.1 12,315 2.8 1,825 0.2
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Actual provision for
income taxes........... $341,032 38.7% $429,312 37.2% $668,452 38.5% $173,800 40.2% $267,500 37.8%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
NOTE K -- SIGNIFICANT CUSTOMER AND VENDOR INFORMATION
1. Significant Customer Information. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company's customer base includes a high
concentration of home center chains with two customers representing 54%, 46% and
51%, and 8%, 9% and 10% of sales in fiscal 1994, 1995 and 1996, respectively.
These same two customers represented 46%, 42% and 55%, and 8%, 6% and 11% of
accounts receivable at February 28, 1994 and 1995, and February 29, 1996,
respectively, and 49%, 50% and 9%, 12% of sales for the three months ended May
31, 1995
F-13
<PAGE> 64
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
and 1996, respectively, and 41% and 8% of accounts receivable as of May 31,
1996. Although the Company is directly affected by the well-being of the home
center industry, management does not believe significant credit risk exists at
February 29, 1996.
2. Significant Vendor Information. The Company purchased 16%, 26% and 19%,
and 15%, 13% and 10% for the years ended February 28, 1994 and 1995 and February
29, 1996, respectively, and 19%, 16% and 14%, 12% for the three months ended May
31, 1995 and 1996, respectively, of total purchases through two vendors. The
Company believes that alternative sources of supply are readily available and
that the loss of any vendor would not materially affect the Company's
operations.
NOTE L -- SHAREHOLDERS' EQUITY -- PREFERRED STOCK
During fiscal 1994, the Board of Directors of the Company authorized the
future issuance of a maximum of 2,500,000 shares of $1 preferred stock (See Note
N).
Series A
500,000 of the Company's 2,500,000 authorized shares of preferred stock, $1
par value per share, shall be designated as Series A Preferred Stock. The
holders of each share of Series A Preferred Stock shall be entitled to receive,
before any dividends shall be declared or paid on or set aside for the Company's
common stock, out of funds legally available for that purpose, cumulative
dividends in cash at the rate of $.035 per share per annum for a period ending
September 30, 2000, payable in semiannual installments, accruing from the date
of issuance of the shares. Commencing October 1, 2000, the rate of dividends
will equal the prime interest rate on the first day of the month in which the
dividends are payable, less 1 1/4%. The Company may redeem any or all of the
shares of Series A Preferred Stock outstanding at a price per share of $1.07
plus an amount equal to any accrued but unpaid dividends thereon during the
first year following the issuance of such shares and such price shall be reduced
by one percent (1%) each year thereafter until $1.00 per share is reached. The
Series A Preferred Stock has no voting rights. During fiscal 1995, the Company
issued 425,547 shares of Series A preferred stock in connection with a business
acquisition (see Note C). There were $0 and $13,653 dividends declared and paid
during the fiscal years 1995 and 1996. There were $0 and $7,448 dividends
declared for the three months ended May 31, 1995 and 1996.
Series B
1,000,000 of the Company's 2,500,000 authorized shares of preferred stock,
$1 par value per share, shall be designated as Series B Preferred Stock. The
holder of each share of Series B Preferred Stock shall be entitled to receive,
out of the surplus of the Company, a noncumulative dividend at the rate of $.05
per share per annum, payable annually before any dividend shall be set apart for
or paid on the common shares for such years. The Series B Preferred Stock has no
voting rights. The Company may redeem any or all of the shares of Series B
Preferred Stock then outstanding at a price per share of $1.00. During fiscal
1994, 125,000 shares of Series B Preferred Stock were issued for $125,000 to
three suppliers. There were $6,250 and $3,000 of dividends declared and paid in
fiscal years 1995 and 1996, respectively. In 1996, the Company bought back
65,000 shares at a price of $1.00 per share from one supplier. No dividends were
declared or paid for the three months ended May 31, 1995 and 1996.
Series C
1,000,000 of the Company's 2,500,000 authorized shares of preferred stock,
$1 par value per share, shall be designated as Series C Preferred Stock. The
holder of each share of Series C Preferred Stock shall be
F-14
<PAGE> 65
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
entitled to receive, before any dividends shall be declared or paid on or set
aside for the Company's common stock, out of funds legally available for that
purpose, cumulative dividends at the rate of $.035 per share per annum, payable
in annual installments, accruing from the date of issuance of the shares. The
Series C Preferred Stock has no voting rights. The Company may redeem any or all
of the shares of Series C Preferred Stock then outstanding at a price per share
of $1.00. During fiscal year 1995, 17,500 shares of Series C Preferred Stock
were issued in connection with a business acquisition (see Note C). No dividends
were declared or due in fiscal year 1995 on these shares. In fiscal year 1996,
dividends of approximately $600 in aggregate at $.035 per share were in arrears
due to the Company being unable to distribute dividends due to change of
ownership of these shares. No dividends were declared or paid for the three
months ended May 31, 1995 and 1996.
Treasury Stock
Total common shares purchased in fiscal year 1996 and held in treasury were
15,152 shares for an aggregate cost of $57,900.
NOTE M -- FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows
(undiscounted) is less than the carrying amount of the asset, an impairment loss
is recognized. Measurement of that loss would be based on the fair value of the
asset. SFAS No. 121 also generally requires long-lived assets and certain
identifiable intangibles to be disposed of to be reported at the lower of the
carrying amount or the fair value less cost to sell. Effective March 1, 1996 the
Company adopted SFAS No. 121 and no impairment losses have been recognized.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 defines a fair value based method
of accounting for an employee stock option. Fair value of the stock option is
determined considering factors such as the exercise price, the expected life of
the option, the current price of the underlying stock and its volatility,
expected dividends on the stock, and the risk-free interest rate for the
expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period. A company may elect to adopt SFAS No. 123 or
elect to continue accounting for its stock option or similar equity awards using
the intrinsic method, where compensation cost is measured at the date of grant
based on the excess of the market value of the underlying stock over the
exercise price. If a company elects not to adopt SFAS No. 123, then it must
provide pro forma disclosure of net income and earnings per share, as if the
fair value based method has been applied.
SFAS No. 123 is effective for transactions entered into for fiscal years
that begin after December 15, 1995. Pro forma disclosures for entities that
elect to continue to measure compensation cost under the old method must include
the effects of all awards granted in fiscal years that begin after December 15,
1994. Effective March 1, 1996, the Company has elected to account for
stock-based compensation plans under the intrinsic method and pro forma
disclosures will be made at February 28, 1997.
F-15
<PAGE> 66
Q.E.P. CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1994 AND 1995 AND FEBRUARY 29, 1996
AND MAY 31, 1995 AND 1996
(INFORMATION RELATING TO MAY 31, 1995 AND 1996 IS UNAUDITED)
NOTE N -- SUBSEQUENT EVENTS
1. Initial Public Offering. The Company intends to offer 1,000,000 shares
of common stock to the general public through an initial public offering (the
"Offering").
Costs deferred in connection with the Offering of the Company's common
stock are charged against paid-in capital upon successful completion of the
Offering. If the Offering is unsuccessful, such costs will be charged to
expense.
2. Reincorporation. The Company was originally incorporated in New York in
1979. In connection with the Offering, the Company intends to reincorporate in
July 1996 as a Delaware corporation with the same name and the New York
corporation will be merged into it, continuing the business of the Company.
3. Employment Agreement. Prior to the date of the Offering, the Company
intends to enter into an employment agreement with its President for an initial
term expiring in three years at an initial annual base salary of $275,000, which
is to be adjusted for increases in the cost of living, plus a bonus based upon
the discretion of the Board of Directors.
4. Stock Option Plan. The Company has adopted a stock option plan (the
"Plan") for employees, consultants and directors of the Company. Stock options
granted pursuant to the Plan shall be authorized by the Board of Directors. The
aggregate number of shares which may be issued under the Plan shall not exceed
250,000 shares of common stock. As of May 31, 1996, the Company has not granted
any stock options or stock appreciation rights to any person.
5. Conversion of Preferred Stock. Upon completion of the Offering, the
Company will convert 183,889 shares of outstanding preferred stock into 4,597
shares of common stock. Included in the shares to be converted is 106,387 shares
of Series A Preferred Stock. To the extent that the Series A shares are
converted to Common Stock, the value of the Preferred Stock available for return
to the Company under the escrow agreement will be reduced by $106,337 (See Note
H). The incremental common stock outstanding would not result in a change in net
income per common share included in the accompanying financial statements.
6. Pro forma net income per common share. Pro forma net income per common
share reflects the issuance of 140,000 shares of common stock necessary to repay
$1,400,000 of debt, including the elimination of $69,000 and $23,000 of interest
expense net of income taxes, for the year ended February 29, 1996 and the three
months ended May 31, 1996, respectively.
F-16
<PAGE> 67
Q.E.P. CO., INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------ ----------- --------------------- ---------- ----------
(2)
(1) CHARGED
BALANCE AT CHARGED TO TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (A) PERIOD
- ------------------------------------------ ----------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1995
Deducted from asset accounts
Allowance for doubtful accounts...... $17,500 $ 8,900 $ -- $ 26,400
======= ======= =======
Year ended February 29, 1996
Deducted from asset accounts
Allowance for doubtful accounts......... $26,400 $ 28,100 $ -- $ 54,500
======= ======= =======
</TABLE>
- ---------------
(a) Accounts written off as uncollectible.
F-17
<PAGE> 68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 11
Dividend Policy......................... 11
Dilution................................ 12
Capitalization.......................... 13
Selected Consolidated Financial Data.... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 15
Business................................ 21
Management.............................. 34
Principal and Selling Shareholders...... 39
Selling Shareholders.................... 40
Plan of Distribution.................... 40
Description of Securities............... 41
Shares Eligible for Future Sale......... 43
Legal Matters........................... 46
Experts................................. 46
Additional Information.................. 46
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,597 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 69
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 11
Dividend Policy......................... 11
Dilution................................ 12
Capitalization.......................... 13
Selected Consolidated Financial Data.... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 15
Business................................ 21
Management.............................. 34
Principal and Selling Shareholders...... 39
Description of Securities............... 41
Shares Eligible for Future Sale......... 43
Underwriting............................ 44
Legal Matters........................... 46
Experts................................. 46
Additional Information.................. 46
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,200,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
[LOGO]
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with this offering which will be paid by
Q.E.P. Co., Inc. (hereinafter in this Part II, the "Company") are estimated to
be substantially as follows:
<TABLE>
<CAPTION>
AMOUNT
PAYABLE
BY THE
ITEM COMPANY*
------------------------------------------------------------------------ -----------
<S> <C>
S.E.C. Registration Fees................................................ $ 5,534.62
N.A.S.D. Filing Fees.................................................... 2,105.04
State Securities Laws (Blue Sky) Fees................................... 25,000.00*
Nasdaq National Market Filing Fee....................................... 15,000.00
Printing and Engraving.................................................. 58,000.00*
Legal Fees.............................................................. 125,000.00*
Representative's Non-Accountable Expense Allowance...................... 250,000.00
Accounting Fees and Expenses............................................ 70,000.00*
Transfer Agent's Fees and Cost of Certificates.......................... 5,000.00*
Miscellaneous Expenses.................................................. 19,360.34*
-----------
Total......................................................... $575,000.00*
===========
</TABLE>
- ---------------
* Estimated for the purpose of this filing.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law permits a corporation organized
thereunder to indemnify its directors and officers for certain of their acts.
The Certificate of Incorporation of the Company has been framed so as to conform
to the Delaware General Corporation Law. (Reference is made to the Certificate
of Incorporation filed as Exhibit 3.1.1 to this Registration Statement.)
In general, any officer, director, employee or agent may be indemnified
against expenses, fines, settlements or judgments arising in connection with a
legal proceeding to which such person is a party, if that person's actions were
in good faith, were believed to be in the Company's best interest and were not
unlawful. Unless such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by independent
decision of the Board of Directors, by legal counsel or by a vote of the
shareholders that the applicable standard of conduct was met by the person to be
indemnified.
The circumstances under which indemnification is granted in connection with
an action brought on behalf of the Company are generally the same as those set
forth above; however, with respect to such actions, indemnification is granted
only with respect to expenses actually incurred in connection with the defense
or settlement of the action. In such actions, the person to be indemnified must
have acted in good faith, in a manner believed to have been in the Company's
best interest and with respect to which such person was not adjudged liable for
negligence or misconduct.
Indemnification may also be granted pursuant to the terms of agreements
which may be entered into in the future pursuant to a vote of shareholders or
directors. The statutory provision cited above and the referenced portion of the
Certificate of Incorporation also grant the power to the Company to purchase and
maintain insurance which protects its officers and directors against any
liabilities incurred in connection with their services in such a position, and
such a policy may be obtained by the Company in the future.
II-1
<PAGE> 71
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Effective October 31, 1994, the Company purchased all of the common stock
of Marion Tool Company. The purchase price paid for such stock included 425,547
shares of Series A Preferred Stock, which were issued to the sole shareholder of
Marion Tool Company at a price of $1.00 per share. Effective January 1, 1995,
the Company purchased all of the assets of Andrews Enterprises. The purchase
price paid for such assets included 17,500 shares of Series C Preferred Stock,
which were issued at a price of $1.00 per share. The sales of Series A and
Series C Preferred Stock were not registered under the Securities Act of 1933.
The Company has made the following sales of its Series B Preferred Stock within
the past three years to the following persons for the cash consideration
indicated, which sales were not registered under the Securities Act of 1933.
<TABLE>
<CAPTION>
DATE OF PRICE NUMBER
NAME ISSUANCE CONSIDERATION PER SHARE OF SHARES
--------------------------------------------- -------- ------------- --------- ---------
<C> <S> <C> <C> <C> <C>
1. Beacon Hills Tools Co........................ 12/09/93 $10,000 $1.00 10,000
2. Kanzawa Precision Tools Manufacturing Co,
Ltd........................................ 12/09/93 50,000 1.00 50,000
3. T.M. Enterprise.............................. 12/09/93 65,000 1.00 65,000
</TABLE>
Effective June 30, 1996, the Company agreed to issue a total of 4,597
shares of Common Stock to the existing shareholders of the Company identified
below in exchange for a total of 183,889 shares of Preferred Stock owned by such
shareholders. No commission or other remuneration was paid or given directly or
indirectly for soliciting such exchange.
<TABLE>
<CAPTION>
NUMBER OF
DATE OF PREFERRED SHARES NUMBER OF
NAME ISSUANCE SURRENDERED COMMON SHARES
------------------------------------------------ -------- ---------------- -------------
<C> <S> <C> <C> <C>
1. Russell White................................... 6/30/96 2,659 2,659
2. Kanzawa Precision Tools Manufacturing Co,
Ltd........................................... 6/30/96 1,250 1,250
3. Beacon Hill Tools Co............................ 6/30/96 250 250
4. John Andrews.................................... 6/30/96 197 197
5. James Andrews................................... 6/30/96 66 66
6. Nancy Andrews................................... 6/30/96 66 66
7. Robert Andrews.................................. 6/30/96 66 66
8. Mary Porras..................................... 6/30/96 43 43
</TABLE>
All the foregoing sales were made to individuals or entities which had
access to information enabling them to evaluate the merits and risks of the
investment by virtue of their relationship to the Company or their economic
bargaining power.
The Company relied on Section 3(a)(9) of the Securities Act of 1933 for the
exemption from the registration requirements of such Act with respect to the
recapitalization and reincorporation of the Company in Delaware on ,
1996 and the exchange of Preferred Stock effective June 30, 1996. The Company
relied on Section 4(2) of the Securities Act of 1933 with respect to the private
sales of Preferred Stock for the exemption from the registration requirements of
such Act. Each investor was furnished with information concerning the operations
of the Company and each had the opportunity to verify the information supplied.
Additionally, the Company obtained a signed representation from each of the
foregoing persons or entities of his or its intent to acquire the Preferred
Stock of the Company for the purpose of investment only, and not with a view
toward the subsequent distribution thereof; and each of the certificates
representing the Preferred Stock issued to the foregoing persons or entities has
been stamped with a legend restricting transfer of the Preferred Stock
represented thereby.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
II-2
<PAGE> 72
The following is a complete list of Exhibits filed as part of this
Registration Statement and which are incorporated herein.
<TABLE>
<CAPTION>
EXHIBIT NO.
- --------------------
<C> <S>
+1.1 -- Form of Underwriting Agreement by and between Q.E.P. Co., Inc. (the
"Company") and Cruttenden Roth Incorporated (the "Representative")
+2.1 -- Agreement and Plan of Merger, dated regarding the change in
domicile of the Company from a New York corporation to a Delaware
corporation.
*3.1.1 -- Form of Certificate of Incorporation of the Company as filed on
, 1996 with the Secretary of State of the State of
Delaware.
*3.2.1 -- Form of By-laws of the Company.
+4.1 -- Form of specimen certificate for Common Stock of the Company.
+4.1.1 -- Form of Representative's Warrant to be issued by the Company to the
Representative.
+5. -- Opinion of Berliner Zisser Walter & Gallegos, P.C., regarding
legality of the securities covered by this Registration Statement.
+9. -- Voting Trust Agreement, dated July , 1996, by and between Lewis
Gould and Susan J. Gould.
+10.1 -- Employment Agreement, dated July , 1996, by and between Lewis Gould
and the Company.
*10.1.1 -- 1996 Stock Option Plan, effective June 20, 1996, authorizing 250,000
shares of Common Stock for issuance pursuant to the Plan.
*10.2.1 -- Lease Agreement, dated March 1, 1989, by and between Boca Commercial
Industrial Ltd. and the Company.
*10.2.2 -- Lease Agreement, dated November 1, 1992, by and between Miles Bros.
Construction and The Andrews Company.
*10.2.3 -- Lease Agreement, dated January 3, 1991, by and between
JMB/Pennsylvania Advisors and The O'Tool Company, Inc, including
Assignment of Lease dated June 9, 1994 by and between The O'Tool
Company, Inc. and the Company.
*10.2.4 -- Lease Agreement, dated December 1994, by and between Connecticut
Mutual Life Insurance Company and the Company, including amendments
thereto dated March 8, 1995 and November 21, 1995.
*10.2.5 -- Lease Agreement, dated June 1993, by and between Leo M. Rutten and
Alice J. Rutten and the Company.
*10.3.1 -- Revolving Loan and Security Agreement and Assignment of Leases, dated
October 13, 1995, by and between Shawmut Bank Connecticut, N.A., a
national banking association, and the Company, including Promissory
Note dated October 13, 1995 Limited Guaranty of Lewis Gould dated
October 13, 1995 and form of Guaranty executed by the Company's
subsidiaries.
11. -- Not applicable.
13. -- Not applicable.
14. -- Not applicable.
15. -- Not applicable.
16. -- Not applicable.
</TABLE>
II-3
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO.
- --------------------
<C> <S>
21. -- Not applicable.
*22. -- List of Subsidiaries.
+23.1 -- The consent of Berliner Zisser Walter & Gallegos, P.C., to the use of
its opinion with respect to the legality of the securities covered by
this Registration Statement and to the references to such firm in the
Prospectus filed as part of this Registration Statement will be
included in Exhibit 5.
*23.2 -- Consent of Grant Thornton LLP, independent certified public
accountants for the Company.
*24. -- The Power of Attorney is included in the signature page of this
Registration Statement.
*27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by Amendment.
- ---------------
(b) Consolidated Financial Statement Schedules.
Report of Independent Certified Public Accountants on Financial
Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii) Include any additional material information on the plan of
distribution.
(2) That, for the purpose of determining any liability under the
Securities Act, each such posteffective amendment shall be deemed to be a
new registration statement of the securities offered, and the offering of
the securities at that time to be the initial bona fide offering.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(f) Prompt Delivery.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates for Common
Stock in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(h) Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act, and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
II-4
<PAGE> 74
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(i) Rule 430A.
The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared it effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boca Raton,
State of Florida on July 1, 1996.
Q.E.P. CO., INC.
By: /s/ LEWIS GOULD
---------------------------------
Lewis Gould, President
Each person whose signature appears below constitutes and appoints Lewis
Gould his attorney-in-fact, for him in any and all capacities, to sign any
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming that said attorney-in-fact,
or his substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ LEWIS GOULD President, Chief Executive July 1, 1996
- --------------------------------------------- Officer (Principal Executive
Lewis Gould Officer) and Director
/s/ PATRICK L. DAGGETT Chief Financial Officer July 1, 1996
- --------------------------------------------- (Principal Financial and
Patrick L. Daggett Accounting Officer) and
Director
/s/ EDWARD F. RONAN, JR. Director July 1, 1996
- ---------------------------------------------
Edward F. Ronan, Jr.
/s/ MERVYN D. FOGEL Director July 1, 1996
- ---------------------------------------------
Mervyn D. Fogel
/s/ SUSAN J. GOULD Director July 1, 1996
- ---------------------------------------------
Susan J. Gould
</TABLE>
II-6
<PAGE> 76
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated April 30, 1996 (except for Note N, as to
which the date is June 25, 1996), accompanying the financial statements and
schedules of Q.E.P. Co., Inc. and Subsidiaries contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
New York, New York
June 28, 1996
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
+1.1 -- Form of Underwriting Agreement by and between Q.E.P. Co., Inc. (the
"Company") and Cruttenden Roth Incorporated (the "Representative")
+2.1 -- Agreement and Plan of Merger, dated regarding the change in
domicile of the Company from a New York corporation to a Delaware
corporation.
*3.1.1 -- Form of Certificate of Incorporation of the Company as filed on
, 1996 with the Secretary of State of the State of
Delaware.
*3.2.1 -- Form of By-laws of the Company.
+4.1 -- Form of specimen certificate for Common Stock of the Company.
+4.1.1 -- Form of Representative's Warrant to be issued by the Company to the
Representative.
+5. -- Opinion of Berliner Zisser Walter & Gallegos, P.C., regarding
legality of the securities covered by this Registration Statement.
+9. -- Voting Trust Agreement, dated July , 1996, by and between Lewis
Gould and Susan J. Gould.
+10.1 -- Employment Agreement, dated July , 1996, by and between Lewis Gould
and the Company.
*10.1.1 -- 1996 Stock Option Plan, effective June 20, 1996, authorizing 250,000
shares of Common Stock for issuance pursuant to the Plan.
*10.2.1 -- Lease Agreement, dated March 1, 1989, by and between Boca Commercial
Industrial Ltd. and the Company.
*10.2.2 -- Lease Agreement, dated November 1, 1992, by and between Miles Bros.
Construction and The Andrews Company.
*10.2.3 -- Lease Agreement, dated January 3, 1991, by and between
JMB/Pennsylvania Advisors and The O'Tool Company, Inc, including
Assignment of Lease dated June 9, 1994 by and between The O'Tool
Company, Inc. and the Company.
*10.2.4 -- Lease Agreement, dated December 1994, by and between Connecticut
Mutual Life Insurance Company and the Company, including amendments
thereto dated March 8, 1995 and November 21, 1995.
*10.2.5 -- Lease Agreement, dated June 1993, by and between Leo M. Rutten and
Alice J. Rutten and the Company.
*10.3.1 -- Revolving Loan and Security Agreement and Assignment of Leases, dated
October 13, 1995, by and between Shawmut Bank Connecticut, N.A., a
national banking association, and the Company, including Promissory
Note dated October 13, 1995 Limited Guaranty of Lewis Gould dated
October 13, 1995 and form of Guaranty executed by the Company's
subsidiaries.
11. -- Not applicable.
13. -- Not applicable.
14. -- Not applicable.
15. -- Not applicable.
16. -- Not applicable.
21. -- Not applicable.
*22. -- List of Subsidiaries.
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
+23.1 -- The consent of Berliner Zisser Walter & Gallegos, P.C., to the use of
its opinion with respect to the legality of the securities covered by
this Registration Statement and to the references to such firm in the
Prospectus filed as part of this Registration Statement will be
included in Exhibit 5.
*23.2 -- Consent of Grant Thornton LLP, independent certified public
accountants for the Company.
*24. -- The Power of Attorney is included in the signature page of this
Registration Statement.
*27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by Amendment.
<PAGE> 1
EXHIBIT 3.1.1
CERTIFICATE OF INCORPORATION
OF
Q.E.P. CO., INC.
The undersigned, a natural person eighteen years of age or older, hereby
establishes a corporation pursuant to the Delaware General Corporation Law, as
amended, and adopts the following Certificate of Incorporation:
FIRST: The name of the Corporation is Q.E.P. CO., INC.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, State of Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: Authorized Shares.
A. The aggregate number of shares which the Corporation
shall have the authority to issue is 13,000,000; of which 2,500,000
shares of the par value of $1.00 shall be designated Preferred Stock and
10,000,000 shares of the par value of $.001 shall be designated Common
Stock.
B. The Board of Directors shall have the authority to cause
the issuance, from time to time, of Preferred Stock in one or more
series, for any proper purpose without further shareholder approval.
Each series of Preferred Stock will be distinctly titled and will
consist of the number of shares of stock designated by the Board of
Directors. The Board of Directors is expressly vested with the right to
determine, with respect to the Preferred Stock and each series thereof,
the following: whether such stock shall be granted voting rights, and
if so, to what extent, and upon what terms and conditions; the rates
and times at which, and the terms and conditions on which, dividends on
such stock shall be paid and whether any dividend rights shall be
cumulative; whether such stock shall be granted conversion rights, and,
if so, upon what terms and conditions; whether the Corporation shall
have the right to redeem such stock, and, if so, upon what terms and
conditions; the liquidation rights (if any) of such stock, including
whether such stock shall enjoy any liquidation preferences; and such
other designations, preferences, relative rights and limitations (if
any) attaching to such stock.
C. There shall be a series of Preferred Stock designated as
"Series A Preferred Stock" consisting of 500,000 shares, a series of
Preferred Stock designated as "Series B Preferred Stock consisting of
1,000,000 shares, and a series of Preferred Stock designated as "Series
C Preferred Stock" consisting of 1,000,000 shares which shall have the
preferences and relative, participating, optional and other special
rights and qualifications, limitations or restrictions as follows:
<PAGE> 2
1. Dividends.
The holder of each share of Series A Preferred Stock shall be entitled
to receive, before any dividends shall be declared or paid upon or set aside
for the Corporation's Common Stock, when and as declared by the Board of
Directors of the Corporation, out of funds legally available for that purpose,
dividends in cash at the rate of $.035 per share per annum for a period ending
September 30, 2000, payable semiannually in arrears on the last day of March
and September in each year (each of such dates being hereinafter called a
"Dividend Payment Date" and each of the semiannual periods ending on the last
day of the month of March and September, respectively being hereinafter called
a "Dividend Period"). Commencing October 1, 2000 the rate of dividends will
equal the prime interest rate on the first day of the month in which the
dividend is payable, less one and one quarter (1 1/4%) percent. The prime rate
shall be based upon the prime rate as published in the Wall Street Journal or
if the Wall Street Journal is not published on the relevant date, then as
published in The New York Times or, if The New York Times is not published on
the relevant date, as published in a publication or a source mutually agreed
upon by the holders of the Series A Preferred Stock and the Corporation. If
the holders and the Corporation cannot agree upon a publication or a source,
then the prime rate shall be submitted to arbitration pursuant to the agreement
between the Corporation and the holders of the Series A Preferred Stock. If
more than one prime rate is set forth in the applicable publication or source,
the average of such rates shall be utilized. Notwithstanding anything to the
contrary set forth above, the Board of Directors of the Corporation, in its
discretion, may defer the payment of any dividend on the Series A Preferred
Stock if it believes that such deferral is in the Corporation's best interest.
Dividends on shares of Series A Preferred Stock shall be cumulative from the
date of issuance of the shares of Series A Preferred Stock (the "Issuance
Date") (whether or not there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends and whether or
not the Board of Directors has determined to defer any dividend payment), so
that, if at any time Full Cumulative Dividends (as defined in this Section)
upon the Series A Preferred Stock to the end of the last completed Dividend
Period shall not have been paid or declared and a sum sufficient for payment
thereof set apart, the amount of the deficiency in such dividends shall be
fully paid (but without interest) before any dividend shall be paid or any
other distribution ordered or made upon any class of stock ranking as to
dividends or upon liquidation junior to the Series A Preferred Stock (other
than a dividend payable in such junior stock) and before any sum or sums shall
be set aside for or applied to the purchase or redemption of any shares of any
class of stock ranking as to dividends or upon liquidation junior to the Series
A Preferred Stock (with respect to such rights, the Series A Preferred Stock
shall rank prior to the Common Stock). "Full Cumulative Dividends" shall mean
(whether or not in any Dividend Period, or any part thereof, in respect of
which such term is used there shall have been net profits or net assets of the
Corporation legally available for the payment of such dividends whether or not
the Board of Directors has determined to defer any dividend payment) that
amount which shall be equal to dividends at the full rate fixed for the Series
A preferred Stock as provided herein for the period of time elapsed from the
Issuance Date to the date as of which Full Cumulative Dividends are to be
computed. All dividends declared upon the Series A Preferred Stock shall be
declared pro rata per share. Holders of shares of Series A Preferred Stock
shall not be entitled to any dividends, whether payable in cash, property or
stock, in excess of the Full Cumulative Dividends at the rate set forth above.
The holder of each share of Series B Preferred Stock shall be entitled
to receive out of the surplus of the Corporation, before any dividend shall be
set apart or paid on the Common Stock for such year, when and as declared by
the Board of Directors of the Corporation, out of funds
-2-
<PAGE> 3
legally available for that purpose, a noncumulative dividend in cash at the
rate of $.05 per share per annum, payable annually and the remainder of the
surplus or net earnings applicable to the payment of dividends shall be
distributed as dividends among the holders of the Common Stock, as and when the
Board of Directors determines. If less than the full preferential dividend is
paid to the holders of Series B Preferred Stock in any calendar year, the
unpaid amount shall lapse and shall not be cumulative whether or not the
earnings of the Corporation were sufficient to cover the preferential dividend
in the year in which it was not fully paid.
The holder of each share of Series C Preferred Stock shall be entitled
to receive, before any dividends shall be declared or paid upon or set aside
for the Corporation's Common Stock, when and as declared by the Board of
Directors of the Corporation, out of funds legally available for that purpose,
dividends in cash at the rate of $.035 per share per annum, payable in
semiannual installments, accruing from the date of issuance. Notwithstanding
anything to the contrary set forth above, the Board of Directors of the
Corporation, in its discretion, may defer the payment of any dividend on the
Series C Preferred Stock if it believes that such deferral is in the
Corporation's best interest. Dividends on shares of Series C Preferred Stock
shall be cumulative so that, if at any time dividends upon the Series C
Preferred Stock shall not have been paid or declared and a sum sufficient for
payment thereof set apart, the amount of the deficiency in such dividends shall
be fully paid (but without interest) before any dividend shall be paid or any
other distribution ordered or made upon any class of stock ranking as to
dividends or upon liquidation junior to the Series C Preferred Stock (other
than a dividend payable in such junior stock) and before any sum or sums shall
be set aside for or applied to the purchase or redemption of any shares of any
class of stock ranking as to dividends or upon liquidation junior to the Series
C Preferred Stock (with respect to such rights, the Series C Preferred Stock
shall rank prior to the Common Stock). All dividends declared upon the Series
C Preferred Stock shall be declared pro rata per share.
2. Rights on Liquidation, Dissolution or Winding Up.
In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of shares of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock then outstanding shall be entitled
to be paid, out of the assets of the Corporation available for distribution to
its stockholders, whether from capital, surplus or earnings, before any payment
shall be made to the holders of shares of any other class of the capital stock
of the Corporation, $1.00 per share of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock. Holders of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall receive, in
addition, any declared but unpaid dividends to the date of payment. If, upon
any liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock the full amounts to which
they respectively shall be entitled, the holders of shares of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall
share ratably in any distribution of assets in proportion to their respective
ownership of Preferred Stock. In the event of any liquidation, dissolution or
winding up of the Corporation, after payment shall have been made to the
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock of the full amount to which they shall be entitled as
aforesaid, the holder of shares of all other classes of the capital stock of
the Corporation, to the exclusion of the holders of shares of Preferred Stock,
shall be entitled to share, according to their respective rights and
preferences, in all remaining assets of the Corporation available for
distribution to its stockholders.
-3-
<PAGE> 4
3. Voting.
(a) Except as otherwise required by law or by this Section 3, the
holders of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall not have the right to vote on matters submitted to the
stockholders of the Corporation.
(b) The Corporation shall not, without the affirmative vote or
consent of the holders of shares representing at least a majority of the shares
of the Series A Preferred Stock then outstanding:
i) in any manner authorize or create any class of capital
stock ranking, either as to payment of dividends or distribution of
assets, prior to or on a parity with the Series A Preferred Stock; or
ii) in any manner alter or change the designations, powers,
preferences or rights or the qualifications, limitations or restrictions
of the Series A Preferred Stock.
(c) The Corporation shall not, without the affirmative vote or
consent of the holders of shares representing at least a majority of the shares
of the Series B Preferred Stock then outstanding:
i) in any manner authorize or create any class of capital
stock ranking, either as to payment of dividends or distribution of
assets, prior to or on a parity with the Series B Preferred Stock; or
ii) in any manner alter or change the designations, powers,
preferences or rights or the qualifications, limitations or restrictions
of the Series B Preferred Stock.
(d) The Corporation shall not, without the affirmative vote or
consent of the holders of shares representing at least a majority of the shares
of the Series C Preferred Stock then outstanding:
i) in any manner authorize or create any class of capital
stock ranking, either as to payment of dividends or distribution of
assets, prior to or on a parity with the Series C Preferred Stock; or
ii) in any manner alter or change the designations, powers,
preferences or rights or the qualifications, limitations or restrictions
of the Series C Preferred Stock.
4. Redemption.
(a) The Corporation may redeem any or all of the shares of Series A
Preferred Stock then outstanding at a price per share of $1.07 plus an amount
equal to any accrued but unpaid dividends thereon during the first year
following the issuance of such shares and such price shall be reduced by one
percent (1%) each year thereafter until par value is reached.
-4-
<PAGE> 5
(b) The Corporation may redeem any or all of the shares of Series B
Preferred Stock then outstanding at a price per share of $1.00.
(c) The Corporation may redeem any or all of the shares of Series C
Preferred Stock then outstanding at a price per share of $1.00.
(d) In the event the Corporation shall desire to redeem all or any
part of the shares of the Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, it shall give notice of the redemption (the
"Redemption Notice") to the holders of the shares to be redeemed at least 60
days prior to the date fixed for redemption. The Redemption Notice shall state
(i) the date fixed for redemption (the "Redemption Date"), (ii) the redemption
price, (iii) if less than all of the outstanding shares of any of the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock are to be
redeemed, the identification of the particular shares of Preferred Stock to be
redeemed, (iv) that on the Redemption Date dividends on such shares as have
been called for redemption shall cease to accrue after such date, and (v) the
place where the shares which have been called for redemption are to be
surrendered for payment of the redemption price.
(e) If less than all of the shares of any of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock are to be redeemed,
the particular shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock to be redeemed shall be selected by the Company from
the outstanding shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock not previously called for redemption, by the
Corporation in its sole and absolute discretion.
(f) On the Redemption Date specified in the Redemption Notice, the
shares to be redeemed shall become due and payable at the applicable redemption
price and from and after such date such shares shall not be entitled to any
dividends accrued thereon. Upon surrender of any such shares to be redeemed at
the office maintained by the Corporation, such shares shall be paid by the
Corporation at the applicable redemption price. Upon receipt of such shares to
be redeemed by the Corporation and payment to the holder of the redemption
price, the Corporation shall cancel such shares and all rights of the holder of
such shares shall cease, and such shares shall not be deemed to be outstanding.
If any share of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock called for redemption shall not be so paid upon its surrender,
such share, until paid, shall be entitled to any dividends accruing on such
share.
FIFTH: The name and mailing address of the incorporator is Robert W.
Walter, 1700 Lincoln Street, Suite 4700, Denver, Colorado 80203.
SIXTH: The powers of the incorporator shall terminate upon the filing
of this Certificate of Incorporation. The following persons shall serve as the
Corporation's initial directors until the first annual meeting of shareholders
or until their respective successor is duly elected and qualified:
NAME ADDRESS
Lewis Gould 990 South Rogers Circle
Boca Raton, Florida 33487
Susan J. Gould 990 South Rogers Circle
Boca Raton, Florida 33487
-5-
<PAGE> 6
Patrick L. Daggett 990 South Rogers Circle
Boca Raton, Florida 33487
Edward F. Ronan, Jr. 990 South Rogers Circle
Boca Raton, Florida 33487
Mervyn D. Fogel 990 South Rogers Circle
Boca Raton, Florida 33487
SEVENTH: The Board of Directors is authorized to adopt, amend, or
repeal By-Laws of the Corporation except as and to the extent provided in the
By-Laws.
EIGHTH: Any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (whether or not by or
in the right of the Corporation) by reason of the fact that he is or was a
director, officer, incorporator, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
incorporator, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the Corporation to the
full extent then permitted by law against expenses (including counsel fees and
disbursements), judgments, fines (including excise taxes assessed on a person
with respect to an employee benefit plan), and amounts paid in settlement
incurred by him in connection with such action, suit, or proceeding. Such
right of indemnification shall inure whether or not the claim asserted is based
on matters which antedate the adoption of this Article EIGHTH. Such right of
indemnification shall continue as to a person who has ceased to be a director,
officer, incorporator, employee, partner, trustee or agent and shall inure to
the benefit of the heirs and personal representatives of such a person. The
indemnification provided by this Article EIGHTH shall not be deemed exclusive
of any other rights which may be provided now or in the future under any
provision currently in effect or hereafter adopted in the By-Laws, by any
agreement, by vote of stockholders, by resolution of disinterested directors,
by provision of law, or otherwise.
NINTH: No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of the director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include, without limitation, any judgment, fine, amount paid
in settlement, penalty, punitive damages, excise or other tax assessed with
respect to an employee benefit plan, or expense of any nature (including,
without limitation, counsel fees and disbursements). Each person who serves as
a director of the Corporation while this Article NINTH is in effect shall be
deemed to be doing so in reliance on the provisions of this Article NINTH, and
neither the amendment or repeal of this Article NINTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
NINTH, shall apply to or have any effect on the liability or alleged liability
of any director or the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article NINTH are
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<PAGE> 7
cumulative and shall be in addition to and independent of any and all other
limitations on or eliminations of the liabilities of directors of the
Corporation, as such, whether such limitations or eliminations arise under or
are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
TENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
IN WITNESS WHEREOF, I made, signed, and sealed this Certificate of
Incorporation this ____ day of July, 1996.
----------------------------------------
Robert W. Walter, Incorporator
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<PAGE> 1
EXHIBIT 3.2.1
BYLAWS
OF
Q.E.P. CO., INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I 1
Registered Office and Registered Agent. . . . . . . . . . . . . . . 1
ARTICLE II 1
Shareholders' Meetings. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Annual Meetings . . . . . . . . . . . . . . . . . 1
Section 2. Special Meetings . . . . . . . . . . . . . . . . 1
Section 3. Notice of Meetings . . . . . . . . . . . . . . . 1
Section 4. Waiver of Notice . . . . . . . . . . . . . . . . 2
Section 5. Quorum and Adjourned Meetings . . . . . . . . . . 2
Section 6. Proxies . . . . . . . . . . . . . . . . . . . . . 2
Section 7. Voting Record . . . . . . . . . . . . . . . . . . 2
Section 8. Voting of Shares . . . . . . . . . . . . . . . . 2
Section 9. Closing of Transfer Books . . . . . . . . . . . . 2
Section 10. Action Without a Meeting . . . . . . . . . . . . 3
Section 11. Telephone Meetings . . . . . . . . . . . . . . . 3
Section 12. Director Nominations . . . . . . . . . . . . . . 3
Section 13. New Business . . . . . . . . . . . . . . . . . . 4
ARTICLE III 6
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1. General Powers . . . . . . . . . . . . . . . . . 6
Section 2. Number . . . . . . . . . . . . . . . . . . . . . 6
Section 3. Tenure and Qualifications . . . . . . . . . . . . 6
Section 4. Election . . . . . . . . . . . . . . . . . . . . 6
Section 5. Vacancies . . . . . . . . . . . . . . . . . . . . 6
Section 6. Resignation . . . . . . . . . . . . . . . . . . . 6
Section 7. Removal of Directors . . . . . . . . . . . . . . 6
Section 8. Meetings . . . . . . . . . . . . . . . . . . . . 7
Section 9. Quorum and Voting . . . . . . . . . . . . . . . . 7
Section 10. Action Without a Meeting . . . . . . . . . . . . 7
Section 11. Telephone Meetings . . . . . . . . . . . . . . . 8
Section 12. Committees of the Board . . . . . . . . . . . . . 8
Section 13. Compensation . . . . . . . . . . . . . . . . . . 8
Section 14. Presumption of Assent . . . . . . . . . . . . . . 8
ARTICLE IV 8
Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1. Officers Designated . . . . . . . . . . . . . . . 8
Section 2. Elections, Qualification and Term of Office . . . 9
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 3. Powers and Duties . . . . . . . . . . . . . . . . . . 9
Section 4. Other Officers and Agents . . . . . . . . . . . . . . 10
Section 5. Removal . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6. Salaries . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V 10
Share Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. Share Certificates . . . . . . . . . . . . . . . . . 10
Section 2. Consideration for Shares 10
Section 3. Transfers . . . . . . . . . . . . . . . . . . . . . . 11
Section 4. Loss or Destruction of Certificate . . . . . . . . . 11
ARTICLE VI 11
Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. Books of Accounts, Minutes, and Share Register . . . 11
Section 2. Copies of Resolutions . . . . . . . . . . . . . . . . 11
Section 3. Books of Account . . . . . . . . . . . . . . . . . . 11
Section 4. Examination of Records . . . . . . . . . . . . . . . 11
ARTICLE VII 12
Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VIII 12
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IX 12
Amendment of Bylaw. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. By the Shareholders . . . . . . . . . . . . . . . . . 12
Section 2. By the Board of Directors . . . . . . . . . . . . . . 12
ARTICLE X 12
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XI 12
Rules of Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
(ii)
<PAGE> 4
BYLAWS
OF
Q.E.P. CO., INC.
ARTICLE I
Registered Office and Registered Agent
The registered office of the corporation shall be located in the State
of Delaware at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. Any change in the registered agent or registered office shall be
effective upon filing such change with the office of the Secretary of the State
of Delaware.
ARTICLE II
Shareholders' Meetings
Section 1. Annual Meetings. The annual meeting of the shareholders
of this corporation for the purpose of election of directors and for such other
business as may come before it, shall be held at the principal office of the
corporation in Denver, Colorado, or at such other place within the United
States as may be designated by the Board of Directors, on the second Wednesday
in August of each and every year, at 10:00 a.m., or on such other day and time
as may be specified by the Board of Directors.
Section 2. Special Meetings. Special meetings of the shareholders
for any purpose or purposes may be called at any time by the Board of Directors
to be held at such time and place as the Board of Directors may prescribe.
Except as may be otherwise provided under Delaware law, shareholders of the
corporation, acting in their capacity as such, shall not have the right to call
a special meeting of shareholders.
Section 3. Notice of Meetings. Written notice of annual or special
meetings of shareholders stating the place, day, and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given by the Secretary or persons authorized to call the
meeting to each shareholder of record entitled to vote at the meeting. Such
notice shall be given not less than ten (10) (or in the case of a merger or
sale of the Company's assets, the minimum number of days specified by Delaware
law), nor more than sixty (60) days prior to the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or persons calling the meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to
the shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
<PAGE> 5
Section 4. Waiver of Notice. Except where expressly prohibited by
law or the Certificate of Incorporation, notice of the day, place, hour and
purpose or purposes of any shareholders' meeting may be waived in writing by
any shareholder at any time, either before or after the meeting, and attendance
at the meeting in person or by proxy shall constitute a waiver of such notice
of the meeting unless such person in attendance asserts, if prior to
commencement of such meeting, in writing to the Secretary, or if at the
commencement of such meeting, publicly to the Chairman, that proper notice was
not given.
Section 5. Quorum and Adjourned Meetings. A majority of the
outstanding shares of the corporation entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of the shareholders. A
majority of the shares represented at a meeting, even if less than a quorum,
may adjourn the meeting from time to time without further notice. At such
reconvened meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 6. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the Secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Revocation of a proxy shall not be effective until
written notice thereof has been received by the Secretary of the corporation.
Section 7. Voting Record. At least ten (10) days before each
meeting of shareholders, a complete record of the shareholders entitled to vote
at such meeting, or any adjournment thereof, shall be made, arranged in
alphabetical order, with the address of and number of shares held by each
shareholder, which record shall be available for inspection by any shareholder
at a place within the city in which the meeting is being held for a period of
ten (10) days prior to such meeting. The record shall be kept open at the time
and place of such meeting for the inspection of any shareholder.
Section 8. Voting of Shares. Except as otherwise provided by
Delaware law, the Certificate of Incorporation or these Bylaws, every
shareholder of record shall have the right at every shareholders' meeting to
one vote for every share standing in his name on the books of the corporation.
In each meeting at which a quorum is present, the affirmative vote of a
majority of the shares represented at such meeting and entitled to vote thereat
shall be necessary for the adoption of a motion or for the determination of all
questions and business which shall come before the meeting.
Section 9. Closing of Transfer Books. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of any
dividend, the Board of Directors may provide that the stock
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<PAGE> 6
transfer books shall be closed for a stated period not to exceed sixty (60)
days nor less than ten (10) days preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a record
date for any such determination of shareholders, such date to be not more than
sixty (60) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action requiring such
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 9, such determination
shall apply to any adjournment thereof.
Section 10. Action Without a Meeting. The shareholders may take any
action which they could properly take at a meeting without a meeting if a
consent in writing, setting forth the action so taken, is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof. Such
consent shall have the same effect as a unanimous vote.
Section 11. Telephone Meetings. Shareholders may participate in a
meeting of shareholders by means of a conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting.
Section 12. Director Nominations. Nominations of candidates for
election as directors at any meeting of shareholders may be made (i) by, or at
the direction of, a majority of the Board of Directors or (ii) by any
shareholder entitled to vote at such a meeting. Only persons nominated in
accordance with the procedures set forth in this Section 12 shall be eligible
for election as directors at such a meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation as set forth in this Section 12. To be timely a
shareholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the corporation not less than sixty (60) days
nor more than ninety (90) days prior to the date of a scheduled shareholders'
meeting, regardless of postponements, deferrals, or adjournments of that
meeting to a later date; provided, however, that if less than seventy (70)
days' notice or prior public disclosure of the scheduled date of such a meeting
is given or made, notice by the shareholder to be timely must be so delivered
or received not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled meeting was mailed or the day on which such public disclosure was
made. Such shareholder's notice shall set forth: (a) as to each person whom
the shareholder proposes to nominate for election or re-election as a director
and as to the shareholder giving the notice (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of stock of the
corporation which are beneficially owned by such person on the date of such
shareholder notice and (iv) any other
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information relating to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for election as directors
pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as
amended, including, but not limited to, information required to be disclosed by
Item 4(b) and Item 6 of Schedule 14A; and (b) as to the shareholder giving the
notice (i) the name and address as they appear on the corporation's books, of
such shareholder and any other shareholders known by such shareholder to be
supporting such nominees and (ii) the class and number of shares of stock of
the corporation which are beneficially owned by such shareholder on the date of
such shareholder notice and by any other shareholders known by such
shareholder to by supporting such nominees on the date of such shareholder
notice. At the request of the Board of Directors, any person nominated by, or
at the direction of, the Board of Directors for election as a director at a
meeting of the shareholders shall furnish to the Secretary of the corporation
that information required to be set forth in a notice of shareholder's meeting
which pertains to the nominee.
No person shall be elected as a director of the corporation unless
nominated in accordance with the procedures set forth in this Section 12.
Ballots bearing the names of all the persons who have been nominated for
election as directors at a meeting of the shareholders in accordance with the
procedures set forth in this Section 12 shall be provided for use at the
meeting.
The Board of Directors may reject any nomination by a shareholder not
timely made in accordance with the requirements of this Section 12. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a shareholder's notice does not satisfy the
informational requirements of this Section 12 in any material respect, the
Secretary of the corporation shall promptly notify such shareholder of the
deficiency in the notice. The shareholder shall have an opportunity to cure
the deficiency by providing additional information to the Secretary within such
period of time, not to exceed five (5) days from the date such deficiency
notice is given to the shareholder, as the Board of Directors or such committee
shall reasonably determine. If the deficiency is not cured within such period,
or if the Board of Directors or such committee reasonably determines that the
additional information provided by the shareholder, together with information
previously provided, does not satisfy the requirements of this Section 12 in
any material respect, then the Board of Directors may reject such shareholder's
nomination. The Secretary of the corporation shall notify a shareholder in
writing whether his nomination has been made in accordance with the time and
information requirements of this Section 12. Notwithstanding the procedure set
forth in this Section 12, if neither the Board of Directors nor such committee
makes a determination as to the validity of any nominations by a shareholder,
the presiding officer of the meeting of the shareholders shall determine and
declare at the meeting whether a nomination was made in accordance with the
terms of this Section 12. If the presiding officer determines that a
nomination was made in accordance with the terms of this Section 12, he shall
so declare at the meeting and ballots shall be provided for use at the meeting
with respect to such nominee. If the presiding officer determines that a
nomination was not made in accordance with the terms of this Section 12, he
shall so declare at the meeting and the defective nomination shall be
disregarded.
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Section 13. New Business. At an annual meeting of shareholders,
only such new business shall be conducted, and only such proposals shall be
acted upon as shall have been brought before the annual meeting (a) by, or at
the direction of, the Board of Directors or (b) by any shareholder of the
corporation who complies with the notice procedures set forth in this Section
13. For a proposal to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the corporation. To be timely, a shareholder's notice must
be delivered to, or mailed and received at, the principal executive offices of
the corporation not less than sixty (60) days nor more than ninety (90) days
prior to the scheduled annual meeting, regardless of any postponements,
deferrals or adjournments of that meeting to a later date; provided, however,
that, if less than seventy (70) days' notice or proper public disclosure of the
date of the scheduled annual meeting is given or made, notice by the
shareholder to be timely must be so delivered or received not later than the
close of business on the tenth (10th) day following the earlier of the date on
which such notice of the date of the scheduled annual meeting was mailed or the
day on which such public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
corporation's books, of the shareholder proposing such business and any other
shareholders known by such shareholder to be supporting such proposal, (c) the
class and number of shares of stock of the corporation which are beneficially
owned by the shareholder on the date of such shareholder notice and by any
other shareholders known by such shareholder to be supporting such proposal on
the date of such shareholder notice, and (d) any financial interest of the
shareholder in such proposal.
The Board of Directors may reject any shareholder proposal not timely
made in accordance with the terms of this Section 13. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a shareholder's notice does not satisfy the informational
requirements of this Section 13 in any material respect, the Secretary of the
corporation shall promptly notify such shareholder of the deficiency in the
notice. The shareholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five (5) days from the date such deficiency notice is given to
the shareholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board
of Directors or such committee determines that the additional information
provided by the shareholder, together with information previously provided,
does not satisfy the requirements of this Section 13 in any material respect,
then the Board of Directors may reject such shareholder's proposal. The
Secretary of the corporation shall notify a shareholder in writing whether his
proposal has been made in accordance with the time and informational
requirements of this Section 13. Notwithstanding the procedure set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any shareholder proposal, the presiding
officer of the annual meeting shall determine and declare at the annual meeting
whether the shareholder proposal was made in accordance with the terms of this
Section 13. If the presiding officer determines that a shareholder proposal
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was made in accordance with the terms of this Section 13, he shall so declare
at the annual meeting and ballots shall be provided for use at the meeting with
respect to any such proposal. If the presiding officer determines that a
shareholder proposal was not made in accordance with the terms of this Section
13, he shall so declare at the annual meeting and any such proposal shall not
be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed
and received as herein provided.
ARTICLE III
Directors
Section 1. General Powers. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the Board of Directors except as
otherwise provided by the laws under which this corporation is formed or in the
Certificate of Incorporation.
Section 2. Number. The number of directors of the corporation
shall be composed of not fewer than three nor more than nine directors, the
specific number to be set by resolution of the Board of Directors or the
shareholders. The number of directors may be increased or decreased by a
resolution of the Board of Directors, provided that no decrease shall have the
effect of shortening the term of any incumbent director.
Section 3. Tenure and Qualifications. Each director shall hold
office until the next annual meeting of shareholders and until his successor
shall have been elected and qualified unless removed in accordance with
Delaware law. Directors need not be residents of any particular state or
shareholders of the corporation.
Section 4. Election. The directors shall be elected by the
shareholders at their annual meeting each year; and if, for any cause, the
directors shall not have been elected at an annual meeting, they may be elected
at a special meeting of shareholders called for that purpose in the manner
provided by these Bylaws.
Section 5. Vacancies. Except as otherwise provided by law, in case
of any vacancy in the Board of Directors, the remaining directors, whether
constituting a quorum or not, may elect a successor to hold office for the
unexpired portion of the term of the director whose place shall be vacant and
until his successor shall have been duly elected and qualified.
Section 6. Resignation. Any director may resign at any time by
delivering written notice to the Secretary of the corporation.
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Section 7. Removal of Directors. At a meeting of shareholders
called expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed, with or without cause, by vote of the holders of a
majority of shares then entitled to vote at an election of such directors.
Section 8. Meetings.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual shareholders' meeting (or any special
shareholders' meeting at which a Board of Directors is elected) at the same
place as such shareholders' meeting or at such other place and at such time as
may be determined by the Board of Directors. No notice of the annual meeting
of the Board of Directors shall be necessary.
(b) Special meetings of the Board of Directors may be called at
any time and place upon the call of the Chairman of the Board, President,
Secretary, or any two or more directors. Notice of the time and place of each
special meeting shall be given by the Secretary, or the persons calling the
meeting, by mail, radio, telegram, or by personal communication by telephone or
otherwise at least three (3) days in advance of the time of the meeting. The
purpose of the meeting need not be given in the notice. Notice of any special
meeting may be waived in writing or by telegram (ether before or after such
meeting) and will be waived by any director by attendance.
(c) Regular meetings of the Board of Directors shall be held at
such place and on such day and hour as shall from time to time be fixed by
resolution of the Board of Directors. No notice of regular meetings of the
Board of Directors shall be necessary if the time and place thereof shall have
been fixed by resolution of the Board of Directors and a copy of such
resolution is mailed to each director held at least three (3) days before the
first meeting held pursuant thereto.
(d) At any meeting of the Board of Directors, any business may be
transacted, and the Board of Directors may exercise all of its powers.
Section 9. Quorum and Voting.
(a) A majority of the directors in office at the time of any
meeting or action of the Board of Directors shall constitute a quorum, but a
lesser number may adjourn any meeting from time to time until a quorum is
obtained, and no further notice thereof need be given.
(b) At each meeting of the Board of Directors at which a quorum
is present, the act of a majority of the directors present at the meeting shall
be the act of the Board of Directors. The directors present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
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Section 10. Action Without a Meeting. The Board of Directors or a
committee thereof may take any action which it could properly take at a meeting
without such a meeting if a consent in writing setting forth the action to be
taken shall be signed by all the directors, or all of the members of the
committee, as the case may be. Such consent shall have the same effect as a
unanimous vote.
Section 11. Telephone Meetings. Members of the Board of Directors
or any committee appointed by the Board of Directors may participate in a
meeting of such Board or committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting.
Section 12. Committees of the Board. The Board of Directors, by
resolutions adopted by a majority of the entire Board of Directors, may
designate from among its members an Executive Committee, an Audit Committee, a
Compensation Committee and one or more other committees. Each such committee
may exercise the authority of the Board of Directors to the extent provided in
such resolution and any subsequent resolutions pertaining thereto and adopted
in like manner, provided that the authority of each such committee shall be
subject to the limitations set forth in Delaware law, as now or hereafter
amended. Such committees shall keep regular minutes of their proceedings and
report to the Board of Directors when requested to do so.
Section 13. Compensation. By resolution of the Board of Directors,
the directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 14. Presumption of Assent. A director of the corporation
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
ARTICLE IV
Officers
Section 1. Officers Designated. The officers of the corporation
shall be the President, one or more Vice Presidents (the number thereof to be
determined by the Board of Directors), a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors. Such
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other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors. Any two or more offices may be held by
the same person, except the offices of President and Secretary.
The Board of Directors may, in its discretion, elect a Chairman of the
Board. If a Chairman of the Board has been elected, he shall, when present,
preside at all meetings of the Board of Directors and the shareholders and
shall have such other powers as the Board of Directors may prescribe.
Section 2. Elections, Qualification and Term of Office. Each of
the officers shall be elected by the Board of Directors. At least two officers
of the corporation shall be directors of the corporation. The officers shall
be elected by the Board of Directors, to hold office at the pleasure of the
Board of Directors.
Section 3. Powers and Duties.
(a) President. The President, subject to the direction and
control of the Board of Directors, shall have general charge and supervision
over its property, business, and affairs. He shall, unless a Chairman of the
Board has been elected and is present, preside at meetings of the shareholders
and the Board of Directors. The President shall be the Chief Executive Officer
of the Corporation, unless the Chairman of the Board has been designated as
such by the Board of Directors.
(b) Vice President. In the absence of the President or his
inability to act, the most senior Vice President shall act in his place and
stead and shall have all the powers and authority of the President, except as
limited by resolution of the Board of Directors. Each Vice President shall
perform such other duties as are assigned by the Board of Directors.
(c) Secretary. The Secretary shall: (1) keep the minutes of the
shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (2) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (3) be
custodian of the corporate records and of the seal of the corporation and affix
the seal of the corporation to all documents as may be required; (4) keep a
register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (5) sign with the President, or
Vice President, certificates for shares of the corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (6)
have general charge of the stock transfer books of the corporation; and (7) in
general perform all duties as from time to time may be assigned to him by the
President or by the Board of Directors.
(d) Treasurer. Subject to the direction and control of the Board
of Directors, the Treasurer shall have the custody, control, and disposition of
the funds and securities of the corporation and shall account for the same;
and, at the expiration of his term of office, he shall turn over to his
successor all property of the corporation in his possession. The Treasurer
shall
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cause to be deposited all funds and other valuable effects in the name of the
corporation in such depositories as may be designated by the Board of
Directors. In general, the Treasurer shall perform all of the duties incident
to the office of Treasurer, and such other duties as from time to time may be
assigned by the Board of Directors.
Section 4. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it shall deem necessary or expedient,
who shall hold their office for such terms, and shall exercise such powers and
perform such duties, as shall be determined from time to time by the Board of
Directors.
Section 5. Removal. The Board of Directors shall have the right to
remove any officer whenever in its judgment the best interest of the
corporation will be served thereby. Such removal shall be without prejudice to
any contract rights of the person so removed.
Section 6. Salaries. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
ARTICLE V
Share Certificates
Section 1. Share Certificates. Share Certificates shall be issued
in numerical order, and each shareholder shall be entitled to a certificate
signed by the President or a Vice President, attested by the Secretary, or an
Assistant Secretary, and sealed with the corporate seal, if any. Facsimiles of
the signatures and seal may be used, as permitted by law. Every share
certificate shall state:
(i) The corporation is organized under the laws of the State
of Delaware;
(ii) The name of the person to whom issued;
(iii) The number, class and series (if any) of shares which
this certificate represents; and
(iv) If the corporation is authorized to issue shares of
more than one class, that upon request and without
charge, the corporation will furnish any shareholder
with a full statement of the designations, preferences,
limitations and relative rights of the shares of each
class.
Section 2. Consideration for Shares. Shares of this corporation
may be issued for such consideration expressed in dollars (not less than par,
if the shares have par value) as shall be
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fixed from time to time by the Board of Directors. The consideration for the
issuance of shares may be paid in whole or in part in cash, promissory notes,
services performed, contracts for services to be performed or other tangible or
intangible property. The reasonable charges and expenses of organization or
reorganization and the reasonable expenses of and compensation for the sale or
underwriting of its shares may be paid or allowed by the corporation out of the
consideration received by it in payment of its shares without rendering the
shares not fully paid or assessable.
Section 3. Transfers. Shares may be transferred by delivery of the
certificate, accompanied either by an assignment in writing on the back of the
certificate, or by a written power of attorney to sell, assign and transfer the
same, signed by the record holder of the certificate. Except as otherwise
specifically provided in these Bylaws, no shares of stock shall be transferred
on the books of the corporation until the outstanding certificate therefor has
been surrendered to the corporation.
Section 4. Loss or Destruction of Certificate. In the event of the
loss or destruction of any certificate, a new certificate may be issued in lieu
thereof upon satisfactory proof of such loss or destruction, and upon the
giving of security against loss to the corporation by bond, indemnity or
otherwise, to the extent deemed necessary by the Board of Directors or the
Secretary or Treasurer.
ARTICLE VI
Books and Records
Section 1. Books of Accounts, Minutes, and Share Register. The
corporation shall keep complete books and records of accounts and minutes of
the proceedings of the Board of Directors and shareholders and shall keep at
its registered office, principal place of business, or at the office of its
transfer agent or registrar a share register giving the names of the
shareholders in alphabetical order and showing their respective addresses and
the number of shares held by each.
Section 2. Copies of Resolutions. Any person dealing with the
corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the Board of Directors or shareholders, when certified
by the President or Secretary.
Section 3. Books of Account. The corporation shall keep
appropriate and complete books of account.
Section 4. Examination of Records. Upon presenting a written
demand requesting examination and providing a detailed statement of the purpose
of such examination, any shareholder of record or holder of record of voting
trust certificates for shares of the corporation for at least six (6) months,
or any holder of record of or the holder of record of
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voting trust certificates for at least 5% of the outstanding shares of the
corporation, shall have the right to examine for any proper purpose, in person
or by his or her attorney or agent, during usual business hours, the
corporation's list of its shareholders, relevant records of accounts and
minutes of meetings and make extracts therefrom.
ARTICLE VII
Corporate Seal
The Board of Directors may provide for a corporate seal which shall
have inscribed thereon the name of the corporation, the year and state of
incorporation and the words "corporate seal".
ARTICLE VIII
Loans
The corporation may not lend money to or guarantee the obligation of a
director of the corporation unless first approved in the manner required by
Delaware law.
ARTICLE IX
Amendment of Bylaws
Section 1. By the Shareholders. These Bylaws may be amended,
altered, or repealed at any regular of special meeting of the shareholders if
notice of the proposed alteration or amendment is contained in the notice of
meeting.
Section 2. By the Board of Directors. These Bylaws may be amended,
altered, or repealed by the affirmative vote of a majority of the whole Board
of Directors at any regular or special meeting of the Board.
ARTICLE X
Fiscal Year
The fiscal year of the corporation shall be set by resolution of the
Board of Directors.
ARTICLE XI
Rules of Order
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The Board of Directors may adopt rules of procedure to govern any
meeting of shareholders or directors to the extent not inconsistent with law,
the corporation's Certificate of Incorporation, or these Bylaws, as they are in
effect from time to time. In the absence of any rule of procedure adopted by
the Board of Directors, the Chairman of the Board shall make all decisions
regarding such procedure for any meeting.
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EXHIBIT 10.1.1
Q.E.P. CO., INC.
OMNIBUS STOCK PLAN OF 1996
1. PURPOSE
The purpose of this Plan is to promote the interest of the Corporation
and its shareholders and the Corporation's success by providing a method
whereby a variety of equity-based incentive and other Awards may be granted to
Employees and Directors of the Corporation and its Subsidiaries and to selected
Consultants who, in the course of their business activities, direct a
significant amount of business to the Corporation.
2. DEFINITIONS
A. "AWARD" means any form of stock option, restricted stock,
Performance Unit, Performance Share, stock appreciation right, dividend
equivalent or other incentive award granted under the Plan.
B. "AWARD NOTICE" means any written notice from the Corporation
to a Participant or agreement between the Corporation and a Participant that
establishes the terms applicable to an Award.
C. "BOARD OF DIRECTORS" means the Board of Directors of the
Corporation.
D. "CODE" means the Internal Revenue Code of 1986, as amended.
E. "COMMITTEE" means the Compensation Committee of the Board of
Directors, or such other committee designated by the Board of Directors, which
is authorized to administer the Plan under Section 3 hereof. The number of
persons who shall serve on the Committee shall be specified from time to time
by the Board of Directors; however, in no event shall there be fewer than two
members of the Committee. The Committee will be composed in a manner such that
the Plan will qualify under Rule 16b-3 with regard to Awards to persons who are
subject to Section 16 of the Exchange Act.
F. "COMMON STOCK" means Common Stock of the Corporation, $.001
par value.
<PAGE> 2
G. "CONSULTANT" means any individual who renders services
directly to the Corporation or to the Corporation's customers as defined and
designated from time to time by the Committee.
H. "CORPORATION" means Q.E.P. Co., Inc.
I. "DIRECTOR" means a member of the Board of Directors.
J. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
K. "FAIR MARKET VALUE" means, on any date, the average of the
high and low sales prices of the Common Stock on a principal national
securities exchange, which includes the National Association of Securities
Dealers Automated Quotation System (NASDAQ), on which such Common Stock is
listed or admitted to trading or if not traded on that date, then on the date
last traded; or if such Common Stock is not so listed or admitted to trading,
the arithmetic mean of the per share closing bid price and per share closing
asked price on such date as quoted on any other system of NASDAQ or such other
market in which such prices are regularly quoted; or if there have been no
published bid or asked quotations, the Committee shall, in good faith and in
accordance with Section 422 of the Code, establish the method for determining
the Fair Market Value of the Common Stock.
L. "EMPLOYEE" means any employee of the Corporation or a
Subsidiary whose performance the Committee determines can have a significant
effect on the success of the Corporation.
M. "PARTICIPANT" means any individual to whom an Award is granted
under the Plan.
N. "PERFORMANCE SHARE" means a Unit expressed in terms of, or
valued by reference to, a share of Common Stock.
O. "PERFORMANCE UNIT" means a Unit valued by reference to
designated criteria established by the Committee, other than Common Stock.
P. "PLAN" means this Plan, which shall be known as Q.E.P. Co.,
Inc. 1996 Omnibus Stock Plan.
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Q. "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange
Act, or any successor rule.
R. "SUBSIDIARY" means a corporation or other business entity (i)
of which the Corporation directly or indirectly has an ownership interest of
50% or more, or (ii) of which it has a right to elect or appoint 50% or more of
the board of directors or other governing body.
S. "UNIT" means a bookkeeping entry used by the Corporation to
record the grant of an Award until such time as the Award is paid, cancelled,
forfeited or terminated.
3. ADMINISTRATION
A. The Plan shall be administered by the Committee. The
Committee shall have the authority to:
(i) construe and interpret the Plan;
(ii) promulgate, amend and rescind rules relating to the
implementation of the Plan;
(iii) make all determinations necessary or advisable for
the administration of the Plan, including the
selection of employees and affiliated individuals who
shall be granted Awards, the number of shares of
Common Stock or Units to be subject to each Award,
the Award price, if any, the vesting or duration of
Awards, and the designation of stock options as
incentive stock options or non-qualified stock
options;
(iv) determine the disposition of Awards in the event of a
Participant's divorce or dissolution of marriage;
(v) determine whether Awards will be granted alone or in
combination or in tandem with other Awards;
(vi) determine whether cash will be paid or Awards will be
granted in replacement of, or as alternatives to,
other grants under the Plan or any other incentive or
compensation plan of the Corporation, a Subsidiary or
an acquired business unit.
B. Subject to the requirements of applicable law, the Committee
may correct any defect, supply any omission, or reconcile any inconsistency in
the Plan, any Award, or any Award Notice; take any and all other actions it
deems necessary or advisable for the proper administration of the Plan;
designate persons other than members of the Committee to carry out its
responsibilities; and prescribe
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such conditions and limitations as it may deem appropriate; except that the
Committee may not delegate its authority with regard to the selection for
participation of, or the granting of Awards to, persons under Section 16 of the
Exchange Act. Any determination, decision, or action of the Committee in
connection with the construction, interpretation, administration, or
application of the Plan shall be final, conclusive and binding upon all persons
validly claiming under or through persons participating in the Plan.
C. The Committee may at any time, and from time to time amend or
cancel any outstanding Award, but only with the consent of the person to whom
the Award was granted.
4. ELIGIBILITY
A. Any Employee is eligible to become a Participant in the Plan.
B. Directors who are not Employees of the Corporation or a
Subsidiary shall receive Awards in accordance with Section 7.
C. Consultants who are not Directors of the Corporation shall be
eligible to receive Awards in accordance with Section 8.
5. SHARES AVAILABLE
A. Subject to Section 16 of the Plan, the maximum number of
shares of Common Stock available for Award grants (including incentive stock
options) shall be 250,000. Notwithstanding the foregoing sentence, the maximum
number of shares of Common Stock that may be awarded under this Plan in the
form of restricted stock awards pursuant to Section 10 may be limited by the
Committee.
6. TERM
The Plan shall become effective on June 20, 1996, subject to the
approval of the Plan by the Corporation's stockholders, and shall continue in
effect until June 20, 2005.
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7. AWARDS TO NON-EMPLOYEE DIRECTORS
Options granted to Directors who are not Employees of the Corporation
or a Subsidiary shall be subject to the following terms:
(i) The exercise price shall be equal to 100% of the Fair
Market Value of the underlying Shares of Common Stock
on the date of the grant, payable in accordance with
the alternatives stated in Section 9.B.(ii) of the
Plan;
(ii) The term of the options shall be ten (10) years;
(iii) The options shall be exercisable beginning six months
after the date of the grant; and
(iv) The options shall be subject to Section 14 of the
Plan.
8. AWARDS TO CONSULTANTS
Consultants shall receive Awards in accordance with the following
terms:
A. No Awards of incentive stock options shall be made to
Consultants.
B. Awards of non-qualified stock options to such Consultants
shall be subject to the following terms:
(i) The exercise price shall be not less than 85% of the
Fair Market Value of the underlying shares of Common
Stock on the date of the grant, payable in accordance
with the alternatives stated in Sections 9.B(ii) and
(iii) of the Plan;
(ii) The term of the options shall be ten (10) years;
(iii) The options shall be exercisable beginning six months
after the date of the grant; and
(iv) The options shall be subject to Section 14 of the
Plan.
9. STOCK OPTIONS
A. Awards may be granted in the form of stock options. Stock
options may be incentive stock options within the meaning of Section 422A of
the Code or non-qualified stock options (i.e., stock options which are not
incentive stock options).
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B. Subject to Section 9.C. relating to incentive stock options,
options shall be in such form and contain such terms as the Committee deems
appropriate. While the terms of options need not be identical, each option
shall be subject to the following terms:
(i) The exercise price shall be the price set by the
Committee but may not be less than 85% of the Fair
Market Value of the underlying shares of Common Stock
on the date of the grant.
(ii) The exercise price shall be paid in cash (including
check, bank draft, or money order), or at the
discretion of the Committee, all or part of the
purchase price may be paid by delivery of the
optionee's full recourse promissory note, delivery of
Common Stock already owned by the Participant for at
least six (6) months and valued at its Fair Market
Value, or any combination of the foregoing methods of
payment. In the case of incentive stock options, the
terms of payment shall be determined at the time of
grant.
(iii) Promissory notes given as payment of the exercise
price, if permitted by the Committee, shall contain
such terms as set by the Committee which are not
inconsistent with the following: the unpaid
principal shall bear interest at a rate set from time
to time by the Committee; payments of principal and
interest shall be made no less frequently than
annually; no part of the note shall be payable later
than ten (10) years from the date of purchase of the
underlying shares of Common Stock; and the optionee
shall give such security as the Committee deems
necessary to ensure full payment.
(iv) The term of an option may not be greater than ten
(10) years from the date of the grant.
(v) Neither a person to whom an option is granted nor
such person's legal representative, heir, legatee or
distributee shall be deemed to be the holder of, or
to have any of the rights of a holder or owner with
respect to, any shares of Common Stock subject to
such option unless and until such person has
exercised the option.
C. The following special terms shall apply to grants of incentive
stock options:
(i) Subject to Section 9.C.(iii) of the Plan, the
exercise price of each incentive stock option shall
not be less than 100% of the Fair Market Value of the
underlying shares of Common Stock on the date of the
grant.
(ii) No incentive stock option shall be granted to any
Employee who directly or indirectly owns stock
possessing more than 10% of the total combined voting
power of all classes of stock of the Corporation,
unless at the time of such grant the exercise price
of the option is at least 110% of the Fair Market
Value of the underlying shares of Common Stock
subject to the option and such option is not
exercisable after the expiration of five (5) years
from the date of the grant.
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(iii) No incentive stock option shall be granted to a
person in his capacity as a Employee of a Subsidiary
if the Corporation has less than a 50% ownership
interest in such Subsidiary.
(iv) Options shall contain such other terms as may be
necessary to qualify the options granted therein as
incentive stock options pursuant to Section 422A of
the Code, or any successor statute.
10. RESTRICTED STOCK
A. Awards may be granted in the form of restricted stock.
B. Grants of restricted stock shall be awarded in exchange for
consideration in an amount determined by the Committee. The price, if any, of
such restricted stock shall be paid in cash, or at the discretion of the
Committee, all or part of the purchase price may be paid by delivery of the
Participant's full recourse promissory note, delivery of Common Stock already
owned by the Participant for at least six (6) months and valued at its Fair
Market Value, or any combination of the foregoing methods of payment, provided
no less than the par value of the stock is paid in cash, and the Participant
has rendered no less than three (3) months prior service to the Corporation.
C. Restricted stock awards shall be subject to such restrictions
as the Committee may impose and may include, if the Committee shall so
determine, restrictions on transferability and restrictions relating to
continued employment.
D. The Committee shall have the discretion to grant to a
Participant receiving restricted shares all or any of the rights of a
shareholder while such shares continue to be subject to restrictions.
11. PERFORMANCE UNITS AND PERFORMANCE SHARES
A. Awards may be granted in the form of Performance Units or
Performance Shares. Awards of Performance Units and Performance Shares shall
refer to a commitment by the Corporation to make a distribution to the
Participant or to his beneficiary depending on (i) the attainment of the
performance objective(s) and other conditions established by the Committee and
(ii) the base value of the Performance Unit or Performance Shares,
respectively, as established by the Committee.
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B. Settlement of Performance Units and Performance Shares may be
in cash, in shares of Common Stock, or a combination thereof. The Committee
may designate a method of converting Performance Units into Common Stock,
including, but not limited to, a method based on the Fair Market Value of
Common Stock over a series of consecutive trading days.
C. Participants shall not be entitled to exercise any voting
rights with respect to Performance Units or Performance Shares, but the
Committee in its sole discretion may attach dividend equivalents to such
Awards.
12. STOCK APPRECIATION RIGHTS
A. Awards may be granted in the form of stock appreciation
rights. Stock appreciation rights may be awarded in tandem with a stock
option, in addition to a stock option, or may be free-standing and unrelated to
a stock option.
B. A stock appreciation right entitles the Participant to receive
from the Corporation an amount equal to the positive difference between (i) the
Fair Market Value of Common Stock on the date of exercise of the stock
appreciation right and (ii) the grant price or some other amount as the
Committee may determine at the time of grant.
C. With respect to persons subject to Section 16 of the Exchange
Act, a stock appreciation right may only be exercised during a period which (i)
begins on the third business day following a date when the Corporation's
quarterly summary statement of sales and earnings is released to the public and
(ii) ends on the 12th business day following such date. This Section 12.C
shall not apply if the exercise occurs automatically on the date when a related
stock option expires.
D. Settlement of stock appreciation rights may be in cash, in
shares of Common Stock, or a combination thereof, as determined by the
Committee.
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13. DEFERRAL OF AWARDS
At the discretion of the Committee, payment of an Award, dividend
equivalent, or any portion thereof may be deferred until a time established by
the Committee. Deferrals shall be made in accordance with guidelines
established by the Committee to ensure that such deferrals comply with
applicable requirements of the Code and its regulations. Deferrals shall be
initiated by the delivery of a written, irrevocable election by the participant
to the Committee or its nominee. Such election shall be made prior to the date
specified by the Committee. The Committee may also (A) credit interest
equivalents on cash payments that are deferred and set the rates of such
interest equivalents and (B) credit dividends equivalents on deferred payments
denominated in the form of shares of Common Stock.
14. EXERCISE OF STOCK OPTIONS UPON TERMINATION OF EMPLOYMENT OR SERVICES.
A. Options granted under Section 7 and 9 shall be exercisable
upon the Participant's (i.e., Non-Employee Directors or Employees) termination
of service within the following periods only. The definition of termination of
service applicable to Consultants shall be defined and determined by the
Committee in its sole discretion. Subject to Section 22, stock options granted
to other Participants may permit the exercise of options upon the Participant's
termination of employment within the following periods, or such shorter periods
as determined by the Committee at the time of grant:
(i) If on account of death, within twelve (12) months of
such event by the person or persons to whom the
Participant's rights pass by will or the laws of
descent or distribution.
(ii) If on account of retirement (as defined from time to
time by Corporation policy), stock options may be
exercised within 3 months of such termination.
(iii) If on account of resignation, options may be
exercised within one (1) month of such termination.
(iv) If for cause (as defined from time to time by
Corporation policy), no unexercised option shall be
exercisable to any extent after termination.
(v) If on account of disability or leave of absence for
the purpose of servicing the government or the
country in which the principal place of employment of
the Participant is located, either in a military or a
civilian capacity, or for such other
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<PAGE> 10
purpose or reason as the Committee may approve, a
Participant shall not be deemed during the period of
any such absence alone, to have terminated his
service, except as the Committee may otherwise
expressly provide.
(vi) If for any reason other than death, retirement,
resignation, cause, or disability, options may be
exercised within three (3) months of such
termination.
B. An unexercised option shall be exercisable only to the extent
that such option was exercisable on the date the Participant's employment or
service terminated. Notwithstanding the foregoing, and except as provided in
Section 14.A. above, terms relating to the exerciseability of options may be
amended by the Committee before or after such termination, except in respect to
options granted under Section 7.
C. In no case may an unexercised option be exercised to any
extent by anyone after expiration of its term.
15. NONASSIGNABILITY
The rights of a Participant under the Plan shall not be assignable by
such Participant, by operation of law or otherwise, except by will or the laws
of descent and distribution. During the lifetime of the person to whom a stock
option or similar right (including a stock appreciation right) is granted, such
person alone may exercise it. No Participant may create a lien on any funds,
securities, rights or other property to which such Participant may have an
interest under the Plan, or which is held by the Corporation for the account of
the Participant under the Plan.
16. ADJUSTMENT OF SHARES AVAILABLE
The Committee shall make appropriate and equitable adjustments in the
shares of Common Stock available for future Awards and the number of shares of
Common Stock covered by unexercised, unvested or unpaid Awards upon the
subdivision of the outstanding shares of Common Stock; the declaration of a
dividend payable in Common Stock; the declaration of a dividend payable in a
form other than Common Stock in an amount that has a material effect on the
price of the shares of Common Stock;
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<PAGE> 11
the combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common Stock;
a recapitalization; or a similar event.
17. PAYMENT OF WITHHOLDING TAXES
As a condition to receiving or exercising an Award, as the case may
be, the Participant shall pay to the Corporation or the employer Subsidiary the
amount of all applicable Federal, state, local and foreign taxes required by
law to be paid or withheld relating to receipt or exercise of the Award.
Alternatively, the Corporation may withhold shares of Common Stock with an
aggregate Fair Market Value equal to such withholding taxes, from any Award in
shares of Common Stock, to the extent the withholding is required by law. The
Corporation also may deduct such withholding taxes from any Award paid in cash.
18. AMENDMENTS
The Board of Directors may amend the Plan at any time and from time to
time, provided however, that the Board shall not amend the terms of the Plan
more frequently than permitted under Rule 16b-3. Rights and obligations under
any Award granted before amendment of the Plan shall not be materially altered
or impaired adversely by such amendment, except with consent of the person to
whom the Award was granted.
19. REGULATORY APPROVALS AND LISTINGS
Notwithstanding any other provision in the Plan, the Corporation shall
have no obligation to issue or deliver certificates for shares of Common Stock
under the Plan prior to (A) obtaining approval from any governmental agency
which the Corporation determines is necessary or advisable, (B) admission of
such shares to listing on the stock exchange on which the Common Stock may be
listed, and (C) completion of any registration or other qualification of such
shares under any state or Federal law or ruling of any governmental body which
the Corporation determines to be necessary or advisable.
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<PAGE> 12
20. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
Participation in the Plan shall not give any Employee any right to
remain in the employ of the Corporation or any Subsidiary. Further, the
adoption of this Plan shall not be deemed to give any Employee or other
individual the right to be selected as a Participant or to be granted an Award.
21. NO RIGHT, TITLE, OR INTEREST IN CORPORATION ASSETS
No Participant shall have any rights as a shareholder of the
Corporation until Participant acquires an unconditional right under an Award to
have shares of Common Stock issued to such Participant. To the extent any
person acquires a right to receive payments from the Corporation under this
Plan, such rights shall be no greater than the rights of an unsecured creditor
of the Corporation.
22. SPECIAL PROVISION PERTAINING TO PERSONS SUBJECT TO SECTION 16
Notwithstanding any other item of this Plan, the following shall apply
to persons subject to Section 16 of the Exchange Act, except in the case of
death or disability:
A. Restricted stock or other equity securities (within the
meaning used in Rule 16b-3 of the Exchange Act or any successor rule) offered
pursuant to this Plan must be held for at least six (6) months from the date of
grant; and
B. At least six (6) months must elapse from the date of
acquisition of any stock option, Performance Unit, Performance Share, stock
appreciation right or other derivative security (within the meaning used in
Rule 16b-3 of the Exchange Act or any successor rule) issued pursuant to the
Plan to the date of disposition of such derivative security (other than upon
exercise or conversion) or its underlying equity security.
23. INDEMNIFICATION
In addition to such other rights of indemnification as they may have
as Directors, the members of the Board of Directors or the Committee
administering the Plan shall be indemnified by the Corporation against
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in
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<PAGE> 13
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by legal counsel
selected by the Corporation) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such member is
liable for negligence or misconduct in the performance of his duties; provided
that within 60 days after institution of any such action, suit or proceeding,
the member shall in writing offer the Corporation the opportunity, at its own
expense, to handle and defend the same.
24. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the
laws of the State of Delaware.
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EXHIBIT 10.2.1
STANDARD LEASE AGREEMENT
Date: March 1, 1989
THIS LEASE AGREEMENT made and entered into the date first appearing
above, by and between the below specified Landlord, Tenant and Guarantor(s),
(hereinafter the "Lease").
For and in consideration of these premises, the rents reserved, and the
agreements and covenants herein contained, the Landlord does hereby lease and
demise unto the Tenant, and the Tenant does hereby hire and take from the
Landlord, the Premises specified below, (hereinafter the "Premises") upon the
terms and conditions set forth herein.
ARTICLE I. FUNDAMENTAL LEASE PROVISIONS AND EXHIBITS
1.1 Fundamental Lease Provisions:
Landlord Name: Boca Commercial Industrial Ltd.-c/o Brenner Real Estate Group
Address: 3195 N. Powerline Rd. #104, Pompano Beach, FL 33069
Phone: (305) 978-9968
Tenant Name: Q.E.P. Co., Inc.
Address: Kay Fries Drive & Rt. 9W P.O. Box 678 Stony Point, NY 10980
Phone: (914) 942-2491
(1st) (2nd)
Guarantor(s) Name(s): Q.E.P. Co., Inc, 9 Kay Fries Dr. Lewis Gould, 7 Punta Rd.
Address: Stony Point, NY 10980 New City, NY 10956
Phone: (914) 942-2491 (914) 638-1285
Premises Address: 990 E. Rogers Circle, Boca Raton, FL 71487
Complex: Boca Commercial -- Industrial Center I
Suite or Bay: 8
Term: 63 months with one (1) 60-month renewal option
Annual Base Rent: See Exhibit "B"
(The base rent is subject to adjustments pursuant to Article IV B hereof, and
all additional rents, charges and assessments set forth herein).
Leased Area: 14,775 sq. ft.
Permitted Use: Manufacturing, distribution, showroom, accessory offices
First Month's Rent: $Base: $2,154,691CAM: $1,539.06 & Sales Tax: $221.62
$3,915.37
Last Month's Rent: $Base: $7,695.31 & Sales Tax: $461.72 $8,157.03
Security Deposit: $5,000
Tenant's Percentage: 13% AB
Estimated Date for Delivery of the Premises: July 1, 1989
Commencement Date: July 1, 1989 (The commencement date is subject to the
provisions of Article III B hereof).
1.2 Effect of Reference to a Fundamental Lease Provision. Each reference in
this Lease to any of the Fundamental Lease Provisions contained in Article 1.1
shall be constructed to incorporate all of the terms provided under each such
Fundamental Lease Provision.
1.3 Exhibits. The exhibits listed in this Section and attached to this
lease are hereby incorporated in and made a part of this Lease:
EXHIBIT "A" - Site Plan
EXHIBIT "B" - Special Provision
EXHIBIT "C" - Form of Addendum specifying
Commencement Date.
Initialed by: Initialed by:
LM AB
- -------------------------------------- ---------------------------------------
Tenant Landlord
1
<PAGE> 2
ARTICLE II. DEFINITIONS
The following definitions shall apply:
A. Base Rent: The Base Rent to be paid by Tenant pursuant to the
provisions herein.
B. Adjusted Annual Rent: The Base Rent as defined above, hereafter
increased in accordance with the provisions hereof, but in no event less then
the Base Rent stipulated for the applicable term.
C. Additional Rent: Tenant's Proportionate share of Real Estate
Taxes, Insurance, and Common Area Maintenance charges.
D. Complex: Boca Commercial -- Industrial Center I.
E. The Premises: Bay 8 of the Complex.
F. Rentable Area: All space in the building rentable to tenants,
whether or not rented or occupied.
G. Tenant's Proportionate Share: The percentage which the area of
said premises is of the total rentable area of the building, which percentage
is agreed upon as specified under Article I. In the event that additional areas
shall be added to or included under this Lease, said agreed percentage shall be
proportionately increased.
H. Common Areas and Facilities: All that part of the Premises not
leased to tenants of the Premises and intended for the common use of all tenants
of the Premises, including among other facilities, parking areas, private
streets and allies, landscaping, curbs, loading areas, sidewalks and lighting
facilities, pylon signs, maintained by the Landlord in the Premises, but
excluding space in buildings (now and hereafter existing) constructed for rental
for commercial purposes, as the same may exist from time to time, and further
excluding streets and allies maintained by a governmental authority, together
with all other common areas, facilities, equipment and installations which are
at the time provided or designated (and which may be changed form time to time
by Landlord) for the use by or benefit of Tenant, its employees, customers, and
other invitees in common with others entitled to the use or benefit of such
areas, facilities, equipment and installations in the manner and for the
purposes permitted by this Lease. Specifically excluded from the Common Areas
and Facilities are those portions of the Land included with the Premises
together with all improvements situated thereon, which are at any time leased or
conveyed to third parties by the Landlord.
ARTICLE III. TERM OF LEASE
A. TERM: The Tenant hereby takes and holds the Premises specified
under Article I for the entire duration of the Term as specified thereunder.
B. COMMENCEMENT DATE: The Term will commence on the date specified
under Article I. It is contemplated that the Premises will be ready for
occupancy by the Tenant on or prior to the Commencement Date. However, in the
event that the Landlord is unable to deliver possession of the premises to the
Tenant on or before said date, then and in such event the Landlord agrees to
deliver possession of the premises to the Tenant as soon as practicable
thereafter, and the rental under this lease will be abated proportionately and
the Tenant will be relieved of the liability for paying the same during such
time Tenant does not have possession. In no event shall the Tenant have any
claim for damages (except for the abatement of rent as herein specified) on
account of the failure of the Landlord to deliver possession of the premises to
the Tenant of or before said date.
C. OPTIONS TO EXTEND: Providing Tenant has not defaulted in
respect to any provision of this lease, Tenant shall have the right to extend
the term of this lease for the number of additional periods of time, and the
length of each such additional period, as designated in Article I, provided
however that written notice is given the Landlord of such
Initialed by: Initialed by:
LM AB
- ------------------------- -------------------------
Tenant Landlord
2
<PAGE> 3
intention to extend the lease not less than one hundred twenty days prior to
the expiration of the Original Term or any prior extended term thereof. During
any extended term of the lease, all provisions of this lease shall remain in
full force and effect, except that the Base Rent, for Option Term shall be
adjusted as herein provided, but in no event to be less than the year previous
to the option term. Lessee shall have no further right or option to renew or
extend the term of this Lease.
D. HOLDING OVER: In the event Tenant remains in possession of the
Premises after the expiration of this lease or any extended term thereof, it
shall be deemed a tenancy from month to month, subject to all conditions,
provisions and obligations of such tenancy, except that the monthly rental
shall be twice the monthly rental last in effect on this Lease.
ARTICLE IV. RENT AND OTHER CHARGES
A. BASE RENT: Tenant shall pay in advance to the Landlord, without
prior demand, in lawful money of the United States, on the first day of each
month, without any deduction or off-set whatsoever throughout the term of this
Lease, the sum specified as Base Rent under Article I, together with all other
additional rent and all other sums and charges payable by Tenant hereunder as
herein provided, plus any Florida State Sales or Use Tax. Such payment shall
be made at the office of the Landlord or at such place Landlord may from time
to time designate by written notice directed to Tenant at the Demised Premises.
In the event that the commencement date of the Original Term is other than the
first day of a month, then the Tenant shall pay rent for such fractional month
prorated on the basis of a thirty day month.
B. ADJUSTED ANNUAL RENT: The base rent shall be adjusted for each
lease year according to the Consumer Price Index as of the date of commencement
of each said lease year. The standard for measuring such adjustments shall be
the Consumer Price Index, United States average on all items and commodity
groups, issued by the Bureau of Labor Statistics of the United States,
hereinafter referred to as the "Index". The "Index" for the first month of the
first term of this lease shall be the Basic Standard. Should said Bureau
discontinue the publication of an Index approximating the Index herein
contemplated, then such Index as may be published by another United States
Governmental Agency, as most nearly approximates the Index herein first above
referred to shall govern and be substituted as the Index to be used, subject to
the application of an appropriate conversion factor to be furnished by the
governmental agency. If the governmental agency will not furnish such
conversion factor, then the parties shall agree upon a conversion factor or a
new Index, and in the event agreement cannot be reached as to such factor, or
such new Index, then the parties hereto agree to submit to arbitrators chosen
in the usual manner. The selection of a new Index by such arbitrators in either
of the above events shall be binding upon the parties hereto. In the event any
controversy arising as to the proper adjustment for rental payments as herein
provided, Tenant shall continue paying the rental under the last preceding
rental adjustment as herein provided until such time as said controversy has
been settled, at which time an adjustment will be made, retroactive to the
beginning of the adjustment period in which controversy arose. However, in no
event shall the annual rent due and payable hereunder be less than the previous
lease year, or the Base Rent for the year as specified under Article I,
regardless of the value of the dollar as reflected by said Index.
C. REAL ESTATE TAXES PAYABLE BY TENANT: The Tenant agrees to pay
to Landlord, as additional rental, in addition to the rental and other sums due
hereunder, during the term of this lease and any extended term thereof.
Initialed by: Initialed by:
LM AB
- ---------------------------------- ----------------------------------
Tenant Landlord
3
<PAGE> 4
his proportionate share of all Real Estate Taxes, and all assessments which may
be levied against the Complex, immediately when first due, together with all
costs and expenses (including attorneys' fees and expenses) incurred by
Landlord in connection therewith, for such calendar year. The copy of the tax
bill submitted by Landlord to Tenant shall be sufficient evidence of the amount
of taxes assessed or levied against the parcel of real property to which such
bill relates. The Tenant's prorata share of Real Estate Tax shall amount to
that portion of the entire tax hereinabove described which the gross floor area
of the Demised Premises bears to the gross floor area of all rentable space in
the Complex, which percentage is as agreed and specified under Article I.
D. MANNER OF PAYMENT OF TAXES BY TENANT: The amounts payable by
Tenant pursuant to the foregoing provision of this Lease shall be estimated by
Landlord for such period as Landlord may determine, not exceeding one year, and
Tenant agrees to deposit with Landlord such amounts in monthly installments in
advance on the first day of each calendar month during such period, such
installments to be in addition to all other payments of rent provided for in
this Lease. At the end of the period for which such estimated payments have
been made, Tenant shall be advised of the actual amount required to be paid
under the provisions of this Article and, if necessary, an adjustment shall be
made between the parties. If Tenant shall have deposited in excess of such
actual amount, the excess shall be refunded by Landlord within a reasonable
period of time. If the amount that Tenant shall have deposited is less than
such actual amount, Tenant agrees to pay such extra amount with the next fixed
minimum rent payment due, or if no further fixed minimum rent payments are due,
then forthwith upon demand therefor by Landlord.
E. PRORATION OF TAXES: Tenant's Proportionate Share of all Real
Estate Taxes required to be paid by Tenant hereunder during the first and last
calendar years of the term of this Lease shall be prorated as of the first and
last days of the term of this Lease, and Landlord shall pay that portion
thereof applicable to the periods before the first day and after the last day
of the term hereof, respectively.
F. INSURANCE: The Tenant shall pay its Proportionate Share of
insurance premiums of insurance policies carried by the Landlord for the
protection of the complex against all perils, liability and rent loss due to
perils, said Proportionate Share to be determined in the same manner as a
proportionate share of Real Estate Taxes pursuant to the last paragraph above
and in accordance with Article VII, Paragraph E hereof.
G. COST OF MAINTENANCE OF COMMON AREAS AND FACILITIES: TENANT TO
PAY PROPORTIONATE SHARE OF EXPENSE. In each year of the term, Tenant will pay
to Landlord, in addition to the Rent specified in Article I hereof, and in
addition to Tenant's payments of Real Estate Taxes and Insurance as additional
Rent, its Proportionate Share of Landlord's costs and expenses of maintaining,
operating and repairing the Common Areas and Facilities (including parking
areas) (hereinafter collectively "Common Area Maintenance"), during such Year
of the term, including without limitation, the costs and expenses incurred by
Landlord in connection with:
(a) Striping, resurfacing, repair and replacement of the
parking area and driveways of the Premises;
(b) Insuring the Common Areas and Facilities, including
such insurance as Landlord may effect against fire and other casualties, public
liability and property damage, loss of rents and/or business interruption, and
any other risks insured against with respect to the Premises by Landlord;
(c) Cleaning, including dirt and rubbish removal, garbage
and waste collection and disposal;
(d) Lighting, loudspeakers, public address and musical
broadcasting and electrical systems;
(e) Traffic control, security, policing and supervising;
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(f) All utilities, including electricity, gas, water,
sewer, and septic tanks;
(g) All personnel including management staff employed to
carry out maintenance of the Common Areas and Facilities, including salaries
and contributions toward usual fringe benefits, unemployment insurance and
similar contributions;
(h) Repairs and replacements to and maintenance and
operation of the roofs of the Premises, the heating, ventilating and
air-conditioning systems, if any, serving the Common Areas and Facilities, and
including gardening and landscaping maintenance;
(i) Rental or lease charges and repairs and replacements to
and maintenance and operations of signs relating to the Premises, whether owned
or rented by Landlord and whether or not located on the Premises;
(j) Monthly Condominium dues if any.
H. MANNER OF PAYMENT OF TENANT'S PROPORTIONATE SHARE OF COMMON
AREA MAINTENANCE CHARGES: The amounts of which Tenant is to pay its
proportionate share pursuant to Section G above together with adequate reserves
to cover the cost of any such striping, resurfacing, repairs and replacements
of the roofs, common areas and facilities shall be estimated by Landlord for
such period as Landlord may determine not exceeding one year, except for the
hereinafter mentioned reserves which may be set aside for any number of years,
and Tenant agrees to pay Landlord such estimated amount of its proportionate
share of such amounts in monthly installments in advance on the first day of
each Lease Year together with and in addition to all other rental payments
provided for in this Lease. At the end of the period for which such estimated
payments have been made, Tenant shall be advised of the actual amount required
to be paid under the provisions of Section G and, if necessary, an adjustment
shall be made between the parties. If Tenant shall have paid in excess of such
actual amount, the excess shall be refunded by Landlord within a reasonable
period of time. If the amount Tenant has paid is less than such actual amount,
Tenant agrees to pay such additional amount with the next fixed minimum rental
payment due, or, if no further fixed minimum rent payments are due, then
forthwith upon demand therefor by Landlord.
I. UTILITY CHARGES: Tenant shall be solely responsible for and
shall promptly pay all charges for heat, air-conditioning, water, gas,
electricity, telephone, storm and sanitary sewer service, janitor service,
garbage removal, window cleaning, and all other services and utilities supplied
to or used or consumed in the Leased Premises. Tenant shall also pay all costs
and expenses for the installation of such utilities and for the extension of
any and all lines necessary to provide such utilities and services to the
Leased Premises, and all connection fees and charges related thereto. In no
event shall Landlord be liable for any interruption or failure in the supply of
any such utilities to Tenant or to the Leased Premises, nor shall any such
failure or interruption constitute an actual or constructive eviction of Tenant
from the Leased Premises or result in or give rise to any abatement in any rent
received hereunder.
J. LATE PAYMENT CHARGE: In the event any monthly installment of
rent is not paid within five (5) days after it is due and payable as set forth
in this lease, Tenant agrees to pay as a late charge an amount equal to ten
(10%) percent of the monthly installment of rent and/or additional Rent that is
due and payable.
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Tenant Landlord
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K. REPEATED FAILURE TO PAY RENT WHEN DUE: If Tenant fails in any
two consecutive months during the term of this Lease to make any Rent and/or
Additional Rent payment within five (5) days after the same shall become due,
the Landlord, in order to reduce its administrative costs, may require, by
giving written notice to the Tenant (and in addition to any late charge payable
under Section J above, as well as any other rights and remedies accruing
pursuant to any term, provision or covenant of this Lease or otherwise provided
by law or in equity), that the fixed Rent payable pursuant to Article I of the
Lease is thereafter to be paid in quarterly installments in advance instead of
in monthly installments in advance and/or that all future payments of Rent and
Additional Rent, percentage, adjusted and additional rent are thereafter to be
made on or before the due date by cash, cashier's check or money order, and
that the delivery of Tenant's personal, partnership or corporate check will no
longer constitute a payment of rental as provided in this Lease. Any acceptance
of a monthly Rental payment or of a personal or corporate check thereafter by
Landlord shall not be construed as a subsequent waiver of said rights, which
may be asserted by Landlord at any time and from time to time during the term
of this Lease.
L. SECURITY DEPOSIT: As security for the faithful performance by
Tenant of all the terms and conditions of this lease, Tenant has deposited with
Landlord a sum specified under Article I as the Security Deposit. The Landlord
may commingle the security deposit with its other funds and, in the event of a
sale of the Complex or of the land on which it stands, or a lease of the land
or Complex or both the Landlord shall have the right to transfer the security
deposit to the Buyer or Tenant and the Landlord shall be released from all
liability to Tenant for the return of such security, and the Tenant shall look
only to the new Landlord for the return of the said security. The security
deposit shall not be mortgaged, assigned or encumbered by the Tenant without
the written consent of the Landlord. In the event of a permitted assignment of
this lease by Tenant, the security deposit shall be held by Landlord as a
deposit made by the assignee and the Landlord shall have no further liability
with respect to the return of said security deposit to the Tenant. If any of
the rents herein reserved or any other sum payable by Tenant to Landlord shall
be overdue and unpaid or should Landlord make payments on behalf of Tenant, or
if Tenant shall fail to perform any of the terms of this Lease, then Landlord
may, at its option and without prejudice to any other remedy which Landlord may
have on account thereof, appropriate and apply said entire deposit or so much
thereof as may be necessary to compensate Landlord toward the payment of rent,
loss or damage sustained by Landlord due to such breach on the part of Tenant;
and Tenant shall forthwith upon demand restore said security to the original
sum deposited. The security deposit shall be returned to the Tenant, without
interest, upon the expiration of the lease term and any extended term thereof,
providing that Tenant has fully carried out all the terms, covenants and
conditions of this lease.
ARTICLE V. NET LEASE
A. NET LEASE INTENDED UNLESS EXPRESSLY PROVIDED OTHERWISE: Tenant
acknowledges and agrees that it is intended that this Lease shall be a
completely net lease to Landlord, that Landlord shall not be responsible during
the term of the Lease for any costs, charges, expenses and outlays of any
nature whatsoever arising from or relating to the Leased Premises, of the
contents thereof, excepting only Landlord's income tax in respect to income
received from leasing the Leased Premises, Landlord's corporation franchise
tax, and any payments to be made by Landlord in connection with any mortgage or
mortgages executed by Landlord affecting the Premises, and Tenant shall pay all
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charges, impositions, costs and expenses of every nature and kind relating to
the Premises and the operation of its business including, but not limited to
electricity, water, gas, telephone, sewerage and other utilities furnished to
the Premises and Tenant Covenants with Landlord accordingly. Landlord shall not
be liable for any interruption whatsoever in utility service.
ARTICLE VI. PREMISES
A. QUIET ENJOYMENT: Tenant, upon paying the Rent and Additional
Rent performing all of the terms on its part to be performed, shall peaceably
and quietly enjoy the Premises subject, nevertheless, to the terms of this
Lease and to any mortgage, ground lease or agreements to which this lease is
subordinated.
B. USE OF THE PREMISES: During the entire Lease Term, and all
extended terms thereof, the Premises must be used and occupied for the sole use
specified under Article I and for no other purpose or purposes without the
written consent of the Landlord, which consent may be withheld in Landlord's
sole discretion.
C. TRADE NAME: Tenant agrees to operate its business at the Leased
Premises only under the name as submitted to and approved by Landlord, and
Tenant shall not change the name of the business operated in the Leased
Premises without the prior written consent of Landlord.
D. SOLICITATION OF BUSINESS: Tenant and Tenant's employees shall
not solicit business in the parking or other common areas of the premises, and
Tenant shall not distribute any handbills or other advertising matter in
automobiles parked in the parking areas or in other common areas of the
premises, nor shall Tenant display any merchandise outside the Leased Premises.
E. PERMITS AND LICENSES: Tenant shall procure at its sole expense
any permits and licenses required for the transaction of business in the
Premises and will at all times comply with all applicable laws, ordinances and
governmental regulations relating to the business of Tenant conducted at the
Premises.
F. FIRE SALES, AUCTIONS, ETC., PROHIBITED: Tenant shall not
conduct within or from the Premises any fire, auction, bankruptcy,
"going-out-of-business," "lost-our-lease," or similar sales, and shall not
advertise the same on the Premises, or operate within the Premises a
"wholesale" or "factory outlet" store, a "second hand" store, or any store
conducted in whole or principally for the sale of second-hand goods or surplus
articles, insurance salvage stock, fire-sale stock or bankruptcy stock.
G. BUSINESS OPERATIONS: Tenant agrees to operate 100% of the
Premises during the entire term of this lease, and to conduct its business at
all times in a high class and reputable manner. Tenant shall keep the Premises
open for business during normal and customary business hours and shall at all
times maintain adequate help in the Premises to sufficiently service Tenant's
customers. Tenant agrees to comply with all laws, rules and regulations of
Landlord and all governmental authorities respecting the use of and operations
and activities on the Premises and in the Complex, including sidewalks,
streets, approaches, drives, parking areas, and shall not make, suffer or
permit any unlawful, improper or offensive use of the Premises or permit any
nuisance therein. Tenant shall not make any use of the Premises which would
make void or voidable any policy of fire or extended coverage insurance
covering the Complex, and if by reason of any use by Tenant of the Premises or
the keeping by tenant of any inflammable substance in the
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premises, the hazard insurance premiums on policies maintained by Landlord shall
be increased over normal rates for the Complex, the amount of the increase in
the premium shall be paid to Landlord by the Tenant on demand. Tenant shall not
burn any trash of any kind in or about the Complex, nor shall Tenant permit
rubbish, refuse or garbage to accumulate or any fire or health hazard to exist
in or about the premises. Tenant shall not display any merchandise or install
any showcase, or other obstructions on the outside of the premises, or in any
lobby or passageway adjoining the same that will extend beyond the borderline of
the premises, nor shall Tenant maintain any loudspeaker device or any noise
making device in such manner as to be audible to anyone not within the Tenant's
premises. No radio or television antenna or other similar device shall be
installed without first obtaining in each instance the Landlord's consent in
writing which consent may thereafter in the Landlord's discretion be withdrawn.
Without consent of the Landlord, the Tenant shall not use the common areas as
herein defined except for ingress and egress to the Complex and the premises.
Tenant agrees that it will, in connection with its operations, use only the
trademarks, service marks, and trade names of Landlord and Landlord's affiliates
in a manner specifically authorized by Landlord. It is further agreed that
Landlord may terminate its license to Lessee to use any of said marks of trade
names at any time upon notice and that the use of said marks and trade names
shall be in accordance with specific standards of quality and controls adopted
by Landlord in connection with the use of its marks. Included within the
specific standards and quality control are the following provisions: (1) Tenant
will not use said marks and trade names in connection with the conduct of any
business except the business conducted on the demised premises and if the
corporate or trade name of Tenant includes any word or name similar to the name
of the Complex, Tenant will immediately upon discontinuance of business in the
demised premises, cause the name to be changed so as to eliminate such word or
name.
H. EXAMINATION OF PREMISES: Tenant, having examined the Premises,
is familiar with the condition thereof and relying solely on such examination
will take them in their present condition, unless otherwise expressly agreed
upon in writing.
I. ACCEPTANCE: Upon the opening of the Premises for business,
Tenant shall be deemed to have certified to the Landlord and to the holder of
any mortgage encumbering all or part of the Landlord's estate, that the premises
have been delivered to it in accordance with the terms of this lease and that
possession has been accepted by Tenant, that the term of this lease and the
obligation to pay rents have commenced, that the premises and all other portions
of the Complex have been completed in accordance with the requirements of this
lease, and that there is not then available to Tenant any defense or offset
against rent or any violation of the lease terms on the part of the Landlord.
The foregoing provisions shall be self-operative and no other instrument or
certificate shall be required by the Landlord or any mortgagee unless the
Landlord or mortgagee shall deem the same appropriate, in which event, in
confirmation of the foregoing, Tenant shall promptly execute in writing a
certificate containing the foregoing.
J. MAINTENANCE: a) BY TENANT: Tenant shall at all times keep and
maintain the Leased Premises (including entrances, all glass, show window
moldings and store fronts), and all partitions, doors, fixtures, equipment and
appurtenances thereof and improvements thereto, (including
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Tenant Landlord
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lighting, heating, ventilation and plumbing fixtures and equipment and wiring
and its air-conditioning system), in good order, condition and repair and shall
replace any of the same as required by Landlord (including periodic painting
and decoration as determined by the Landlord), including, but not limited to
plate glass windows, doors, door closure devices and other exterior openings;
window and door frames, molding, locks and hardware; special storefronts;
lighting, heating, air-conditioning, plumbing and other electrical, mechanical
and electromotive installation, equipment and fixtures; signs, placards,
decoration or advertising media of any type; and interior painting or other
treatment of exterior walls). Landlord shall not be required to make any
repairs to the foundation, exterior walls or the roof by reason of Tenant's
acts or omissions to act or the act of any of Tenant's employees, agents,
customers or invitees. Tenant shall bear the cost of all such maintenance,
repairs, and replacements, and, if Tenant fails to do any such maintenance,
repairs, and replacements, Landlord may do so and Tenant shall pay to the
Landlord upon demand, as additional rent hereunder, the cost of all such
maintenance, repairs and replacements plus interest at the maximum contractual
rate which could legally be charged in the event of a loan of such payment to
the Tenant under the laws of the State of Florida, such interest to accrue
continuously from the date of payment by Landlord until repayment by Tenant. b)
BY LANDLORD: Landlord shall maintain the roof and the exterior structure of the
Premises.
K. ACCESS: Landlord shall have the right to place, maintain and
repair all utility conduits and equipment of any kind, upon and under the
Premises as may be necessary for the servicing of the Premises and other
portions of the Complex. Landlord shall also have the right to enter the
Premises at all times to inspect or to exhibit the same to prospective
purchasers, mortgagees, lessees and tenants and to make such repairs,
additions, alterations or improvements as Landlord may deem desirable.
Landlord shall be allowed to take all material into and upon said Premises that
may be required therefore without the same constituting an eviction of Tenant in
whole or in part and the rents reserved shall not abate while said work is in
progress by reason of loss or interruption of Tenant's business or otherwise
and Tenant shall have no claim for damages. If Tenant shall not be personally
present to permit an entry into said premises when for any reason an entry
therein shall be permissible, Landlord may enter the same by a master key or by
the use of force without rendering Landlord liable therefor and without in any
manner affecting the obligations of this Lease. The provisions of this
paragraph shall not be construed to impose upon Landlord any obligation
whatsoever for the maintenance or repair of the building or any part thereof
except as otherwise herein specifically provided. During the one hundred twenty
days prior to the expiration of the Lease or any renewal term, Landlord may
place upon the Premises signs indicating that the Premises are available for
rent or sale, which Tenant shall permit to remain thereon.
L. EASEMENTS: Landlord reserves all rights to the air space over
and under the Premises and the Complex. The site plan schematically portraying
the general lay-out of the Complex and other improvements shall not be deemed
to be a warranty, or representation that such plan will not be altered from
time to time. Landlord reserves the right to make changes, additions and
eliminations in and to the site plan and the proposed or completed buildings,
and common areas, provided the same do not unreasonably interfere with Tenant's
use of the premises. Landlord reserves the right to use common areas to
accommodate future construction activities in, around, over and under the
Complex. The attachment of a site plan to this lease shall not imply any
obligation on the part of Landlord to construct the building as shown thereon
nor prohibit a future modification thereof.
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M. IMPROVEMENTS: Within twenty days from the date this Lease is
executed by Landlord and Tenant and before any of Tenant's work is started,
Tenant shall submit for Landlord's approval detailed plans and specifications
for all Tenant's work, which must include the extent such work will require
mechanical or electrical installations which will be connected to utilities
furnished by Landlord or will affect the exterior appearance of the Premises or
its structural, mechanical or electrical components.
Tenant shall fully equip the Premises with all trade equipment,
lighting fixtures, furniture, operating equipment, furnishings, fixtures, floor
coverings and exterior signs and any other equipment necessary for the
operation of Tenant's business. Should Tenant install a cooling tower or other
air conditioning equipment on the roof of the Demised Premises, Tenant shall
assume primary responsibility for the maintenance and repair of the roof and
such installation, operation and maintenance shall be made in such manner that
the right of Landlord under any roofing bond then in force shall not be
affected.
All improvements, additions or fixtures (other than trade fixtures not
permanently affixed to the realty) that may be made or installed on the
premises by either party (including floor coverings cemented or otherwise
affixed to the floor) shall be the property of the Landlord.
Tenant shall not make any structural alterations in or additions to
the Premises. If alterations become necessary because of the application of
laws or ordinances or of the directions, rules or regulations of any regulatory
body to the business carried on by the Tenant or because of any act of default
on the part of the Tenant or because Tenant has overloaded any electrical or
other facility, Tenant shall make any required alterations whether structural
or non-structural at its own cost and expense after first obtaining Landlord's
written approval of plans and specifications and Tenants furnishing to
Landlord such indemnification against liens, costs, damages and expenses as
Landlord may reasonably require. All improvements shall be in accordance with
all Federal, State and Local regulations and codes and will not commence prior
to obtaining all applicable permits.
Tenant shall not place or suffer to be placed or maintained on any
exterior door, roof, wall or window of the Complex or demised premises
including the storefront or any other part of the Premises visible from any
part of the common area any sign, awning or canopy, or advertising matter or
other thing of any kind, and will not place or maintain any decoration,
lettering or advertising matter on the glass of any window or door of the
demised premises without first obtaining Landlord's written approval and
consent. Tenant further agrees to maintain such sign, awning, canopy,
decoration, lettering, advertising matter or other thing as may be approved by
landlord in good condition and repair at all times and to remove the same at
the end of the term if requested by Landlord to do so. Upon removal thereof
Tenant agrees to repair any damage to the premises caused by such installation.
Landlord shall have at all times a valid lien for all Rent, Additional
Rent and other sums of money becoming due hereunder from the Tenant upon all
goods, wares, equipment, fixtures, furniture and other personal property of
Tenant situated on the premises without liability for trespass or conversion,
and shall have the right to sell the same with or without notice at public or
private sale, with or without having such property at the sale, at which
Landlord or its assigns may purchase, and apply the proceeds thereof, less any
and all expense connected with the taking of possession and sale of the
property, and as a credit against any sums due by Tenant to Landlord any
surplus shall be paid to Tenant.
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and Tenant agrees to pay any deficiency forthwith. Alternatively, the lien
hereby granted may be foreclosed in the manner and form provided by law or in
any other form provided by law. Tenant agrees to execute such Financing
Statements and other documents as may be required by the Commercial Code of the
state in which the demised premises are located in order to preserve the
priority of the lien created. The statutory lien for rent is not hereby waived,
the express contractual lien herein granted being in addition and
supplementary thereto.
Upon expiration of the term of this lease Tenant agrees to promptly
remove its personal property, trade fixtures and signs and upon Tenant's
failure to do so, the said fixtures, signs and property shall be deemed
abandoned by Tenant and shall become the property of the Landlord. The Landlord
shall not be liable for trespass, conversion or negligence by reason of its
acts or acts of anyone claiming under it or by reason of the negligence of any
person with respect to the acquisition and/or disposition of such property.
Tenant agrees that it will repair any damage done to the premises by
the installation and/or removal of its trade fixtures and signs, and upon
failure of Tenant to do so promptly at the end of the term Tenant agrees to pay
Landlord any cost incurred by Landlord in making such repairs or affecting such
removal.
N. CONTROL OF COMMON AREAS AND FACILITIES BY LANDLORD: All Common
Areas and Facilities from time to time provided by Landlord, including all
automobile parking areas, driveways, entrances and exits thereto, and other
facilities furnished by Landlord in or near the Premises, including employee
parking areas, loading docks, package pick-up stations, pedestrian sidewalks,
ramps, landscaped areas, exterior stairways, elevators, escalators, restrooms
and other areas and improvements provided by Landlord for the general use, in
common, of tenants of the Premises, their officers, agents, employees and
customers, shall at all times be subject to the exclusive control and
management of Landlord, and Landlord shall have the right from time to time to
establish, modify and enforce reasonable rules and regulations with respect to
all Common Areas and Facilities. In addition to the rights of Landlord with
respect to the Common Areas and Facilities set forth in this Lease, Landlord
shall have the right to construct, maintain and operate lighting facilities on
all Common Areas and Facilities; to police the same; from time to time to
change the area, level, location and arrangement of parking areas and other
Common Areas and Facilities herein above referred to; to restrict parking by
tenants, their officers, agents and employees to employee parking areas; to
enforce parking charges, with appropriate provisions for free parking ticket
validation by tenants; to close all or any portion of the Common Areas and
Facilities to such extent as may, in the opinion of Landlord's counsel, be
legally sufficient to prevent a dedication thereof or the accrual of any rights
to any person or to the public therein; to obstruct or close off any or all of
the Common Areas and Facilities for the purpose of maintenance and repair; to
close temporarily all or any portion of the parking areas or facilities to
discourage non-customer parking; and to do and perform such other acts in and
to the Common Areas and Facilities or any part thereof, as Landlord shall
determine in its sole discretion. Landlord will operate and maintain the Common
Areas and Facilities in such manner as Landlord, at its sole discretion, shall
determine from time to time. Without limiting the scope of such discretion,
Landlord shall have the full right and authority to employ all personnel and
to make all rules and regulations pertaining to and necessary for the proper
operation and maintenance of the Common Areas and Facilities.
O. LIENS: Tenant agrees that it will make a prompt payment when
due, of all costs and expenses incurred in carrying out its agreement herein
and of all costs and expenses of any repairs, constructions or
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installations which are the responsibility of Tenant hereunder. Tenant agrees
to indemnify and save Landlord harmless from the against any/all liabilities
incurred by Tenant including any: mechanics, materialsmen's, laborers' liens
asserted or claimed against the premises or any part thereof on account of
work, labor or materials used in the premises or in any improvement or change
thereof made at the request of, or upon the order of, or to discharge the
obligation of Tenant. Should any mechanic's or other lien be filed against the
Demised Premises or any part thereof for any reason whatsoever, Tenant shall
cause the same to be cancelled and discharged of record by bond or otherwise
within ten (10) days after the date of such filing. In no event shall anything
contained in this paragraph or elsewhere in the Lease be deemed to subject
Landlord's interest in the premises to the lien of any person doing work or
furnishing materials at the instance and request of Tenant.
P. COMMON AREAS: In addition to the Premises, Tenant shall have
the right to the non-exclusive use, in common with the Landlord and others to
whom Landlord may grant similar rights, of automobile parking areas, driveways,
malls and footways, and such loading facilities, elevators, escalators and
other facilities as may be located and designated from time to time by Landlord
subject to the terms and conditions of this lease. The Common Areas shall be
subject to the exclusive control and management of Landlord and Landlord shall
have the right to establish, modify, change and enforce rules and regulations
with respect to the Common Areas so long as such rules are not discriminatory
against Tenant, and Tenant agrees to abide by and conform with such rules and
regulations. Tenant agrees that it and its officers and employees will park
their automobiles only in such areas as Landlord from time to time designate
for employee parking, which areas may be within or without the Complex. Tenant
agrees that it will, within five days after written request therefor by
Landlord, furnish Landlord with a state automobile license numbers assigned to
its cars of all its employees. Tenant shall not park any truck or delivery
vehicle in the parking areas, nor permit delivery of merchandise at any place
or at any time other than that designated by Landlord. In the event it is
deemed necessary to prevent the acquisition of public rights, Landlord may from
time to time temporarily close portions of the Common Areas, and may erect
private boundary markers or take such steps as deemed appropriate for this
purpose. Such actions shall not be considered an eviction or disturbance of
Tenant's quiet possession of the demised premises.
Q. DESTRUCTION: If the Demised Premises shall be partially damaged
by any casualty insurable under Landlord's insurance policy, Landlord shall,
upon receipt of the insurance proceeds, repair the same and the minimum rent
shall be abated proportionately as to that portion of the Demised Premises
rendered untenable. If the Premises by reason of such occurrence are rendered
wholly untenable or whether the Premises are damaged or not, if all of the
buildings which then comprise the Complex should be damaged to the extent of
seventy-five percent or more of the then monetary value thereof, or
seventy-five percent of the buildings or common areas of the Complex are
damaged, whether or not the Premises are damaged to such an extent that the
Complex cannot, in the sole judgement of the Landlord, be operated as an
integral unit, then or in any such events, Landlord may elect to repair the
damage or may cancel this Lease by notice of cancellation within one hundred
eight (180) days after such event and thereupon this lease shall expire, and
Tenant shall vacate and surrender the Premises to Landlord. Tenant's liability
for rent upon the termination of this lease shall cease as of the day following
the event or damage. Unless this lease is terminated by Landlord, Tenant shall
hold the proceeds of all insurance carried by Tenant on its property and
improvements in trust for the
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purpose of repair and replacement. In the event Landlord elects to repair the
damage any abatement of rent shall end five days after notice by Landlord to
Tenant that the Premises have been repaired. If any damage is caused by the
negligence of Tenant or its employees, the damages shall be repaired by
Landlord, upon receipt of the insurance proceeds, but there shall be no
abatement of rent.
R. CONDEMNATION: If title to all of the Demised Premises is taken
for any public or quasi-public use by eminent domain or by private purchase in
lieu thereof, or if title to so much of the Premises or the Complex is taken
that a reasonable amount of reconstruction thereof will not in Landlord's sole
discretion result in the premises or the Complex being a practical improvement
and reasonably suitable for use for the purpose for which they are designed,
then, in either event, this lease shall terminate at the option of either party
on the date that title vests in the condemning authority; provided that Tenant
shall not have the right to terminate this lease unless the taking is such as
to render the premises inaccessible to pedestrian traffic, or unless Tenant's
premises is reduced in size or utility so to be practically unusable for the
purposes for which the premises are required to be used. If this lease is
terminated under the provisions of this paragraph, rent shall be apportioned
and adjusted as of the date of termination. Tenant shall have no claim against
Landlord or against the condemning authority for the value of its leasehold
estate or for the value of the unexpired term of the lease. If there is a
partial taking of the Premises or the Complex and this lease is not thereby
terminated under the provisions of this paragraph, then this lease shall remain
in full force and effect, and the Landlord shall, within reasonable time
thereafter, repair and restore the remaining portion of the premises, should
they be affected, to the extent necessary to render the same reasonably
suitable for the purposes for which the premises were leased, and shall repair
and reconstruct the remaining portion of the Complex to the extent necessary to
make the same a complete architectural unit; provided that such work shall not
exceed the scope of the work required to be done by Landlord in originally
constructing such Complex or the demised premises and the Landlord shall not be
required to expend more than the net proceeds of the condemnation award which
are paid to Landlord in complying with its obligations hereunder. All
compensation awarded or paid upon a total or partial taking of the Premises or
the Complex shall belong to and be the property of the Landlord without any
participation by Tenant. Nothing herein shall be construed to preclude Tenant
from prosecuting any claims directly against the condemning authority for loss
of business, damage to, and cost of removal of trade fixtures, furniture and
other personal property belonging to Tenant; provided however, that no such
claim shall diminish or adversely affect the Landlord's award. After any partial
taking of the Demised Premises which does not result in the termination of this
lease the Base Annual Rent for the remainder of the term shall be reduced by the
same percentage as the floor area of the space taken bears to the Leased Square
Feet in the entire demised premises.
S. SUBORDINATION: Tenant agrees that this lease shall be
subordinate to any mortgages, now or hereafter encumbering the Complex or any
part or component thereof, and to all advances made upon the security thereof.
This shall be self-operative and no further instrument of subordination shall
be required by any mortgagee. However, the Tenant, upon request of any party in
interest shall execute promptly such instruments or certificates to carry out
the intent hereof as shall be required by the Landlord.
Tenant shall within five (5) days of request by Landlord, in the event
any proceedings are brought for the foreclosure of or in the event of exercise
of the power of sale under any mortgage made by the Landlord covering the
demised premises or in the Complex or any part thereof or to the Landlord,
execute a certificate certifying (if such be the case
Initialed by: Initialed by:
LM AB
- ------------------------ -------------------------
Tenant Landlord
13
<PAGE> 14
that this lease is unmodified and is in full force and effect (and if there has
been modification, that the same is in full force and effect as modified and
stating the modifications); that there are no defenses or offsets against the
enforcement thereof or stating those claimed by the Tenant; and stating the day
to which rentals and other charges are paid. Such certificate shall also
include such other information as may be reasonably required by mortgagee.
Tenant shall, in the event any proceedings are brought for the
foreclosure of or in the event of exercise of the power of sale under any
mortgage made by the Landlord covering the demised premises, or in the event of
a termination any lease under which Landlord may hold title, attorn to the
purchaser of the encumbered interest or the Landlord as the case may be, and
recognize such person as the Landlord under this lease. Tenant agrees that the
institution of any suit, action or other proceeding by a mortgagee to realize
on Landlord's interest in the Complex or as sale of Landlord's interest in the
Complex pursuant to the powers granted to a mortgagee under its mortgage,
shall not, by operation of law or otherwise, result in the cancellation or
termination of this lease or of the obligations of the Tenant hereunder.
Landlord and Tenant agree that notwithstanding that this lease is expressly
subject and subordinate to any mortgages, any mortgagee, its successors and
assigns or other holder of a mortgage or a note secured thereby, may sell the
Complex in the manner provided in the mortgage and may, at the option of such
mortgagee, his successors and assigns or other holder of the mortgage or the
note secured thereby make such sale of the Complex subject to this lease.
T. ASSIGNMENT: Tenant shall not assign, mortgage or encumber this
lease nor sublet or suffer the Premises or any part thereof to be used by
others without the prior written consent of Landlord in each instance. If
Tenant is a corporation, any transfer, sale or other disposition of the
controlling stock of the Tenant shall be deemed an assignment of this lease
provided, however, that if the stock of such corporation is regularly traded on
any recognized securities market; the transfer of stock will not be prohibited
hereby. Landlord consents to a transfer of this lease to a wholly owned
subsidiary of Tenant provided that tenant shall remain primarily liable for the
performance of Tenant's covenants hereunder. If this lease is assigned or if
the premises or any part thereof is sublet or occupied by anyone other than
Tenant whether with or without the written consent of Landlord, Landlord may
collect rent from the assignee, sub-tenant or occupant and apply the net amount
collected to the rents herein reserved, but no assignment, subletting,
occupancy or collection shall be deemed waiver of any covenants or be deemed an
acceptance of the assignee, sub-tenant or occupant, or a release of tenant from
any liability hereunder.
If the Landlord's written consent is given to an assignment or
sub-letting, the Tenant and any guarantors shall nevertheless remain liable for
the performance of all covenants and conditions hereof. If Landlord shall
consent to an assignment of this lease, no further or additional assignments
may be made without the prior written consent of the Landlord.
U. SURRENDER: Upon the expiration of the term hereof Tenant shall
surrender the Premises to Landlord as in good order and condition as they were
in at the commencement of the term (except for ordinary wear and tear and
damage by fire or other casualties, or causes beyond the Tenant's control)
together with all additions, alterations and improvements which may have been
made in or to the premises pursuant to this lease. Landlord may, at its option,
require the Tenant to remove all such alterations and additions and to restore
the premises to the condition they were in when originally delivered to Tenant,
save ordinary wear and tear. In the event Tenant continues to occupy the
premises
Initialed by: Initialed by:
LM AB
- ------------------------------- --------------------------------
Tenant Landlord
14
<PAGE> 15
after the expiration of the term, without being given or being entitled to a
renewal or new lease, such occupancy shall be considered a tenancy from
month-to-month at a monthly rental equal to double the rent payment due for the
last full month of the lease term. This provision shall not give Tenant any
right to continue occupancy following the expiration of this lease, except with
the consent of Landlord. Tenant shall be liable to Landlord for all damages
occasioned by such holding over, including claims by any succeeding occupancy
of the premises for such delay.
ARTICLE VII. LIABILITY
A. INDEMNITY: Tenant hereby indemnifies Landlord and agrees to
save Landlord harmless from suits, actions, damages, liability and expenses and
costs in connection with tenant's use and/or occupancy of the Premises
including but not limited to loss of life, bodily or personal injury, property
damage or loss of income arising from or out of any occurrence in, upon or at
or from the Demised Premises or the occupancy or use by Tenant of said Premises
or any part thereof, or occasioned wholly or in part by any act or omission
of Tenant, its agents, contractors, employees, servants, invitees, licensees or
concessionaires, including the sidewalks and common areas and facilities within
the Complex. Tenant shall store its property in and shall occupy the Demised
Premises and all other portions of the Complex at its own risk, and releases
Landlord, to the full extent permitted by law, from all claims of every kind
resulting in loss of life, personal or bodily injury or property damage.
Landlord shall not be responsible or liable at any time for any loss or damage
to Tenant's merchandise or equipment, fixtures or other personal property of
Tenant or to Tenant's business; and Landlord shall not be responsible or liable
to Tenant or to those claiming by, through or under Tenant for any loss or
damage to either the person or property of Tenant that may be occasioned by or
through the acts of omissions of persons occupying adjacent, connecting or
adjoining premises. Landlord shall not be responsible or liable for any defect,
latent or otherwise, in the Premises or in any building in the complex, or any
of the equipment, machinery, utilities, appliances or apparatus therein nor
shall it be responsible or liable for any injury, loss of damage to any person
or to any property of Tenant or other person caused by or resulting from
bursting, breakage or by or from leakage, steam, running or the overflow of
water or sewerage in any part of said premises or for any injury or damage
caused by or resulting from acts of God or the elements, or for any injury or
damage caused by or resulting from any defect or negligence in the occupancy,
construction, operation or use of any of said premises, buildings, machinery,
apparatus or equipment by any person or by or from the acts or negligence of
any occupant of the premises. Tenant shall give prompt notice to Landlord in
case of fire or accidents in the Demised Premises or in the building of which
the Demised Premises are a part, or of defects therein or in any fixtures or
equipment. In case Landlord shall, without fault on its part, be made a party
to any litigation commenced by or against Tenant, then Tenant shall protect and
hold Landlord harmless and shall pay all costs, expenses and reasonable
attorney's fees. Tenant shall also pay all costs, expenses and reasonable
attorney's fees that may be incurred or paid by Landlord in enforcing the terms
of this Lease.
B. FORCE MAJEURE: Landlord shall be excused for the period of any
delay in the performance of any obligations hereunder when prevented from so
doing by cause or causes beyond Landlord's control which shall include, without
limitation, all labor disputes, civil commotion, war, war-like operations,
invasion, rebellion, hostilities, military or usurped power, sabotage,
governmental regulations or controls, fire or other casualty, inability to
obtain any material, services or financing or through acts of God.
C. INSURANCE -- PROPERTY DAMAGE, LIABILITY, AND OTHER INSURANCE:
Tenant shall maintain at its own cost and expense (with coverage to
Initialed by: Initialed by:
LM AB
- ----------------------------------- ------------------------------------
Tenant Landlord
15
<PAGE> 16
commence at the time Tenant enters the Premises to install equipment, etc., or
at the commencement of the term of this Lease, whichever occurs earlier) (1)
FIRE INSURANCE in an amount adequate to cover the cost of replacement of all
decorations and improvements, fixtures, and contents in the Premises in the
event of fire. This insurance must be procured on an "All Risk" basis and
comply with the Southeastern Underwriters Association. Tenant must also procure
"Fire Legal Liability" in an amount not less than $100,000.00. (2) PUBLIC
LIABILITY INSURANCE on an occurrence basis with minimum limits of liability in
an amount of $1,000,000.00 for personal injury or death to any person and
$1,000,000.00 for such bodily injury or death of more than one person and
$1,000,000.00 with respect to damage to property (3) PLATE GLASS INSURANCE
covering all outside plate glass in the Premises, and, if there is a boiler in,
adjoining or beneath the Premises, broad form boiler insurance in an amount
specified by Landlord. In the event Tenant fails to obtain or maintain the
insurance required hereunder, Landlord may obtain same and any cost incurred by
Landlord in connection therewith shall be deemed additional rent to be paid by
Tenant and is payable as such.
Any insurance procured by Tenant as herein required shall be issued in
the name of Landlord or such agents as Landlord may designate and Tenant by a
company licensed to do business in the State of Florida and with a current
Best's rating of no lower than "A" and shall contain endorsements that (1) such
insurance may not be cancelled or amended with respects to Landlord without
thirty (30) days written notice by registered mail to Landlord by the insurance
company; (2) Tenant shall be solely responsible for payment of premiums and
Landlord shall not be required to pay any premiums for such insurance; (3) in
the event of payment of any loss covered by such policy, Landlord shall be paid
first by the insurance company for its loss; and (4) any insurance policies
herein required to be procured by Tenant shall contain an express waiver of any
right or subrogation by the insurance company against Landlord. The original
policy or policies of all such hazard and liability insurance shall be
delivered to Landlord by Tenant within ten (10) days of the issuance of each
such policy by the respective insurance company.
Tenant shall not stock, use or sell any article or do anything in or
about the Premises which may be prohibited by Landlord's insurance policies or
any endorsements or forms attached thereto, or which will increase any
insurance rates or premiums on the Premises, the building of which they are a
part and all other buildings in the Complex. Tenant shall pay on demand any
increase in premiums for Landlord's insurance that may be charged on such
insurance carried by Landlord resulting from Tenant's use, occupancy or vacancy
of the Demised Premises. A schedule issued by the organization making the fire
insurance, extended coverage, vandalism and malicious mischief, special
extended coverage or any all-risk insurance rates for said premises or any rule
books issued by the rating organizations or similar bodies or by rating
procedures or rules of Landlord's insurance companies shall be conclusive
evidence of the several items and charges which make-up the insurance rates and
premiums on the Demised Premises and the Complex. If, due to the occupancy,
abandonment, or Tenant's failure to occupy the Premises as herein provided, any
insurance shall be cancelled by the insurance carrier or if the premiums for
any such insurance shall be increased, then, in any of such events, Tenant
shall indemnify and hold Landlord harmless and shall pay on demand the increased
cost of such insurance. Tenant also shall pay in such events, any increased
premium on the rent insurance that may be carried by Landlord for its
protection against rent loss through fire or other casualty.
D. INSURANCE -- FIRE AND OTHER INSURANCE: Tenant shall pay, as
Additional Rent, its Proportionate share of all premiums for fire insurance
with extended coverage, endorsement and/or supplemental risks insurance and/or
Broad Boiler and Unfired Pressure Vessels insurance,
Initialed by: Initialed by:
/s/ LM /s/ AB
- ------------------------------- --------------------------------
Tenant Landlord
16
<PAGE> 17
including repair or replacement coverage, public liability and property damage
insurance, business interruption and/or loss of rent insurance and/or any other
insurance as respects loss of or damage to, or liability by reason of the
ownership and operation of, the Premises that may be carried by Landlord with
respect to the Premises during the term of this Lease, and Tenant shall pay
such amounts to Landlord in the manner hereinafter specified.
E. INSURANCE -- MANNER OF PAYMENT OF INSURANCE PREMIUMS BY TENANT:
The Proportionate Share of insurance premiums payable by Tenant pursuant to the
foregoing provision of this Lease may, at the option of Landlord, be
estimated by Landlord for such period in advance as Landlord may determine not
exceeding one (1) year, and Tenant agrees, upon the request of the Landlord, to
deposit with Landlord such amounts in monthly installments in advance on the
first day of each calendar month during such period, such installments to be in
addition to all other payments of rent provided for in this Lease. At the end
of the period for which such estimated payments have been made, Tenant shall be
advised of the actual amount required to be paid under the foregoing provision
of this Lease and if necessary an adjustment shall be made between the parties.
If Tenant's deposit is in excess of such actual amount, the excess shall be
refunded by Landlord within a reasonable period of time. If the amount Tenant
shall have deposited is less than such actual amount, Tenant agrees to pay such
extra amount with the next Rent payment due, or if no further rent payments are
due, then forthwith upon demand therefore by Landlord.
ARTICLE VIII. PERFORMANCE
A. DEFAULT: The following events shall be deemed to be events of
default by Tenant under this lease: If
(1) Tenant shall fail to pay any installment of rent,
including Percentage Rent and additional rent hereby reserved and such failure
shall continue for a period of five (5) days.
(2) Tenant shall fail to comply with any term, provision,
or covenant of this lease, other than payment of rent and shall not cure such
failure within fifteen (15) days after written notice thereof to Tenant.
(3) Tenant or guarantor shall become insolvent or shall
make a transfer in fraud of creditors or shall make an assignment for the
benefit of creditors.
(4) Tenant or guarantor shall file a petition under any
section or chapter of the National Bankruptcy Act, as amended, or under any
similar law or statute of the United States or any State thereof, or there
shall be filed against Tenant a petition in bankruptcy or insolvency or a
similar proceeding, and any such proceedings shall not have been dismissed
within ninety (90) days after its commencement, or Tenant shall be adjudged
bankrupt or insolvent in proceeding filed against Tenant thereunder.
(5) A receiver or Trustee shall be appointed for the
Premises or for all or substantially all the assets of Tenant.
(6) Tenant shall abandon or vacate all or any portion of
the Premises or fail to take possession or open for business within the time
required by this Lease.
(7) Tenant shall do or permit to be done anything which
creates a lien upon the Premises, or the Complex or any portion thereof.
B. REMEDIES: Upon the occurrence of any such events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever:
(1) Terminate this lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and, if Tenant
Initialed by: Initialed by:
LM AB
- ------------------------------------ -----------------------------------
Tenant Landlord
17
<PAGE> 18
fails to do so, Landlord may, without prejudice to any other remedy which he may
have for possession or arrearages in rent, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
said premises or any part thereof, by force if necessary, without being liable
for prosecution or any claim of damages therefore; and Tenant agrees to pay to
Landlord on demand the amount of all loss and damage which Landlord may suffer
by reason of such termination, whether through inability to re-let the premises
on satisfactory terms or otherwise.
(2) Enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying said premises or any
part thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefore, and, if Landlord so elects, re-let the premises on
such terms as Landlord may deem advisable and receive the rent therefore. If
Tenant is not in possession of the Demised Premises and Landlord terminates this
Lease due to Tenant's default hereunder, Tenant shall surrender Tenant's copy of
the lease to Landlord and Tenant shall have no further rights hereunder. Tenant
agrees to pay to Landlord on demand any deficiency, expenses and/or brokerage
fees that may arise by reason of such re-letting.
(3) Enter upon the Premises by force if necessary without being
liable for prosecution or any claim for damages therefore, and do whatever
Tenant is obligated to do under the terms of this lease; and Tenant agrees to
reimburse Landlord on demand for any expenses including reasonable attorneys
fees which Landlord may incur in thus effecting compliance with Tenant's
obligations under this lease, and Tenant further agrees that Landlord shall not
be liable for any damages, resulting to the Tenant for such action, whether
caused by the negligence of Landlord or otherwise.
(4) All rent and other charges due and to become due under this
lease may, at the option of Landlord, become immediately due and payable.
(5) Collect from Tenant all costs, expenses or damages incurred by
Landlord resulting from or in any matter attributable to Tenant's failure to
perform Tenant's duties and obligations in a timely fashion or in the event of
Tenant's failure to commence operations in the premises on the Commencement
Date, collect from Tenant liquidated damages (which Tenant hereby acknowledges
to be fair and reasonable) or $100.00 per day until the date Tenant so
commences operations in the premises.
C. NO WAIVER: Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
provisions and covenants herein contained. No action taken by or on behalf of
the Landlord shall be construed to be acceptance of a surrender of this lease.
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. In determining the amount of loss or damage which Landlord may
suffer by reason of termination of this lease or the deficiency arising by
reason of any re-letting of the demised premises by Landlord as above provided,
allowance shall be made for the expense of repossession, any repairs or
remodeling undertaken by Landlord following repossession. Tenant agrees to pay
to Landlord all costs and expenses incurred by Landlord in the enforcement of
this lease, including all reasonable fees of Landlord's attorneys when such
attorneys are employed by Landlord to effect collection of any sums due
hereunder or to enforce any right or remedy of Landlord.
Initialed by: Initialed by:
LM AB
- ----------------------------- -----------------------------
Tenant Landlord
18
<PAGE> 19
The failure of the Landlord to insist, in any one or more instances
upon strict performance of any of the covenants or agreements in this Lease, or
to exercise any option herein contained, shall not be construed as a waiver or
a relinquishment for the future of such covenant, agreement, or option, but the
same shall continue and remain in full force and effect. The receipt by the
Landlord of rent, with knowledge of the breach of any covenant or agreement
thereof, shall not be deemed a waiver of such breach and no waiver by the
Landlord of any provision hereof shall be deemed to have been made unless
expressed in writing and signed by the Landlord.
D. RIGHT TO CURE: If Tenant defaults under this lease, Landlord
may, at its option, immediately or at any time thereafter, without waiving any
claim for breach of agreement, and without notice to Tenant, cure such default
for the account of Tenant. If the Landlord shall institute an action or summary
proceeding against the Tenant based upon such default, or if the Landlord shall
cure such default or defaults for the account of Tenant, then the Tenant will
pay all costs and expenses incurred by Landlord in curing such default
including reasonable attorney's fees, which sum, together with interest at the
rate of fifteen (15%) percent per annum shall be due and payable on demand, and
shall be deemed to be additional rent. Landlord shall not be responsible to
Tenant for any loss or damage resulting in any manner by reason of its
undertaking any acts in accordance with the provisions of this lease.
E. TIME OF ESSENCE: Time is of the essence of this lease and each
and every provision hereof.
F. NOTICES: any notice required or permitted to be given under
this lease shall be in writing and shall be posted in the United States mail,
registered, return receipt requested, addressed to the party to be served at
the address shown in Article I of this lease, or to such other address as
either the Landlord or the Tenant shall designate, in the manner herein set
forth for the giving of notice. Any notice required to be given by the Tenant
to the Landlord to be effective hereunder shall also be given in writing by
registered mail to each mortgagee of the Landlord's estate provided that the
Tenant shall have previously received written notice of the name and address of
any such mortgagee. A mortgagee shall have the same rights to cure any default
that the Landlord has under the terms of this lease.
G. SUBMISSION OF LEASE: Submission of this Lease for examination
does not constitute an option for the demised premises and becomes effective as
a lease only upon execution and delivery thereof by Landlord to Tenant. If any
provisions contained in a rider is inconsistent with the printed provision of
this lease, the provision contained in said rider shall supercede said printed
provision. The captions, numbers and index appearing herein are inserted only
as a matter of convenience and are not intended to define, limit, construe or
describe the scope or intent of any paragraph, nor in any way affect this lease.
H. RECORDING: Tenant shall not record this lease or a memorandum
thereof without the written consent of Landlord.
I. PARTIAL INVALIDITY: If any provision of this lease or
application thereof to any person or circumstance to any extent be invalid, the
remainder of this lease or the application of such provision to persons or
circumstances other than those as to which it is held invalid shall not be
affected thereby and each provision of this lease shall be valid and enforced
to the fullest extent permitted by law.
J. BROKER'S COMMISSION: Tenant represents and warrants that there
are no claims for brokerage commissions or finder's fees in connection with
Initialed by: Initialed by:
LM AB
- ------------------------------- --------------------------------
Tenant Landlord
19
<PAGE> 20
the execution of this lease and agrees to indemnify Landlord against and hold
it harmless from all liabilities arising from any such claim, including cost of
counsel fees.
K. INTERPRETATION: The covenants and agreements herein contained
shall bind, and the benefits and advantages hereof shall inure to the respective
heirs, legal representatives, successors and assigns of the parties hereto.
Whenever used, the singular number shall include the plural, the plural shall
include the singular, and the use of any gender shall include all genders. This
lease may not be changed orally, but only by an agreement in writing and signed
by the party against whom enforcement of any waiver, change, modification, or
discharge is sought. The marginal notes and headings of this lease are inserted
only as a matter of convenience and for reference and in no way define, limit or
describe the scope or intent or otherwise affect in any way this lease. This
agreement shall create the relationship of Landlord and Tenant between the
parties hereto. No estate shall pass out of the Landlord. Tenant shall have only
a usufruct not subject to levy and sale, and not subject to assignment except in
accordance with the provisions hereof. This lease shall be governed by,
construed and enforced in accordance with the laws of the state in which the
Complex is located. Should any of the printed provisions of this lease require
judicial interpretation, it is agreed that the court interpreting or construing
the same shall not apply a presumption that the terms of any such printed
provision shall be more strictly construed against one party by reason of the
rule of construction that a document is to be construed most strictly against
the party who itself or through its agent prepared the same, it being agreed
that the agents of all parties have participated in the preparation of the
printed provisions of this lease, and that all terms were negotiable.
L. ENTIRE AGREEMENT: Notwithstanding anything herein contained or
contained in any other writings concerning the Demised Premises by either of the
parties hereto, the parties hereto agreeing hereby that all such other writings
are hereby superceded and/or merged into this Lease which shall be the entire
agreement of the parties concerning said Demised Premises, this Lease shall not
become binding as such upon Landlord unless all preliminary conditions required
to be performed by Tenant are so performed and unless the requirements of the
zoning ordinances and rules and regulations of all public authorities having
jurisdiction are met. Tenant acknowledges that Landlord makes no representations
as to his ability to build or Tenant's ability to conduct the business intended
to be conducted on the premises under said zoning laws and the rules and
regulations of said public authorities having juris- diction.
Tenant acknowledges that Landlord has not made any statement, promise
or agreement or taken upon itself any engagement whatsoever, verbally or in
writing, in conflict with the terms of this Lease, or that in any way modifies,
varies, alters, enlarges or invalidates any of its provisions, and that no
obligation of the Landlord shall be implied in addition to the obligations
herein expressed.
ARTICLE IX. GUARANTEE
A. Guarantor, to induce Landlord to enter into this Lease and for
other good and valuable considerations, the receipt and sufficiency of which
are hereby acknowledged, hereby directly and unconditionally guarantees to and
covenants with Landlord that Tenant will duly and promptly perform, observe and
keep each and every covenant, proviso, condition and agreement in this Lease on
the part of the Tenant to be
Initialed by: Initialed by:
LM AB
- ------------------------------------ -----------------------------------
Tenant Landlord
20
<PAGE> 21
performed, observed or kept, including the payment of rent and all other sums
and payments agreed to be paid or payable under this Lease on the days and at
the times and in the manner herein specified, and that if any default shall be
made by Tenant, whether in payment of any rent or other sums from time to time
falling due hereunder, as and when the same becomes due and payable, or in the
performance, observance or keeping of any of the said covenants, provisos,
conditions, or agreements which under the terms of this Lease are to be
performed, observed or kept by the Tenant, Guarantor will forthwith pay to
Landlord on demand the said rent and other sums in respect of which such
default shall have occurred and all damages that may arise in consequence of
the non-observance or non-performance of any of the said covenants, provisos,
conditions, or agreements.
B. Guarantor covenants with Landlord that Guarantor is jointly and
severally bound with Tenant, as principal debtor as if Guarantor were named
Tenant hereunder.
C. Guarantor(s) hereby agree, if more than one, that their
obligations hereunder are joint and several.
D. No neglect or forbearance of Landlord in endeavoring to obtain
payment of the rent reserved herein or other payments required to be made under
the provisions of this Lease as and when the same become due, no delays of
Landlord in taking any steps to enforce performance or observance of the
several covenants, provisos or conditions contained in this Lease to be
performed, observed or kept by Tenant, no extension or extensions of time which
may be given by Landlord from time to time to Tenant, no consent by Landlord to
any assignee or subletting by Tenant or to any other matter, no assignment by
Tenant of its interest under this Lease, no subletting by Tenant of all or any
part of the Leased Premises and no other act or failure to act of or by
Landlord shall release, discharge or in any way reduce the obligations of
Guarantor under the provisions of this Article, each of which shall remain in
full force and effect during the entire term of this Lease.
E. In the event of termination of this Lease other than by
surrender accepted by Landlord, or in the event of disclaimer of this Lease
pursuant to any statute, or in the event that Tenant (if a corporation,
partnership or joint venture) ceases to exist, then at the option of Landlord,
Guarantor shall execute a new lease of the Leased Premises between Landlord as
Landlord and Guarantor as Tenant for a term equal in duration to the residue of
the term of this Lease remaining unexpired at the date of such termination or
such disclaimer, or such cessation of existence. Such lease shall contain the
like Landlord's and Tenant's obligations respectively and the like covenants,
provisos, agreements, and conditions in all respects as contained in this
Lease.
F. Guarantor hereby agrees that its obligations hereunder are
performable in the county of the Premises and hereby submits to the
jurisdiction of the Courts of the State of Florida in any action or proceeding
whatsoever by Landlord to enforce its rights hereunder.
ARTICLE X. RULES AND REGULATIONS
A. RULES AND REGULATIONS: Tenant agrees to observe and comply with
and Tenant agrees that his agents and all persons visiting in the
Initialed by: Initialed by:
LM AB
- ---------------------------------- --------------------------------------
Tenant Landlord
21
<PAGE> 22
Premises will observe and comply with the Rules and Regulations and such other
and further Rules and Regulations as Landlord may from time to time deem
needful and prescribe for the reputation, safety, care and cleanliness of the
Building, and the preservation of good order therein and the comfort, quiet and
convenience of other occupants of the Building, which Rules and Regulations
shall be deemed terms and conditions of this Lease. Landlord shall not be
liable to Tenant for the violation of any of the said Rules and Regulations by
any other Tenant or person.
B. GARBAGE AND REFUSE: All garbage and refuse shall be kept in the
kinds of containers specified by Landlord and shall be stored on the Leased
Premises prepared for collection in the manner and at the places specified by
Landlord. If Landlord shall provide or designate a service for picking up
refuse and garbage, Tenant shall use the same and pay the cost thereof as
reasonably determined by the Landlord within ten (10) days after demand
therefor by the Landlord. Tenant shall make arrangements satisfactory with the
Landlord for, and shall pay the cost of, removal of all of Tenant's garbage,
refuse or rubbish from the Leased Premises on a regular, periodic basis. Tenant
shall not burn any trash or garbage of any kind in or about the Leased Premises.
C. RADIO AND TELEVISION ANTENNAE: No exterior antennas, electric
wires, telegraph call boxes, or any other electric equipment or apparatus shall
be erected or installed on Leased Premises without, in each instance, the prior
written consent of Landlord. Any antennae so installed without such written
consent shall be subject to removal without notice at any time, at the cost of
Tenant.
D. ADJACENT AREAS: The areas immediately adjoining the Leased
Premises shall be kept clean and free from dirt and rubbish by Tenant to the
satisfaction of Landlord, and Tenant shall not place any obstructions or
merchandise in such areas.
E. PARKING: Tenant shall have the nonexclusive use of any
nonassigned parking spaces however, Landlord reserves the right to assign
parking spaces on the basis of square footage occupied. In the event that
spaces are assigned for Tenant or its employees and Tenant or its employees
fail to park their motor vehicles in designated employee parking areas as
aforesaid, then landlord at its option shall be entitled to charge Tenant, and
Tenant hereby agrees to pay Landlord on demand as additional rent, Ten Dollars
($10.00) per day per motor vehicle parked in any area other than those
designated as employee parking areas.
F. WINDOWS AND PROJECTIONS: Nothing shall be affixed to or
projected beyond the outside of the Building by Tenant without the prior
written consent of Landlord. If Tenant desires, and Landlord permits, blinds,
shades, or other form of outside or inside window coverings, they shall be
furnished and installed at the expense of Tenant and must be of such shape,
color, material and make as are approved by Landlord.
G. ADVERTISING AND SIGNS: Unless expressly permitted by Landlord,
no sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed on any part of the outside or inside of the
Building, except on the glass or panels of the doors of the Leased Premises, and
then only of subject matter and in such color, size, style and material as
shall conform to the specifications of Landlord. Landlord reserves the right to
remove all other signs or lettering, without notice to Tenant, at the expense
of Tenant.
Initialed by: Initialed by:
LM AB
- ------------------------------- --------------------------------
Tenant Landlord
22
<PAGE> 23
H. BICYCLES AND ANIMALS: Unless expressly permitted by Landlord,
no bicycle or other vehicle and no animal shall be brought or permitted to be
in the Building or any part thereof.
I. MACHINERY: Unless Landlord gives prior written consent in each
and every instance, Tenant shall not install or operate any steam or internal
combustion engine, boiler, machinery, refrigerating or heating device or
air-conditioning apparatus in or about said Premises. All equipment of any
electrical or mechanical nature shall be placed in settings which absorb and
prevent vibration, noise, or annoyance, or the spillage or leakage of fluids,
oils or grease on the floors of said Premises.
J. LOCKS: Unless expressly permitted by Landlord, no visible
additional locks or similar devices shall be attached to any door or window.
Upon termination of this Lease or of Tenant's possession, Tenant shall
surrender all keys of said Premises and shall provide Landlord with the
then-current combinations for any combination locks or safes, cabinets and
vaults.
K. NOISES AND OTHER NUISANCES: Tenant shall not make or permit any
noise, odor, or vapor that is objectionable to Landlord or to other
occupants of the Building to emanate from said Premises, and shall not create
or maintain a nuisance therein, and shall not disturb, solicit or canvass any
occupant of the Building, and shall not do any act tending to injure the
reputation of the Building. Tenant shall not install or operate any phonograph,
musical instrument, radio or television receiver or similar device in the
Building without prior approval of Landlord. The use thereof, if permitted,
shall be subject to control by Landlord to the end that others shall not be
disturbed or annoyed.
L. SAFES OR HEAVY ARTICLES: Tenant shall not overload any floor.
Safes, furniture and all large articles shall be brought into said Premises or
removed therefrom at the Tenant's sole risk and responsibility.
M. HANDIWORK: tenant will not use or allow the surrounding parking
and landscaped area to be used for any type of auto repair work, painting of any
kind, fiberglassing of any king or woodworking of any kind.
N. AWNINGS AND COVERINGS: No awnings, metal bars or metal frame
work shall be placed by the Tenant on any windows, any interior location visible
from the exterior of the Building, any exterior portions of the Building or
grounds without prior written consent of the Landlord.
ARTICLE XI. MISCELLANEOUS
A. GOVERNING LAW: This Lease shall be construed in accordance
with and governed by the laws of the state of Florida.
C. PLUMBING FACILITIES: The plumbing facilities in the Leased
Premises shall not be used for any other purpose than that for which they
Initialed by: Initialed by:
LM AB
- --------------------------- -------------------------
23
<PAGE> 24
are constructed, and no foreign substances of any kind shall be thrown therein;
the expense of any breakage, stoppage, or damage resulting from a violation of
this provision shall be borne by Tenant.
D. WAIVER: The waiver by Landlord of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rental so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent. No covenant, term or condition of this Lease shall be
deemed to have been waived by Landlord, unless such waiver be in writing by
Landlord.
IN WITNESS WHEREOF this Lease has been duly executed by the parties
hereto, under seal, as of the day and year first above.
Signed, sealed and delivered in the presence of:
LANDLORD: Boca Commercial Industrial, Ltd.
By: [ILLEGIBLE]
- ------------------------------ --------------------------------------
Date: 4/3/89
- ------------------------------ ------------------------------------
TENANT: Q.E.P. Co., Inc.
/s/ Debra W. Domian By:/s/ Lois Gould, President
- ------------------------------ ---------------------------------------
/s/ Denise McOnace Date:03/21/89
- ------------------------------ -------------------------------------
GUARANTOR(S):
/s/ Debra W. Domian By: Lois Gould
- ------------------------------ --------------------------------------
/s/ Denise McOnace By:
- ------------------------------ --------------------------------------
By:
- ------------------------------ --------------------------------------
Date:
------------------------------------
<PAGE> 25
EXHIBIT "B"
RIDER TO LEASE AGREEMENT
BETWEEN BOCA COMMERCIAL INDUSTRIAL LTD.
AND
Q.E.P. CO., INC.
This Rider is intended to be incorporated in and be a part of the Standard
Lease Agreement to which it is attached. In the event of any inconsistencies
between the terms and provisions of this Rider and the terms and provisions of
the Standard Lease Agreement, this Rider shall control.
1. The Tenant under the Lease, Q.E.P. Co., Inc., is represented by Tenant
to be in good standing with the Secretary of State of the State of
Florida.
2. The Tenant agrees to pay the base rent for the initial term as set
forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
Monthly Total
Lease Month Rate Annual Base Rent
----------- ---------- ----------------
1 - 4.5 --- ----
4.5 - 12 2,154.69 25,856.25
12 - 24 4,617.19 55,406.25
25 - 36 5,232.81 62,793.75
37 - 48 6,464.06 77,568.75
49 - 63 7,695.31 115,429.69
</TABLE>
3. Landlord acknowledges that Tenant is presently obligated to Two (2)
separate leases in the Miami, Florida area. As an inducement to have
the Tenant move into Landlord's building, Landlord agrees to allow up to
Twelve (12) months of Base Rental Abatement. Tenant acknowledges as an
inducement to Landlord to offer same, Tenant shall allow Landlord's
representative (Brenner Real Estate Group, "Brenner") to represent
Tenant in promoting and seeking Tenants or Buyer on an exclusive basis
for said premises. Landlord agrees to provide acceptable terms and
conditions for said leases or sale and also agrees to enter into an
exclusive listing agreement with Brenner. Tenant also agrees to
cooperate fully with Brenner and use best efforts in assisting in the
leasing or sale of said premises.
During any period of Base rental abatement, Tenant agrees to pay the
common area charges plus any applicable sales tax for the premises. The
Base rental abatement discussed herein shall cease upon the occupancy of
a tenant or closing by a buyer for said premises.
4. Landlord and Tenant acknowledge that all additional charges called for
under the Lease Agreement at the date of this Lease are being capped and
collected at $1.25 per sq. ft.*
5. Article IV B, Adjusted Annual Rent shall not apply to the initial term
of this base.
6. As it relates to the renewal option (Article III Paragraph C) Article IV
B shall apply with fixed increase of the base rent of 10% greater than
the previous 12-month period for first 12 months of the new term. The
increases, thereafter, shall be as described therein.
*Tenant agrees to pay its proportion at share of any increase in real
estate taxes and insurance over the base year being 1989.
<PAGE> 26
EXHIBIT "B"
Page 2
7. Article IV Paragraph I - water and sanitary sewer service are part of the
common area charges.
8. The following paragraphs in Article VI shall be modified to provide the
following:
B - Permission shall not be unreasonably withheld.
C - Multiple names permitted.
F - Showroom permitted.
G - Flammable substances permitted so long as
Tenant complies with all governmental
regulatory and safety requirements for
treatment of such substances.
K - Unless there is an emergency, Landlord shall
only have access during normal business hours.
M - Tenant shall be provided a reasonable time to
cure before Landlord would execute any lien
created herein.
Q - Delete "one hundred eighty (180) days" insert
"Ninety (90) days".
R - In the last sentence of the paragraph insert
"and common area charges or "Additional Rent
Due" after "Base Annual Rent".
T - Permission shall not be unreasonably withheld.
9. Article VII - Landlord shall accept a copy of insurance policy.
10. Article VIII Paragraph B(1) - Landlord shall provide notice and
reasonable time to remedy.
11. Article X Paragraph B - Costs associated with this section are a part
of common area charges being collected.
12. Landlord agrees and Tenant acknowledges that Landlord shall provide an
improvement allowance of $32,500. This sum shall be inclusive of
architecture drawings, electrical upgrades, and any other improvements
to the space. Landlord agrees to construct improvements in accordance
with plans and specifications to be drawn by Landlord's architect with
the assistance of Tenant and approved by both Landlord and Tenant. It is
contemplated by both, Landlord and Tenant, that the necessary
improvements shall exceed the allowance. Before improvements are
started, both Landlord and Tenant agree that said cost shall be agreed
upon and any cost above the allowance shall be loaned to the Tenant and
paid back to the Landlord over the term of the Lease on a monthly basis
including 12% interest thereon. Tenant and Guarantor agree to execute a
separate Promissory Note evidencing this obligation. Any default in
payment of amounts due under the Note shall be deemed default under the
Lease Agreement.*
*Notwithstanding anything to the contrary herein Landlord and Tenant agree that
the total sum that shall be provided by Landlord shall not exceed $40,000. Any
amount in excess of this shall be paid by Tenant and not loaned by Landlord or
amortized into the Lease.
<PAGE> 27
EXHIBIT B
Page 3
13. Landlord and Tenant acknowledge that the nature of Tenant's business
causes noise that may be disturbing to neighboring tenants. Therefore,
Landlord and Tenant agree to share the cost of insulating the demising
walls 50/50 if necessary.
Initialed By: Initialed By:
LM AB
- --------------------------------- -----------------------------------
<PAGE> 28
FIRST AMENDMENT TO LEASE
BETWEEN
BOCA COMMERCIAL INDUSTRIAL, LTD.
AND
Q.E.P. CO., INC.
This Amendment dated March 8, 1995 is a modification of the Lease dated the 1st
day of March, 1989, by and between Boca Commercial Industrial, Ltd. ("Landlord")
and Q.E.P. Co., Inc., ("Tenant").
WITNESSETH:
WHEREAS, the parties hereto executed that certain Lease dated March 1,
1989 ("Lease") and
NOW THEREFORE, for Ten and no/100 Dollars ($10.00) and other good and
valuable considerations, the receipt, adequacy and sufficiency of which is
hereby acknowledged, the parties intending to be legally bound hereby do agree
as follows, to-wit:
1. The recitation set forth in the preamble of this Amendment are
true and correct and included herein by this reference.
2. TERM: Notwithstanding anything to the contrary within the Lease
Agreement or any other agreements between the Landlord and
Tenant, the Tenant wishes to occupy additional space within the
Complex, namely Suite #4, consisting of approximately 6,165
square feet, for the term commencing April 1, 1995 and ending
November 30, 1996.
3. RATE: The rate shall be $4.50 per square foot NNN from April 1,
1995 through September 30, 1995 and $4.75 per square foot NNN
from October 1, 1995 through November 30, 1996.
Notwithstanding anything to the contrary within the Lease
Agreement or any other agreements between the Landlord and
Tenant, *it is understood and agreed that the Operating Expenses
on this project are currently estimated at $1.94 per square foot
and shall be collected as such for the additional space.
<TABLE>
<CAPTION>
Months Base Rent CAM Sales Tax Total
------ --------- ------- --------- ---------
<S> <C> <C> <C> <C>
April 1, 1995 - September 30, 1995 $2,311.88 $996.68* $198.51 $3,507.07
October 1, 1995 - November 30, 1996 $2,440.31 $996.68* $206.22 $3,643.21
</TABLE>
Quoted revised rental rates shall be subject to six (6%) percent
Florida sales tax.
4. Except as modified herein, the terms and provisions of the Lease
are hereby ratified and confirmed, incorporated herein by this
reference and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of March
8, 1995.
Signed, sealed and delivered in the presence of:
WITNESS: LANDLORD: Boca Commercial Industrial, Ltd.
By: Brenner Real Estate Group, Agent for Boca
Commercial Industrial, Ltd.
By: /s/ GLORIA SHAUF By: /s/ SCOTT BRENNER, AGENT
------------------------ -------------------------------
Scott Brenner, Agent
By: /s/ K. ALBERTS Date: 3/8/95
------------------------ -----------------------------
As to Landlord
TENANT: Q.E.P. CO., INC.
By: [ILLEGIBLE] By: /s/ LEWIS GOULD
------------------------ -------------------------------
Lewis Gould, President
By: [ILLEGIBLE] Date: 3/8/95
------------------------ -----------------------------
As to Tenant
<PAGE> 29
THIRD AMENDMENT TO LEASE
BETWEEN
BOCA COMMERCIAL INDUSTRIAL LTD.
AND
Q.E.P. CO., INC.
This Amendment dated November ______, 1995 is a modification of the Lease
dated the 1st Day of March, 1989 and Amended March 8, 1995 by and between Boca
Commercial Industrial Ltd., (Landlord) and Q.E.P. Co., Inc. (Tenant).
WITNESSETH:
WHEREAS, the parties hereto executed that certain lease dated March 1, 1989
("Lease"), and
NOW THEREFORE, For Ten Dollars ($10.00) and other good and valuable
considerations, the receipt, adequacy and sufficiency of which is hereby
acknowledged, the parties intending to be legally bound hereby do agree as
follows, to wit:
1. The recitations set forth in the preamble of this Amendment are
true and correct and included herein by this reference.
2. PREMISES: Bay 8 consisting of approximately 14,775 rsf and Bay
10 consisting of approximately 10,900 rsf.
3. TERM: Notwithstanding anything to the contrary within the Lease
Agreement or any other agreements between the Landlord and
Tenant, the term of the Lease shall be extended for a period of
one (1) year, commencing December 1, 1996 and expiring November
30, 1997.
4. RENTAL RATE: Current rental rates shall be increased by five
percent (5%). The rental rate for the extension period shall be:
<TABLE>
<CAPTION>
PSF Monthly Annually
----- ----------- ----------
<S> <C> <C> <C>
Bay 8 $6.89 $8,483.31 $101,799.75
Bay 10 $4.73 $4,291.88 $ 51,502.50
</TABLE>
As additional rent, Tenant shall be responsible for Operating
Expenses for 10,100 sf of leased premises. Operating Expenses
are estimated at $1.94 psf for 1995 subject to adjustment.
Quoted rental rates and additional rent shall be subject to
Florida state sales tax.
5. BROKER'S COMMISSION AND AGENCY DISCLOSURE: Tenant represents
and warrants that there are no claims for brokerage commissions
or finder's fees in connection with the execution of this Lease
other than those listed herein and agrees to indemnify Landlord
against and hold it harmless from all liabilities arising from
any other claim, including cost of counsel fees.
Landlord agrees to pay the following Broker only:
Broker representing Landlord: Brenner Real Estate Group
6. Except as modified herein, the terms and provisions of the
Lease are hereby ratified and confirmed, incorporated herein by
this reference and remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
November _______, 1995.
Signed, sealed and delivered in the presence of:
WITNESS: LANDLORD: Boca Commercial
Industrial Ltd.
By: Brenner Real Estate Group, Agent
for Landlord Boca Commercial
Industrial Ltd.
By:
-------------------------------
Scott Brenner, President
BY: /s/ PAULA B. SIEGEL Date:
--------------------------------- -------------------------------
TENANT: Q.E.P. Co. Inc.
By: By: /s/ Illegible
--------------------------------- -------------------------------
By: PAULA B. SIEGEL
--------------------------------- -------------------------------
Print above name
Date: November 21, 1995
-------------------------------
<PAGE> 1
EXHIBIT 10.2.2
TITLE CLOSED December 31, 1992
COMMERCIAL LEASE AND DEPOSIT RECEIPT
RECEIVED FROM The Andrews Company hereinafter referred to as LESSEE, the sum
of $4,500.00 (Four Thousand Five Hundred and No/100 DOLLARS), evidenced by
Personal check, as a deposit which, upon acceptance of this lease, shall belong
to Lessor and shall be applied as follows:
<TABLE>
<CAPTION>
RECEIVED PAYABLE PRIOR TO OCCUPANCY
-------- ---------------------------
<S> <C> <C>
Rent for the period from
November 1, 1992 to November 30, 1992... $ -0- $ 2,250.00
Security deposit .......................... $ -0- $ 2,250.00
Other...................................... $ -0- $ -0-
TOTAL...................................... $ -0- $ 4,500.00
</TABLE>
In the event that this lease is not accepted by the Lessor within 15
days, the total deposit received shall be refunded.
Lessee hereby offers to lease from Lessor the promises situated in the
City of Carson City, County of Lyon, State of Nevada, described as 35 Stokes
Drive upon the following TERMS and CONDITIONS:
1. TERM: The term hereof shall commence on November 1, 1992, and expire on
October 31, 1994.
2. RENT: The total rent shall be $2,250/Mo, (gross), payable as follows:
due on the 1st. A late penalty will be imposed in the amount of $100, if
not paid by the tenth.
All rents shall be paid to Owner or his authorized agent, at the
following address: Miles Bros. Construction -- 27 Affonso Dr.,
Carson City, NV 89706 or at such other places as may be designated by
Owner from time to time.
3. USE: The premises are to be used for the operation of Andrews Company
-- drywall tool manufacturing and for no other purpose, without prior
written consent of Lessor.
4. USES PROHIBITED: Lessee shall not use any portion of the premises for
purposes other than those specified hereinabove, and no use shall be ??
permitted to be made upon the premises, nor acts done, which will
increase the existing rate of insurance upon the property, or cause
cancellation of insurance policies covering said property. Lessee shall
not conduct or permit any sale by auction on the premises.
5. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this lease or sublet
any portion of the premises without prior written consent of the Lessor,
which shall not be unreasonably withheld. Any such assignment or
subletting without consent shall be void and, at the option of the
Lessor, may terminate this lease.
6. ORDINANCES AND STATUTES: Lessee shall comply with all statutes,
ordinances and requirements of all municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining
to the premises, occasioned by or affecting the use thereof by Lessee.
The commencement or pendency of any state or federal court abatement
proceeding affecting the use of the premises shall, at the option of the
Lessor, be deemed a breach hereof.
7. MAINTENANCE, REPAIRS, ALTERATIONS: Lessee acknowledges that the
premises are in good order and repair, unless otherwise indicated
herein. Lessee shall, at his own expense and at all times, maintain the
premises in good and safe condition and shall surrender the same, at
termination hereof, in as good condition as received, normal wear and
tear excepted. Lessor shall be responsible for all repairs required
including the roof, exterior walls, structural foundations, and: --
which shall be maintained by Lessor. Lessee shall also maintain in good
condition such portions adjacent to the premises, such as sidewalks,
driveways, lawns and shrubbery, which would otherwise be required to be
maintained by Lessor.
No improvement or alteration of the premises shall be made
without the prior written consent of the Lessor. Prior to the
commencement of any substantial repair, improvement, or alteration,
Lessee shall give Lessor at least two (2) days written notice in order
that Lessor may post appropriate notices to avoid any liability for
liens.
Lessee shall not commit any waste upon the premises, or any
nuisance or act which may disturb the quiet enjoyment of any tenant in
the building.
8. ENTRY AND INSPECTION: Lessee shall permit Lessor or Lessor's agents to
enter upon the premises at reasonable times and upon reasonable notice
for the purpose of inspecting the same and will permit Lessor at any
time within sixty (60) days prior to the expiration of this lease, to
place upon the premises any usual "To Let" or "For Lease" signs, and
permit persons desiring to lease the same to inspect the premises
thereafter.
9. INDEMNIFICATION OF LESSOR: Lessor shall not be liable for any damage or
injury to Lessee, or any other person, or to any property, occurring on
the demised premises or any part thereof, and Lessee agrees to hold
Lessor harmless from any claims for damages, no matter how caused.
10. POSSESSION: If Lessor is unable to deliver possession of the premises
at the commencement hereof, Lessor shall not be liable for any damage
caused thereby, nor shall this lease be void or voidable, but Lessee
shall not be liable for any rent until possession is delivered. Lessee
may terminate this lease if possession is not delivered within 30 days
of the commencement of the term hereof.
11. INSURANCE: Lessee, at his expense, shall maintain plate glass and
public liability insurance including bodily injury and property damage
insuring Lessee and Lessor with minimum coverage as follows: tenant to
maintain liability and contents in the amount of $500,000.00
Lessee shall provide Lessor with a Certificate of Insurance
showing Lessor as additional insured. The Certificate shall provide for
a ten-day written notice to Lessor in the event of cancellation or
material change of coverage. Lessor shall cover fire and all risks
insurance.
To the maximum extent permitted by insurance policies which may
be owned by Lessor or Lessee. Lessee and Lessor, for the benefit of
each other, waive any and all rights to subrogation which might
otherwise exist.
12. UTILITIES: Lessee agrees that he shall be responsible for the payment
of all utilities, including water, gas, electricity, heat and other
services delivered to the premises.
13. SIGNS: Lessor reserves the exclusive right to the roof, side and rear
walls of the Premises. Lessee shall not construct any projecting sign or
awning without the prior written consent of Lessor which consent shall
not be unreasonably withheld.
14. COPY CUT OFF
<PAGE> 2
15. CONDEMNATION: If any part of the premises shall be taken or condemned
for public use, and a part thereof, hereunder, this lease shall, as to
the part taken, terminate as of the date the condemnor acquires
possession, and thereafter Lessee shall be required to pay such
proportion of the rent for the remaining term as the value of the
premises remaining bears to the total value of the premises at the date
of condemnation; provided however, that Lessor may at his option,
terminate this lease as of the date the condemnor acquires possession.
In the event that the demised premises are condemned in whole, or that
such portion is condemned that the remainder is not susceptible for use
hereunder, this lease shall terminate upon the date upon which the
condemnor acquires possession. All sums which may be payable on account
of any condemnation shall belong to the Lessor, and Lessee shall not be
entitled to any part thereof, provided however, that Lessee shall be
entitled to retain any amount awarded to him for his trade fixtures or
moving expenses.
16. TRADE FIXTURES: Any and all improvements made to the premises during
the term hereof shall belong to the Lessor, except trade fixtures of the
Lessee. Lessee may, upon termination hereof, remove all his trade
fixtures, but shall repair or pay for all repairs necessary for damages
to the premises occasioned by removal.
17. DESTRUCTION OF PREMISES: In the event of a partial destruction of the
premises during the term hereof, from any cause. Lessor shall forthwith
repair the same, provided that such repairs can be made within sixty
(60) days under existing governmental laws and regulations, but such
partial destruction shall not terminate this lease, except that Lessee
shall be entitled to a proportionate reduction of rent while such
repairs are being made, based upon the extent to which the making of
such repairs shall interfere with the business of Lessee on the
premises. If such repairs cannot be made within said sixty (60) days,
Lessor, at his option, may make the same within a reasonable time, this
lease continuing in effect with the rent proportionately abated as
aforesaid, and in the event that Lessor shall not elect to make such
repairs which cannot be made within sixty (60) days, this lease may be
terminated at the option of either party.
In the event that the building in which the demised premises
may be situated is destroyed to an extent of not less than one-third of
the replacement costs thereof, Lessor may elect to terminate this lease
whether the demised premises be injured or not. A total destruction of
the building in which the premises may be situated shall terminate this
lease.
In the event of any dispute between Lessor and Lessee with
respect to the provisions hereof, the matter shall be settled by
arbitration in such a manner as the parties may agree upon, or if they
cannot agree, in accordance with the rules of the American Arbitration
Association.
FORM 107 (2-85) COPYRIGHT(c) 1985, BY PROFESSIONAL PUBLISHING CORP.
122 PAUL DR. SAN RAFAEL, CA 94003 [PROFESSIONAL
PUBLISHING
LOGO]
<PAGE> 3
18. INSOLVENCY: In the event a receiver is appointed to take over the
business of Lessee, or in the event Lessee makes a general assignment
for the benefit of creditors, or Lessee takes or suffers any action
under any insolvency or bankruptcy act, the same shall constitute breach
of this lease by Lessee.
19. REMEDIES OF OWNER ON DEFAULT: In the event of any breach of this lease
by Lessee, Lessor may, at his option, terminate the lease and demand
from Lessee: (a) the worth at the time of award of the unpaid rent which
was earned at the time of termination; (b) the worth at the time of
award of the amount by which the unpaid rent which would have been
earned after termination of the award exceeds the amount of such rental
loss that the Lessee proves could have been reasonably avoided; (c) the
worth at the time of award of the amount by which the unpaid rent for
the balance of the term after the time of award exceeds the amount of
such rental loss that Lessee proves could be reasonably avoided; and (d)
any other amount necessary to compensate Lessor for all detriment
proximately caused by Lessee's failure to perform his obligations under
the lease or which in the ordinary course of things would be likely to
result therefrom.
Lessor may, in the alternative, continue this lease in effect,
as long as Lessor does not terminate Lessee's right to possession, and
Lessor may enforce all the rights and remedies under the lease,
including the right to recover the rent as it becomes due under the
lease, if said breach or lease continues. Lessor may, at any time
thereafter, elect to terminate the lease.
Nothing contained herein shall be deemed to limit any other
rights or remedies which Lessor may have.
20. SECURITY: The security deposit set forth above, if any, shall secure the
performance of the Lessee's obligations hereunder. Lessor may, but shall
not be obligated to apply all or portions of said deposit on account of
Lessee's obligations hereunder. Any balance remaining upon formation
shall be returned to Lessee. Lessee shall not have the right to apply
the Security Deposit in payment of the last month's rent.
21. DEPOSIT REFUNDS: The balance of all deposits shall be refunded within
two weeks from date possession is delivered to Owner or his authorized
agent, together with a statement showing any charges made against such
deposits by Owner.
22. ATTORNEY'S FEES: In case suit should be brought for recovery of the
premises, or for any sum due hereafter, or because of any act which may
arise out of the possession of the premises, by either party, the
prevailing party shall be entitled to all costs incurred in connection
with such action, including a reasonable attorney's fee.
23. WAIVER: No failure of Lessor to enforce any term hereof shall be deemed
to be a waiver.
24. NOTICES: Any notice which either party may or is required to give, shall
be given by mailing the same, postage prepaid, to Lessee at the
premises, or Lessor at the address shown below, or at such other places
as may be designated by the parties from time to time.
25. HOLDING OVER: Any holding over after the expiration of this lease, with
the consent of Lessor, shall be construed as a month-to-month tenancy at
a rental of $ N/A per month in accordance with the terms hereof, as
applicable.
26. TIME: Time is of the essence of this lease.
27. HEIRS, ASSIGNS, SUCCESSORS: This lease is binding upon and inures to the
benefit of the heirs, assigns and successors in interest to the parties.
28. TAX INCREASE: In the event there is any increase during any year of the
term of this lease in the City, County or State real estate taxes over
and above the amount of such taxes assessed for the tax year during
which the term of this lease commences, whether because of increased
rate or valuation, Lessee shall pay to Lessor upon presentation of paid
tax bills an amount equal to N/A % of the increase in taxes upon the
land and building in which the leased premises are situated. In the
event that such taxes are assessed for a tax year extending beyond the
form of the lease, the obligation of lessee shall be proportionate to
the portion of the lease term included in such year.
29. COST OF LIVING INCREASE: The rent provided for in paragraph 2 shall be
adjusted effective upon the first day of the month immediately following
the expiration of 12 months from date of commencement of the term and
upon the expiration of each 12 months thereafter in accordance with
changes in the U.S. Consumer Price Index for All Urban Consumers (1967 =
100) hereinafter called the "CPI." The monthly rent shall be increased
to an amount equal to the monthly rent set forth in paragraph 2
multiplied by a fraction the numerator of which is the CPI for the
second calendar month immediately preceding the adjustment date and the
denominator of which is the CPI for the second calendar month preceding
the commencement of the lease term. Provided, however, in no event shall
the monthly rent be less than the amount set forth in paragraph 2. CPI
shall be capped at 3% year.
30. OPTION TO RENEW: Provided that Lessee is not in default in the
performance of this lease, Lessee shall have the option to renew the
lease for an additional term of * months commencing at the expiration of
the initial lease term. All of the terms and conditions of the lease
shall apply during the renewal term except that the monthly rent shall
be the sum of $ * which shall be adjusted in accordance with the cost
of living increase provision set forth in paragraph 29.
The option shall be exercised by written notice to Lessor not
less than * days prior to the expiration of the initial lease term. If
notice is not given in a manner provided herein within the time
specified, this option shall expire. Per agreement of the parties.
31. LESSOR'S LIABILITY: The term "Lessor," as used in this paragraph, shall
mean only the owner of the real property or a Lessee's interest in a
ground lease of the premises. In the event of any transfer of such title
or interest, the lessor named herein (or the grantor in case of any
subsequent transfers) shall be released of all liability related to
Lessor's obligations to be performed after such transfer. Provided,
however, that any funds in the hands of Lessor or Grantor at the time of
such transfer shall be delivered to Grantee. Lessor's aforesaid
obligations shall be binding upon Lessor's successors and assigns only
during their respective periods of ownership.
32. ESTOPPEL CERTIFICATE:
(a) Lessee shall at any time upon not less than ten (10) days
prior written notice from Lessor execute, acknowledge and deliver to
Lessor a statement in writing (1) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as amended,
is in full force and effect), the amount of any security deposit, and
the date to which the rent and other charges are paid in advance, if
any, and (2) acknowledgement that there are not, to Lessee's knowledge,
any uncured defaults on the part of Lessor hereunder, or specifying such
defaults if any are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer to the
Premises.
(b) At Lessor' option, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or
shall be conclusive upon Lessee (1) that this Lease is in full force
and effect, without modification except as may be represented by
Lessor, (2) that there are no uncured defaults in leasor's performance,
and (3) that not more than one month's rent has been paid in advance
or such failure may be considered by Lessor as a default by Lessee
under this Lease.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements
of Lessee as may be reasonably required by such lender or purchaser.
Such statements shall include the past three years' financial statements
of Lessee. All such financial statements shall be received by Lessor and
such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
33. COMMON AREA EXPENSES: In the event the demised premises are situated in
a shopping center or in a commercial building in which there are common
areas, Lessee agrees to pay his pro-rata share of maintenance, taxes,
and insurance for the common area.
34. ADDENDUM: An addendum, signed by the parties, [x] is attached, [ ] is
not attached hereto.
ENTIRE AGREEMENT: The foregoing constitutes the entire agreement between the
parties and may be modified only by a writing signed by both parties. The
following Exhibits, if any, have been made a part of this lease before the
parties' execution hereof:
----------------------------------------------------
- ------------------------------------------------------------------------------
The undersigned Lessee hereby acknowledges receipt of a copy hereof,
DATED:
---------------------------------
Commercial Properties of Nevada
Agent
----------------------------------
<PAGE> 4
By [ILLEGIBLE]
- ------------------------------------- ----------------------------------------
ACCEPTANCE
The undersigned Lessor accepts the foregoing offer and agrees to lease
the herein described premises on the terms and conditions herein specified. The
Lessor agrees to pay to _______________________________________________________,
the Agent in this transaction the sum of $ ____________________________ DOLLARS
for services rendered and authorizes Agent to deduct said sum from the deposit
received from Tenant. This agreement shall not limit the rights of Agent
provided for in any lease or other agreement which may be in effect between
Owner and Agent. In the event Tenant shall purchase the property from Owner
prior to the expiration of this lease, Owner agrees to pay the Agent a sales
commission of ______% of the sale price.
The undersigned Lessor hereby acknowledges receipt of a copy hereof.
DATED:_______________________
______________________Owner's Authorized Agent _________________________Lessor
_______________________________________Address _________________________Lessor
_________________________________________Phone ________________________Address
By ___________________________________________ __________________________Phone
<PAGE> 1
EXHIBIT 10.2.3
SOUTHERN CALIFORNIA CHAPTER OF THE
SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,(R) INC.
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and
are to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: January 3, 1991
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): JMB/Pennsylvania
Advisors, a Delaware limited partnership
Address of Landlord: c/o JMB Properties Company, 10100 Santa Monica Blvd., Ste.
1750, Los Angeles, CA 90067. Attn.: Property Manager with copy to JMB Realty
Corp., 900 A. Michigan Ave., Chicago, IL 60611, Attn. Lease Administrator
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): O-Tool Company, Inc., a
California Corporation
Address of Tenant: 20535 S. Belshaw Avenue, Carson, CA 90246
Section 1.04. PROPERTY: (include street address, approximate square
footage and description) 20535 Belshaw Avenue, Carson, CA -- (an approximate
29,227 square foot building in a 449,384 square foot business park) -- The
building currently is comprised of approximately 4,500 square feet of office,
the balance warehouse
Section 1.05. LEASE TERM: 5 years 4 1/2 months BEGINNING ON April 1,
1991 or such other date as is specified in this Lease, and ENDING ON August 14,
1996
Section 1.06. PERMITTED USES: (See Article Five) General office and
warehousing duties associated with the distribution of contractor's tools
Section 1.07. TENANT'S GUARANTOR: (If none, so state) none
Section 1.08. BROKERS: (See Article Fourteen) (If none, so state) ______
Landlord's Broker: none
Tenant's Broker: Lee and Associates
Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ Per separate agreement between Landlord and Broker
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $10,539.72
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: Please see
Exhibit "A" for parking area
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: ten thousand, five hundred thirty-nine & 72/100 Dollars
($10,539.72) per month for the first 36 months, as provided in Section 3.01,
and shall be increased on the first day of the 37th month(s) after the
Commencement Date, either (i) as provided in Section 3.02, or (ii) to
$12,120.68 per month. (If (ii) is completed, then (i) and Section 3.02 are
inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section
4.04); (iv) Impounds for Insurance Premiums and Property Taxes (See Section
4.07); (vi) Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. LANDLORD'S SHARE OF* ON ASSIGNMENT OR SUBLEASE: (See
Section 9.05) fifty percent (50%) of the *(the "Landlord's Share").
*Transfer Premiums
Section 1.14. RIDERS: The following Riders are attached to and made a
part of this Lease: (if none, so state) Standard Rider, Supplemental Rider
(C)1988 Southern California Chapter Initials WJB
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and Office Realtors,(R) Inc. ----------
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(Single-Tenant Net Form)
6-90
<PAGE> 2
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. landlord leases the
Property to Tenant and Tenant leases the property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in section 1.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Lease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or delayed under any
provision of this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant. If Landlord does not deliver possession
of the Property to Tenant within sixty (60) days after the Commencement Date,
Tenant may elect to cancel this lease by giving written notice to Landlord
within ten (10) days after the sixty (60)-day period ends. If Tenant gives such
notice, the Lease shall be cancelled and neither Landlord nor Tenant shall have
any further obligations to the other. If Tenant does not give such notice,
Tenant's right to cancel the Lease shall expire and the Lease Term shall
commence upon the deliver of possession of the Property to Tenant. If delivery
of possession of the Property to Tenant is delayed, Landlord and Tenant shall,
upon such delivery, execute an amendment to this Lease setting forth the actual
Commencement Date of the Lease. Failure to execute such amendment shall not
affect the actual Commencement Date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the property shall
be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in
effect shall be increased by fifty percent (50%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this
Lease, Tenant shall pay Landlord the Base Rent in the amount stated in
Paragraph 1.12(a) above for the first month of the Lease Term. On the first day
of the second month of the Lease Term and each month thereafter, Tenant shall
pay Landlord the Base Rent, in advance, without offset, deduction or prior
demand. The Base Rent shall be payable at Landlord's address or at such other
place as Landlord may designate in writing.*
Section 3.02. COST OF LIVING INCREASES.** The Base Rent shall be
increased on each date (the "Rental Adjustment Date") stated in Paragraph
1.12(a) above in accordance with the increase in the United States Department
of labor, Bureau of Labor Statistics, Consumer Price Index for All Urban
Consumers (all items for the geographical Statistical Area in which the
Property** is located on the basis of 1982-1984=100) (the "Index") as follows:
**(LOS ANGELES-ANAHEIM-RIVERSIDE)
(a) The Base Rent (the "Comparison Base Rent") in effect
immediately before each Rental Adjustment Date shall be increased by the
percentage that the Index has increased from the date (the "Comparison Date")
on which payment of the Comparison Base Rent began through the month in which
the applicable Rental Adjustment Date occurs. The Base Rent shall not be
reduced by reason of such computation. Landlord shall notify Tenant of each
increase by a written statement which shall include the Index for the
applicable Comparison Date, the Index for the applicable Rental Adjustment
Date, the percentage increase between those two Indices, and the new Base Rent.
Any increase in the Base Rent provided for in this Section 3.02 shall be
subject to any minimum or maximum increase, if provided for in Paragraph
1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may be
given after the applicable Rental Adjustment Date of the Increase, and Tenant
shall pay Landlord the accrued rental adjustment for the months elapsed between
the effective date of the increase and Landlord's notice of such increase within
ten (10) days after Landlord's notice. If the format or components of the Index
are materially changed after the Commencement Date, Landlord shall substitute an
index which is published by the Bureau of Labor Statistics or similar agency and
which is most nearly equivalent to the Index in effect on the Commencement Date.
The substitute index shall be used to calculate the increase in the Base Rent
unless Tenant objects to such index in writing within fifteen (15) days after
receipt of Landlord's notice. If Tenant objects, Landlord and Tenant shall
submit the selection of the substitute index for binding arbitration in
accordance with the rules and regulations of the American Arbitration
Association at its office closest to the Property. The costs of arbitration
shall be borne equally by Landlord and Tenant.
* If the Lease Term commences on a date other than the first day of the
month, then the rent for the first partial month shall be pro-rated on the
basis of the actual number of days in that month. If the Lease Term ends
on a date other than the last day of the month, then the rent for the last
partial month shall be pro-rated on the basis of the actual number of days
in that month.
** For fixed Rental Increases please refer to Section 1.12(a)
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of the Society of Industrial 2 -------------
and Office Realtors,(R) Inc. -------------
(Single-Tenant Net Form)
<PAGE> 3
Section 3.03. SECURITY DEPOSIT; INCREASES
(a) Upon the execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount set forth in Section 1.10 above.
Landlord may apply all or part of the Security Deposit to any unpaid rent or
other charges due from Tenant or to cure any other defaults of Tenant. If
Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its full amount within ten (10) days after Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security Deposit.
(b) Each time the Base Rent is increased, Tenant shall deposit
additional funds with Landlord sufficient to increase the Security Deposit to
an amount which bears the same relationship to the adjusted Base Rent as the
initial Security Deposit bore to the initial Base Rent.
Section 3.04. TERMINATION: ADVANCE PAYMENTS. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes
on the Property (including any fees, taxes or assessments against, or as a
result of, any tenant improvements installed on the Property by or for the
benefit of Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and
Section 4.07 below, such payment shall be made at least ten (10) days prior to
the delinquency date of the taxes. Within such ten (10)-day period, Tenant
shall furnish Landlord with satisfactory evidence that the real property taxes
have been paid. Landlord shall reimburse Tenant for any real property taxes
paid by Tenant covering any period of time prior to or after the Lease Term.
If Tenant fails to pay the real property taxes when due, Landlord may pay the
taxes and Tenant shall reimburse Landlord for the amount of such tax payment
as Additional Rent. Landlord may, at its option, elect to pay such real
property taxes, in which event Tenant shall reimburse Landlord for the full
amount of real property taxes so paid within five (5) days after receipt of
demand therefor.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i)
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property: (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined
by applicable law, or other transfer of all or part of Landlord's interest in
the Property; and (v) any charge or fee replacing any tax previously included
within the definition of real property tax. "Real property tax" does not,
however, include Landlord's federal or state income, franchise, inheritance or
estate taxes.
(c) JOINT ASSESSMENT. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the property tax payable
by Tenant under Paragraph 4.02(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from the Landlord
for such personal property taxes.
(e) TENANT'S RIGHT TO CONTEST TAXES. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action
is unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to prevent
the Property from being sold under a "tax sale" or similar enforcement
proceeding.
(f) SEE STANDARD RIDER - PARAGRAPH 1.
(C) 1988 Southern California Chapter Initials WJB
of the Society of Industrial 3 -------------
and Office Realtors,(R) Inc. -------------
(Single-Tenant Net Form)
<PAGE> 4
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services of utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant
shall pay such share to Landlord within fifteen (15) days after receipt of
Landlord's written statement.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability
for bodily injury, property damage (including loss of use of property) and
personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be One Million Dollars ($1,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the negligence of Tenant. The amount and
coverage of such insurance shall not limit Tenant's liability nor relieve
Tenant of any other obligation under this Lease. Landlord may also obtain
comprehensive public liability insurance in an amount and with coverage
determined by Landlord insuring Landlord against liability arising out of
ownership, operation, use or occupancy of the Property. The policy obtained by
Landlord shall not be contributory and shall not provide primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the lease Term, Landlord may also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance
premiums. Tenant shall be liable for the payment of any deductible amount under
Landlord's or Tenant's insurance policies maintained pursuant to this Section
4.04, in an amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall
not do or permit anything to be done which invalidates any such insurance
policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.07, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after
Tenant's receipt of a copy of the premium statement or other evidence of the
amount due, except Landlord shall pay all premiums for non-primary
comprehensive public liability insurance which Landlord elects to obtain as
provided in Paragraph 4.04(a). If insurance policies maintained by Landlord
cover improvements on real property other than the Property, Landlord shall
deliver to Tenant a statement of the premium applicable to the Property showing
in reasonable detail how Tenant's share of the premium was computed. If the
Lease Term expires before the expiration of an insurance policy maintained by
Landlord, Tenant shall be liable for Tenant's prorated share of the insurance
premiums. Before the Commencement Date, Tenant shall deliver to Landlord a copy
of any policy of insurance which Tenant is required to maintain under this
Section 4.04. At least thirty (30) days pior to the expiration of any such
policy, Tenant shall deliver to Landlord a renewal of such policy. As an
alternative to providing a policy of insurance, Tenant shall deliver to
Landlord a renewal of such policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a certificate of
insurance, executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this Section 4.04
is in full force and effect and containing such other information which
Landlord reasonably requires.
(d) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal
to Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance within fiteen (15)
days after receipt of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide." Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required under
the Lease, Tenant shall nevertheless maintain insurance coverage which is
customary and commercially reasonable in the insurance industry for Tenant's
type of business, as that coverage may change from time to time. Landlord
makes no represenation as to the adequacy of such insurance to protect
Landlord's or Tenant's interests. Therefore, Tenant shall obtain any such
additional property or liability insurance which Tenant deems necessary to
protect Landlord and Tenant.
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(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by any
insurance policy in force (whether or not described in this Lease) at the time
of such loss or damage. Upon obtaining the required policies of insurance,
Landlord and Tenant shall give notice to the insurance carriers of this mutual
waiver or subrogation.
(v) SEE STANDARD RIDER - PARAGRAPH 2; (c) SEE STANDARD RIDER -
PARAGRAPH 3.
Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include,
but are not limited to, processing and accounting charges and late charges
which may be imposed on Landlord by any ground lease, mortgage or trust deed
encumbering the Property. Therefore, if Landlord does not receive any rent
payment postmarked within five (5) days after it becomes due, Tenant shall pay
Landlord a late charge equal to ten percent (10%) of the overdue amount.
The parties agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of such late payment.
Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate
of fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
Section 4.07. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord
upon written request. If Tenant defaults under this Lease, Landlord may apply
any funds in the impound account to any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for
the Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of other tenant of Landlord, or which constitutes a nuisance or
waste. Tenant shall obtain and pay for all permits, including a Certificate of
Occupancy, required for Tenant's occupancy of the Property and shall promptly
take all actions necessary to comply with all applicable statutes, ordinances,
rules, regulations orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.*
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state
or local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material. In
no event, however, shall Landlord be required to consent to the installation or
use of any storage tanks on the Property.
Section 5.04. SIGNS AND AUDITS. Tenant shall not place any signs on
the Property without Landlord's prior written consent. Tenant shall not
conduct nor permit any auctions or sheriff's sales at the Property.
*Tenant shall not cause or permit the Property to be used in any way which
would invalidate or increase the cost of insurance coverage described in this
Lease (provided, however, that if such use increases the cost of insurance
coverage, Tenant shall not be in default hereunder if it immediately pays to
Landlord such additional costs). Tenant shall comply with all requirements of
Landlord's insurance carriers with respect to the use of the Property for the
purpose of maintaining reasonable insurance coverage of the types specified in
this Lease. Tenant shall not store or permit to be stored on the Property,
other than within the buildings located thereon, any goods, merchandise,
machinery, equipment or other property or materials, unless such exterior
storage is specifically permitted by a Rider to this Lease, or if such exterior
storage is required by law. Prior to the Commencement Date, Tenant shall
obtain all business licenses and approvals of any governmental authorities
(including, but not limited to, fire department approval, if required) necessary
for Tenant to conduct its business on the Property.
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Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election. Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
SEE STANDARD RIDER - PARAGRAPH 4.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, except in the case of an emergency.
Landlord may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property
for the full Lease Term, subject to the provisions of this Lease.
Section 5.08. SEE STANDARD RIDER - PARAGRAPH 5.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND
ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease. SEE STANDARD RIDER - PARAGRAPH 6.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a) fire,
steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c) conditions arising in
or about the Property, or from other sources or places; or (d) any act or
omission of any other tenant of Landlord. Landlord shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
6.02 shall not, however, exempt Landlord from liability for Landlord's gross
negligence or willful misconduct. *Except for structural foundation and walls.
Section 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of
Article Seven (Damage or Destruction) and Article Eight (Condemnation), except
as otherwise provided for in this agreement, Landlord shall have absolutely no
responsibility to repair, maintain or replace any portion of the Property at
any time. Tenant waives the benefit of any present or future law which might
give Tenant the right to repair the Property at Landlord's expense or to
terminate the Lease due to the condition of the Property.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction) and
Article Eight (Condemnation), Tenant shall keep all portions of the Property
(including the roof, nonstructural, interior, exterior, and landscaped areas,
portions, systems and equipment) in good order, condition and repair (including
interior repainting and refinishing, as needed). If any portion of the property
or any system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored. Tenant shall promptly replace such portion
of the Property or system or equipment in the Property, regardless of whether
the benefit of such replacement extends beyond the Lease Term; but if the
benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. If any part of the Property is damaged by any act or omission of
Tenant, Tenant shall pay Landlord the cost of repairing or replacing such
damaged property, whether or not Landlord would otherwise be obligated to pay
the cost of maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the portions of the
Property which Tenant is obligated to maintain in an attractive, first-class and
fully operative condition. SEE STANDARD RIDER - PARAGRAPH 7.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.04, Landlord may, upon ten
(10) days prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
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Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
(a) Tenant shall not make any alterations, additions, or improvements
to the Property with Landlord's prior written consent, except for
non-structural alterations which do not exceed Ten Thousand Dollars ($10,000)
in cost cumulatively over the Lease Term and which are not visible from the
outside of any building of which the Property is part. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and
amount satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord.
Upon completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damnge which Landlord is required
to repair under Article Seven (Damage or Destruction). In addition, Landlord
may require Tenant to remove any alterations, additions or improvements
(whether or not made with Landlord's consent) prior to the expiration of the
Lease and to restore the Property to its prior condition, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or earlier termination of the
Lease, except that Tenant may remove any of Tenant's machinery or equipment
which can be removed witout material damage to the Property. Tenant shall
repair, at Tenant's expense, any damage to the Property caused by the removal
of any such machinery or equipment. In no event, however, shall Tenant remove
any of the following materials or equipment (which shall be deemed Landlord's
property) without Landlord's prior written consent: any power wiring or power
panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other
window coverings; carpets or other floor coverings; heaters, air conditioners
or any other heating or air conditioning equipment; fencing or security gates;
or other similar building operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than 50 percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or
improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies, and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate
this Lease, Tenant may elect to continue this Lease in full force and effect,
in which case Tenant shall repair any damage to the Property and any building
in which the Property is located. Tenant shall pay the cost of such repairs,
except that upon satisfactory completion of such repairs, Landlord shall
deliver to Tenant any insurance proceeds received by Landlord for the damage
repaired by Tenant. Tenant shall give Landlord written notice of such election
within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage. Notwithstanding
the foregoing, if Tenant has been granted an option to extend the term of this
Lease and the time within which the option can be exercised has not expired, if
Tenant immediately exercises the option then Landlord shall remove the
Property, subject to the provisions of subsections (a) and (b) above.
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Section 7.02 SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease
shall terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, any rent payable during the
period of such damage, repair and/or restoration shall be reduced according to
the degree, if any, to which Tenant's use of the Property is impaired.
However, the reduction shall not exceed the sum of one year's payment of Base
Rent, insurance premiums and real property taxes. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant shall
not be entitled to any compensation, reduction, or reimbursement from Landlord
as a result of any damage, destruction, repair, or restoration of or to the
Property.
Section 7.04. WAIVER. Tenant waives the protection of any statute,
code or judicial decision which grants a tenant the right to terminate a lease
in the event of the substantial or total destruction of the leased property.
Tenant agrees that the provisions of Section 7.02 above shall govern the rights
and obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that the Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have to right to either terminate this Lease or make such
repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property
or of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, which consent
shall not be unreasonably withheld, except as provided in Section 9.02 below.
Landlord has the right to grant or withhold its consent as provided in Section
9.05 below. Any attempted transfer without consent shall be void and shall
constitute a non-curable breach of this Lease. If Tenant is a partnership, any
cumulative transfer of more than twenty percent (20%) of the partnership
interests shall require Landlord's consent. If Tenant is a corporation, any
change in the ownership of a controlling interest of the voting stock of the
corporation shall require Landlord's consent.
Section 9.02. TENANT AFFILIATE. Tenant may assign this lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant
("Tenant's Affiliate"), provided that Tenant's Affiliate has a net worth equal
to or greater than Tenant's net worth as of the date set forth in Section 1.01.
In such case, any Tenant's Affiliate shall assume in writing all of Tenant's
obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's
transferee defaults under this Lease, Landlord may proceed directly against
tenant without pursuing remedies against the transferee. Landlord may consent
to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action
shall not relieve Tenant's liability under this Lease.
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Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty (20)
days after notice of the offer, the Lease shall terminate as of the date
specified and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall continue in effect
until otherwise terminated and the provisions of Section 9.05 with respect to
any proposed transfer shall continue to apply. SEE STANDARD RIDER - PARAGRAPH
8.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in
Section 9.01 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g., the term of and
the rent and security deposit payable under any proposed assignment or
sublease), and any other information Landlord deems relevant. Landlord shall
have the right to withhold consent, if reasonable, or to grant consent, based
on the following factors: (i) the business of the proposed assignee or
subtenant and the proposed use of the Property; (ii) the net worth and
financial reputation of the proposed assignee or subtenant; (iii) Tenant's
compliance with all of its obligations under the Lease; and (iv) such other
factors as Landlord may reasonably deem relevant. If Landlord objects to a
proposed assignment solely because of the net worth and/or financial reputation
of the proposed assignee, Tenant may nonetheless sublease (but not assign), all
or a portion of the Property to the proposed transferee, but only on the other
terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
Transfer Premiums
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.13) of the * (defined
below) on such transaction as and when received by Tenant, unless Landlord
gives written notice to Tenant and the assignee or subtenant that Landlord's
Share shall be paid by the assignee or subtenant to Landlord directly. The *
means (A) all amounts paid to Tenant for such assignment or sublease, including
"key" money, monthly rent in excess of the monthly rent payable under the
Lease, and all fees and other consideration paid for the assignment or
sublease, including fees under any collateral agreements, less (B) costs and
expenses directly incurred by Tenant in connection with the execution and
performance of such assignment or sublease for real estate broker's commissions
and costs of renovation or construction of tenant improvements required under
such assignment or sublease. Tenant is entitled to recover such costs and
expenses before Tenant is obligated to pay the Landlord's Share to Landlord.
The * in the case of a sublease of less than all the Property is the rent
allocable to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of the
Property within thirty (30) days after the transaction documentation is signed,
and Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to Landlord
copies of all the transaction documentation, all of which shall be certified by
Tenant to be complete, true and correct. Landlord's receipt of Landlord's Share
shall not be a consent to any further assignment or subletting. The breach of
Tenant's obligation under this Paragraph 9.05(b) shall be a material default of
the Lease.
Section 9.06. NO MERGER. No Merger shall result from Tenant's sublease
of the Property under this Article Nine, Tenant's surrender of this Lease or
the termination of this Lease in any other manner. In any such event, Landlord
may terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section
4.04; *
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30) day period and thereafter diligently
pursues its completion.** However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
* It is agreed that should Tenant fail to occupy and operate its business on
the Property for a period of thirty (30) consecutive days, whether or not
it is paying Rent, it shall conclusively be deemed to have abandoned the
Property.
** provided that completion is effectuated in any event within one hundred
eighty (180) days after the thirty (30) day written notice from Landlord.
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__________________ tenants makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored
to Tenant within thirty (30) days; or (iv) if substantially all of Tenant's
assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates,
or purports to revoke or otherwise terminate, any guaranty of all or any
portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent. Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amounts as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the
Property. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to recover
the rent as it becomes due;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concessions, such postponed rent or "free" rent is called the "Abated
Rent." Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition
required by this Lease. Tenant acknowledges that its right to receive credit
for the Abated Rent is absolutely conditioned upon Tenant's full, faithful and
punctual performance of its obligations under this Lease. If Tenant defaults
and does not cure within any applicable grace period, the Abated Rent shall
immediately become due and payable in full and this Lease shall be enforced as
if there were no such rent abatement or other rent concession. In such case
Abated Rent shall be calculated based on the full initial rent payable under
this Lease.
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence
of any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys' fees that
Landlord incurs in connection with the filing, commencement, pursuing and/or
defending of any action in any bankruptcy court or other court with respect to
the Lease; the obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect to
Landlord's right to possession of the Property. All such damages suffered
(apart from Base Rent and other rent payable hereunder) shall constitute
pecuniary damages which must be reimbursed to Landlord prior to assumption of
the Lease by Tenant or any successor to Tenant in any bankruptcy or other
proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
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ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any lender
which is acquiring a security interest in the Property or the Lease. Tenant
shall execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust
or mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale. Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of Landlord,
the attorney-in-fact of Tenant to execute and delivery any such instrument or
document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they
have been changed, stating how they have been changed); (ii) that this Lease
has not been cancelled or terminated; (iii) the last date of payment of the
Base Rent and other charges and the time period covered by such payment; (iv)
that Landlord is not in default under this Lease (or, if Landlord is claimed to
be in default, stating why); and (v) such other representations or information
with respect to Tenant or the Lease as Landlord may reasonably request or which
any prospective purchaser or encumbrancer of the Property may require. Tenant
shall deliver such statement to Landlord within ten (10) days after Landlord's
request. Landlord may give any such statement by Tenant to any prospective
purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may
rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten (10) day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance; and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall
be estopped from denying the truth of such facts.
(c) SEE STANDARD RIDER - PARAGRAPH 9.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within fifteen (15) days
after written request from Landlord, Tenant shall deliver to Landlord such
financial statements as Landlord reasonably requires to verify the net worth of
Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant
shall deliver to any lender designated by Landlord any financial statements
required by such lender to facilitate the financing or refinancing of the
Property. Tenant represents and warrants to Landlord that each such financial
statement is a true and accurate statement as of the date of such statement.
All financial statements shall be confidential and shall be used only for the
purposes set forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach
or default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such attorneys' fees
and costs. Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability Landlord may incur if
Landlord becomes or is made a party to any claim or action (a) instituted by
Tenant against any third party, or by any third party against Tenant, or by or
against any person holding any interest under or using the Property by license
of or agreement with Tenant; (b) for foreclosure of any lien for labor or
material furnished to or for Tenant or such other person; (c) otherwise arising
out of or resulting from any act or transaction of Tenant or such other person;
or (d) necessary to protect Landlord's interest under this Lease in a bankruptcy
proceeding, or other proceeding under Title 11 of the United States Code, as
amended. Tenant shall defend Landlord against any such claim or action at
Tenant's expense with counsel reasonably acceptable to Landlord or, at
Landlord's election, Tenant shall reimburse Landlord for any legal fees or
costs Landlord incurs in any such claim or action.
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Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees, said fees shall not exceed $300 if lessor provides
sublease forms, incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's
consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of, any person or group of persons on
the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property or
any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold
estate under a ground lease of the Property at the time in question. Each
Landlord is obligated to perform the obligations of Landlord under this Lease
only during the time such Landlord owns such interest or title. Any Landlord
who transfers its title or interest is relieved of all liability with respect
to the obligations of Landlord under this Lease to be performed on or after the
date of transfer. However, each Landlord shall deliver to its transferee all
funds that Tenant previously paid if such funds have not yet been applied under
the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure,
Landlord shall not be in default if such cure is commenced within such thirty
(30)-day period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATIONS. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Property with
Tenants expressed or implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be writing and signed by all parties. Any other attempted amendment shall
be void.
Section 13.06. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.03 above, except that
upon Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to the
other party.
Section 13.07. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease or
its acceptance of rent shall not be a waiver and shall not prevent Landlord
from enforcing that provision or any other provision of this Lease in the
future. No statement on a payment check from Tenant or in a letter accompanying
a payment check shall be binding on Landlord. Landlord may, with or without
notice to Tenant, negotiate such check without being bound to the conditions of
such statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease
without prior written consent from Landlord. Tenant shall not record a
Memorandum or "short form" of the Lease without the prior written consent of
the Landlord.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord
or Tenant. However, Landlord shall have no obligation to Tenant's successor
unless the rights or interests of Tenant's successors are acquired in
accordance with the terms of this Lease. The laws of the state in which the
Property is located shall govern this Lease.
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Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant
is a corporation, each person signing this Lease on behalf of Tenant represents
and warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government
regulation or restriction and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of
Landlord and Tenant shall survive the termination of this Lease.
Section 13.15, Section 13.16, Section 13.17 - SEE STANDARD RIDER - PARAGRAPHS
10, 11, 12.
ARTICLE FOURTEEN: BROKERS
Section 14.01. BROKER'S FEE. When this Lease is signed by and
delivered to both Landlord and Tenant, Landlord shall pay a real estate
commission to Landlord's Broker named in Section 1.08 above, if any, as
provided in the written agreement between Landlord and Landlord's Broker and
any extension thereof provided broker represents Tenant in the negotiations. If
a Tenant's Broker is named in Section 1.08 above, Landlord's Broker shall pay
an appropriate portion of its commission to Tenant's Broker if so provided in
any agreement between Landlord's Broker and Tenant's Broker. Nothing contained
in this Lease shall impose any obligation on Landlord to pay a commission or fee
to any party other than Landlord's Broker.
Section 14.02. PROTECTION OF BROKERS. If Landlord sells the Property,
or assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action. This Paragraph is included in this
Lease for the benefit of Landlord's Broker.
Section 14.03. BROKER'S DISCLOSURE OF AGENCY. Tenant's Broker hereby
discloses to Landlord and Tenant and Landlord and Tenant hereby consent to
Tenant's Broker acting in this transaction as the agent of (check one):
(X) Tenant exclusively; or
( ) both Landlord and Tenant.
Section 14.04. NO OTHER BROKERS. Tenant represents and warrants to
Landlord that the brokers named in Section 1.08 above are the only agents,
brokers, finders or other parties with whom Tenant has dealt who are or may be
entitled to any commission or fee with respect to this Lease or the Property.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED,
PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
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Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signature below and have initialled all
Riders which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on 1/16, 1991 JMB/PENNSYLVANIA ADVISORS,
---------------- ------------------------------------
a Delaware limited partnership
at By: /s/ JMB PROPERTIES COMPANY
----------------------- ------------------------------------
By: /s/ SCOTT M. STUCKMAN
------------------------------------
Scott M. Stuckman
Its: Vice President
By:
------------------------------------
Its:
"TENANT"
Signed on 1/9, 1991 O-TOOL COMPANY, INC.
---------------- ------------------------------------
a California Corporation
at Carson, California By: /s/ WILLIAM J. BRYSON
----------------------- ------------------------------------
William J. Bryson
Its: President
By:
------------------------------------
Its:
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT
WITH PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER
PERSON WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING
THE POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE
DIRECTION OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND
OFFICE REALTORS(R), INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS(R),
INC., ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR
EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX
CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD
RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE
ADVISE OF SUCH LEGAL COUNSEL.
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STANDARD RIDER TO
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT NET FORM)
This Rider is attached and made a part of that certain Industrial Real
Estate Lease (the "Lease") dated January 3, 1991 between JMB/Pennsylvania
Advisors, a Delaware limited partnership, as Landlord and O-Tool Company, Inc.,
a California Corporation as Tenant relating to the Property described as 20535
South Belshaw Avenue, Carson, CA. The terms used herein shall have the same
meaning as set forth in the Lease. The provisions of this Rider shall supersede
any inconsistent or conflicting provisions of the Lease.
The Lease is hereby modified and amended as follows:
1. Section 4.02 is hereby amended by adding the following
Subsection (f):
"LANDLORD'S RIGHT TO CONTEST TAXES. Whether or not Tenant elects to
contest the real property tax or pays to Landlord the real property taxes
provided in Section 4.02, Landlord shall have the right to attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law or if Landlord so requests,
Tenant shall join in the proceedings brought by Landlord. Tenant shall join in
the proceedings brought by Landlord. Tenant shall pay all costs incurred by
Landlord in connection with the proceedings, provided, however, that Tenant's
obligation to pay such costs shall not exceed the aggregate amount of the tax
reduction obtained by the Landlord for the remainder of the Lease Term. If
Landlord is successful in having the real property taxes reduced, Tenant shall
receive a credit against its next maturing payments for real property taxes for
the amount of the reduction after deducting any costs incurred by Landlord
relating to such proceedings which were not paid or reimbursed by Tenant."
2. Section 4.04 is hereby amended by adding the following
subsection (d)(v): "All policies of liability insurance which Tenant is
required to maintain under this Lease shall designate Landlord, Landlord's
property manager, and Landlord's lender (if any) as additional insureds. All
policies of casualty insurance (other than policies of insurance covering
Tenant's personal property, unless such policies cover lease-hold improvements
or fixtures which will become the property of the Landlord upon the expiration
of the Lease) shall designate Landlord as the loss payee."
3. Section 4.04 is hereby amended by adding the following
subsection (e): "Upon the request of Landlord, Tenant shall, during the Lease
Term, maintain such additional types of insurance as shall be reasonably
required by Landlord and as are customarily required of industrial tenants in
properties similar to the Property, including, but not limited to, plate glass
insurance (if there is any plate glass on or within the Property). The
provisions of subsections (c) and (d) above shall apply to all such policies of
insurance."
4. Section 5.05 is hereby amended by adding the following:
"Notwithstanding the indemnity obligations of Tenant with respect to Hazardous
Materials, Tenant shall, at is sole cost and expense, promptly take all actions
required by any federal, state or local governmental agency to clean up,
remediate, or remove from the Property any Hazardous Materials, the presence of
which was caused or permitted by Tenant or Tenant's employees, agents,
contractors or invitees. Any such clean up, remediation or removal activities
shall be subject to the provisions of Section 6.05 of this Lease. Tenant's
obligations under this Section shall survive the expiration or termination of
the Lease. Tenant shall have no obligations to clean up, remediate or remove
Hazardous Materials located on the Property prior to the Commencement Date."
5. Section 5.08 is hereby added to the Lease as follows:
"Pursuant to California Health & Safety Code Section 25359.7, Tenant shall
promptly notify Landlord if Tenant knows or has reasonable cause to believe
that any release of a Hazardous Material has come or will come to be located on
or beneath the Property. If the release of a Hazardous Material is required to
be reported to a state or local agency pursuant to law and the Tenant knowingly
and wilfully fails to provide such notice to Landlord, then at Landlord's
option such failure to provide notice shall constitute a material default under
this Lease which can be cured only if Tenant promptly commences and removes, or
otherwise takes remedial action with respect to the Hazardous Material release.
In any event, Tenant shall be liable to Landlord for all actual damages
incurred by Landlord resulting from the failure of Tenant to give the notice
required by this Section."
6. Section 6.01 is hereby amended by deleting the last full
sentence and by adding the following: "Landlord makes no representation as to
the presence of Hazardous Materials on, under or about the Property. To the
fullest extent permitted by law, Tenant waives and releases Landlord from any
liability resulting from the existence of Hazardous Materials on, under or
about the Property." Section 6.01 is hereby further amended by adding the
following: "Notwithstanding the foregoing, Landlord warrants to Tenant that the
plumbing, lighting, air conditioning, heating and other systems in the Property
shall be in normal operating condition on the Commencement Date. Landlord
agrees, at its expense, to remedy any violation of the foregoing warranty,
provided that notice of such violation is delivered to Landlord by Tenant
within thirty (30) days after the Commencement Date. In no event shall Landlord
be responsible to remedy any damage to any of the foregoing systems caused by
the acts of Tenant or its employees, agents, contractors or invitees."
7. Section 6.04 is hereby amended by adding the following at the
end of subsection (a): "Tenant shall comply with all applicable covenants,
conditions and restrictions affecting the Property, and with all laws,
ordinances, regulations, directives and requirements of all governmental
authorities having jurisdiction over the Property." Section 6.04 is further
amended by adding the following as subsection (c): "(c) Notwithstanding
anything to the contrary contained in subsection (a) above, Tenant expressly
agrees to, at its sole cost and expense, maintain, repair and keep the roof of
the Property in good order and condition at all times during the term of this
Lease. Nothing in this Section 6.04 shall be construed to obligate Tenant
<PAGE> 16
[TEXT MISSING ON CUSTOMER'S COPY] unless such replacement is necessary due to
Tenant's negligence, misconduct or failure to properly maintain or repair the
roof as required under this Section 6.04.
8. Section 9.04 is hereby amended by adding the following: "If
Tenant does not make such offer to terminate, Landlord shall have the right, in
lieu of giving or withholding its consent to the proposed assignment or
subletting, recapture the Property by either (i) terminating the Lease in the
case of a proposed assignment of the Lease, there releasing Tenant from further
liability under the Lease (except for those obligations under the Lease which
expre[COPY MISSING ON CUSTOMER'S COPY] survive termination) or (ii) terminating
the Lease as to the portion of the Property which Tenant has proposed to
sublease in which event Tenant's obligations as to Rent shall be reduced in the
same proportion that the rentable area of the portion of the Property which is
recaptured bears to the total rentable area of the Property. In the event of a
recapture Landlord may, without incurring any liability to Tenant, enter into a
new lease as to the recaptured Property or portion thereof with the proposed
assignee or subtenant or any other person."
9. Section 11.04 is hereby amended by adding the following
subsection (c): "In addition to the provisions subsection (b), if Tenant does
not deliver such statement to Landlord within such ten (10) day period,
Landlord shall have the right to declare a material default under the Lease and
enforce Landlord's remedies as provided in the Lease.
10. Section 13.15 is hereby added as follows:
"SECURITY MEASURES. Tenant hereby acknowledges that Landlord
has no obligation to provide guaranty services or another security service or
to take any type of security measures with respect to the Project or the
Property and Tenant acknowledges that Landlord shall not be responsible for any
loss, injury, or damage arising from Landlord's failure to provide the same.
Tenant assumes all responsibility for the protection of itself, its employees,
its property and its agents and invitees from the acts of third parties, and
waives all claims against Landlord and agrees to hold Landlord free and
harmless from any liability with respect to theft, loss or damage to property
or injury or death to persons resulting from the acts of third parties."
11. Section 13.16 is hereby added as follows:
"DEFINITION OF LANDLORD. For the purposes of Sections 5.05
(Indemnity), 6.01 (Existing Conditions), 6.02 (Exemption of Landlord from
Liability), 13.02(c) (Landlord's Liability), 13.16 (Security Measures), and
14.01 (No Brokers), the reference to Landlord with respect to indemnifications,
waivers and releases of liability shall be deemed to include Landlord's
partners, trustees, beneficiaries, directors, officers, agents and employees,
as the case may be."
12. Section 13.17 is hereby added as follows:
"COMMON AREAS. Landlord represents and Tenant acknowledges that
the Property is part of a "business park" currently comprised of approximately
449,382 square feet of space, consisting of numerous free-standing buildings,
all of which are owned by Landlord. Notwithstanding any provisions of this Lease
to the contrary, Landlord may, at its option, at any time during the Lease Term,
elect to assume responsibility for the maintenance of those areas within the
business park other than the buildings or other structures therein, such as
parking areas, driveways, sidewalks, landscaping and planted areas ("Common
Areas"). Should Landlord elect to maintain the Common Areas, it shall give at
least thirty (30) days advance notice of such election to Tenant, and thereafter
Tenant shall pay to Landlord "Tenant's Pro Rata Share" (as defined herein) of
the costs of maintaining the Common Areas. Tenant's Pro Rata Share shall be
calculated by dividing the square foot area of the Property, as set forth in
Section 1.04 hereof, by the aggregate square foot area of the business park, as
set forth above. Tenant's Pro Rate Share shall be paid within ten (10) days
after receipt of Landlord's demand therefor and shall be considered Additional
Rent. Landlord may, at its option, estimate in advance the costs of maintaining
the Common Areas, in which event Tenant shall pay Tenant's Pro Rata Share of
such estimate in advance with each monthly payment of Rent, with an appropriate
adjustment made at the end of each calendar year during the Lease Term and upon
expiration of the Lease Term. Common Area costs are any and all costs and
expenses for the maintenance of the Common Areas (excluding costs and expenses
for capital improvements), including, without limitation, the following:
Gardening and landscaping, costs of repairing, resurfacing, repaving, painting,
lighting, cleaning, refusal removal, rental or lease payments paid by Landlord
for rented or leased personal property used in the operation or maintenance of
the Common Areas, salaries of personnel employed by Landlord to maintain the
Common Areas, security and similar items, and a reasonable property management
fee for Landlord's supervision of the Common Areas. Landlord shall have the
right, at any time during the term of this Lease to increase or decrease the
number of square feet or space of the business park or the Common Areas and in
such event, Tenant's Pro Rata Share shall be adjusted accordingly."
/s/ JMS
-----------
LANDLORD'S
INITIALS
/s/ WJB
-----------
TENANT'S
INITIALS
<PAGE> 17
[SORI LOGO]
OPTION TO EXTEND TERM
LEASE RIDER
This Rider is attached to and made part of that certain Lease (the
"Lease") dated November 2, 1990 between JMB/Pennsylvania Advisors, a Delaware
limited partnership, as Landlord, and O-Tool Company, a California corporation,
as Tenant, covering the Property commonly known as 20535 South Belshaw Avenue,
Carson, CA (the "Property"). The terms used herein shall have the same
definitions as set forth in the Lease. The provisions of this Rider shall
supersede any inconsistent or conflicting provisions of the Lease.
A. OPTION(S) TO EXTEND TERM.
1. GRANT OF OPTION.
Landlord hereby grants to Tenant one option(s) (the"Option(s)") to
extend the Lease Term for an additional term(s) of five years each (the
"Extension(s)") on the same terms and conditions as set forth in the Lease, but
at an increased rate as set forth below. Each Option shall be exercised only by
written notice delivered to Landlord at least one hundred twenty (120) days
before the expiration of the Lease Term or the preceding Extension of the Lease
Term, respectively. If Tenant fails to deliver Landlord written notice of the
exercise of an Option within the prescribed time period, such Option and any
succeeding Options shall lapse, and there shall be no further right to extend
the Lease Term. Each Option shall be exercisable by Tenant on the express
conditions that (a) at the time of the exercise, and at all times prior to the
commencement of such Extension, Tenant shall not be in default under any of the
provisions of the Lease and (b) Tenant has not been ten (10) or more days late
in the payment of rent more than a total of three (3) times during the Lease
Term and all preceding Extensions.
2. PERSONAL OPTIONS.
The Option(s) are personal to the Tenant named in Section 1.03 of the
Lease or any Tenant's Affiliate described in Section 9.02 of the Lease. If
Tenant subleases any portion of the Property or assigns or otherwise transfers
any interest under the Lease to an entity other than a Tenant Affiliate prior
to the exercise of an Option (whether with or without Landlord's consent), such
Option and any succeeding Options shall lapse. If Tenant subleases any portion
of the Property or assigns or otherwise transfers any interest of Tenant under
the Lease to an entity other than a Tenant Affiliate after the exercise of an
Option, but prior to the commencement of the respective Extension (whether with
or without Landlord's consent), such Option and any succeeding Options shall
lapse and the Lease Term shall expire as if such Option were not exercised. If
Tenant subleases any portion of the Property or assigns or otherwise transfers
any interest of Tenant under the Lease in accordance with Article 9 of the
Lease after the exercise of an Option and after the commencement of the
Extension related to such Option, then the term of the Lease shall expire upon
the expiration of the Extension during which such sublease or transfer occurred
and only the succeeding Options shall lapse.
3. CALCULATION OF RENT.
The Base Rent during the Extension(s) shall be determined by one or a
combination of the following methods (INDICATE METHOD UPON EXECUTION OF THE
LEASE):
1. COST OF LIVING ADJUSTMENT (Section B.1. below)
Rental Adjustment Date(s): The first day of the 37th month(s) of
the first Extension(s) of the Lease Term.
2. 95% OF FAIR RENTAL VALUE ADJUSTMENT (Section B.2 below) as
determined by broker. Rental Adjustment Date(s): The first day of
the first month(s) of the first Extension(s) of the Lease Term.
3. FIXED ADJUSTMENT
The Base Rent shall be increased to the following amounts (the
"Adjusted Base Rent(s)") on the dates (the "Rental Adjustment
Date(s)") set forth below:
RENTAL ADJUSTMENT DATE(S) ADJUSTED BASE RENT(S)
------------------------- ---------------------
- ---------------------------------- $----------------------------------
- ---------------------------------- $----------------------------------
- ---------------------------------- $----------------------------------
- ---------------------------------- $----------------------------------
(C)1988 Southern California Chapter Initials WJB
of the Society of Industrial [SORI LOGO] -------------
and Office Realtors(R), Inc. -------------
(SINGLE-TENANT NET FORM)
1
<PAGE> 18
The Base Rent shall be increased on the dates specified in Section B.1
above (the "Rental Adjustment Date(s)") by reference to the index defined in
Section 3.02 of the Lease or the substitute index described in Paragraph
3.02(b) of the Lease as follows: The Base Rent in effect immediately prior to
the applicable Rental Adjustment Date (the "Comparison Base Rent") shall be
increased by the percentage that the _______ has increased from the month in
which the payment of the Comparison Base Rent commenced through the month in
which the applicable Rental Adjustment Date occurs. In no event shall the Base
Rent be reduced by reason of such computation.
2. FAIR RENTAL VALUE ADJUSTMENT.
The Base Rent shall be increased on the date(s) specified in Section
B.2. above (the "Rental Adjustment Date(s)") to the "fair market value" of the
Property, determined in the following manner:
(a) Not later than one hundred (100) days prior to any applicable
Rental Adjustment Date, Landlord and Tenant shall meet in an effort to
negotiate, in good faith, the fair rental value of the Property as of such
Rental Adjustment Date. If Landlord and Tenant have not agreed upon the fair
rental value of the Property at least ninety (90) days prior to the applicable
Rental Adjustment Date, the fair rental value shall be determined by appraisal,
by one or more appraisers or brokers (herein called "Appraiser(s)"), as provided
in Section B.2(b) below. If appraiser(s) are used, such appraiser(s) shall have
at least five (5) years experience in the appraisal of commercial/industrial
real property in the area in which the Property is located and shall be members
of professional organizations such as MAI or equivalent. If broker(s) are used,
such broker(s) shall have at least five (5) years experience in the sales and
leasing of commercial industrial real property in the area in which the Property
is located and shall be members of professional organizations such as the
Society of Industrial and Office Realtors or equivalent.
(b) If Landlord and Tenant are not able to agree upon the fair
rental value of the Property within prescribed time period, then Landlord and
Tenant shall attempt to agree in good faith upon a single Appraiser not later
than seventy-five (75) days prior to the applicable Rental Adjustment Date. If
Landlord and Tenant are unable to agree upon a single Appraiser within such
time period, then Landlord and Tenant shall each appoint one Appraiser not
later than sixty-five (65) days prior to the applicable Rental Adjustment Date.
Within ten (10) days thereafter, the two (2) appointed Appraisers shall appoint
a third (3rd) Appraiser. If either Landlord or Tenant fails to appoint its
Appraiser within the prescribed time period, the single Appraiser appointed
shall determine the fair rental value of the Property. If both parties fail to
appoint Appraisers within the prescribed time periods, then the first Appraiser
thereafter selected by a party shall determine the fair rental value of the
Property. Each party shall bear the cost of its own Appraiser and the parties
shall share equally the cost of the single or third Appraiser, if applicable.
(c) For the purposes of such appraisal, the term "fair market
value" shall mean the price that a ready and willing tenant would pay, as of
the applicable Rental Adjustment Date, as monthly rent to a ready and willing
landlord of property comparable to the Property if such property were exposed
for lease on the open market for a reasonable period of time and taking into
account all of the purposes for which such property may be used. If a single
Appraiser is chosen, then such Appraiser shall determine the fair rental value
of the Property. Otherwise, the fair rental value of the Property shall be the
arithmetic average of the two (2) of the three (3) appraisals which are closest
in amount, and the third appraisal shall be disregarded. In no event, however,
shall the Base Rent be reduced by reason of such computation. Landlord and
Tenant shall instruct the Appraiser(s) to complete the determination of the
fair rental value not later than thirty (30) days prior to the applicable
Rental Adjustment Date. If the fair rental value is not determined prior to the
applicable Rental Adjustment Date, then Tenant shall continue to pay to
Landlord the Base Rent applicable to the Property immediately prior to such
Extension, until the fair rental value is determined. When the fair rental value
of the Property is determined, Landlord shall deliver notice thereof to Tenant
and Tenant shall pay to Landlord, within ten (10) days after receipt of such
notice, the difference between the Base Rent actually paid by Tenant to Landlord
and the new Base Rent determined hereunder.
(C)1988 Southern California Chapter Initials WJB
of the Society of Industrial [LOGO] ------------
and Office Realtors(R), Inc. ------------
2
<PAGE> 19
SUPPLEMENTAL RIDER TO
INDUSTRIAL REAL ESTATE LEASE
This Rider is attached and made a part of that certain Industrial Real
Estate Lease (the "Lease") dated November 2, 1990 between JMB/Pennsylvania
Advisors, a Delaware limited partnership as Landlord, and O-Tool Company, Inc.,
a California Corporation as Tenant, relating to the Property described as 20535
South Belshaw Avenue, Carson, CA. The terms used herein shall have the same
meaning as set forth in the Lease. The provisions of this Rider shall supersede
any inconsistent or conflicting provisions of the Lease or the Standard Rider.
The Lease is hereby modified and amended as follows:
1. Notwithstanding anything contained in Section 2.03 of the Lease to the
contrary, Landlord hereby agrees that the minimum monthly rent during the
eighth month of the Lease shall be reduced to $5,269.86. The minimum monthly
rent during the 9th, 20th, 21st, and 32nd months of the Lease term shall be
abated (the "Free Rent"). The Free Rent, together with the reduced rent, any
postponed rent or other rental concessions under this lease is collectively
referred to as "Abated Rent." The Abated Rent set forth in this section shall
be subject to all of the provisions set forth in Section 10.04 of the Lease.
2. Prior to the Lease Commencement Date, Landlord agrees to check the
HVAC (heating, ventilating and air conditioning) systems and service as
necessary.
JMS
-----------
LANDLORD'S
INITIALS
WJB
-----------
TENANT'S
INITIALS
<PAGE> 20
JMB 137 (2/89)
ASSIGNMENT OF LEASE
ASSIGNMENT OF LEASE
THIS ASSIGNMENT OF LEASE made and entered into as of the ____ day of
______, 19__, by and between O-Tool Company, Inc., a California corporation
("Assignor"), Q.E.P. - O-Tool Company, a California corporation ("Assignee),
and JMB/Pennsylvania Advisors, a Delaware limited partnership ("Landlord").
WITNESSETH:
A. Landlord or its predecessor in interest, and Assignor or its
predecessor in interest, have heretofore entered into that certain lease dated
January 3, 1991, for premises (the "Premises") described as Suite(s) or Room(s)
___________, initially containing approximately 29,277 square feet in the
property (the "Property") known as N/A, located at 20535 S. Belshaw Ave.,
Carson, CA 90246 which lease has heretofore been amended or assigned or the
Premises subleased or the term extended by instruments dated May 3, 1991
(sublease that has expired) and July 2, 1993 (1st Amendment to Lease) (which
lease and all such amendments, prior assignments, subleases and extensions
shall hereinafter be referred to collectively as the "Lease").
B. Assignor desires to assign all of its right, title and
interest in the Lease to Assignee. Assignee desires to accept and assume the
same, and Landlord is willing to consent to the proposed Assignment, all on the
terms and conditions hereof.
NOW THEREFORE, in consideration of the mutual terms and conditions
herein contained, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
1. ASSIGNMENT. Assignor hereby transfers and assigns to Assignee all
of Assignor's right, title and interest in the Lease, and any security deposit
thereunder.
2. ACCEPTANCE. Assignee hereby accepts the Assignment granted herein,
and assumes and agrees to make all payments and to perform all other obligations
of tenant under the Lease. Assignee shall make no further assignment or sublease
of the Premises, or any part thereof, nor shall Assignee mortgage, pledge or
hypothecate the Lease, without Landlord's prior written consent, which Landlord
may withhold in its sole discretion, except as provided to the contrary in the
Lease. The exercise by Landlord of any remedy against Assignor shall not
preclude Landlord from the exercise of the same other remedies against Assignee
at the same or different times. In recognition that Landlord must continue to
have all remedies otherwise available to Landlord for defaults under the Lease,
including the right to apply any security deposit, terminate the Lease and/or
recover possession, regardless of whether Assignor or Assignee committed such
defaults, Assignee's liability hereunder shall in no way be limited to those
matters arising prior to the Effective Date, but shall extend to any and all
obligatins under the Lease arising prior to the Effective Date, as well as the
performance of all obligations arising thereafter, and Assignee shall look
solely to Assignor for indemnity or reimbursement of any expenses, costs,
damages or liabilities incurred with respect to any default in the performance
of such obligations relating to the period prior to the Effective Date.
3. EFFECTIVE DATE. The effective date hereof ("Effective Date") shall
be June 9, 1994. As between Assignor and Assignee, all obligations under the
Lease arising, accruing or relating to the period before the Effective Date
shall be allocated to Assignor and all obligations arising, accruing or
relating to the period thereafter shall be allocated to Assignee. In the event
that the Effective Date occurs other than at the end of any period for which
rentals or other charges under the Lease accrue or are due, then such rentals
or other charges shall be prorated between Assignor and Assignee on a per diem
basis. Any as yet undetermined charges may be reasonably estimated by Landlord
in its sole discretion, subject to reproration between Assignor and Assignee
after the actual charges have been determined.
4. REPRESENTATIONS; INDEMNITY. As between Assignor and Assignee,
without in any way affecting, limiting or waiving any rights of Landlord
against either Assignor or Assignee under the Lease, Assignor represents and
warrants to Assignee that as of the Effective Date, the Lease shall be in full
force and effect, that all sums due and payable thereunder as of the Effective
Date shall have been paid, that any amounts that become payable after the
Effective Date relating to the period prior to the Effective Date shall be paid
by Assignor promptly, that
<PAGE> 21
the Lease has not been previously assigned, subleased, extended, modified, or
amended, except as noted herein, that Assignor shall not be in default under
any of its obligations under the Lease, that so long as Assignee complies with
all terms and provisions of the Lease applicable to the period commencing on
the Effective Date. Assignee will have the full use and enjoyment of the
Premises, and that a true and correct copy of the Lease (including any
amendments, prior assignments, subleases, or extensions thereto) is attached
hereto as Exhibit A. Assignor further represents and warrants that Landlord is
not in default under any of the terms and provisions of the Lease. Assignor
agrees to indemnify Assignee for any liability, costs or damages arising with
respect to any breach of the foregoing representations and warranties. Assignee
agrees to indemnify Assignor for any liability, costs or damages arising with
respect to any breach of the Lease after the Effective Date.
5. LANDLORD'S CONSENT. Landlord hereby consents to this Assignment
upon the terms and conditions set forth herein. Unless and until Landlord shall
have executed this Assignment, the same shall be of no effect, notwithstanding
that Landlord may have accepted and may continue to accept rent or the
performance of other obligations by Assignee. The consent granted herein shall
in no event be construed as consent to any further assignment. The failure or
delay of Landlord in seeking to enforce any provisions of the Lease or this
Assignment shall not be deemed a waiver of rights or remedies that Landlord may
have, or a waiver of any subsequent breach of the terms and provisions therein
or herein contained.
6. LIMITATION OF LIABILITY. Except to the extent provided expressly in
the Lease, no partner, trustee, director, officer, employee, beneficiary,
shareholder or agent of Landlord or its agent shall be personally liable under
or in connection with the Lease, or this Assignment, and Assignor and Assignee
and their successors and assigns shall look solely to Landlord's interest in
the Property for the satisfaction of any claim or judgment requiring the
payment of money by Landlord. The limitation of liability provided in this
paragraph is in addition to, and not in limitation of, any limitation on
liability applicable to Landlord provided by law or any other agreement or
instrument.
7. NOTICES. Any notice given by any party to another party hereto
shall be by certified or registered mail, return receipt requested, postage
prepaid, to such other party at the address given below or such other address as
such other party may from time to time designate in writing to the other
parties in accordance with these provisions. The addresses set forth below
shall supersede any addresses for notices set forth in the Lease. If no address
is given below, then the address for that party shall be the address set forth
in the Lease, or in the absence thereof, shall be the address of the Premises.
Any such notice shall be deemed given when placed in the United States mails
with sufficient postage prepaid.
Landlord: JMB/Pennsylvania Advisors
c/o JMB Properties Company
21235 Hawthorne Blvd., Suite 205
Torrance, CA 90503
Attn: Craig Halverson
with copy to:
c/o JMB Properties Company
900 N. Michigan Avenue
Chicago, Illinois 60611
Attn: Legal Department
ASSIGNOR:
O-Tool Company, Inc.
20535 Belshaw Ave.
Carson, CA 90246
Attn: William Bryson
ASSIGNEE:
QEP - O'Tool, Inc., a California corporation
9 Kay Fries Drive
Stony Point, NY 10980-0678
Attn: Patrick L. Daggett
8. SUCCESSORS. Except as herein otherwise provided, this Assignment
shall be binding upon and inure to the benefit of the parties, and their
respective heirs, executors, administrators, successors and assigns.
2
<PAGE> 22
9. GUARANTORS. Landlord's consent and any other agreements by Landlord
herein or in connection with this Assignment are subject to and conditioned
upon, the written acceptance hereof by all guarantors of the Lease, who by
signing below shall agree that their guarantee shall apply to the Lease as
assigned hereby (and as amended herein or in connection herewith), unless
Landlord shall expressly waive such requirement in writing.
IN WITNESS WHEREOF, the parties have executed this Assignment as of
the date first above written.
WITNESSES: ATTESTATION
(Two for each signatory
required if Property is
in Florida or Ohio): ASSIGNOR: O-Tool Company, Inc.,
------------------------------------
a California corporation
/s/ BARBARA A. BRYSON By: /s/ WILLIAM BRYSON
- ---------------------------- ------------------------------------
Name Typed: William Bryson
- ---------------------------- ------------------------------------
Title: President
------------------------------------
ASSIGNEE: Q.E.P. - O'Tool, Inc.,
------------------------------------
a California corporation
/s/ BARBARA A. BRYSON By: /s/ PATRICK L. DAGGETT
- ---------------------------- ------------------------------------
Name Typed: Patrick L. Daggett
- ---------------------------- ------------------------------------
Title: Treasurer, Chief Financial
Officer
------------------------------------
LANDLORD: JMB/Pennsylvania Advisors,
------------------------------------
a Delaware limited partnership
By: JMB Properties Company, Agent
- ---------------------------- ------------------------------------
By: /s/ SCOTT STUCKMAN
- ---------------------------- ------------------------------------
GUARANTOR(s) (and spouses) Name Typed: Scott Stuckman
Q.E.P. Co., Inc., ------------------------------------
a New York Corporation Title: Senior Vice President
By: /s/ PATRICK L. DAGGETT
- ----------------------------
Name: Patrick L. Daggett
- ----------------------------
Title: Treasurer
- ----------------------------
THIS FORM HAS BEEN PROVIDED BY LANDLORD ONLY AS AN EXAMPLE OF AN ASSIGNMENT OF
LEASE. THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES, AND EACH PARTY SHOULD
CONSULT ITS ATTORNEY BEFORE SIGNING. LANDLORD DOES NOT PRACTICE LAW, AND IS
PROVIDING NO ASSURANCES AS TO THE ADEQUACY OR ENFORCEABILITY OF THIS FORM, OR
WHETHER IT IS FREE OF ERRORS OR OMISSIONS.
3
<PAGE> 1
EXHIBIT 10.2.4
THIS AGREEMENT OF LEASE (this "Lease") dated as of the ____ day of
December, 1994, between CONNECTICUT MUTUAL LIFE INSURANCE COMPANY, a
Connecticut Corporation, (hereinafter referred to as "Landlord"), and Q.E.P.
CO., INC., (hereinafter referred to as "Tenant").
W I T N E S S E T H:
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE I
Demised Premises
1.1 Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord for the term and upon the terms, conditions, covenants and agreements
hereinafter provided, the Premises. The Premises consist of space which: (i) is
located on the floor or floors of the Building as is specified in Item B(1) of
the Basic Lease Provisions, (ii) is located in one or more areas or parts of
each such floor, and (iii) is bounded by the proposed or existing demising walls
therefor, tho approximate locations of such demising walls and space being
marked in color or crosshatched and shown on the diagram(s) of the floor plan
for each such floor, such diagram(s) being attached to this Lease as Exhibit A
and made a part hereof. The Premises is to be known and called by the Suite
Number or Numbers specified in Item B(1) of the Basic Lease Provisions. The
appropriate number of rentable square feet contained in the Premises, as
determined by Landlord, for identification purposes only, is specified in Item
B(2) of the Basic Lease Provisions (the "Rentable Area"). The lease of the
Premises includes the right, together with other tenants of the Building and
members of the public, to use the common public areas of the Building, but
includes no other rights not specifically set forth herein. Landlord shall
finish the Premises as set forth in Exhibit B attached hereto and made a part
hereof. It is understood and agreed that Landlord will not make and is under no
obligation to make, any alterations, decorations, additions or improvements in
or to the Premises, structural or otherwise, except as set forth in Exhibit B.
Landlord agrees to deliver possession of the Premises to Tenant and Tenant
agrees to accept the same from Landlord, upon written notice from Landlord to
Tenant, that Landlord's work in the Premises described in Exhibit B has been
substantially completed.
ARTICLE II
Term
2.1 The Premises are leased for the period of years and months as
specified in Item C of the Basic Lease Provisions to commence at 12:01 A.M. on
the Commencement Date and to end at 11:59 P.M. on the Expiration Date unless
the Term shall sooner terminate pursuant to any of the terms, covenants or
conditions of this Lease or pursuant to law.
2.2 Notwithstanding anything in 2.1 to the contrary, if, on or
prior to the Commencement Date of the Term, the Premises are not ready for
occupancy, this Lease shall nevertheless continue in full force and effect and
Tenant shall have no right to rescind, cancel or terminate same nor shall
Landlord be liable for damages, if any, sustained by Tenant by reason of
inability to obtain possession thereof on such date. In such event, Landlord
shall give to Tenant, written notice at least fifteen (15) days in advance of
the date when Landlord expects the Premises to be ready for occupancy by Tenant
which date shall then become the revised Commencement Date. The Term shall end
on the revised Expiration Date, which date shall be the same number of days
after the revised Commencement Date as it was after the original Commencement
Date, unless sooner terminated pursuant to any of the terms, covenants or
conditions of this Lease or pursuant to law.
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2.3 When Tenant takes possession of the Premises, Tenant shall be
deemed to have accepted the Premises as being satisfactory and in good
condition as of the date of such possession.
ARTICLE III
Rent
3.1 Tenant covenants and agrees to pay to Landlord as rent for and
during the Term hereof the annual sum as specified in Item D(1) of the Basic
Lease Provisions as Basic Rent.
3.2 Basic Rent and any Additional Rent payable pursuant to the
provisions of this Lease shall be payable by Tenant to Landlord at the address
specified in Item H(3) of the Basic Lease Provisions (or at such other place as
Landlord may designate in a notice to Tenant) in lawful money of the United
States without prior demand therefor and without any offset or deduction
whatsoever except as otherwise specifically provided in this Lease for the
convenience of Tenant. Basic Rent shall be payable in equal monthly
installments as specified in Item D(2) of the Basic Lease Provisions, in
advance, on the first (1st) day of each month during the Term. The installment
of Basic Rent for the first (1st) full calendar month of the Term, is due and
payable by Tenant to Landlord at the time of the execution and delivery of this
Lease. In the event that the Commencement Date shall occur on a date other than
the first (1st) day of any calendar month, Tenant shall pay to Landlord on the
first (1st) day of the month next succeeding the month during which the
Commencement Date shall occur, a sum equal to that specified in Item D(2) of
the Basic Lease Provisions divided by thirty (30) then multiplied by the number
of calendar days in the period from the Commencement Date to the last day of
the month in which the Commencement Date shall occur, both inclusive. Such
payment, together with the sum paid by Tenant upon execution of this Lease,
shall constitute payment of the Basic Rent for the period from the Commencement
Date to and including the last day of the next succeeding calendar month.
3.3 Tenant covenants to pay Basic Rent and any Additional Rent
payable pursuant to the provisions of this Lease and to observe and perform and
to permit no violation of the terms, covenants and conditions of this Lease on
Tenant's part.
ARTICLE IV
Use and Occupancy
4.1 Tenant shall use and occupy the Premises solely for general
office purposes and only in accordance with the uses permitted under applicable
zoning and other municipal regulations. Without the prior written consent of
Landlord, the Premises shall not be used for any other purpose, or for any
purpose that will constitute a nuisance or unreasonable annoyance to Landlord
or other tenants of the Building and shall comply with all present and future
laws, ordinances, regulations, and orders of the United States of America, the
jurisdiction in which the Building is located, and any other public or
quasi-public authority having jurisdiction over the Premises. It is expressly
understood that if any law, ordinance, regulation or order requires an
occupancy permit for the Premises, Tenant shall obtain such permit at
Landlord's own expense (that is to say, Landlord will pay the cost of the
application for issuance of the Certificate of Occupancy).
4.2 If at any time during the Term, Tenant adopts a policy
prohibiting Tenant, its employees, agents or invitees from smoking within the
Premises, Tenant shall establish a designated area within the Premises where
Tenant shall permit smoking. Tenant shall establish such designated area at
Tenant's sole expense in accordance with Article 7 of this Lease. Such
designated area shall include, among other things, adequate area, ventilation
and fire safety equipment. Tenant hereby acknowledges that such designated area
is necessary and reasonable to prevent smoking by
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Tenant, Tenant's employees, agents and invitees in unauthorized areas of the
Building in violation of relevant fire and safety laws and regulations and to
prevent fire hazards within the Premises.
4.3 Tenant shall have the right to the non-exclusive use of the
parking lot on the Real Property (as defined in paragraph 5.1) for all
employees and visitors. The same right has been or will be given to all other
tenants in the Building, and to their respective employees, agents, customers
and invitees and to other persons, and it does not entitle Tenant or other
tenants to any particular assigned spaces in the parking lot. Tenant covenants
and agrees to comply with all reasonable rules and regulations which Landlord
may hereafter from time to time or at any time make pursuant to the terms of
Article XXXVI to assure exclusive use of designated parking spaces on the Real
Property by permitted users. Landlord's remedies under such rules and
regulations may include, but shall not be limited to, the right to tow away at
owner's expense any vehicles not parked in compliance with these rules and
regulations. Landlord shall not be responsible to Tenant for the non-compliance
or breach by any other tenant of said rules and regulations, provided, however,
Landlord agrees to use reasonable efforts to enforce such rules and regulations
uniformly.
ARTICLE V
Alterations or Improvements by Tenant
5.1 Tenant shall make no changes in or to the Premises of any
nature without Landlord's prior written consent. Subject to the prior written
consent of Landlord, Tenant, at Tenant's sole expense, may hire contractors
approved by Landlord to make alterations, installations, additions or
improvements in or to the Premises (collectively hereinafter referred to as the
"Alterations") which are non-structural and which do no affect utility
services, plumbing or electrical lines in or to the Premises or the Building.
The Alterations shall, upon installation, become the property of Landlord and
shall remain upon and be surrendered with the Premises, unless Tenant by
written notice to Landlord no later than thirty (30) days prior to the
Expiration Date requests Landlord's consent to remove same. If Landlord
so consents the Alterations shall be removed from the Premises by Tenant prior
to the Expiration Date at Tenant's sole expense. Nothing in this Article V
shall be construed to give Landlord title to or to prevent Tenant's removal of
trade fixtures, moveable office furniture and equipment, but upon removal of
any such from the Premises or upon removal of any other installation as may be
permitted by Landlord, Tenant shall immediately and at its expense, repair and
restore the Premises to the condition existing prior to the Alterations. Tenant
shall repair any damage to the Premises, the Building, or the real property on
which the Building is located (hereinafter collectively referred to as the "Real
Property") incurred during such removal. All property permitted or required to
be removed by Tenant at the Expiration Date or sooner termination of the Term
which remains on the Premises after the Expiration Date or sooner termination of
the Term shall be deemed abandoned and may, at the election of the Landlord,
either be retained as Landlord's property or may be removed from the Premises by
Landlord at Tenant's expense. If Tenant does not repair or restore said damage
Landlord is entitled to deduct said cost and expense from Tenant's security
deposit.
5.2 Prior to the commencement of the Alterations, Tenant shall at
its sole expense, obtain all required permits, approvals and certificates
required by all Governmental Authorities and upon completion of the
Alterations, certificates of final approval thereof. Tenant shall deliver
duplicates of same to Landlord promptly upon their receipt. Tenant shall carry
and will cause Tenant's contractors and subcontractors to carry such worker's
compensation, general liability, personal and property damage insurance as
required by law and in amounts no less than the amounts set forth in Article
XXIII hereof.
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5.3 As a condition precedent to the written consent of
Landlord, Tenant agrees to obtain and deliver to Landlord written and
unconditional waivers of mechanics' and materialmens' liens upon the Real
Property or a part, for all work, labor and services to be performed, and
materials to be furnished, by them in connection with such work, signed by all
contractors, subcontractors, materialmen and laborers to be involved in such
work. If, notwithstanding the foregoing, any mechanic's or materialmen's lien
is filed against the Real Property, for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant, such lien shall be
discharged by Tenant within ten (10) days thereafter, at Tenant's sole cost and
expense, by the payment thereof or by filing any bond required by law. If
Tenant shall fail to discharge any such mechanic's or materialmen's lien,
Landlord may, at its option, discharge the same and treat the cost thereof as
Additional Rent payable with the monthly installment of rent next becoming due;
it being hereby expressly covenanted and agreed that such discharge by Landlord
shall not be deemed to waive or release the default of Tenant in not
discharging the same. It is understood and agreed by Landlord and Tenant that
any alterations, decorations, additions or improvements shall be constructed on
behalf of Tenant and that in the event Landlord gives its written consent to
Tenant's making any such alterations, decorations, additions or improvements,
such written consent shall not be deemed to be an agreement or consent by
Landlord to subject Landlord's interest in the Premises, the Building or the
Real Property to any mechanic's or materialmen's liens which may be filed in
respect to any such work done by or on behalf of Tenant.
5.4 Tenant shall indemnify and hold Landlord harmless from and
against any and all expenses, liens, claims or damages to person or property
which arise directly or indirectly by reason of the Alterations, structural or
otherwise, made by Tenant without the prior written consent of
Landlord. Landlord shall have the right to remove same and Tenant shall be
liable for any and all expenses incurred by Landlord in said removal and
subsequent restoration of the Premises to the original condition.
ARTICLE VI
MAINTENANCE
6.1 Tenant shall take good care of the Premises throughout the
Term and preserve same in the condition delivered to Tenant on the Commencement
Date, normal wear and tear and damage by fire or other casualty not caused by
Tenant, excepted. Tenant further agrees not to injure, overload, deface or
commit waste of the Premises. Tenant shall be responsible for all injury or
damage of any kind or character to the Real Property, including the windows,
floors, walls, ceilings, lights, electrical equipment and HVAC equipment,
caused by Tenant or by anyone using or occupying the Premises by, through or
under Tenant. Landlord shall repair the same and Tenant shall pay the costs
incurred therefor to Landlord immediately upon demand plus a ten percent (10%)
management fee. If the Premises become infested with vermin, Tenant shall, at
Tenant's expense, cause the same to be exterminated from time to time to the
satisfaction of Landlord and shall employ such exterminators as shall be
approved by Landlord.
6.2 Landlord shall be responsible for all repairs to the roof,
floors, foundation and permanent exterior walls and support columns of the
Building (hereinafter referred to as "Structural Repairs") and shall maintain,
repair and replace all plumbing, heating, air conditioning, electrical and
mechanical fixtures (exclusive of (a) starters, ballasts, incandescent and
fluorescent lamps and (b) electrical and mechanical fixtures installed by
Tenant) which shall be standard for the Building, when required, and maintain
and make repairs to the parking area and the exterior of the Building, except
those repairs or replacements arising from the negligence of Tenant, its
agents, servants, employees,
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licensees, or invitees, which shall be the sole responsibility of Tenant.
ARTICLE VII
Compliance with Laws, Indemnity and Insurance
7.1 Tenant shall not do, or permit anything to be done in or to
the Premises, or bring or keep anything therein which will, in any way,
increase the cost of fire or public liability insurance on the Real Property,
or invalidate or conflict with the fire insurance or public liability insurance
policies covering the Real Property, the Building, fixtures or any personal
property kept therein, or obstruct or interfere with the rights of Landlord or
of other tenants, or in any other way injure or annoy Landlord or other
tenants, or subject Landlord to any liability for injury to persons or damage
to property, or interfere with the good order of the Building, or conflict with
the present or future laws, rules or regulations of any Governmental Authority.
Tenant hereby indemnifies and shall hold Landlord harmless of and from all
liability for injury to persons or damage occurring on the Premises or in the
Building or on the Real Property whether occasioned by any act or omission of
Tenant, or Tenant's agents, servants, employees, invitees or licensees. Tenant
agrees that any increase in fire and casualty insurance premiums on the
Building or contents caused by the occupancy of Tenant and any expense or cost
incurred in consequence of negligence carelessness or willful action of
Tenant, Tenant's agents, servants, employees, invitees or licensees, shall be
reimbursed to Landlord with ten (10) days of demand therefor. Landlord shall
have all the rights and remedies for the collection of same as are conferred
upon Landlord for the collection of Basic Rent provided to be paid pursuant to
the terms hereof.
ARTICLE VIII
Subordination and Estoppel
8.1 Tenant agrees that this Lease is subject and subordinate to
all ground or underlying leases and to the lien of any mortgages or deeds of
trust now on or which at any time in the future that may be made a lien upon
the Real Property, and to all advances made or hereafter to be made upon the
security thereof. This subordination provision shall be self-operative and no
further instrument of subordination shall be required, provided, however, that
Tenant agrees to execute and deliver within two (2) business days, upon
request, such further instrument or instruments confirming this subordination
as shall be desired by Landlord or by any mortgagee or proposed mortgagee of
the Real Property; and Tenant hereby constitutes and appoints Landlord as
Tenant's attorney-in-fact to execute any such instrument or instruments. Tenant
further agrees that at the option of the holder of any mortgage or of the
trustee under any deed of trust securing the Real Property, this Lease may be
made superior to said mortgage or deed of trust by the insertion therein of a
declaration that this Lease is superior.
8.2 Tenant agrees at any time and from time to time upon not
less than fifteen (15) days' prior written request by Landlord, to execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same are in full force and effect as modified) and
stating the modifications, that there are no offsets, defenses, defaults, or
counterclaims under this Lease or against Landlord, the dates to which the Basic
Rent and Additional Rent have been paid in advance, if any, it being intended
that any such statement delivered pursuant to this paragraph 8.2 may be relied
upon by a prospective purchaser of Landlord's interest or a mortgagee of
Landlord's interest or assignee of any mortgage upon Landlord's interest in the
Real Property.
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ARTICLE IX
Destruction - Fire or Other Casualty
9.1 If the Premises or the Building shall be damaged by fire or
other casualty not arising from the fault or negligence of Tenant or its
servants, agents, employees, invitees or licensees; (i) except as otherwise
provided in subsection (ii) hereof, the damage shall be repaired by and at the
expense of Landlord and until such repairs shall be made the Basic Rent and
Additional Rent shall be equitably abated according to the part of the
Premises which is usable by Tenant. Landlord agrees, at its expense, to repair
promptly any damage to the Premises, except that Tenant agrees to repair or
replace its own furniture, furnishings and equipment. No penalty shall accrue
due to a delay caused by strike, lockout, act of God, inability to obtain labor
or materials, governmental restrictions, enemy actions, civil commotion, fire,
unawardable casualty or any other cause similar or dissimilar beyond the
reasonable control of either Landlord or Tenant or due to the passing of time
while waiting for an adjustment of insurance proceeds (hereinafter referred to
as an "Excusable Delay"); (ii) If the Premises are totally damaged or are
rendered wholly untenantable by fire or other casualty, or if Landlord's
architect certifies that it cannot be repaired within ninety (90) days of the
casualty or if Landlord shall decide not to restore or repair the same, or
shall decide to demolish the Building, or not to rebuild the Building or the
Premises, then Landlord shall, within ninety (90) days after such fire or other
casualty, give Tenant a notice of such decision, and thereupon the Term shall
expire ten (10) days after such notice is given, and Tenant shall vacate the
Premises and surrender the same to Landlord; (iii) If Landlord fails to
complete the repair and restoration of the Premises within six (6) months from
the date of the casualty (subject to Excusable Delays) then Tenant shall have
the right to cancel and terminate this Lease upon the delivery of a notice to
Landlord delivered within fifteen (15) days after the expiration of the
aforesaid six (6) month period; (iv) Landlord agrees that it shall diligently
pursue all repair and restoration work required on its part to be completed
hereunder, or Landlord shall have the opportunity to relocate Tenant to other
space.
ARTICLE X
Mutual Waiver of Subrogation
10.1 Landlord hereby waives any and all rights of recovery
Against Tenant for or arising out of damage to or destruction of the Premises,
the Building, or the Real Property and any other property of Landlord from
causes then insured under standard fire and extended coverage insurance
policies or endorsements to the extent that its insurance policies then in
effect permit such waiver, and Tenant hereby waives any and all rights of
recovery against Landlord for or arising out of damage to or destruction of the
Premises, the Building or the Real Property and any property of Tenant from
causes then insured under standard fire and extended coverage insurance
policies to the extent that its insurance policies then in effect permit such
waiver. If at any time during the Term any insurance carrier which shall have
issued a policy to either of the parties covering the Real Property, the
Premises, the Building or any of the property of Tenant, shall refuse to
consent to the waiver of the right of recovery with respect to any loss payable
under such policy, or if such carrier shall consent to such waiver only upon
the payment of an additional premium (unless such additional premium is
voluntarily paid by one of the parties hereto) or shall cancel a consent
previously given, or shall cancel or threaten to cancel any policy previously
issued and then in full force and effect, then in any such event, the waiver in
this paragraph 10.1 shall thereupon be of no further force and effect as to the
loss, damage or destruction covered by such policy except as hereinafter
provided. If, however, at any time thereafter such consent shall be obtained
therefor from any existing or any substitute insurance carrier, the waiver
hereinabove provided for
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shall again become effective.
ARTICLE XI
Condemnation and Other Proceedings
11.1 If the Premises shall be acquired or condemned by eminent
domain proceedings, or by giving of a deed in lieu thereof, or shall be ordered
demolished or unfit for present use by any governmental body, then and in that
event, the Term shall cease and terminate from the date of title-vesting or
final order pursuant to such proceeding or agreement. If a non-substantial
portion of the Premises or the Building shall be so ordered, acquired or
condemned, this Lease shall cease and terminate at Landlord's option, and if
such option is not exercised by Landlord, an equitable adjustment of the Basic
Rent and Additional Rent payable by tenant for the remaining useable portion of
the Premises shall be made. In the event of a termination under this Article
XI, Tenant shall have no claim against Landlord for the value of any unexpired
Term and Tenant shall have no claim against Landlord, other than for the
adjustment of the Basic Rent and Additional Rent as hereinbefore mentioned, or,
be entitled to any portion of any amount that may be awarded as damages or
paid as a result of such proceedings or as the result of any agreement made by
any governmental authority with Landlord.
11.2 Tenant may, if allowed by statue, seek such awards or
damages for moving expenses, loss of profits and fixtures and other equipment
installed by it (if any) which do not, under the terms of this Lease, become
the property of Landlord at the termination hereof. Such awards or damages must
be made by a condemnation court or other authority and must be separate and
distinct from any award to Landlord for the Real Property and Building and
shall not diminish any award of Landlord. For purposes of this paragraph 11.2, a
substantial part of the Premises shall be considered to have been taken if more
than fifty percent (50%) of the Premises are unusable by Tenant as a direct
result of such taking.
ARTICLE XII
Assignment and Subletting
12.1 Tenant for itself, its heirs, distributees, successors and
assigns, expressly covenants that it shall not by operation of law or otherwise
assign, mortgage or encumber this Lease, or any part thereof, or permit the
Premises to be used by others without the prior written consent of Landlord in
each instance. Any attempt to do so by Tenant shall be void. The consent by
Landlord to any assignment, mortgage, encumbrance, subletting or use of the
Premises by others, shall not constitute a waiver of Landlord's right to
withhold its consent to any other assignment, mortgage, encumbrance or use of
the Premises by others. Without the prior written consent of Landlord, this
Lease and the interest of Tenant therein or any assignee of Tenant therein,
shall not pass by operation of law, and shall not be subject to garnishment or
sale under execution in any suit or proceeding which may be brought against or
by Tenant or any assignee of Tenant.
12.2 Landlord covenants and agrees that it will not unreasonably
withhold its consent to Tenant's assigning or subletting all or a part of the
Premises; provided, however, that Tenant shall not be in default under any of
the terms, covenants, conditions, provisions and agreements of this Lease at
the time of any notice or request for consent under the terms of this Article
XII or at the effective date of such subletting or assigning.
12.3 (a) If Tenant requests Landlord's consent to an assignment
of this Lease or a subletting of all or any part of the Premises, Tenant shall
submit to Landlord:
(1) the sum of three hundred dollars ($300.00) as a
nonrefundable fee to process each such request;
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(2) the name of the proposed assignee or subtenant;
(3) the terms of the proposed assignment or subletting;
(4) the nature of the proposed subtenant's or assignee's
business; and
(5) such information as to the proposed subtenant's or
assignee's financial responsibility and general reputation
as Landlord may reasonably require.
(b) Upon the receipt of such request and information from
Tenant, Landlord shall have the option, to be exercised in writing within
thirty (30) days after such receipt, to either (1) cancel and terminate this
Lease if the request is to assign this Lease or to sublet all of the Premises
or, if the request is to sublet a portion of the Premises only, to cancel and
terminate this Lease with respect to such portion, in each case as of the date
set forth in Landlord's notice of exercise of such option; or (2) to grant said
request.
(c) In the event Landlord shall cancel this Lease,
Tenant shall surrender possession of the Premises, or the portion of the
Premises which is subject of the request, as the cage may be, on the date set
forth in such notice in accordance with the provisions of this Lease relating
to surrender of the Premises. If the Lease shall be cancelled as to a portion
of the Premises only, the Basic Rent and Additional Rent payable by Tenant
hereunder shall be reduced proportionately according to the ratio that the
number of rentable square feet in the portion of space surrendered bears to the
rentable square feet in the Premises.
(d) In the event that Landlord shall consent to a lease
or assignment pursuant to the request from Tenant, Tenant shall cause to be
executed by its assignee or subtenant an agreement to perform faithfully and to
assume and be bound by all of the terms, covenants, conditions, provisions and
agreements of this Lease for the period covered by the assignment or sublease
and to the extent of the space sublet or assigned. An executed copy of each
sublease or assignment and assumption of performance by the sublessee or
assignee, on Landlord's standard form, shall be delivered to Landlord within
five (5) days prior to the commencement of occupancy set forth in such
assignment or sublease. No such assignment or sublease shall be binding on
Landlord until Landlord has received such copies as required herein.
(e) In the event that Landlord shall consent to a
sublease or assignment pursuant to the request from Tenant, and such agreement
shall be executed and go into effect, and Tenant realizes a profit from such
agreement, Tenant agrees to pay to Landlord 100% of said profit. Profit is
defined as any amount in excess of amount that Tenant pays to Landlord as
defined in Article III and Article XXVIII of this Lease.
12.4 In no event shall any assignment or subletting to which
Landlord may consent, release or relieve Tenant from its obligations to fully
perform all of the terms covenants and conditions of this Lease on its part to
be performed.
ARTICLE XIII
Surrender
13.1 Upon the Expiration Date or sooner termination of the Term,
Tenant shall peaceably and quietly quit and surrender to Landlord the Premises,
broom clean, in as good condition as they were on the Commencement Date
ordinary wear and tear, repairs and replacements by Landlord, loss by fire,
casualty and other causes beyond Tenant's control, and alterations, additions
and improvements permitted hereunder, excepted. Tenant's obligation to observe
or perform this covenant shall survive the Expiration Date or prior expiration
of the Term. If the Expiration Date falls on a Sunday or a legal holiday, this
Lease shall expire at 12 noon on the business day first preceding said date.
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ARTICLE XIV
Holding Over
14.1 If Tenant holds possession of the Premises beyond the
Expiration Date or prior expiration of the Term, Tenant shall become a tenant
from month-to-month at DOUBLE the Basic Rent and Additional Rent payable
hereunder and upon all other terms and conditions of this Lease, and shall
continue to be such month-to-month tenant until such tenancy shall be
terminated by Landlord or Tenant and such possession shall cease. Nothing
contained in this Lease shall be construed as a consent by Landlord to the
occupancy or possession by Tenant of the Premises beyond the Expiration Date or
prior expiration of the Term, and Landlord, upon said Expiration Date or prior
expiration of the Term shall be entitled to the benefit of all legal remedies
that now may be in force or may be hereafter enacted relating to the speedy
repossession of the Premises and to all damages to which Landlord is entitled.
ARTICLE XV
Landlord's Right of Entry
15.1 Landlord and Landlord's agents and representatives shall
have the right to enter into or upon the Premises, or any part thereof, at all
reasonable hours for the following purposes:
(1) examining the Premises;
(2) making such repairs or alterations therein as may be
necessary in Landlord's sole judgement for the safety and
preservation thereof;
(3) erecting maintaining, repairing or replacing wires, cables,
conduits, vents or plumbing equipment running in, to or
through the Premises; or
(4) showing the Premises to prospective new tenants, purchasers
or mortgagees.
15.2 Landlord may enter upon the Premises at any time in case of
emergency without prior notice to Tenant.
15.3 Landlord, in exercising any of its rights under this
Article XV, shall not be deemed guilty of an eviction, partial eviction or
disturbance of Tenant's use or possession of the Premises and shall not be
liable to Tenant for same.
15.4 All work performed by or on behalf of Landlord in or on the
Premises pursuant to this Article XV shall be performed with as little
inconvenience to Tenant's business as possible, and in such manner as not
reasonably to interfere therewith.
ARTICLE XVI
Default
16.1 Each of the following, whether occurring before or after
the Commencement Date, shall be deemed a Default by Tenant and a breach of this
Lease:
(a) the filing of a petition by or against Tenant for
adjudication as a bankrupt, or for reorganization, or for arrangement under any
bankruptcy act;
(b) the commencement of any action or proceeding for the
dissolution or liquidation of Tenant, whether instituted by or against Tenant,
or for the appointment of a receiver or trustee of the property of Tenant under
any state or federal statute for relief of debtors;
(c) the making by Tenant of an assignment for the benefit of
creditors;
(d) the suspension of business by Tenant or any act by Tenant
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amounting to a business failure;
(e) the filing of a tax lien or a mechanics' lien against any
property of Tenant;
(f) Tenant's causing or permitting the Premises to be vacant,
or abandonment of the Premises by Tenant for a period in excess of ten (10)
days;
(g) failure by Tenant to pay Landlord when due Basic Rent,
Additional Rent herein reserved, or any other sum by the time required by the
terms of this Lease;
(h) a failure by Tenant in the performance of any other term,
covenant, agreement or condition of this Lease on the part of Tenant to be
performed;
(i) a default by Tenant under any other lease or sublease with
Landlord.
ARTICLE XVII
Landlord's Rights Upon Tenant's Default
17.1 (a) Upon a Default by Tenant or any subtenant or assignee,
Landlord, upon failure of Tenant to cure a default in the payment of Basic Rent,
Additional Rent or any other sum of money due to Landlord hereunder on the day
same was due (without notice thereof from Landlord) or to cure or diligently
commence to cure any other Default within fifteen (15) days after notice thereof
from Landlord (provided same is cured with a reasonable time thereafter and
without any delay), may immediately or at any time thereafter, without further
notice to Tenant (i) enter upon the Premises as agent for Tenant, by legal
entry, without terminating this Lease and do any and all acts as Landlord may
deem necessary, proper or convenient to curing such Default, for the account of
and at the expense of Tenant, and Tenant agrees to pay Landlord, upon demand,
all damages and/or expenses incurred by Landlord in so doing; or (ii) terminate
this Lease and Tenant's right to possession of the Premises and, with or without
legal process, take possession of the Premises and remove Tenant, any occupant
and any property therefrom, using such legal means, without being guilty of
trespass and without relinquishing any rights of Landlord against Tenant.
(b) Landlord shall be entitled to recover damages from Tenant in
an amount equal to the amount herein covenanted to be paid as Basic Rent and
Additional Rent, together with: (i) all expenses of any proceedings (including
but not limited to, legal expenses and attorney's fees) which may be necessary
in order for Landlord to recover possession of the Premises; and (ii) the
expenses of re-renting the Premises, including, but not limited to, any
commissions paid to any real estate broker, advertising expenses and the costs
of such alterations, repairs, replacements and decoration or re-decoration as
Landlord in its sole judgement considers advisable and necessary for the purpose
or re-renting the Premises; provided, however, that there shall be credited
against the amount of such damages all amounts received by Landlord from such
re-renting of the Premises. Landlord shall in no event be liable in any way
whatsoever for failure to collect the rent thereof under such re-renting.
However, Landlord shall be under no obligation to re-rent the Premises.
17.2 No act or thing done by Landlord shall be deemed to be an
acceptance of Tenant's surrender of the Premises, unless Landlord should
execute a written agreement of surrender with Tenant. Tenant's liability
hereunder shall not be terminated by the execution of a new lease of the
Premises by Landlord. Tenant agrees to pay to Landlord, upon demand, the amount
of damages herein provided after the amount of such damages for any month shall
have been ascertained; provided however, that any expenses
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incurred by Landlord shall be deemed to be a part of the damages for the month
in which they were incurred. Separate actions may be maintained each month by
Landlord against Tenant to recover the damages then due, without waiting until
the end of the Term to determine the aggregate amount of such damages or
Landlord, at its option, if the Premises have been re-let for a term extending
at least as long as the remainder of the Term hereof, may hold Tenant in
advance for the entire deficiency to be realized during the term of the
re-letting. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of the eviction of
Tenant or Tenant being dispossessed for any cause, or in the event of Landlord
obtaining possession of the Premises by reason of the violation by Tenant of
any of the covenants or conditions of this Lease.
17.3 Landlord may retain, as partial liquidated damages, any
Basic Rent, Additional Rent, Security Deposit or monies received from Tenant or
others on behalf of Tenant.
17.4 Landlord shall have the right, as agent for Tenant, to take
possession of any furniture or fixtures of Tenant found upon the Premises after
taking possession of same pursuant to this Article XVII and sell the same at
any private or public sale and apply the proceeds to any amount due Landlord.
Tenant waives any notice of execution or levy in connection therewith.
ARTICLE XVIII
Landlord's Remedies Cumulative: Expenses
18.1 All rights and remedies of Landlord herein enumerated shall
be cumulative, and none shall exclude any other right or remedy allowed by law.
For the purposes of any suit brought or based herein, this Lease shall be
construed to be a divisible contract, to the end that successive actions may be
maintained on this Lease as successive periodic sums which mature hereunder.
18.2 Tenant shall pay, upon demand, all of the Landlord's costs,
charges and expenses, including the fees of counsel, agents and others retained
by Landlord, incurred in enforcing Tenant's obligations hereunder.
18.3 If Tenant fails to pay an installment of Basic Rent,
Additional Rent or any other sum due and payable to Landlord on or before the
fifth day of the calendar month when such installment becomes due and payable,
Tenant shall pay to Landlord a late charge (to cover Landlord's administrative
and overhead expenses of processing late payments) equal to the greater of one
hundred dollars ($100.00) or five percent (5%) of the amount of such
installment and, in additional, such unpaid installment shall bear interest at
the rate per annum which is two percent (2%) greater than the "prime rate" then
in effect (or if such prime rate is not available, a replacement rate
designated by Landlord) from the date such installment became due and payable
to the date of payment thereof by Tenant; provided, however, that nothing
herein contained shall be construed or implemented in such a manner as to allow
Landlord to charge or receive interest in excess of the maximum legal rate then
allowed by law. Such late charge and interest shall constitute Additional Rent
hereunder due and payable with the next monthly installment of Basic Rent.
ARTICLE XIX
No Waiver
19.1 No waiver by Landlord of any breach by Tenant of any of
the terms, covenants, agreements, or conditions of this Lease shall be deemed to
constitute a waiver of any succeeding breach thereof, or a waiver of any breach
of any of the terms, covenants, agreements and conditions herein contained.
19.2 No employee of Landlord or of Landlord's representatives
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19.2 No employee of Landlord or of Landlord's representatives or
agents shall have any authority to accept the keys of the Premises prior to the
Expiration date and the delivery of keys to any employees of Landlord or
Landlord's representatives or agents shall not operate as an acceptance of a
termination of this Lease or an acceptance of a surrender of the Premises.
19.3 The receipt by Landlord of the Basic Rent and Additional
Rent with knowledge of the breach of any covenant of this Lease shall not be
deemed a waiver of such breach. No payment by Tenant or receipt by Landlord of
a lesser amount than the monthly Basic Rent or a lesser amount of the
Additional Rent then due shall be deemed to be other than on account of the
earliest stipulated amount then due, nor shall any endorsement or statement on
any check or any letter or other instrument accompanying any check or payment
as Basic rent or Additional 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 Basic Rent or Additional Rent or pursue any
other remedy provided in this Lease.
19.4 The failure of Landlord to enforce any of the Rules or
Regulations as may be set by Landlord from time to time against Tenant or
against any other tenant in the Building shall not be deemed a waiver of any
such Rule or Regulation.
ARTICLE XX
Landlord's Reserved Rights
20.1 (a) Landlord reserves the following rights:(i) if during
or prior to the last 'ninety (90) days of the Term Tenant vacates the Premises,
to decorate, remodel, repair, alter or otherwise prepare the Premises for
reoccupancy and, (ii) To have pass keys to the Premises.
(b) Landlord may enter upon the Premises and may exercise
either of the foregoing rights hereby reserved without being deemed to have
caused an eviction or disturbance of Tenant's use and possession of the
Premises and without being liable in any manner to Tenant.
ARTICLE XXI
Landlord's Liability
21.1 Unless caused solely by the gross negligence or willful
acts of Landlord, its contractors, agents, servants, employees or licensees,
Landlord or its agents or representatives shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain, snow or leaks from any part of the
Building or from the pipes, appliances, plumbing, or the roof, street,
subsurface or from any other place or by dampness or by any other cause of
nature whatsoever; or resulting from the carelessness, negligence or improper
conduct on the part of any other tenant or of Landlord's contractors or its or
any other tenant's agents, employees, guests, licensees, invitees, subtenant's
assignees or successors.
21.2 Anything contained in this Lease to the contrary
notwithstanding, Tenant agrees that it shall look solely to the estate and
property of Landlord in the Real Property and the Building of which the
Premises form a part for the collection of any judgement (or other judicial
process) requiring the payment of money by Landlord for any default or breach
by Landlord of any of its obligations, under this Lease, subject, however, to
the prior rights of any ground or underlying landlord or the holder of any
mortgage covering the Real Property or the Building or of Landlord's interest
therein. No other assets of Landlord shall be subject to levy, execution or
other judicial process for the satisfaction of Tenant's claim. This provision
shall not be
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be subject to impressment of an equitable lien otherwise. Nothing herein
contained shall be construed to limit any right of injunction against Landlord,
where appropriate.
21.3 Landlord shall not be deemed in default with respect to the
failure to perform any of the terms, covenants and conditions of this Lease on
Landlord's part to be performed, if such failure is due in whole or in part to
any strike, lockout, labor dispute (whether legal or illegal), civil disorder,
inability to procure materials, failure of power, restrictive governmental laws
and regulations, riots, insurrections, war, fuel shortages, accidents,
casualties, Acts of God, acts caused directly or indirectly by Tenant (or
Tenant's agents, employees, guests or invitees), acts of other tenants or
occupants of the Building or any other cause beyond the reasonable control of
Landlord. In such event, the time for performance by Landlord shall be extended
by an amount of time equal to the period of the delay so caused.
ARTICLE XXII
Tenant's Liability
22.1 Tenant shall reimburse Landlord for all expenses, damages
or fines, incurred or suffered by Landlord by reason of any breach, violation
or non-performance by Tenant, its agents, servants, employees, invitees or
licensees of any covenant or provision of this Lease, or by reason of damage to
persons or property caused by moving property of or for Tenant in or out of the
Building, or by the installation or removal of furniture or other property of
or for Tenant or by reason of or arising out of the carelessness, negligence
or improper conduct of Tenant, or its agents, servants, employees, invitees and
licensees in the use or occupancy of the Premises. Any such expense shall be
deemed Additional Rent, due in the next calendar month after it is incurred.
ARTICLE XXIII
Tenant's Insurance
23.1 (a) Notwithstanding Article XXII, Tenant covenants to
provide on or before the Commencement Date for the benefit of Landlord,
Landlord's mortgagee, Landlord's Managing Agent and Tenant a comprehensive
policy of liability insurance and/or Certificate of insurance protecting
Landlord, Landlord's mortgagee, Landlord's Managing Agent and Tenant against
any liability Whatsoever occasioned by accident on or about the Real Property,
the Building or the Premises or any appurtenances thereto. Such policy is to
be written by insurance companies qualified to do business in the State of New
Jersey, which shall be rated grade A or better in Best's with a rating therein
of 12 or better and the limits of liability thereunder shall be in minimum
amounts approved by Landlord from time to time (as set forth in the Rules and
Regulations) in respect of any one person, in respect of any one accident, and
in respect of property damage. Such insurance may be Carried under a blanket
policy covering the Premises and other locations of Tenant, if any.
(b) Fire and Extended Coverage, vandalism, Malicious
Mischief and Special Extended Coverage Insurance in an amount adequate to cover
the cost of replacement of all personal property, decoration, trade fixtures,
furnishings, equipment in the Premises and all contents therein. Landlord shall
not be liable for any damage to such property of Tenant by fire or other peril
includable in the coverage afforded by the standard form of fire insurance
policy with extended coverage endorsement attached (whether or not such
Coverage is in effect), no matter how caused, it being understood that the
Tenant will look solely to its insurer for reimbursement.
23.2 Prior to the time such insurance is first required by this
Article XXIII to be carried by Tenant, and thereafter, at least thirty (30)
days prior to the expiration of any such policy,
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Tenant agrees to deliver to Landlord either a duplicate original of the
aforesaid policy or a certificate evidencing such insurance, provided said
certificate contains an endorsement that such insurance may not be cancelled
except upon thirty (30) days' notice to Landlord, together with evidence of
payment for the policy.
23.3 Upon failure at any time on the part of Tenant to procure
and deliver to Landlord the policy or certificate of insurance, as hereinabove
provided, stamped "Premium Paid" by the issuing company at least thirty (30)
days before the expiration of the prior insurance policy or certificate, if any,
or to pay the premiums therefor, Landlord shall be at liberty, from time to
time, as often as such failure shall occur to procure such insurance and to pay
the premium therefor, and any sums paid for insurance by Landlord shall be and
become, and are hereby declared, to be Additional Rent hereunder due immediately
for the collection of which Landlord shall have all the remedies provided for in
this Lease or by law for the collection of rent. Payment by Landlord of such
premium or the carrying by Landlord of any such policy shall not be deemed to
waive or release the default of Tenant with respect thereto. Tenant's failure to
provide and keep in force the aforementioned insurance shall be regarded as a
Default hereunder entitling Landlord to exercise any or all of the remedies as
provided in this Lease in the event of Default.
ARTICLE XXIV
Mechanics' Liens
24.1 Any mechanics' liens filed against the Real Property for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant shall be bonded by Tenant within five (5) days after notice of filing
at Tenant's expense.
ARTICLE XXV
Quiet Enjoyment
25.1 Landlord covenants and agrees that, upon the performance by
Tenant of all of the covenants, agreements and provisions hereof on Tenant's
part to be kept and performed, Tenant shall have, hold and enjoy the Premises,
subject and subordinate to the rights set forth in Article VIII, free from any
interference whatsoever by, from or through Landlord, provided, however, that
no diminution or abatement of Basic Rent, Additional Rent or other payment to
Landlord shall be claimed by or allowed to Tenant for inconvenience or
discomfort arising from the making of any repairs or improvements to the
Premises or the Real Property, nor for any space taken to comply with any law,
ordinance or order of any Governmental Authority except as provided for
herein.
Article XXVI
Air and Light
THIS SECTION IS INTENTIONALLY DELETED
ARTICLE XXVII
Landlord's Services
27.1 Landlord shall furnish to Tenant the services set forth in
this Lease and the Rules and Regulations as services which are covered by the
Basic Rent.
27.2 (a) Air heating and air cooling shall be furnished only
between the hours of 8:00 a.m. and 6:00 p.m., Mondays through Fridays,
Saturdays, Sundays and Building Holidays excluded (hereinafter referred to as
the "Business Hours"), and then only when weather conditions, in the opinion of
Landlord, require. As used herein, the term "Building Holidays" shall mean all
holidays including, but not limited to: President's Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and
the day after, Christmas Day and New Year's
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Day, as each of said holidays are celebrated in the State of New Jersey.
(b) If Tenant shall request the use of air cooling (during
the periods when such is available), ventilating and/or heat at any times other
than the Business Hours in this Lease provided for such service, Landlord shall
furnish such to Tenant provided (i) that Tenant pays to Landlord, as Additional
Rent, a special overtime charge therefor which shall be $40.00 per hour
initially which Landlord may adjust from time to time and (ii) that Tenant's
request shall be received in writing by Landlord's property manager by 12:00
noon at least one day before after-hours service is required (and by 12:00 noon
of the day preceding any requested before-hours service).
27.3 (a) Throughout the Term, Landlord agrees to redistribute
electrical energy to the Premises (not exceeding the present electrical capacity
at the Premises), upon the following terms and conditions: (i) Tenant shall pay
for such electrical energy as provided by this paragraph 27.3; (ii) Landlord
shall not be liable in any way to Tenant for any loss, damage or expense which
Tenant may sustain or incur as a result of any failure, defect or change in the
quantity or, character of electricity furnished to the Premises or it such
quantity or character of electricity furnished to the Premises is no longer
available or suitable for Tenant's requirements or due to any cessation,
diminution or interruption of the supply thereof.
The parties agree that the Tenant will pay for the electric during the
term of this Lease in such amounts as may be determined under one of the
provisions following, to wit, (a), (b) and (c). The parties agree that the
Landlord will be entitled to elect which measurement method will be used, and
further agree that the Landlord will be entitled to change the method during
the term of this Lease, on notice to the Tenant: (a) by determining a fixed
amount at the outset, which is $1.25 per square foot or $3,006.00 per annum or
$250.52 per month, and agreeing to adjustments to (b) by submetering the
demised premises at the Landlord's expense, in which case the Landlord will be
entitled to charge a pro rata share of its utility charges, together with a
charge incurred by the Landlord for the submetering service. Under this
method, the Landlord will charge the Tenant at the same rate as the utility is
charging; therefore, the Tenant will be liable for any utility rate increases;
or (c) by having an independent electrical engineering consultant selected by
Landlord and reasonably acceptable to Tenant make a survey of the electrical
power demand of the electric lighting fixtures and the electrical equipment of
Tenant used in the Premises to determine the average monthly electric
consumption thereof. Landlord shall have the right to resurvey the electrical
power demand at anytime during the Term of this Lease or on a regular basis,
but not more often than quarterly. The findings of said consultant as to the
average monthly electric consumption of Tenant shall be conclusive and binding
on the parties hereto. After said consultant has submitted its report, Tenant
shall pay to Landlord, within ten (10) days after demand therefor by Landlord,
the amount determined by said consultant as owing from the Commencement Date
and during the months in which said survey was being conducted and,
thereafter, on the first day of every month, in advance, the amount set forth
as the monthly consumption in said report. Said amounts shall be treated as
Additional Rent due hereunder; In the event that there shall be an increase or
decrease in the rate schedule of the public utility for the supply of electric
energy to the Building or the imposition of any tax or surcharge with respect
to such electric energy or increase in such tax or surcharge following the
Commencement Date, the Additional Rent payable hereunder shall be equitably
adjusted to reflect the resulting increase, decrease, tax or surcharge; (d)
Tenant shall be responsible for the cost and expense of replacing all light
bulbs, fluorescent lamps, non-Building standard lamps and bulbs, and all
ballasts used by Tenant in the Premises plus a ten percent (10%) management
fee.
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(b) Tenant covenants that its use of electricity in the
Premises shall be limited to and for the operation of (1) the Building standard
lighting, and (2) personal computers, electric typewriters, calculators, copying
machines and other small office machines.
(c) Tenant shall make no alteration to the existing
electrical equipment or connect any fixtures, appliances or equipment in
addition to the equipment permitted in Article 27.3(b) above without the prior
written consent of Landlord in each instance. Should Landlord grant such
consent, all additional risers or other equipment required therefor shall be
provided by Landlord and the cost thereof shall be paid by Tenant upon
Landlord's demand. As a condition to granting such consent, Landlord shall
require an increase in the monthly electrical charge (as Additional Rent) by an
amount which will reflect the cost of electricity to operate the additional
equipment and service to be furnished by Landlord. This increase shall be
determined by an independent electrical engineer, to be selected by Landlord and
whose services shall be paid for by Tenant.
(d) Landlord reserves the right to discontinue furnishing
electric energy to Tenant at any time upon not less than one hundred twenty
(120) days' written notice to Tenant. If Landlord exercises such right of
termination, this Lease shall continue in full force and effect and shall be
unaffected thereby, except only that, from and after the effective date of such
termination, Landlord shall not be obligated to furnish electric energy to
Tenant and the Additional Rent shall be reduced by a sum per month equal to that
amount previously agreed as Additional Rent for Tenant's use of electricity in
the Premises. If Landlord so discontinues furnishing electric energy to Tenant,
Tenant shall arrange to obtain electric energy directly from the public utility
company furnishing electric energy to the Building. Tenant may obtain such
electric energy by means of the then-existing Building system feeders, risers
and wiring to the extent that the same are available, suitable and safe for such
purposes. All meters and additional panel boards, feeders, risers, wiring and
other conductors and equipment which may be required to obtain electrical energy
from the public utility company shall be installed and maintained by Landlord in
accordance with Article V hereof at its sole expense.
(e) Landlord shall not be liable in the event of any
interruption in the supply of electricity, and Tenant agrees that such supply
may be interrupted for inspection, repairs, replacement and in emergencies.
27.4 The failure of Landlord to furnish any service hereunder
shall not be construed as a constructive eviction of Tenant and shall not excuse
Tenant from performing any of its obligations hereunder and shall not give
Tenant any claim against Landlord for damages for failure to furnish such
service.
ARTICLE XXVIII
Additional Rent
28.1 Tenant hereby covenants and agrees to pay as Additional Rent
the amounts as set forth below.
28.2 (a) For each year or part of a year occurring within the
Term in which the total annual real estate taxes, assessments (including special
assessments), personal property tax, sewer rents, rates and charges (hereinafter
referred to as the "Real Estate Taxes") which shall be levied, imposed or
assessed upon the Real Property shall exceed the Real Estate Taxes levied,
imposed or assessed for the Base Tax Year as is specified in Item I of the Basic
Lease Provisions. For each calendar year, Landlord shall notify Tenant of
Landlord's best estimate of Tenant's Proportionate
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Share of Real Estate Taxes for each calendar year above Base Tax Year Real
Estate Taxes and Tenant shall be obligated to pay Landlord, as Additional Rent
along with each monthly installment of Base Rent due during such calendar year,
one twelfth (1/12th) of such estimated amount. Tenant's payments of such
estimated amount shall be treated by Landlord as a credit against the actual
amount of Tenant's Proportionate Share required to be paid by Tenant pursuant
to this paragraph.
(b) Landlord covenants and agrees that for each year or
part of a year occurring within the Term in which the Real Estate Taxes shall
be decreased from the Real Estate Taxes levied, imposed or assessed for the
Base Tax Year, Landlord shall credit against any Additional Rent due from
Tenant hereunder within ninety (90) days after the end of such year, a sum
equal to Tenant's Proportionate Share of such decrease of Real Estate Taxes.
Tenant's Proportionate Share of said decrease of Real Estate Taxes for less
than one year shall be prorated and apportioned.
(c) Landlord may take the benefit of the provisions of
any statute or ordinance permitting any Real Estate Tax to be paid over a
period of time.
(d) Tenant's Proportionate Share of Real Estate Taxes in
excess of the Real Estate Taxes for the Base Tax Year shall be determined from
the amount finally determined to be legally due as a result of legal
proceedings or otherwise. In the event the Real Estate Taxes for the Base Tax
Year have not been finally determined by legal proceedings or otherwise at the
time of payment of Real Estate Taxes for any subsequent year, the actual
amount of Real Estate Taxes paid or accrued by Landlord or billed by the taxing
jurisdiction for the Base Tax Year shall be used to calculate any excess
thereof. Upon a final determination of the Real Estate Taxes for the Base Tax
Year by legal proceedings or otherwise, Landlord shall deliver to Tenant a
statement setting forth the amount of Real Estate Taxes for the Base Tax Year
as finally determined and showing the computation of any adjustment due to
Landlord or to Tenant by reason thereof. Any payment due to Landlord or any
credit due to Tenant by reason of such adjustment shall be made as provided
herein.
(e) If Landlord shall receive any tax refund in respect
of any tax year following the Base Tax Year, Landlord shall deduct from such
tax-refund, any expenses incurred in obtaining such tax refund and out of the
remaining balance of such tax refund, Landlord shall credit to Tenant, Tenant's
Proportionate Share of such refund. Any expenses incurred by Landlord in
contesting the validity or the amount of the assessed valuation of the Real
Property or of any Real Estate Taxes for any year after the Base Tax Year, to
the extent not offset by a tax refund, shall be included as an item of Real
Estate Taxes for the tax year in which such contest shall be finally
determined for the purpose of computing the Additional Rent due Landlord
hereunder.
(f) If the tax year for Real Estate Taxes shall be
changed, then an appropriate adjustment shall be made in the computation of the
Additional Rent due to Landlord or any credit due to Tenant, in accordance
with sound accounting principles to the changeover to any new tax year adopted
by any taxing authority. "Real Estate Taxes" as set forth in this Article
XXVIII shall mean those taxes attributable to the Real Property and/or the
Building, and/or contents, provided that, if because of any change in the
method of taxation of real estate any other tax or assessment is imposed upon
Landlord or the owner of the Real Property and/or the Building or upon or with
respect to the Real Property and/or the Building or the rents or income
therefrom in substitution for or in lieu of any tax or assessment which would
otherwise be a Real Estate Tax, such other tax or assessment shall be deemed
Real Estate Taxes for the purposes herein.
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(g) If the last year of the Term ends on any day other
then the last day of a tax year, any payment due to Landlord or credit due to
Tenant by reason of any increase in Real Estate Taxes shall be prorated and
Tenant covenants to pay any amount due to Landlord within thirty (30) days
after being billed therefor and Landlord covenants to credit any amount due to
Tenant, as the case may be. These covenants shall survive the Expiration Date
or earlier termination of this Lease.
28.3 (a) As used herein, the term "Landlord's operating
Expenses" shall mean those costs or expenses paid or incurred by Landlord for
operating, maintaining and repairing the Real Property, including, but not
limited to, the cost of electricity, water, fuel, insurance of all kinds
carried in good faith by Landlord and applicable to the Real Property, snow
removal, maintenance and cleaning of the parking lot, landscape maintenance
repairs of any kind for which Landlord is not reimbursed, painting, replacement
of worn out mechanical or damaged equipment, uniforms, management fees,
building supplies, sundries, sales or use tax on supplies or services, wages
and salaries of all persons engaged by Landlord for the operation, maintenance
and repair of the Real Property, legal and accounting expenses, and any other
expense for cost, which, in accordance with generally accepted accounting
principles and the standard management practices for office buildings
comparable to the Building would be considered as an expense of operating,
maintaining or repairing the Real Property. Excluded from Landlord's Operating
Expenses are mortgage debt service, capital improvement costs, costs reimbursed
by insurance, the cost of work performed specifically for a tenant in the
Building for which such tenant reimburses Landlord costs. in connection with
preparing space for a new tenant and real estate broker's commissions.
(b) Tenant shall pay to Landlord as Additional Rent
Tenant's Proportionate Share of the amount by which Landlord's Operating
Expenses for any calendar year during the Term after the Base Operating Year as
specified in Item J of the Basic Lease Provisions exceeds Landlord's Operating
Expenses during the Base Operating Year.
(c) Approximately during the second month of each
calendar year of the Term, or within a reasonable period of time thereafter,
Landlord shall submit to Tenant a statement (hereinafter referred to as
"Landlord's Statement") showing in reasonable detail Landlord's Operating
Expenses during the preceding calendar year. Within thirty (30) days next
following the submission of a Landlord's Statement which also shows Landlord's
Operating Expenses for the base Operating year, Tenant shall pay to Landlord
Tenant's Proportionate Share of the amount by which Landlord's Operating
Expenses for the Base Operating Year were exceeded. Tenant or its
representative shall have the right to examine Landlord's books relating to the
expenses of the Real Property only, with respect to the items in the foregoing
Landlord's Statement during normal business hours at any time within ten (10)
days following the delivery by Landlord to Tenant of such Landlord's Statement.
Unless Tenant shall take written exception to any item contained therein within
twenty (20) days after the delivery of same, Landlord's Statement shall be
considered as final and accepted by Tenant. Any controversy with respect to
any written exception shall be made by an independent certified public
accountant mutually acceptable to Landlord and Tenant, and if such accountant
cannot be agreed upon, then by arbitration. Such arbitration shall be conducted
upon the request of Tenant provided that Tenant shall be current in the
payments to be made pursuant to said Landlord's Statement. Arbitration shall be
before three arbitrators designated by the American Arbitration Association and
in accordance with the rules and regulations of such Association. The expenses
of the arbitration proceedings shall be borne by the party who shall not have
prevailed in said proceedings. The fees of respective counsel engaged by the
parties and fees of experts and
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other witnesses called for by the parties shall be paid by the respective
parties engaging such counsel or calling or engaging such witnesses.
(d) For each calendar year, Landlord shall notify Tenant
of Landlord's best estimate of Tenant's Proportionate Share of Operating
Expenses for such calendar year above Base Operating Year Operating Expenses and
Tenant shall be obligated to pay Landlord, as Additional Rent along with each
monthly installment of Basic Rent due during such calendar year, one twelfth
(1/12th) of such estimated amount. Tenant's payments of such estimated amount
shall be treated by Landlord as a credit against the actual amount of Tenant's
Proportionate Share required to be paid by Tenant pursuant to paragraph 28.3(b)
hereof.
(e) Included in each Landlord's Statement, a
reconciliation thereof shall be made as follows: Tenant shall be debited with
an increase in the Additional Rent shown on such Landlord's Statement and
credited with (1) the aggregate amount, if any, paid by Tenant in accordance
with the provisions of Article XXVIII herein on account of its potential
obligation to pay such Additional Rent for the calendar year in question, and
(2) any decrease in the Additional Rent shown on such Landlord's Statement.
Tenant shall pay any net debit balance to Landlord within thirty (30) days as
set forth in paragraph 28.3 (c) above; any net credit balance shall be applied
by Landlord against the next accruing monthly installment of Additional Rent.
28.4 Any increase or decrease in Additional Rent under this
Article XXVIII shall be prorated for the final year of the Term if such year
covers a period of less than twelve (12) months. In no event shall any
adjustment in Tenant's obligation to pay Additional Rent under this Article
XXVIII result in a decrease in the Basic Rent payable hereunder. Tenant's
obligation to pay Additional Rent and Landlord's obligation to credit to Tenant
any amount referred to in this Article XXVIII, for the final year of the Term
shall survive the Expiration Date.
28.5 With respect to Tenant's Proportionate Share of Operating
Expenses in excess of the Base Operating Year, if the Building is not at least
ninety percent (90%) occupied during the Base Operating Year or of any calendar
year during the Term, then those items included within the Operating Expenses
which are affected by variations in occupancy of the Building shall be
increased by Landlord for such calendar year (or partial calendar year) to the
amount that would have reasonably incurred had Landlord provided such item of
work or service to ninety percent (90%) of the rentable area of the Building.
ARTICLE XXIX
Personal Property Taxes
29.1 Tenant agrees to pay all taxes imposed on the personal
property of Tenant, the conduct of its business and its use and occupancy of
the Premises.
ARTICLE XXX
Security Deposit
30.1 Simultaneous with the execution hereof, Tenant has deposited
with Landlord the sum as specified in Item F of the Basic Lease Provisions.
ARTICLE XXXI
Use of Security Deposit
31.1 In the event of a Default by Tenant in respect of any of the
terms, covenants or conditions of this Lease, Landlord may use, apply or retain
the whole or any part of the Security Deposit to the extent required for the
payment of any Basic Rent, Additional
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Rent or any other sum as to which Tenant is in Default or for any sum which
Landlord may expend or may be required to expend by reason of Tenant's Default
in respect of any of the terms, covenants or conditions of this Lease,
including but not limited to, any damages or deficiency accrued before or after
summary proceedings or other re-entry by Landlord. In the event that Tenant
shall fully and faithfully comply with all of the terms, covenants and
conditions of this Lease, the Security Deposit shall be returned to Tenant
after the Expiration Date and after delivery of possession of the Premises to
Landlord.
31.2 In the event of a sale of the Real Property or a leasing
thereof, Landlord shall have the right to transfer the Security Deposit to the
vendee or lessee, as the case may be, and Landlord shall thereupon be released
by Tenant from all liability for the return of such Security Deposit; and
Tenant agrees to look to the new landlord solely for the return of the Security
Deposit; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the Security Deposit to a new landlord. Tenant
further covenants that it will not assign or encumber or attempt to assign or
encumber the Security Deposit and that neither Landlord nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance.
ARTICLE XXXII
Definition of Landlord
32.1 The Term "Landlord" as used in this Lease means only the owner
for the time being of the Real Property and/or the Building or the owner of a
lease of the Real Property. In the event of any transfer of title to or lease
of the Real Property, Landlord shall be and hereby is entirely freed and
relieved of all covenants and obligations of Landlord hereunder and this Lease
shall be deemed and construed as a covenant running with the land without
further agreement between the parties or their successors in interest.
32.2 Landlord shall be under no personal liability with respect to
any of the provisions of this Lease, and if Landlord is in breach or default
with respect to its obligations or otherwise, Tenant shall look solely to the
equity of Landlord in Real Property for the satisfaction of Tenant's remedies.
It is expressly understood and agreed that Landlord's liability under the
terms, covenants, conditions, and obligations of this Lease shall in no event
exceed the loss of its equity in the Real Property.
ARTICLE XXXIII
Notices
33.1 Notices by either party to the other shall be in writing, sent
via registered or certified mail, return receipt requested, postage prepaid and
addressed to Landlord or Tenant at their respective addresses as specified in
Items H(1) and H(2) of the Basic Lease Provisions, or to such other address as
either party shall hereafter designate by notice as aforesaid. All notices
properly addressed shall be deemed served three (3) business days after the
date of mailing.
ARTICLE XXXIV
Signs
34.1 No sign advertisement or notice shall be affixed to or placed
upon any part of the Premises, the Building or the Real Property by the Tenant,
except in such manner and of such size, design and color as shall be approved
in advance in writing by Landlord.
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ARTICLE XXXV
Notice of Defects and Accidents
35.1 Tenant shall give Landlord immediate notice in case of
accident on the Premises involving Tenant, its servants, agents, employees,
invitees or licensees in the Building or on the Real Property or of any defects
in the Building.
ARTICLE XXXVI
Rules and Regulations
36.1 Tenant, on behalf of itself and its employees, agents,
servants, invitees and licensees, agrees to comply with the Rules and
Regulations attached hereto and incorporated by reference as Exhibit C with
respect to the Real Property. Landlord shall have the right to make reasonable
amendments thereto from time to time for the safety, care and cleanliness of
the Real Property and the Building, the preservation of good order therein and
the general convenience of all the tenants and Tenant agrees to comply with
such amended Rules and Regulations, after twenty (20) days' written notice
thereof from Landlord.
ARTICLE XXXVII
Directory
37.1 Landlord shall furnish and service in the lobby of the
Building a tenant directory. Tenant, at its expense, may request from Landlord
and pay for such reasonable and customary number of names that Tenant may from
time to time request to be listed in such directory.
ARTICLE XXXVIII
Hazardous Materials and Compliance with Environmental Laws
38.1 Tenant shall not cause or permit any hazardous or toxic
substance, material or waste which is or becomes regulated by any local
governmental authority, of the United States Government ("Hazardous Material")
to be brought upon, kept, or used in or about the Premises by Tenant, its
agents, employees, contractors or invitees, without the prior written consent
of Landlord (which demonstrates to Landlord's reasonable satisfaction that such
Hazardous Material is necessary or useful to Tenant's business and will be
used, kept and stored in a manner that complies with all laws regulating any
such Hazardous Material so brought upon or used or kept in or about the
Premises). If Tenant breaches the obligations stated in the preceding sentence,
or if the presence of Hazardous Material on the Premises, the Building or the
Real Property caused or permitted by Tenant results in contamination of the
Premises, the Building, or the Real Property by Hazardous Material or otherwise
occurs, for which Tenant is legally liable to Landlord for damage resulting
therefrom, then Tenant shall indemnify, defend and hold Landlord harmless from
any and all claims, judgments, damages, penalties, fines, costs, liabilities or
losses (including, without limitation, diminution in value of the Premises, the
Building, or the Real Property, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Premises, the Building, or
the Real Property, damages arising from any adverse impact on marketing of
space, and sums paid in settlement of claims, attorney's fees, consultant fees
and expert fees) which arise during or after the Term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal, or restoration work required by
any federal, state or local governmental agency or political subdivision
because of Hazardous Material present including in the soil or ground water on
or under the Building. Without limiting the foregoing, if the presence of any
Hazardous Material on the Premises, the Building, or the Real Property, caused
or permitted by Tenant results in any
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contamination of the Premises, the Building, or the Real Property, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
Premises and/or the Building, and/or the Real Property to the condition
existing prior to the introduction of any such Hazardous Material to the
Premises and/or the Building and/or the Real Property; provided that Landlord's
approval of such actions shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not potentially have any
material adverse long-term or short-term effect on the Premises, the Building
or the Real Property.
38.2 Tenant shall, at Tenant's sole cost and expense, comply with
the requirements of any Federal, state, county, municipal or other governmental
law, ordinance, rule, regulation, requirement and/or directive pertaining to
the environment (an "Environmental Law" or "Environmental Laws") including, but
not limited to, the New Jersey Spill Compensation and Control Act (N.J.S.A.
58:10-23.11 et seq.); the New Jersey Water Pollution Control Act (N.J.S.A. 58:
10A-1 et seq.); the Worker and Community Right to Know Act (N.J.S.A. 34:5A-1 et
seq.); the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section
6901 et seq.); the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq.); and the Environmental
Cleanup Responsibility Act (N.J.S.A.13:1K-6 et seq.) and the regulations
promulgated thereunder ("ECRA"). In this regard, Tenant shall, at Tenant's sole
cost and expense, make all submissions to, provide all information to and
comply with all requirements of any governmental authority. Should said
governmental authority determine that action is necessary to clean up, remove
and/or eliminate any spills or discharges by Tenant or dangerous or hazardous
substances or wastes in and upon the Premises, the Building and/or the Real
Property and/or that a cleanup plan must be prepared and submitted, then and in
that event, Tenant shall, at Tenant's sole cost and expense, take any and all
action required and carry out any and all approved plans. Tenant's obligations
pursuant to this section shall arise whenever required by any appropriate
governmental agency, including, but not limited to, any closing, terminating or
transferring of operations at the Premises.
38.3 Tenant shall, at Tenant's sole cost and expense, comply with
ECRA. Tenant shall, at Tenant's sole cost and expense, make all submissions to,
provide all information to, and comply with all requirements of, the Bureau of
Industrial Site Evaluation ("the Bureau") of the New Jersey Department of
Environmental Protection ("NJDEP"). Should the Bureau or any other division of
NJDEP determine that a cleanup plan be prepared and that a cleanup be
undertaken because of any spills or discharges of hazardous substances or
wastes at the Premises which occur during the Term or any renewal thereof, as
the case may be, then Tenant shall, at Tenant's sole cost and expense, prepare
and submit the required plans and financial assurances, and carry out the
approved plans. Tenant's obligations under this Article XXXVIII shall arise if
there is any closing, terminating or transferring of operations by any person
or entity of an industrial establishment at the Premises pursuant to ECRA,
including without limitation, a sale, transfer or conveyance of the Premises by
Landlord, an assignment or subletting by Tenant, or the vacation of the
Premises by Tenant for any reason whatsoever. At no expense to Landlord, Tenant
shall promptly provide all information within its personal knowledge requested
by Landlord for preparation of non-applicability affidavits and shall promptly
sign such affidavits when requested by Landlord. Tenant shall indemnify, defend
and hold harmless Landlord from all fines, suits, procedures, claims and
actions of any kind arising out of or in any way connected with any spills or
discharges of hazardous substances or wastes at the Premises which occur during
the Term or any renewal thereof, as the case may be; and from all fines, suits,
procedures, claims and actions of any kind arising out of Tenant's failure to
provide all information, make all submissions and take all actions required by
the ECRA Bureau or any other division of NJDEP. Tenant's failure to abide
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by the terms of this Article XXXVIII shall be enforceable in a court of law and
subject to all equitable remedies. Tenant's obligations hereunder shall
survive the Expiration Date of this Lease.
ARTICLE XXXIX
Miscellaneous
39.1 Entire Agreement. This Lease contains the entire agreement
between the parties, and any attempt hereafter made to change, modify,
discharge or effect an abandonment of it in whole or in part shall be void and
ineffective unless in writing and signed by the party against whom enforcement
of the change, modification, discharge or abandonment is sought.
39.2 Jury Trial Waiver. Landlord and Tenant do hereby waive trial
by jury in action, proceeding or counterclaim brought by either of the parties
hereto against the other on any matter arising out of or in any connection
with this Lease, the relationship of Landlord and Tenant, Tenant's use or
occupancy of the Premises, and/or any claim, injury or damage, or any emergency
or statutory remedy.
39.3 Force Majeure. If, by reason of strike, labor troubles or
other cause beyond Landlord's control, including, but not limited to,
governmental preemption in connection with a national emergency or any rule,
order or regulation of any Governmental Authority, or conditions of supply and
demand which are affected by war or other emergency, Landlord, shall be unable
to fulfill its obligations under this Lease or shall be unable to supply any
service which Landlord is obligated to supply, this Lease and Tenant's
obligation to pay Basic Rent and Additional Rent hereunder shall in no way be
affected, impaired or excused.
39.4 Broker. Tenant represents that it has not dealt with any real
estate broker in connection with this Lease, other than as specified in Item G
of the Basic Lease Provisions. Tenant indemnifies and holds Landlord harmless
of and from any and all claims, liabilities, costs or damages Landlord may
incur as a result of a breach of this representation.
39.5 Separability. 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 to which it
is held invalid or unenforceable, shall not be effected thereby and all other
terms and provisions of this Lease shall be valid and enforced to the fullest
extend permitted by law.
39.6 (a) Interpretation. Whenever in this Lease any words of
obligation or duty are used, such words or expressions shall have the same
force and effect as though made in the form of covenants.
(b) Words of any gender used in this Lease shall be held
to include any other gender, and words in the singular number shall be held to
include the plural, when the sense requires.
(c) All pronouns and any variations thereof shall be
deemed to refer to the neuter, masculine, feminine, singular or plural as the
identity of Tenant requires.
(d) This Lease shall be strictly construed neither
against Landlord nor Tenant. No remedy or election given by any provision in
this Lease shall be deemed exclusive unless so indicated, but each shall,
wherever possible, be cumulative with all other remedies in law or equity as
otherwise specifically provided. Each provision hereof shall be deemed both a
covenant and a condition and shall run with the land.
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(e) If, and to the extent that, any of the provisions of
any rider, addendum or amendment to this Lease conflict or are otherwise
inconsistent with any of the preceding provisions of this Lease, or of the
Rules and Regulations appended to this Lease, whether or not such inconsistency
is expressly noted in the rider, addendum or amendment, the provisions of the
rider, addendum or amendment shall prevail, and in case of inconsistency with
said Rules and Regulations, shall be deemed a waiver of such Rules and
Regulations with respect to Tenant to the extent of such inconsistency.
(f) Tenant agrees that all of Tenant's covenants and
agreements herein contained providing for the payment of money and Tenant's
covenant to remove mechanics' liens shall be deemed conditions as well as
covenants, and that if default be made in any such covenants, Landlord shall
have all of the rights provided for herein.
(g) The parties mutually agree that the headings and
captions contained in this Lease are inserted for convenience of reference
only, and are not to be deemed part of or to be used in construing this Lease.
(h) The covenants and agreements herein contained shall,
subject to the provisions of this Lease, bind and inure to the benefit of
Landlord, its successors and assigns, Tenant, its successors and assigns
except as otherwise provided herein.
(i) This Lease shall be construed in accordance with the
laws of the State of New Jersey, and Landlord and Tenant acknowledge that all
of the applicable statutes of the State of New Jersey are superimposed on the
rights, duties and obligations of Landlord and Tenant hereunder and this Lease
shall not otherwise provide that which said statutes prohibit.
(j) Landlord has made no representations or promises with
respect to the Premises or the Real Property, except as expressly contained
herein. Tenant has inspected the Premises and agrees to take the same in an "as
is" condition, except as otherwise expressly set forth in Exhibit B, attached
hereto and incorporated by reference herein. Landlord shall have no obligation,
except as set forth in Exhibit B, to do any work in and to the Premises to
render the Premises ready for occupancy and use by Tenant.
39.7 No Relocation. Tenant shall not record this Lease or a memorandum
hereof.
39.8 Relocation of Tenant. Landlord shall have the right, upon
giving to Tenant thirty (30) days' prior written notice, to relocate Tenant by
substituting for the Premises described herein other space in the Building
containing approximately as much area as that contained in the Premises and by
paying Tenant's reasonable moving and relocation expenses. Such substituted
space shall be improved by Landlord, at its expense, with Tenant finished
improvements comparable in quantity and quality to those made in the Premises.
Landlord shall pay all reasonable expenses incurred by Tenant in connection
with such relocation, including the moving, door lettering and telephone
relocation, business stationary and trade directory listings. In connection
with such relocation, Landlord and Tenant shall amend this Lease to change the
description of the Premises and any other matter which may pertain thereto.
39.9 Partnership. Nothing contained in this Lease shall be deemed
or construed to create a partnership or joint venture of or between Landlord
and Tenant, or to create any other relationship between the parties hereto
other than that of landlord and tenant.
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39.10 Authority. Landlord and Tenant hereby covenant each for
itself, that each has full right, power and authority to enter into this Lease
upon the terms and conditions set forth. If Tenant signs as a corporation, each
of the persons executing this Lease on behalf of Tenant does hereby covenant
and warrant that Tenant is a duly authorized and existing corporation,
qualified to do business in the jurisdiction in which the Building is located,
that the corporation has full right and authority to enter this Lease, and that
each of the persons signing on behalf of the corporation was authorized to do
so.
39.11 Examination of Lease. Submission of this Lease to Tenant to
examination or signature by Tenant shall not constitute reservation of or
option to lease, and the same shall not be effective as a lease or otherwise
until execution and delivery by both Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under
seal on the day and year first hereinabove written.
WITNESS OR ATTEST: LANDLORD: CONNECTICUT MUTUAL LIFE
INSURANCE COMPANY
/s/ [ILLEGIBLE] By: /s/ NEIL E. SALOWITZ
- ------------------------------ -------------------------------
Name: Neil E. Salowitz
-----------------------------
Title: Sr. Investment Officer
----------------------------
WITNESS OR ATTEST: TENANT: Q.E.P. CO., INC.
/s/ [ILLEGIBLE] By: /s/ PATRICK L. DAGGETT
- ------------------------------ -------------------------------
Name: PATRICK L. DAGGETT
-----------------------------
Title: TREASURER
----------------------------
(Corporate Seal)
CORPORATE TENANT ACKNOWLEDGEMENT
STATE OF NEW YORK
SS.
COUNTY OF ROCKLAND
On this 24th day of January, 1995, before me personally came PATRICK L.
DAGGETT, to me known, who, being by me duly sworn, did depose and say that he
resides in City of PARSIPPANY State of NEW JERSEY that he is the Treasurer of
Q.E.P. Co., Inc. the corporation described in and which executed the foregoing
Lease, as Tenant; that she/he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that she/he signed
her/his name thereto by like order.
RHONA WEINBERGER
NOTARY PUBLIC, STATE OF NEW YORK /s/ RHONA WEINBERGER
No. 4957863 ------------------------------
QUALIFIED IN ROCKLAND COUNTY Notary Public
COMMISSION EXPIRES OCTOBER 23, 1995
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EXHIBIT 10.2.5
THIS LEASE, dated the day of June 1993
PARTIES
Between Leo M. Rutten and Alice J. Rutten, his wife of 4523 Ardmore Drive,
Bloomfield Hills, Michigan 48302 hereinafter referred to as the Landlord, and
Q.E.P. Co., Inc. of 9 Kay Fries Drive, Stony Point, New York 10980 (DBA
American Trowel and Float Co., Inc.)
PREMISES
hereinafter referred to as the Tenant,
WITNESSETH: That the Landlord hereby demises and leases unto the Tenant, and
the Tenant hereby hires and takes from the Landlord for the term and upon the
rentals hereinafter specified, the premises described as follows, situated in
the city of Pompano Beach County of Broward and State of Florida, and known and
designated as 2511 NE 4th Avenue, Pompano Beach Lot 2, East Coast Industrial
Center according to the plat thereof recorded in plat book 63 page 30 of the
public records of Broward County. (Property ID# 18244-2T-00200)
TERM
The term of this demise shall be for thirty-eight and one half (38 1/2)
months beginning July 15, 1993 and ending September 30, 1996.
RENT
The rent for the demised term shall be ($116,800.00), which shall
accrue at the yearly rate of $38,400, plus sales tax, the current rate of which
is 6%.
PAYMENT OF RENT
The said rent is to be payable monthly in advance on the first day of
each calendar month for the term hereof, in instalments as follows:
Three thousand two-hundred ($3,200.00) dollars per month, plus sales
tax; tenant's obligation to pay rent shall commence on September 15, 1993 and no
rent shall be payable for the period from July 15, 1993 through September 14,
1993. On September 15, 1993 the Tenant shall pay one half (1/2) months rent.
at the office of the Landlord first stated above or as may be otherwise
directed by the Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS:
PEACEFUL POSSESSION
First.--The Landlord covenants that the Tenant, on paying the said
rental and performing the covenants and conditions in this Lease contained,
shall and may peaceably and quietly have, hold and enjoy the demised premises
for the term aforesaid.
Second.--The Tenant covenants and agrees to use the demised premises as
an office and factory.
PURPOSE
and agrees not to use or permit the premises to be used for any other purpose
without the prior written consent of the Landlord endorsed hereon.
*written notice of such default is received
DEFAULT IN PAYMENT OF RENT
ABANDONMENT OF PREMISES
RE-ENTRY AND RELETTING BY LANDLORD
TENANT LIABLE FOR DEFICIENCY
LIEN OF LANDLORD TO SECURE
PERFORMANCE ATTORNEY'S FEES
Third.--The Tenant shall, without any previous demand therefor, pay to
the Landlord, or its agent, the said rent at the times and in the manner above
provided. In the event of the non-payment of said rent, or any instalment
thereof, at the times and in the manner above provided, and if the same shall
remain in default for ten days after * or if the Tenant shall be
dispossessed for non-payment of rent, or if the leased premises shall be
deserted or vacated, the Landlord or its agents shall have the right to and may
enter the said premises as the agent of the Tenant, either by force or
otherwise, without being liable for any prosecution or damages therefor, and
may relet the premises as the agent of the Tenant, and receive the rent
therefor, upon such terms as shall be satisfactory to the Landlord, and all
rights of the Tenant to repossess the premises under this lease shall be
forfeited. Such re-entry by the Landlord shall not operate to release the
Tenant from any rent to be paid or covenants to be performed hereunder during
the full term of this lease. For the purpose of reletting, the Landlord shall
be authorized to make such repairs or alterations in or to the leased premises
as may be necessary to place the same in good order and condition. The Tenant
shall be liable to the Landlord for the cost of such repairs or alterations,
and all expenses of such reletting. If the sum realized or to be realized from
the reletting is insufficient to satisfy the monthly or term rent provided in
this lease, the Landlord, at its option, may require the Tenant to pay such
deficiency month by month, or may hold the Tenant in advance for the entire
deficiency to be realized during the term of the reletting. The Tenant shall
not be entitled to any surplus accruing as a result of the reletting. The
Landlord is hereby granted a lien, in addition to any statutory lien or right
to distrain that may exist, on all personal property of the Tenant in or upon
the demised premises, to secure payment of the rent and performance of the
covenants and conditions of this lease. The Landlord shall have the right, as
agent of the Tenant, to take possession of any furniture, fixtures or other
personal property of the Tenant found in or about the premises, and sell the
same at public or private sale and to apply the proceeds thereof to the payment
of any monies becoming due under this lease, the Tenant hereby waiving the
benefit of all laws exempting property from execution, levy and sale on
distress or judgment. The Tenant agrees to pay, as additional rent, all
attorney's fees and other expenses incurred by the Landlord in enforcing any of
the obligations under this lease to the extent and in an amount that such
expenses are reasonable.
SUB-LETTING AND ASSIGNMENT
Fourth.--The Tenant shall not sub-let the demised premises nor any
portion thereof, nor shall this lease be assigned by the Tenant without the
prior written consent of the Landlord endorsed hereon. Landlord covenants not
to unreasonably withhold such consent.
CONDITION OF PREMISES, REPAIRS
Fifth.--The Tenant has examined the demised premises, and accepts them
in their present condition (except as otherwise expressly provided herein) and
without any representations on the part of the Landlord or its agents as to the
present or future condition of the said premises. The Tenant shall keep the
demised premises in good condition, and shall redecorate, paint and renovate
the said premises as may be necessary to keep them in repair and good
appearance. The Tenant shall quit and surrender the premises at the end of the
demised term in as good condition as the reasonable use thereof will permit.
The Tenant shall not make any alterations, additions, or improvements to said
premises without the
<PAGE> 2
ALTERATIONS AND IMPROVEMENTS
SANITATION, INFLAMMABLE MATERIALS
SIDEWALKS
prior written consent of the Landlord.* All erections, alterations, additions
and improvements, whether temporary or permanent in character, which may be
made upon the premises either by the Landlord or the Tenant, except furniture
or movable trade fixtures installed at the expense of the Tenant, shall be the
property of the Landlord and shall remain upon and be surrendered with the
premises as a part thereof at the termination of this Lease, without
compensation to the Tenant. The Tenant further agrees to keep said premises and
all parts thereof in a clean and sanitary condition and free from trash,
inflammable material and other objectionable matter. If this lease covers
premises, all or a part of which are on the ground floor, the Tenant further
agrees to keep the sidewalks in front of such ground floor portion of the
demised premises clean and free of obstructions, snow and ice.
MECHANICS' LIENS
Sixth.--In the event that any mechanics' lien is filed against the
premises as a result of alterations, additions or improvements made by the
Tenant, the Landlord, at its option, after thirty days' notice to the Tenant,
may terminate this lease and may pay the said lien, without inquiring into the
validity thereof, and the Tenant shall forthwith reimburse the Landlord the
total expense incurred by the Landlord in discharging the said lien, as
additional rent hereunder.
GLASS
Seventh.--The Tenant agrees to replace at the Tenant's expense any and
all glass which may become broken in and on the demised premises. Plate glass
and mirrors, if any, shall be insured by the Tenant at their full insurable
value in a company satisfactory to the Landlord. Said policy shall be of the
full premium type, and shall be deposited with the Landlord or its agent.
LIABILITY OF LANDLORD
Eighth.--The Landlord shall not be responsible for the loss of or
damage to property, or injury to persons, occurring in or about the demised
premises, by reason of any existing or future condition, defect, matter or
thing in said demised premises or the property of which the premises are a
part, or for the acts, omissions or negligence of other persons or tenants in
and about the said property. The Tenant agrees to indemnify and save the
Landlord harmless from all claims and liability for losses of or damage to
property, or injuries to persons occurring in or about the demised premises.
See paragraph Thirtieth and Thirty-First.
SERVICES AND UTILITIES
Ninth.--Utilities and services furnished to the demised premises for
the benefit of the Tenant shall be provided and paid for by the Tenant:
The Landlord shall not be liable for any interruption or delay in any of the
above services for any reason.
RIGHT TO INSPECT AND EXHIBIT
Tenth.--The Landlord, or its agents, shall have the right to enter the
demised premises at reasonable hours in the day or night to examine the same,
or to run telephone or other wires, or to make such repairs, additions or
alterations as it shall deem necessary for the safety, preservation or
restoration of the improvements, or for the safety or convenience of the
occupants or users thereof (there being no obligation, however, on the part of
the Landlord to make any such repairs, additions or alterations), or to exhibit
the same to prospective purchasers and put upon the premises a suitable "For
Sale" sign. For three months prior to the expiration of the demised term, the
Landlord, or its agents, may similarly exhibit the premises to prospective
tenants, and may place the usual "To Let" signs thereon.
DAMAGE BY FIRE, EXPLOSION, THE ELEMENTS OR OTHERWISE
Eleventh.--In the event of the destruction of the demised premises or
the building containing the said premises by fire, explosion, the elements or
otherwise during the term hereby created, or previous thereto, or such partial
destruction thereof as to render the premises wholly untenantable or unfit for
occupancy, or should the demised premises be so badly injured that the same
cannot be repaired within ninety days from the happening of such injury, then
and in such case the term hereby created shall, at the option of the Landlord,
cease and become null and void from the date of such damage or destruction, and
the Tenant shall immediately surrender said premises and all the Tenant's
interest therein to the Landlord, and shall pay rent only to the time of such
surrender, in which event the Landlord may re-enter and re-possess the premises
thus discharged from this lease and may remove all parties therefrom. Should
the demised premises be rendered untenantable and unfit for occupancy, but yet
be repairable within ninety days from the happening of said injury, the
Landlord may enter and repair the same with reasonable speed, and the rent
shall not accrue after said injury or while repairs are being made, but shall
recommence immediately after said repairs shall be completed. But if the
premises shall be so slightly injured as not to be rendered untenantable and
unfit for occupancy, then the Landlord agrees to repair the same with
reasonable promptness and in that case the rent accrued and accruing shall not
cease or determine. The Tenant shall immediately notify the Landlord in case of
fire or other damage to the premises.
OBSERVATION OF LAWS, ORDINANCES, RULES AND REGULATIONS
Twelfth.--The Tenant agrees to observe and comply with all laws,
ordinances, rules and regulations of the Federal, State, County and Municipal
authorities applicable to the business to be conducted by the Tenant in the
demised premises. The Tenant agrees not to do or permit anything to be done in
said premises, or keep anything therein, which will increase the rate of fire
insurance premiums on the improvements or any part thereof, or on property kept
therein, or which will obstruct or interfere with the rights of other tenants,
or conflict with the regulations of the Fire Department or with any insurance
policy upon said improvements or any part thereof. In the event of any increase
in insurance premiums resulting from the Tenant's occupancy of the premises, or
from any act or omission on the part of the Tenant, the Tenant agrees to pay
said increase in insurance premiums on the improvements or contents thereof as
additional rent.
SIGNS
Thirteenth.--No sign, advertisement or notice shall be affixed to or
placed upon any part of the demised premises by the Tenant, except in such
manner, and of such size, design and color as shall be approved in advance in
writing by the Landlord, such approval not to be unreasonably withheld.
Landlord shall have the right to erect and maintain a sign on the roof.
SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST
Fourteenth.--This lease is subject and is hereby subordinated to all
present and future mortgages, deeds of trust and other encumbrances affecting
the demised premises or the property of which said premises are a part. The
Tenant agrees to execute, at no expense to the Landlord, any instrument which
may be deemed necessary or desirable by the Landlord to further effect the
subordination of this lease to any such mortgage, deed of trust or encumbrance.
Intentionally Omitted
RULES AND REGULATIONS OF LANDLORD
Sixteenth.--The rules and regulations regarding the demised premises,
affixed to this lease, if any, as well as any other and further reasonable
rules and regulations which shall be made by the Landlord, shall be observed by
the Tenant and by the Tenant's employees, agents and customers. The Landlord
reserves the right to rescind any presently existing rules applicable to the
demised premises, and to make such other and further reasonable rules and
regulations as, in its judgment, may from time to time be desirable for the
safety, care and cleanliness of the premises, and for the preservation of good
order therein, which rules, when so made and notice thereof given to the
Tenant, shall have the same force and effect as if originally made a part of
this lease. Such other and further rules shall not, however, be inconsistent
with the proper and rightful enjoyment by the Tenant of the demised premises.
VIOLATION OF COVENANTS, FORFEITURE OF LEASE, RE-ENTRY BY LANDLORD
NON-WAIVER OF BREACH
Seventeenth.--In case of violation by the Tenant of any of the
covenants, agreements and conditions of this lease, or of the rules and
regulations now or hereafter to be reasonably established by the Landlord, and
upon failure to discontinue such violation within ten days after notice thereof
given to the Tenant, this lease shall thenceforth, at the option of the
Landlord, become null and void, and the Landlord may re-enter without further
notice or demand. The rent in such case shall become due, be apportioned and
paid on and up to the day of such re-entry, and the Tenant shall be liable for
all loss or damage resulting from such violation as aforesaid. No waiver by the
Landlord of any violation or breach of condition by the Tenant shall constitute
or be construed as a waiver of any other violation or breach of condition, nor
shall lapse of time after breach of condition by the Tenant before the Landlord
shall exercise its option under this paragraph operate to defeat the right of
the Landlord to declare this lease null and void and to re-enter upon the
demised premises after the said breach or violation.
<PAGE> 3
[FIRST LINE OF THIS PAGE IS CUT OFF]
premises, shall be in writing. If the Landlord or its agent desires to give or
serve upon the Tenant any notice or demand, it shall be sufficient to send a
copy thereof by registered mail, addressed to the Tenant at the demised
premises, or to leave a coy thereof with a person of suitable age found on the
premises, or to post a copy thereof upon the door to said premises. Notices from
the Tenant to the Landlord shall be sent by registered mail or delivered to the
Landlord at the place hereinbefore designated for the payment of rent, or to
such party or place as the Landlord may from time to time designate in writing.
BANKRUPTCY, INSOLVENCY, ASSIGNMENT FOR BENEFIT OF CREDITORS
Nineteenth.--It is further agreed that if at any time during the term
of this lease the Tenant shall make any assignment for the benefit of
creditors, or be decreed insolvent or bankrupt according to law, or if a
receiver shall be appointed for the Tenant, then the Landlord may, at its
option, terminate this lease, exercise of such option to be evidenced by notice
to that effect served upon the assignee, receiver, trustee or other person in
charge of the liquidation of the property of the Tenant or the Tenant's estate,
but such termination shall not release or discharge any payment of rent payable
hereunder and then accrued, or any liability then accrued by reason of any
agreement or covenant herein contained on the part of the Tenant, or the
Tenant's legal representatives.
HOLDING OVER BY TENANT
Twentieth.--In the event that the Tenant shall remain in the demised
premises after the expiration of the term of this lease without having executed
a new written lease with the Landlord, such holding over shall not constitute a
renewal or extension of this lease. The Landlord may, at its option, elect to
treat the Tenant as one who has not removed at the end of his term, and
thereupon be entitled to all the remedies against the Tenant provided by law in
that situation, or the Landlord may elect, at its option, to construe such
holding over as a tenancy from month to month, subject to all the terms and
conditions of this lease, except as to duration thereof, and in that event the
Tenant shall pay monthly rent in advance at the rate provided herein as
effective during the last month of the demised term.
EMINENT DOMAIN, CONDEMNATION
Twenty-first.--If the property or any part thereof wherein the demised
premises are located shall be taken by public or quasi-public authority under
any power of eminent domain or condemnation, this lease, at the option of the
Landlord, shall forthwith terminate and the Tenant shall have no claim or
interest in or to any award of damages for such taking.
SECURITY
Twenty-second.--The Tenant has this day deposited with the Landlord the
sum of $3,200.00 as security for the full and faithful performance by the
Tenant of all the terms, covenants and conditions of this lease upon the
Tenant's part to be performed, which said sum shall be returned to the Tenant
after the time fixed as the expiration of the term herein, provided the Tenant
has fully and faithfully carried out all of said terms, covenants and
conditions on Tenant's part to be performed. In the event of a bona fide sale,
subject to this lease, the Landlord shall have the right to transfer the
security to the vendee for the benefit of the Tenant and the Landlord shall be
considered released by the Tenant from all liability for the return of such
security; and the Tenant agrees to look to the new Landlord solely for the
return of the said security, and it is agreed that this shall apply to every
transfer or assignment made of the security to a new Landlord. The security
deposited under this lease shall not be mortgaged, assigned or encumbered by
the Tenant without the written consent of the Landlord.
ARBITRATION
Twenty-third.--Any dispute, arising under this lease shall be settled by
arbitration. Then Landlord and Tenant shall each choose an arbitrator, and the
two arbitrators thus chosen shall select a third arbitrator. The findings and
award of the three arbitrators thus chosen shall be final and binding on the
parties hereto.
DELIVERY OF LEASE
Twenty-fourth.--No rights are to be conferred upon the Tenant until
this lease has been signed by the Landlord, and an executed copy of the lease
has been delivered to the Tenant.
LEASE PROVISIONS NOT EXCLUSIVE
Twenty-fifth.--The foregoing rights and remedies are not intended to be
exclusive but as additional to all rights, and remedies the Landlord would
otherwise have by law.
LEASE BINDING ON HEIRS, SUCCESSORS, ETC.
Twenty-sixth.--All of the terms, covenants and conditions of this lease
shall inure to the benefit of and be binding upon the respective heirs,
executors, administrators, successors and assigns of the parties hereto.
However, in the event of the death of the Tenant, if an individual, the
Landlord may, at its option, terminate this lease by notifying the executor or
administrator of the Tenant at the demised premises.
Twenty-seventh.--This lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in nowise be affected, impaired or excused
because Landlord is unable to supply or is delayed in supplying any service
expressly or impliedly to be supplied or is unable to make, or is delayed in
making any repairs, additions, alterations or decorations or is unable to
supply or is delayed in supplying any equipment or fixtures if Landlord is
prevented or delayed from so doing by reason of governmental preemption in
connection with the National Emergency declared by the President of the United
States or in connection with any rule, order or regulation of any department or
subdivision thereof of any governmental agency or by reason of the conditions
of supply and demand which have been or are affected by war.
Twenty-eighth.--This instrument may not be changed orally.
Continued on annexed rider
IN WITNESS WHEREOF, the said Parties have hereunto set their hands and
seals the day and year first above written.
Witness: /s/ LEO M. RUTTEN (SEAL)
-----------------------------
Leo M. Rutten
Landlord
/s/ FORREST N. REED By /s/ ALICE J. RUTTEN
- ------------------------------- --------------------------------
Forrest N. Reed Alice J. Rutten
QEP Co., Inc. DBA
/s/ RHONA WEINBERGER American Trowel and Float Co. Inc.(SEAL)
- ------------------------------- ----------------------------------
Rhona Weinberger Tenant
By /s/ PATRICK L. DAGGETT
----------------------------------
Patrick L. Daggett
Treasurer
<PAGE> 4
RIDER TO LEASE BETWEEN
LEO M. RUTTEN AND ALICE J. RUTTEN, LANDLORD
and
Q.E.P. CO., INC., TENANT
Dated: June _, 1993
Twenty-ninth: In the event of any inconsistency between
provisions of this rider and the printed provisions contained in Paragraphs
"First" through "Twenty-Eighth", inclusive, of this lease, the provisions of
this rider shall control and shall supersede such inconsistent printed
provisions.
Thirtieth: Tenant shall indemnify and save harmless landlord
from and against all claim and damage whatsoever, caused to any person or to
the property of any person occurring during the term of this lease, in or about
the demised premises unless said claim is due solely to Landlord's negligence
without Tenant contributing thereto. Tenant likewise shall and will indemnify
and save harmless Landlord from and against all claims for damage of whatever
nature, arising from any accident, injury or damage occurring outside of the
demised premises, but within the premises of which the demised premises are a
part, where such accident, damage or injury results from any action or omission
on the part of Tenant or Tenant's contractors, licensees, agents servants or
employees. Tenant shall and will, on written demand, repay to Landlord, as
additional rent, any amount that Landlord may be obligated to pay for such
damage and the cost and expense of any action or legal proceedings brought
against the Landlord by reason of or in respect to any claim for such damages,
including but not limited to, reasonable attorneys' fees expended in connection
therewith. Tenant shall be informed by Landlord of any and all claims
hereinabove referred to, and Tenant shall have the right to defend such claims
at Tenant's cost and expense.
Thirty-first: Tenant covenants and agrees that prior to taking
possession of the demised premises, Tenant shall immediately secure, and
thereafter maintain in full force, during the term hereof, at its own cost and
expense, plate glass insurance, comprehensive general personal injury and
property damage liability insurance against claims for bodily injury, death and
property damage, such insurance to afford minimum protection during the term of
this lease, of not less than $1,000,000 in respect of bodily injury or death to
any one person and of not less than $1,000,000 in respect of any one occurrence
or accident and of not less than $1,000,000 for property damage. Such insurance
policy shall name Landlord (and such other persons, firms or corporations as are
designated by Landlord), and Tenant as insured. Such policy shall insure against
all costs, expenses and/or liability arising out of or based upon any and all
claims, accidents, injuries and damages whatsoever caused to any person or
property wherein such accident, damage or injury resulted from any act or
omission on the part of
<PAGE> 5
the Tenant of Tenant's contractors, licensees, agents, invitee, visitors,
servants or employees, on or about the demised premises, or the building of
which the demised premises are a part, including the sidewalks and areas
adjacent thereto. Each such policy shall be issued by a company licensed to do
business in the State of Florida, shall be non-cancellable with respect to
Landlord and Landlord's agents and designees without ten (10) days' prior
written notice to Landlord and Landlord's agents and designees, and a duplicate
original thereof shall be delivered to Landlord. Any policy which does not name
Landlord as an insured shall contain an express waiver of any right of
subrogation against Landlord. If during the term of the lease, higher limits of
insurance than those mentioned therein shall be appropriate, customary and
generally required for like premises utilized for similar purposes, then upon
written request by Landlord, Tenant will obtain and maintain such insurance
with such higher limits.
Thirty-second: Tenant covenants and agrees that except for
structural repairs (including walls, foundation and roof) which remain the
obligation of the Landlord, it will, during the term of this lease, and at its
own cost and expense, make all necessary repairs to keep the premises and
fixtures in the demised premises in good order and condition, and to surrender
said premises and fixtures therein at the end of the term of this lease in good
condition, except for necessary structural repairs and normal business use, fit
for immediate occupancy and use by the Landlord for the general purposes of
which the demised premises are fitted. On Tenant's failure to maintain the
premises as agreed hereunder, Landlord after giving Tenant ten (10) days'
notice thereof in writing may itself make such repairs, and the reasonable
amount expended by it therefor are hereby declared to be rent to be paid with
the installments of rent provided for in this lease, next becoming due. The
voluntary making by Landlord of a repair other than that of a structural
nature, shall not be deemed a waiver by the Landlord of the obligation of the
Tenant to make such general repairs.
Notwithstanding the foregoing, the trade fixtures installed by
Tenant shall remain the property of the Tenant and shall be removed by Tenant,
at its own cost and expense, upon the expiration of the term hereof or any
extension or renewal thereof. Upon the expiration of the term of any extension
or renewal thereof Tenant agrees, at its own cost and expense, in the event
that it has made any alterations to the premises, to restore the same to their
original condition as of the commencement hereof.
Thirty-third: Wherever in this contract it shall be required
or permitted that notice or demand be given or served by either party to or on
the other, such notice or demand shall be deemed duly given or served if, and
shall not be deemed duly given or served unless, in writing, and delivered in
person to the party to whom it is directed or to the attorney or a member or
associate
<PAGE> 6
of the firm of attorneys representing such party or mailed by registered or
certified mail addressed as follows:
TO THE LANDL0RD: LEO M. RUTTEN and
ALICE J. RUTTEN
4523 Ardmore Drive
Bloomfield Hills, MI 48302
TO THE TENANT: MINTZ & FRAADE, P.C.
488 Madison Avenue
New York, New York 10022
Attention: FREDERICK M. MINTZ, ESQ.
Q.E.P. CO., INC
9 Kay Fries Drives
Stoney Point, NY 10980
Thirty-fourth: Tenant shall have the option to renew this
lease for an additional term of three (3) years, upon the same terms and
conditions as set forth herein. The annual rent which the Tenant shall pay
during such additional term will equal to $38,400.00 times a fraction, the
numerator of which shall be the Federal Consumer Price Index for June 30, 1996,
and the denominator of which shall be the FCPI for June 30, 1993. For example,
if the FCPI on June 30, 1996 is 120, and if the FCPI on June 30, 1993 is
100.00, the fixed minimum annual rent during the renewal term will be $38,400 x
120/100, or $46,080, plus sales tax.
In order to exercise this option to renew this lease, Tenant
shall notify the Landlord, of its election to exercise said option no later
than May 31, 1996. In the event that the Tenant shall fail to exercise this
option in the manner and within the time prescribed, then this option shall be
deemed null and void, and this lease shall terminate at the time hereinabove
provided.
Thirty-fifth: If the premises adjacent to the north side of
the demised premises, and known as 2521 N.E. 4th Avenue, Pompano Beach, Florida
(Lot 3, East Coast Industrial Center) which is presently leased under a lease
expiring on April 1, 1994, shall become available during the term of this
lease, commencing April 1, 1994 Tenant shall have the option and right of first
refusal to rent said adjacent premises upon the same terms and conditions as
are contained in this lease for these demised premises. Landlord shall give
Tenant at least ten (10) business days notice as to the terms and conditions of
the proposed lease and Tenant shall notify Landlord within each ten (10)
business days after receipt of such notice if it wishes to exercise this right
of first refusal. Upon such exercise, the additional premises should become
subject to the terms and conditions and be included in this lease. If the
Tenant fails to exercise such right of first refusal within said time period,
the right shall be cancelled.
<PAGE> 7
Thirty-sixth: In the event of a contemplated sale of the demised
premises during the lease term, Landlord shall give to the Tenant at least ten
(10) business days written notice before entering into any contract of sale.
Within ten (10) business days after receipt of such notice, Tenant shall have
the right to purchase the premises at the price of $350,000, adjusted for cost
of living increases in accordance with the formula set forth in Paragraph
Thirty-fourth hereof. The Closing of such sale should occur within sixty (60)
days of landlords' receipt of such notice. If the Tenant fails to exercise such
option within said time period, the landlord shall have the right to proceed
with such sale. If such Sale does not take place within ninety (90) days of
Tenant receiving notice thereof, landlord shall be obligated to give the Tenant
subsequent notice of its right to exercise its purchase option prior to selling
the premises.
<PAGE> 1
EXHIBIT 10.3.1
REVOLVING LOAN AND SECURITY AGREEMENT
THIS LOAN AGREEMENT made this 13 day of October, 1995, by and between
Q.E.P. CO., INC., a New York corporation with its chief executive office and
principal place office at 575 Corporate Drive, Suite 410, Mahwah, New Jersey
07430, Q.E.P. - O'TOOL, INC., a California corporation with its chief executive
office and principal place of business at 20535 Belshaw Avenue, Carson, CA
90746, AMERICAN TROWEL AND FLOAT COMPANY, INC., a Florida corporation with its
chief executive office and principal place of business at 2511 N.E. 4th Avenue,
Pompano Beach, Florida 33064, MARION TOOL CORPORATION, an Indiana corporation
with its chief executive office and principal place of business at 11th Street
and Miller Avenue, Marion, Indiana 46952, WESTPOINT FOUNDRY, INC., an Indiana
corporation with its chief executive office and principal place of business at
11th Street and Miller Avenue, Marion, Indiana 46953 and Q.E.P. ANDREWS, INC., a
Nevada corporation with its chief executive office and principal place of
business at 35 Stokes Drives, Carson City, Nevada (all of the foregoing
hereinafter collectively called the "BORROWER" unless otherwise specifically
indicated) and SHAWMUT BANK CONNECTICUT, N.A., a national banking association
with offices at 850 Main Street, Bridgeport, Connecticut 06604 (hereinafter
called the "LENDER") The Borrower and the Lender hereby agree as follows:
SECTION 1. DEFINITIONS. As used herein:
1.1 OBLIGATIONS - means all loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Lender
of every kind and description (whether or notvidenced by any note or
other instrument and whether or not for the payment of money), direct
or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, whether or not such obligations are related to
the transaction described in this Loan Agreement, by class, or kind, or
whether or not contemplated by the parties at the time
of the granting of this security interest, including without
limitation, all interest, fees, charges, expenses and attorneys' fees
chargeable to the Borrower or incurred by the Lender in connection with
the Borrower's account whether provided for herein or in any
Supplemental Agreement.
1.2 COLLATERAL - means Receivables, Inventory, Equipment, Patents,
Trademarks and Additional Collateral, as hereinafter defined.
1.3 RECEIVABLES - means (a) all of the Borrower's now owned and hereafter
acquired, present and future, accounts, contract rights, chattel paper,
documents, and instruments, including without limitation all
obligations to the Borrower for the payment of money, whether arising
out of the Borrower's sale of goods or rendition of services or
otherwise (all hereinafter called "ACCOUNTS, ETC."), and all proceeds
of the foregoing and all proceeds of any insurance on the foregoing;
<PAGE> 2
(b) all of the Borrower's rights, remedies, security and liens, in, to
and in respect of the Accounts, Etc., present and future, including
without limitation, rights of stoppage in transit, replevin,
repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts
of suretyship with respect to the Accounts, Etc., deposits or other
security for the obligation of any debtor or obligor in any way
obligated on or in connection with any Accounts, Etc., and credit and
other insurance, and all proceeds of the foregoing and all proceeds of
any insurance on the foregoing; and (c) all of the Borrower's right,
title and interest, present and future, in, to and in respect of all
goods relating to, or which by sale have resulted in, Accounts, Etc.,
including without limitation all goods described in invoices or other
documents or instruments with respect to, or otherwise representing or
evidencing any Accounts, Etc., and all returned, reclaimed or
repossessed goods, and all proceeds of the foregoing and all proceeds
of any insurance on the foregoing.
1.4 ELIGIBLE RECEIVABLES - means the net amount of those Receivables of
Q.E.P. Co., Inc., Q.E.P.-O'Tool, Inc. and American Trowel and Float
Company, Inc. which continually meet the following requirements:
a. The account is due and payable not more than thirty (30) days
from the date of the invoice evidencing the account and is not
more than sixty (60) days past due;
b. The account arose from the performance of services by the
Borrower which have been fully and satisfactorily performed or
from the absolute sale of goods by the Borrower in which the
Borrower had the sole and complete ownership and the goods
have been shipped or delivered to the account debtor
evidencing which the Borrower or the Lender has the possession
of shipping and delivery receipts;
C. The account is not subject to any prior or subsequent
assignment, claim, lien or security interest other than that
of the Lender;
d. To the best of the Borrower's knowledge, the account is not
subject to setoff, counterclaim, defense, allowance or
adjustment other than discounts for prompt payment shown on
the invoice, or to dispute, objection or complaint by the
account debtor concerning his liability on the account, and
the goods, the sale of which gave rise to the account, have
not been returned, rejected, lost or damaged;
e. The account arose in the ordinary course of business;
2
<PAGE> 3
f. To the best of the Borrower's knowledge, no petition or other
application for relief under the Bankruptcy Code or other
insolvency law has been filed with respect to the customer or
account debtor; and the customer or account debtor has not
made an assignment for the benefit of creditors, become
insolvent, or suspended or terminated business; and the
account debtor is generally paying its debts as they become
due; and
g. The Lender has not notified the Borrower that, in the Lender's
sole discretion, the account or account debtor is not
acceptable to the Lender.
1.5 INVENTORY - means all inventory of whatsoever name, nature, kind or
description now owned and hereafter acquired, present and future, by
the Borrower, wherever located, including without limitation all
contract rights with respect thereto and documents representing the
same, all goods held for sale or lease or to be furnished under
contracts of service, finished goods, work in process, raw materials,
materials used or consumed by the Borrower, parts, supplies, and all
wrapping, packaging, advertising and shipping materials and any
documents relating thereto, and all labels and other devices, names
and marks affixed or to be affixed thereto for purposes of selling or
of identifying the same or the seller or manufacturer thereof, and all
right, title and interest of the Borrower therein and thereto, and all
products and proceeds of the foregoing and all proceeds of any
insurance on the foregoing.
1.6 ELIGIBLE INVENTORY - means that Inventory of Q. E. P. Co., Inc. and
Q.E.P.-O'Tool, Inc. (valued at the lesser of cost to the Borrower or
market value) which continually meets the following requirements:
a. It is in first-class condition and is saleable through normal
trade channels;
b. It is new and unused;
c. It is owned by the Borrower and is not subject to any lien or
security interest whatsoever other than that of the Lender;
and
d. It is not of any class, type or category which the Lender,
acting in the Lender's sole discretion, shall have notified
the Borrower, is not deemed to constitute Inventory eligible
for the purposes of this SECTION "1.6"
Eligible Inventory shall include finished goods Inventory
only.
3
<PAGE> 4
1.7 EQUIPMENT - means all machinery, equipment, furniture, fixtures, tools,
parts, supplies and motor vehicles, now owned and hereafter acquired,
present and future, by the Borrower of whatsoever name, nature, kind
or description, wherever located, and all additions and accessions
thereto and replacements or substitutions therefor, and all products
and proceeds thereof and all proceeds of any insurance thereon.
1.8 PATENTS - means all of the Borrower's right, title and interest,
present and future, in and to (a) all letters patent of the United
States or any other country, all right, title and interest therein and
thereto, and all registrations and recordings thereof, including
without limitation applications, registrations and recordings in the
United States Patent and Trademark Office or in any similar office or
agency of the United States and State thereof or any other country or
any political subdivision thereof, all whether now owned or hereafter
acquired by the Borrower; and (b) all reissues, continuations,
continuations-in-part or extensions thereof and all licenses thereof;
and all proceeds of the foregoing and all proceeds of any insurance on
the foregoing.
1.9 TRADEMARKS - means all of the Borrower's right, title and interest,
present and future, in and to (a) all trademarks, trade names, trade
styles, service marks, prints and labels on which said trademarks,
trade names, trade styles and service marks have appeared or appear,
designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all right, title and interest therein
and thereto, and all registrations and recordings thereof, including
without limitation applications, registrations and recordings in the
United States Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof, or any other country
or any political subdivision thereof, all whether now owned or
hereafter acquired by the Borrower; (b) all reissues, extensions or
renewals thereof and all licenses thereof; and (c) the goodwill of the
business symbolized by each of the Trade marks, and all customer lists
and other records of the Borrower relating to the distribution of
products bearing the Trademarks; and all proceeds of the foregoing and
all proceeds of any insurance on the foregoing.
1.10 ADDITION COLLATERAL - means (a) all other general intangibles of every
kind and description of the Borrower, including without limitation
Federal, State and local tax refund claims of all kinds, and any
present or future right of the Borrower to or in its employee or other
pension, retirement or similar plans and any assets thereof, or any
portion thereof, including but not limited to refunds for overpayment,
distributions upon termination, reversion of any
4
<PAGE> 5
surplus assets or otherwise, whether now existing or hereafter
arising; (b) all of the Borrower's deposit accounts, whether now owned
or hereafter created, wherever located; (c) all monies, securities,
instruments, cash and other property of the Borrower and the proceeds
thereof, now or hereafter held or received by, or in transit to, the
Lender from or for the Borrower, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, and all of the
Borrower's deposits (general or special, balances, sums, proceeds and
credits of the Borrower with the Lender at any time existing); and (d)
all books, records, customer lists, ledger cards, computer programs,
computer tapes, disks, printouts and records, and other property and
general intangibles at any time evidencing or relating to any of the
foregoing, whether now in existence or hereafter created; and all
proceeds of the foregoing and all proceeds of any insurance on the
foregoing.
1.11 LOAN AGREEMENT - means this Revolving Loan and Security Agreement, as
the same may hereafter be supplemented, modified or amended.
1.12 SUPPLEMENTAL AGREEMENTS - means any and all agreements, instruments,
documents, security agreements, mortgages, financing statements, and
supplements thereto granting or intending to grant to the Lender any
lien, security interest, pledge, assignment or indemnification to
secure the obligations, or entered into between the Borrower and the
Lender, at any time, for any purpose.
1.13 EFFECTIVE DATE - means the date of execution of this Loan Agreement.
1.14 GUARANTOR - means any person, firm or corporation which has guaranteed
or endorsed or has agreed to act as surety for any of the Obligations.
1.15 ADDITIONAL DEFINITIONS. Unless otherwise specifically defined herein,
all terms used in this Loan Agreement and in all documents referred to
herein and which have been defined in Articles 1, 2 or 9, Uniform
Commercial Code, shall be interpreted and construed in light of the
sections, the definitions, the "official comment", and the
definitional and substantive cross-references of the Uniform
Commercial Code.
SECTION 2. TERMS OF BORROWING.
2.1 REVOLVING LOAN. The Lender may loan to the Borrower, at its
discretion, and the Borrower may borrow, repay, and reborrow from the
Lender, from time to time (the "REVOLVING LOAN"), up to that amount
(hereinafter referred to as the "BORROWING BASE") which is the lesser
of:
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a. The sum of:
(1) EIGHTY PERCENT (80%) of the Borrower's Eligible
Receivables; AND
(2) FIFTY PERCENT (50%) of the Borrower's Eligible
Inventory, but in any event not to exceed ONE MILLION
THREE HUNDRED THOUSAND DOLLARS ($1,300,000); OR
b. THREE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS
($3,250,000).
Nothing herein shall be construed to require the Lender to lend up to
the Borrowing Base, and nothing shall prohibit the Lender from lending
in excess of the Borrowing Base, all loans to be at the discretion of
the Lender.
2.2 BORROWING BASE REPORTS, ETC. For purposes of computing the Borrowing
Base, the Borrower shall furnish to the Lender information-adequate to
identify Receivables and Inventory at times and in form and substance
as may be required by the Lender (the "BORROWING BASE CERTIFICATE"), a
copy of which is annexed hereto as EXHIBIT E, together with such
certificates as the Lender may require from the Borrower representing
that no Event of Default has occurred and that the Borrower knows of no
event which, but for the passage of time or the giving of notice, would
create an Event of Default. From time to time, upon request of Lender,
the Borrower shall provide the Lender with schedules describing all
Receivables created or acquired by the Borrower and shall execute and
deliver written assignments of such Receivables to the Lender;
provided, however, that the Borrower's failure to execute and deliver
such schedules and/or assignments shall not affect or limit the
Lender's security interest or other rights in and to any Collateral.
Together with each schedule, the Borrower shall, upon request of the
Lender, furnish copies Of customers' invoices or the equivalent, and
original shipping or delivery receipts for all merchandise sold, and
the Borrower warrants the genuineness thereof. The Borrower further
warrants that all Receivables are and will be bona fide existing
obligations created by the sale and delivery of merchandise or the
rendition of services to customers in the ordinary course of business,
free of liens, encumbrances and security interests (other than to
Lender) and unconditionally owed to the Borrower and, to the best of
the Borrower's knowledge, without defense, offset or counterclaim.
2.3 REPAYMENT OF THE REVOLVING LOAN. The Revolving Loan shall be payable
June 30, 1998 without requiring the Lender first to resort to any
other right, remedy or security. In the event the Revolving Loan at
any time exceeds the Borrowing Base,
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the Borrower will immediately, upon notification thereof from the
Lender, repay to the Lender the amount by which the Revolving Loan
exceeds the Borrowing Base. At the time of each advance under the
Revolving Loan, the Borrower will, upon request of the Lender, execute
a promissory note evidencing the Revolving Loan, such note to be in
such form and to contain such provisions as the Lender shall deem
desirable. If the Lender shall elect not to have the Borrower execute
notes, each advance shall be recorded in an account on the Lender's
books in which shall also be recorded accrued interest on advances,
payments on such advances, and other appropriate debits and credits as
herein provided, and such account shall constitute prima facie
evidence of the information contained therein.
2.4 INTEREST ON THE REVOLVING LOAN.
Interest on the Revolving Loan shall be payable monthly (except as
otherwise stated with respect to a LIBOR Based Rate Loan being a loan
made at the LIBOR Based Rate) in arrears on the first day of each
month and at maturity.
The Revolving Loan shall bear interest on the unpaid principal amount
thereof outstanding from time to time at a rate per annum (computed on
the basis of the actual number of days elapsed over a year of 360
days) equal to:
a. the sum of
i. 1/2 of 1 percent (.5%) plus
ii. The Bank's base rate
(the "BASE RATE OPTION") or
b.
i. the LIBOR Rate plus
ii. 225 basis points, all as hereinafter set forth
(the "LIBOR BASED RATE")
but in no event higher than the maximum rate of interest permitted to
be collected by the holder of the Revolving Note under applicable law.
As to the Base Rate Option, in the event the Bank's base rate
prevailing on the effective date hereof is subsequently increased or
decreased, then, as of the date of said increase or decrease, an
increase or decrease will be made in the rate of interest which will
be charged to Borrower in respect of the Revolving Loan so that the
interest rate shall at all times be equal to the sum of one-half of
one percent (.5%) plus the Bank's base rate, subject to the aforesaid
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limitation based on applicable law. The Bank's "BASE RATE" shall mean
the interest rate announced from time to time by the Lender as its
base rate. The Base Rate is not necessarily the lowest rate available.
The Bank shall not be obligated to notify the Borrower of any change
in the base rate or the interest rate payable in respect of the
Revolving Loan, and a failure to so notify shall not affect the
effectiveness of the change in rate.
The LIBOR Rate shall mean an annual rate of interest determined by
Lender as being the rate available to Lender at approximately 11:00
a.m.- London time in the London Interbank Market, as referenced by
Reuters Screen "LIBO", in accordance with the usual practice in such
market, for the LIBOR Interest Period elected by Borrower, in effect
two Good Business Days prior to the funding date for a requested LIBOR
Based Rate Loan (including those requested in connection with the
conversion of a portion of the Revolving Credit subject to the Base
Rate Option to a LIBOR Based Rate Loan in accordance with this
Section, or for a LIBOR Based Rate Loan which Borrower has elected to
continue as a LIBOR Based Rate Loan beyond the expiration of the then
current LIBOR Interest Period with respect thereto, for deposits of
dollars in amounts equal (as nearly as may be estimated) to the amount
of the LIBOR Based Rate Loan which shall then be loaned by the Lender
to Borrower as of the time of such determination, as such rate may be
adjusted by the reserve percentage applicable during the LIBOR
Interest Period in effect (or if more than one such percentage shall
be applicable, the daily average of such percentages for those days in
such LIBOR Interest Period during which any such percentage shall be
so applicable) under regulations issued from time to time by the Board
of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without
limitation, any emergency, supplemental or other marginal reserve
requirement) for the Lender with respect to liabilities or assets
consisting of or including "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time, having a term equal to
such LIBOR Interest Period ("Eurocurrency Reserve Requirement"). Such
adjustment shall be effectuated by calculating, and the LIBOR Rate
shall be equal to, the quotient of (i) the offered rate divided by
(ii) one minus the Eurocurrency Reserve Requirement.
(i) The unpaid principal balance under the Revolving Loan or a portion
thereof may, at Borrower's option, bear interest at the LIBOR Based
Rate ("LIBOR RATE OPTION") provided that in no event may a LIBOR Based
Rate Loan be less than FIVE HUNDRED THOUSAND ($500,000) DOLLARS.
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(ii) LIBOR Based Rate Loans shall be selected (by notice to Lender
not less than 2 days prior to commencement of the proposed LIBOR
Interest Period) for a period of either a one (1), two (2), three (3)
or six (6) months, duration, as the Borrower may elect, during which
the LIBOR Based Rate is applicable ("LIBOR Interest Period"); provided,
however, that (a) if the LIBOR Interest Period would otherwise end on a
day which shall not be a Good Business Day, such LIBOR Interest period
shall be extended to the next succeeding Good Business Day, unless such
Good Business Day falls in another calendar month, in which case such
LIBOR Interest Period shall end on the next preceding Good Business Day
subject to clause (c) below; (b) interest shall accrue from and
including the first DAY of each LIBOR Interest Period to, but excluding
the day on which any LIBOR Interest Period expires; and (c) with
respect to any LIBOR Interest Period which begins on the last Good
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
LIBOR Interest Period), the LIBOR Interest Period shall end on the last
Good Business Day of a calendar month. Interest on a LIBOR Based Rate
Loan shall be due and payable in arrears at the end of the LIBOR
Interest Period. No LIBOR Interest Period may end after any renewal or
maturity date of the Revolving Note. Subject to all of the terms and
conditions applicable to a request that a new Advance be a LIBOR Based
Rate Loan, Borrower may extend a LIBOR Based Rate Loan as of the last
day of the LIBOR Interest Period to a new LIBOR Based Rate Loan or may
convert all of a portion of the loans subject to the Base Rate Option
to a LIBOR Based Rate Loan. If the Borrower fails to notify the Lender
of the Libor Interest Period for a subsequent LIBOR Based Rate Loan at
least two (2) Good Business Days prior to the last day of the then
current LIBOR Interest Period of an outstanding LIBOR Based Rate Loan,
then such outstanding LIBOR Based Rate Loan shall become a loan subject
to the Base Rate Option at the end of the current LIBOR Interest Period
for such outstanding LIBOR Based Rate Loan and shall accrue interest in
accordance with Section 2.4 (a) above.
(iii) The LIBOR Rate may be automatically adjusted by Lender on a
prospective basis to take into account the additional or increased
cost of maintaining any necessary reserves for Eurodollar deposits or
increased costs due to changes in applicable law or regulation or the
interpretation thereof occurring subsequent to the commencement of the
then applicable LIBOR Interest Period, including but not limited to
changes in tax laws (except changes of general applicability in
corporate income tax laws as they affect financial institutions) and
changes in the reserve requirements imposed by the Board of Governors
of the Federal Reserve System (or any successor), that increase the
cost to
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Lenders of funding the LIBOR Based Rate Loan. Lender shall promptly
give the Borrower notice of such a determination and adjustment, which
determination shall be conclusive as to the correctness of the fact
and the amount of such adjustment. The Borrower may, by written notice
to Lender, (A) request Lender to furnish to the Borrower a statement
setting forth the basis for adjusting such LIBOR Based Rate and the
method for determining the amount of such adjustment; and/or (B)
prepay the LIBOR Based Rate Loan with respect to which such adjustment
is made, subject to the requirements of this Section.
(iv) In the event that the Borrower shall have requested the
LIBOR Rate Option in accordance with this paragraph and Lender shall
have reasonably determined that Eurodollar deposits equal to the amount
of the principal of the requested LIBOR Based Rate Loan and for the
LIBOR Interest Period specified are unavailable, impractical or
unlawful, or that the rate based on the LIBOR Rate will not adequately
and fairly reflect the cost of the LIBOR Based Rate applicable to the
specified LIBOR Interest Period, of making or maintaining the principal
amount of the requested LIBOR Based Rate Loan specified by the Borrower
during the LIBOR Interest Period specified, or that by reason of
circumstances affecting Eurodollar markets, adequate and reasonable
means do not exist for ascertaining the rate based on the LIBOR Rate
applicable to the specified LIBOR Interest Period, Lender shall
promptly give notice of such determination to the Borrower that the
rate based on the LIBOR Rate is not available. A determination by
Lender hereunder shall be prima facie evidence of the correctness of
the fact and amount of such additional costs or unavailability. Upon
such a determination, (i) the right of Borrower to select, convert to,
or maintain a LIBOR Based Rate Loan at the rate based on the LIBOR Rate
shall be suspended until Lender shall have notified the Borrower that
such conditions shall have ceased to exist, and (ii) the Loans subject
to the requested LIBOR Rate Option shall accrue interest in accordance
with Section 2.4 (a) above.
(v) In the event that, as a result of any changes in applicable
law or regulation or the interpretation thereof, it becomes unlawful
for Lender to maintain Eurodollar liabilities sufficient to fund any
LIBOR Based Rate Loan subject to the LIBOR Based Rate, then Lender
shall immediately notify Borrower thereof and Lender's obligations to
make, convert to, or maintain a LIBOR Based Rate Loan at the LIBOR
Based Rate shall be suspended until such time as such Lender may again
cause the LIBOR Based Rate to be applicable. Promptly after becoming
aware that it is no longer unlawful for Lender to maintain such
Eurodollar
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liabilities, Lender shall notify Borrower thereof and such suspension
shall cease to exist.
(vi) Upon the occurrence and continuance of an Event of Default
and following written notice from Lender to Borrower, Lender may in its
sole discretion, eliminate the availability of LIBOR Based Rate Loans.
No portion of the LIBOR Base Rate Loans may be prepaid at any time
except if Borrower first satisfies in full its obligations under this
paragraph arising from such prepayment.
(vii) Borrower shall indemnify, defend and hold harmless Lender
against any and all loss, liability, cost or expense which Lender may
sustain or incur as a consequence of (a) any failure of Borrower to
obtain, convert or extend any LIBOR Based Rate Loan after notice
thereof has been given to Lender or (b) any payment, prepayment,
termination of conversion of a LIBOR Based Rate Loan made for any
reason on a date other than the last day of the applicable LIBOR
Interest Period, or (c) any foreign taxes or other foreign governmental
charges, levies or costs paid by Lender specifically resulting from any
LIBOR Based Rate Loans, but excluding Lender's normal operating costs.
Borrower shall pay the full amount thereof to Lender, on demand by
Lender.
"GOOD BUSINESS DAYS" shall mean any Business Day when banks in
New York, New York and London, England are open for business.
The Borrower agrees to pay the Lender a late charge fee equal
to four percent (4%) of any payment due to the Lender which is not
received before the expiration of ten (10) days after the payment is
due. It is further agreed that upon an Event of Default and at any
time thereafter, the Borrower shall pay interest to the Lender at the
variable rate set forth herein plus two (2) points until the
Obligations are paid in full.
2.5 COLLECTION OF RECEIVABLES. The Lender or its designee may notify
customers or account debtors at any time, after the occurrence of an
Event of Default, that Receivables have been assigned to the Lender or
of the Lender's security interest therein and collect them directly
and charge the collection costs and expenses to the Borrower's
account; but, unless and until the Lender does so or gives the
Borrower other instructions, the Borrower shall make collection of all
Receivables for the Lender, receive all payments thereon as the
Lender's trustee and immediately deliver them to the
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Lender in their original form. All such payments will be placed by the
Lender into a cash collateral account and, until credited to the
Borrower's account as hereinafter set forth, shall be held by the
Lender as collateral for payment and/or performance of the Borrower's
Obligations to the Lender. After allowing two (2) day(s) for
collection of checks and other instruments, the Lender will credit
(conditional upon final collection) all such payments, or those made
on account thereof, to the Borrower's account. Upon request of Lender,
Borrower will enter into a lock box agreement satisfactory to Lender
and will comply with all provisions thereof.
2.6 RETURNS, CREDITS, ETC. Any merchandise which is returned by a customer
or account debtor or otherwise recovered shall remain part of the
Lender's security. The Borrower shall notify the Lender promptly of
all returns and recoveries and, on request, deliver the merchandise to
the Lender. The Borrower shall also notify the Lender promptly of all
disputes and claims and settle or adjust them at no expense to the
Lender, but no discount, credit or allowance (other than in the
ordinary course of the Borrower's business) shall be granted to any
customer or account debtor, and no returns of merchandise (other than
in the ordinary course of the Borrower's business) shall be accepted
by the Borrower without the Lender's consent. The Lender may, at all
times, settle or adjust disputes and claims directly with customers or
account debtors for amounts and upon terms which the Lender considers
advisable, and in all cases the Lender will credit the Borrower's
account with only the net amounts received by the Lender in payment of
Receivables.
2.7 FURTHER ASSURANCE. Upon the Lender's request, the Borrower shall
perform all other steps requested by the Lender to create and maintain
in the Lender's favor a valid first priority security interest,
assignment or lien in, of or on all Receivables and all other security
held by or for the Lender.
2.8 POWER OF ATTORNEY. The Borrower appoints the Lender, or any person
whom the Lender may designate, as its attorney, with power: to endorse
the Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into the
Lender's possession; to sign the Borrower's name on any invoice or
bill of lading relating to any Receivables, on notices of assignment,
financing statements, and other public records, on verifications of
accounts and on notices to customers; to notify the post office
authorities to change the address for delivery of the Borrower's mail
to an address designated by the Lender; to send requests for
verification of Receivables to customers or account debtors; and to do
all things
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necessary to carry out this Loan Agreement. The Borrower ratifies and
approves all acts of the attorney. Neither the Lender nor the
attorney will be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable so long as any Receivables assigned to the
Lender or in which the Lender has a security interest remain unpaid or
until the Obligations have been fully satisfied. The Lender may file
one or more financing statements disclosing the Lender's security
interest without the Borrower's signature appearing thereon.
2.9 TERMINATION. The Loan Agreement shall terminate on June 30, 1998
(the "Termination Date") and may be renewed by the Lender, in its sole
and absolute discretion, only upon written notification by the Lender
to the Borrower, which notification will contain the terms and
conditions of the renewal. Notwithstanding the foregoing, shall either
the Lender or the Borrower become insolvent or go out of business, the
other party shall have the right to terminate the Loan Agreement at
any time without notice. Upon the Termination Date, all the
obligations, whether or not incurred under the Loan Agreement or any
Supplemental Agreement or otherwise, shall become immediately due and
payable without notice or demand. Notwithstanding termination, until
all the obligations to the Lender have been fully satisfied, the
Lender shall retain its security interests in all existing collateral
and that arising thereafter; the Borrower shall continue to assign
accounts receivables to the Lender and turn over all collections to
the Lender; and, except for those specific covenants and conditions
dealing with the making of advances, all terms and conditions of all
agreements between the Borrower and the Lender shall remain in full
force and effect.
2.10 ADDITIONAL PAYMENTS. If the Lender shall deem applicable to this Loan
Agreement (including the borrowed and the unused portion thereof) any
requirement of any law of the United States of America, any
regulation, order, interpretation, ruling, official directive or
guideline (whether or not having the force of law) of the Board of
Governors of the Federal Reserve System, the Comptroller of the
Currency, the Federal Deposit Insurance Corporation or any other board
or governmental or administrative agency of the United States of
America which shall impose, increase, modify or make applicable
thereto or cause to be included in, any reserve, special deposit,
calculation used in the computation of regulatory capital standards,
assessment or other requirement which imposes on the Lender any cost
that is attributable to the maintenance thereof, then, and in each
such event, the Borrower shall promptly pay the Lender, upon its
demand, such amount as will compensate the Lender for any such cost,
which
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determination may be based upon the Lender's reasonable allocation of
the aggregate of such costs resulting from such events. In the event
any such cost is a continuing cost, a fee payable to the Lender may be
imposed upon the Borrower periodically for so long as any such cost is
deemed applicable to the Lender, in an amount determined by the
Lender to be necessary to compensate the Lender for any such cost. The
determination by the Lender of the existence and amount of any such
cost shall, in the absence of manifest error, be conclusive.
SECTION 3. COLLATERAL.
3.1 SECURITY INTEREST. As security for payment and performance of the
Obligations, the Borrower hereby assigns and grants to the Lender a
continuing security interest in the Collateral. The Lender shall
retain its security interest in all Collateral, eligible and
ineligible, until all Obligations have been fully satisfied.
3.2 POSSESSION OF COLLATERAL. Upon an Event of Default and at any time
thereafter, the Lender will have the right: (a) to take physical
possession of the Collateral and to maintain such possession on the
Borrower's premises; and/or (b) to remove the Collateral or any part
thereof to such other places as the Lender may desire; and/or (c)
without removal, to render the Equipment unusable and to dispose of
the Collateral on the Borrower's premises. Upon an Event of Default
and at any time thereafter, the Borrower shall, upon the Lender's
demand, assemble the Collateral and make it available to the Lender at
a place reasonably convenient to the Lender.
3.3 LOCATION OF COLLATERAL. The Collateral is and will be owned by the
Borrower, free of all other liens and encumbrances (except as set
forth in EXHIBIT "A" annexed hereto), and shall be kept by the
Borrower at those locations listed in EXHIBIT "A" annexed hereto and
the Borrower will not (without the Lender's prior written approval)
remove the Collateral therefrom, except for the purposes of sale in
the regular course of business.
3.4 LIMITATION ON DISPOSITION OF COLLATERAL. The Borrower will not sell,
exchange or otherwise dispose of the Collateral, other than finished
goods Inventory in the ordinary course of business, or any part
thereof, or any interest therein without the express written
authorization of the Lender; in the event of the sale, exchange or
other disposition of the Collateral or any part thereof or any
interest therein (and no such sale, exchange or other disposition is
hereby otherwise authorized or consented to), the security interest of
the Lender shall nevertheless continue in said Collateral
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(including all proceeds, cash and non-cash) notwithstanding said sale,
exchange or other disposition; all of said proceeds shall remain
Collateral hereunder and shall be transferred and paid over to the
Lender immediately following said sale, exchange or other disposition,
and shall be applied at the option of the Lender to the payment of the
Obligations; and the receipt by the Lender of all or any of said
proceeds shall not be deemed or construed to be an authorization or
consent of the Lender to such sale, exchange or other disposition of
said Collateral.
3.5 FURTHER ASSURANCES RE INVENTORY. The Borrower shall perform any and
all steps requested by the Lender to perfect the Lender's security
interest in the Inventory, such as leasing warehouses to the Lender or
the Lender's designee, placing and maintaining signs, appointing
custodians, executing and filing financing or continuation statements
in form and substance satisfactory to the Lender, maintaining stock
records and transferring Inventory to warehouses. If any Inventory is
in the possession or control of any of the Borrower's agents or
processors, the Borrower shall notify such agents or processors of the
Lender's security interest therein, and, upon request, instruct them
to hold all such Inventory for the Lender's account and subject to the
Lender's instructions. A physical listing of all Inventory, wherever
located, shall be taken by the Borrower at least annually and whenever
requested by the Lender, and a copy of each such physical listing
shall be supplied to the Lender. The Lender may examine and inspect
the Inventory at any time.
3.6 COMPLIANCE. The Borrower has complied with and will continue to comply
with all applicable statutes and regulations of the United States of
America, and all states, counties, municipalities and agencies of any
thereof with respect to:
a. Any restrictions, specifications or other
requirements pertaining to products which the Borrower manufactures
and sells, or to the services it performs;
b. The conduct of its business operations;
c. The use, maintenance and operation of the real and
personal properties owned or leased by it in the operation of its
business; and
d. The issued and outstanding capital stock of the
Borrower and the disclosure of material facts and information to
stockholders.
The Borrower shall indemnify the Lender and hold the Lender harmless
from and against all loss, liability, damage and expense, including
attorney's fees, suffered or incurred by
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the Lender, with respect to any discharge, spillage, uncontrolled
loss, seepage or filtration of oil or petroleum or chemical, liquids
or solid, liquid or gaseous products or hazardous waste which, if
contained or removed or mitigated would give rights to a lien
affecting any real or personal property owned or leased by the
Borrower, including any loss of value of any such property as a result
of such spill; and with respect to any other matter affecting the real
or personal property owned or leased by the Borrower and governed by
the provisions of the Act or related regulations or any similar
applicable federal or state laws or regulations.
3.7 DISCHARGE OF LIENS. The Lender may, at its option, discharge any
taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral, and the Lender may pay insurance
premiums or procure insurance and otherwise pay for the maintenance
and preservation of the Collateral and the Borrower will reimburse the
Lender on demand for any payment made or expense incurred by the
Lender pursuant to the foregoing authority, with interest at the
highest rate provided in this Loan Agreement.
3.8 CORPORATE EXISTENCE, PROPERTIES, INSURANCE. The Borrower will at all
times maintain, preserve and protect all franchises, patents, and trade
names and preserve all the remainder of its property used or useful in
the conduct of its business and keep the same in good condition and
repair (normal wear and tear and obsolescence excepted), and from time
to time make, or cause to be made, all needful and proper repairs,
renewals, replacements, betterments and improvements thereto, and will
pay or cause to be paid, except when the same may be contested in good
faith, all rent due on premises where any property is held or may be
held, so that the business carried on in connection therewith may be
continuously conducted. The Borrower will have and maintain insurance
at all times with respect to all Collateral against risks of fire
(including so-called extended coverage), theft and such risks as the
Lender may require containing such terms, in such form, and for such
periods, and written by such companies as may be satisfactory to the
Lender, such insurance to be payable to the Lender and the Borrower as
their interests may appear; each policy of liability insurance shall
name the Lender as an additional insured; each policy of property
casualty and business interruption insurance shall have a loss payee
endorsement providing:
a. That loss or damage, if any under the policy, shall be payable
to the Lender, as mortgagee and/or secured party, as its
interests may appear;
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b. That the insurance as to the interest of the Lender shall not
be invalidated by any act or neglect of the insured or owner
of the property described in said policy, nor by any
foreclosure, or other proceeding, nor by any change in the
title of ownership of said property, nor by the occupation of
the premises where the property is located for purposes more
hazardous than are permitted by said policy;
c. That, if the policy is cancelled at any time by the insurance
carrier, in such case the policy shall continue in force for
the benefit of the Lender for not less than thirty (30) days
after written notice of cancellation to the Lender from the
insurance carrier; and
d. That the policy will not be reduced, or cancelled at the
request of the insured nor will said loss payee endorsement be
amended or deleted without thirty (30) days' prior written
notice to the Lender from the insurance carrier.
The Borrower will furnish the Lender with certificates or other
evidence satisfactory to the Lender of compliance with the foregoing
insurance provisions, and the Lender may act as attorney for the
Borrower in obtaining, adjusting and settling, such insurance and
receiving and endorsing any drafts. The Borrower hereby assigns to the
Lender any and all monies which may become due and payable under any
policies of property casualty insurance insuring the Collateral and
business interruption insurance, including return of unearned
premiums, and hereby directs any insurance company issuing any such
policy to make payment directly to the Lender and authorizes the
Lender, at its option: (i) to apply such monies in payment on account
of any of the Obligations, whether or not due, and remit any surplus
to the Borrower; or (ii) to return said funds to the Borrower for the
purpose of replacement of the Collateral. The Borrower will also at
all times maintain necessary workmen's compensation insurance and such
other insurance as may be required by law or as may be reasonably
required by the Lender.
SECTION 4. MISCELLANEOUS WARRANTIES, REPRESENTATIONS AND COVENANTS.
4.1 AFFIRMATIVE COVENANTS. The Borrower warrants and represents to and
covenants with the Lender that:
a. The Borrower is and shall at all times hereafter be a
corporation duly organized and existing in good standing under
the laws of the state of its incorporation and qualified and
licensed to do business
17
<PAGE> 18
in any other state in which it is required to be so qualified
and/or licensed;
b. The Borrower has the right and power and is duly authorized to
enter into this Loan Agreement and the Supplemental Agreements
executed concurrently with this Loan Agreement;
c. The execution by the Borrower of this Loan Agreement and the
Supplemental Agreements shall not constitute a breach of any
provision contained in the Borrower's Certificate of
Incorporation or By-Laws or contained in any agreement to
which the Borrower is now a party;
d. The performance by the Borrower of all of the terms and
provisions contained in this Loan Agreement and in the
Supplemental Agreements executed concurrently with this Loan
Agreement shall not constitute an event of default under any
agreement to which the Borrower is now or hereafter a party;
e. The Borrower has good and, to the best of knowledge of
Borrower, indefeasible title to the Collateral;
f. All financial statements and information relating to Borrower
which have been or may hereafter be delivered by the Borrower
to the Lender are true and correct and have been and will be
prepared in accordance with generally accepted accounting
principles, and there has been no material adverse change in
the financial condition of the Borrower since the submission
of any such financial information to the Lender;
g. There are no actions or proceedings which are pending or, to
the best of knowledge of Borrower, threatened against the
Borrower which might result in any material adverse change in
the Borrower's financial condition or which might in any way
affect any of the assets of the Borrower;
h. The Borrower has duly filed all federal, state and other
governmental tax returns which it is required by law to file,
and that all taxes and other sums which may be due to the
United States, any state or other governmental authority have
been fully paid and that the Borrower now has and shall
hereafter maintain reserves adequate in amount to fully pay
all such tax liabilities which may hereafter accrue;
i. The Borrower at all times hereafter shall: maintain a standard
and modern system of accounting in accordance with generally
accepted accounting principles; permit
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<PAGE> 19
the Lender or any of its employees, officers or agents, upon
demand during the Borrower's usual business hours, to have
access to and to examine all of the Borrower's books and
records, and in connection therewith, permit the Lender or any
such employees, officers or agents to copy and make abstracts
therefrom; deliver to the Lender (1) within ninety (90) days
after the end of each of the Borrower's fiscal years, a
balance sheet and a profit and loss statement covering the
Borrower's operations for such fiscal year audited and
certified by an independent certified public accountant
satisfactory to the Lender, (2) within forty-five (45) days
after the end of each of the Borrower's fiscal quarters, a
balance sheet and a profit and loss statement covering the
Borrower's operations for such fiscal quarter, which financial
information may be internally prepared, and may be unaudited,
and (3) upon request, the later of ten (10) days after written
request or forty-five (45) days after the end of each month, a
balance sheet and a profit and loss statement covering the
Borrower's operations for that month, which may be internally
prepared; and within twenty (20) days after written demand by
the Lender, deliver to the Lender copies of any interim
financial report or statement prepared by or for the Borrower,
any other report requested by the Lender relating to the
Collateral and the financial condition of the Borrower. Each
financial report shall be accompanied by a certificate signed
by an authorized officer of the Borrower to the effect that
all reports, statements or documents delivered or caused to be
delivered to the Lender under this subparagraph are complete,
correct and fairly present the financial condition of the
Borrower and that there exists on the date of delivery of said
certificate to the Lender no condition or event which
constitutes an Event of Default and that no events have
occurred which, after notice by the Lender or lapse of time or
both, would constitute an Event of Default. Said certificate
shall contain the calculation of information required by all
financial covenants contained in this Loan Agreement;
j. The Borrower shall promptly supply the Lender with such other
information concerning its affairs as the Lender may
reasonably request from time to time hereafter, and shall
promptly notify the Lender of any material adverse change in
the Borrower's financial or operating condition and of any
condition or event which constitutes an Event of Default;
k. INTENTIONALLY DELETED
19
<PAGE> 20
l. The Borrower is now and shall be at all times hereafter
solvent.
m. The Borrower shall furnish daily Borrowing Base Certificates.
4.2 NEGATIVE COVENANTS. The Borrower warrants and represents to and
covenants with the Lender that the Borrower shall not:
a. Grant a security interest or a mortgage in or permit a lien,
claim or encumbrance upon any of its assets to any person,
association, firm, corporation (except to the Lender), entity
or governmental agency or instrumentality, provided, however,
that, so long as Borrower is not otherwise in default, nothing
herein shall prohibit Marion Tool Corporation from granting a
first mortgage on certain otherwise unencumbered real estate
in Marion, Ohio, so long as it has obtained prior written
consent of Lender;
b. Permit any levy, attachment or restraint to be made affecting
any of its assets;
c. Permit any receiver, trustee or assignee for the benefit of
creditors to be appointed to take possession of any or all of
its assets;
d. Sell, lease or otherwise dispose of or transfer any of its
assets, other than in the ordinary course of its business;
e. Without prior written consent of Lender, merge or consolidate
with any other corporation;
f. Without prior written consent of Lender, acquire any other
corporation;
g. Enter into any transaction not in the ordinary course of its
business;
h. Make any investment in the securities of any person,
association, firm, entity or corporation other than the
securities of the United States of America;
i. Guarantee or otherwise become in any way liable with respect
to the obligations of any person, association, firm entity or
corporation (other than guarantees to Lender) except by
endorsement of instruments or items of payment for deposit to
the general account of the Borrower or which are transmitted
or turned over to the Lender on account of the Borrower's
Obligations;
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<PAGE> 21
j. Without prior written consent of Lender, pay or declare any
dividends upon the Borrower's capital stock;
k. Except for (1) repurchase of $175,000 per annum of the shares
of Susan Gould over a ten year period (so long as no Event of
Default has occurred prior to said purchase or would occur
subsequent thereto), and (2) repurchase of $65,000 of
preferred stock from T.M. Enterprises (so long as no Event of
Default has occurred prior to said purchase or would occur
subsequent thereto), redeem, retire, purchase or otherwise
acquire directly or indirectly any of the Borrower's capital
stock;
l. Make any distribution of the Borrower's property or assets;
m. Make any change in the Borrower's capital structure or in any
of its business objectives, purposes and operations which
might in any way adversely affect the ability of the Borrower
to repay the Borrower's Obligations;
n. Incur any debts outside of the ordinary course of the
Borrower's business except renewals or extensions of existing
debts and interest thereon;
o. Make any loan, advance, contribution or payment of money or
goods to any subsidiary, affiliated or parent corporation or
other person or entity which is not a Borrower or Guarantor
under this Agreement, or to any officer, director or
stockholder thereof (except compensation for personal services
rendered) without prior written consent of Lender; or
p. Change its corporate name or conduct its business under any
trade name or style other than as disclosed in EXHIBIT "A" or
change its chief executive office, place of business or the
present location of the business assets or records relating
thereto from those addresses disclosed in EXHIBIT "A".
4.3 FURTHER COVENANTS. See EXHIBIT "A" annexed hereto and made a part
hereof.
4.4 WAIVER OF RIGHT TO PREJUDGMENT REMEDY NOTICE AND HEARING. The Borrower
acknowledges its understanding that the Lender may have rights against
the Borrower, now or in the future, in its capacity as secured party,
creditor, or in any other capacities. Such rights may include the
right to deprive the Borrower of or affect the use of or possession or
enjoyment of the Borrower's property; and in the event the Lender
deems
21
<PAGE> 22
it necessary to exercise any of such rights prior to the rendition of
a final judgment against the Borrower, or otherwise, the Borrower may
be entitled to notice and/or hearing under the Constitution of the
United States and/or State of Connecticut, Connecticut statutes (to
determine whether or not the Lender has a probable cause to sustain
the validity of the Lender's claim), or the right to notice and/or
hearing under other applicable state or federal laws pertaining to
prejudgment remedies, prior to the exercise by the Lender of any such
rights. The Borrower expressly waives any such right to prejudgment
remedy notice or hearing to which the Borrower may be entitled;
provided, however, that this waiver shall not include a waiver of such
rights as the Borrower shall have to prior notice of the proposed
disposition of Collateral by the Lender. Specifically and without
limiting the generality of the foregoing, the Borrower recognizes that
the Lender has and shall continue to have an absolute right to effect
collection of any of the Receivables or Collateral with respect to
which the Lender holds a security interest without the necessity of
according to the Borrower any prior notice or hearing. This shall be a
continuing waiver and remain in full force and effect so long as the
Borrower is obligated to the Lender.
4.5 WAIVER OF RIGHT TO TRIAL BY JURY AND CONSENT TO JURISDICTION.
The Borrower hereby waives the right to trial by jury in any action or
proceeding of any kind or nature in any court in which an action may
be commenced arising out of this Loan Agreement, the Supplemental
Agreements or any assignment thereof or by reason of any other cause
or dispute between the Borrower and the Lender.
The Borrower hereby further agrees that the following courts:
State Court - Any state or local court of the State of Connecticut
Federal Court - United States District Court for the District of
Connecticut
or at the option of the Lender, any court in which the Lender shall
initiate legal or equitable proceedings and which has subject matter
jurisdiction over the matter in controversy, shall have exclusive
jurisdiction to hear and determine any claims or disputes between the
Borrower and the Lender pertaining directly or indirectly to this Loan
Agreement or to any matter arising in connection with this Loan
Agreement. The Borrower expressly submits and consents in advance to
such jurisdiction in any action or proceeding commenced in such
courts, hereby waiving personal service of the summons and complaint,
or other process or papers issued therein, and
22
<PAGE> 23
agreeing that service of such summons and complaint, or other process
or papers, may be made by registered or certified mail addressed to
the Borrower at the address set forth herein. Should the Borrower fail
to appear or answer any summons, complaint, process or papers so
served within thirty (30) days after the mailing thereof, it shall be
deemed in default and an order and/or judgment may be entered against
it as demanded or prayed for in such summons, complaint, process or
papers. The exclusive choice of forum set forth herein shall not be
deemed to preclude the enforcement of any judgement obtained in such
forum or the taking of any action under this Loan Agreement to enforce
the same in any appropriate jurisdiction.
4.6 SETOFF. All sums at any time standing to the Borrower's credit on the
Lender's books and all of the Borrower's property at any time in the
Lender's possession, or upon or in which the Lender has a lien or
security interest shall be security for all Obligations. In addition
to and not in limitation of the above, with respect to any deposits or
property of the Borrower in the Lender's bank, or in the Lender's
possession or control, now or in the future, the Lender shall have the
right to setoff all or any portion thereof, at any time, against any
Obligations hereunder, even though unmatured, without prior notice or
demand to the Borrower.
4.7 TAXES. Upon request of the Lender, the Borrower will furnish the
Lender with proof satisfactory to the Lender of the payment or deposit
of F.I.C.A. and withholding taxes required of the Borrower by
applicable law. Such proof shall be furnished within five (5) days
after the due date established by law for each such payment or
deposit. Should the Borrower fail to make any such payment or deposit
or furnish such proof, the Lender may, in the Lender's sole and
absolute discretion, and without notice to the Borrower: (a) make
payment of the same or any part thereof; or (b) set up such reserves
in the Borrower's account as the Lender may deem necessary to satisfy
the liability therefor. Each amount so deposited or paid by the Lender
shall constitute an advance and shall be secured by all Collateral
held by the Lender. Nothing herein contained shall obligate the Lender
to make such deposit or payment or set up such reserve, nor shall the
making of one or more such deposits or payments or the setting up of
any such reserve constitute: (i) an agreement on the Lender's part to
take any further or similar action; or (ii) a waiver of any default by
the Borrower under the terms hereof or of any other agreements between
the Borrower and the Lender. Upon the expiration or termination of
this Loan Agreement or transactions hereunder, the Lender shall retain
its security interest in all Collateral held by the Lender until the
Borrower shall have paid or discharged all
23
<PAGE> 24
such F.I.C.A. and tax obligations accrued to the date of such
expiration or termination, or shall have supplied the Lender with
evidence satisfactory to the Lender that due provisions have been made
therefor. In addition, the Borrower shall pay any and all stamp and
other taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing and recording of any document
evidencing the Obligations or any document to be delivered in
connection with the Obligations, and agrees to save the Lender
harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and
fees.
SECTION 5. DEFAULT.
5.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events or conditions shall constitute an "EVENT OF DEFAULT" under this
Loan Agreement:
a. Failure to make any payment of principal or interest or any
other sums when due on any of the Obligations.
b. Any warranty or representation or other statement made or
furnished to the Lender by or on behalf of the Borrower herein
or in any document or instrument furnished in connection
herewith proves to have been false or misleading in any
material respect when made or furnished.
c. Breach of or failure in the due observance or performance of
any covenant, condition or agreement on the part of the
Borrower to be observed or performed pursuant to SECTION "4.2"
hereof.
d. Breach of or failure in the due observance or performance of
any covenant, condition or agreement on the part of the
Borrower to be observed or performed pursuant to this Loan
Agreement (other than those to be observed or performed
pursuant to SECTION "4.2" hereof and other than those
specifically listed in this SECTION 5.1), and the failure to
cure (if curable) any such breach or failure within ten (10)
days after receipt of written notice thereof from the Lender
to the Borrower.
e. Breach of or failure in the due observance or performance of
any covenant, condition or agreement on the part of the
Borrower or any Guarantor to be observed or performed pursuant
to any Supplemental Agreement.
f. The occurrence of any material adverse change in the
24
<PAGE> 25
financial and/or operating condition of the Borrower or
Guarantor.
g. Death or incapacity of any Guarantor, or default by any
Guarantor under any agreements between Guarantor and the
Lender, or the termination of any such Guaranty.
h. Dissolution, termination of existence, insolvency, appointment
of a receiver, trustee, custodian or similar fiduciary,
assignment for the benefit of creditors or the commencement of
any proceedings under any bankruptcy and insolvency laws by or
against the Borrower or any Guarantor, or the making by the
Borrower or any Guarantor of any offer of settlement,
extension or composition to their respective unsecured
creditors generally.
i. The issuance, filing or levy against the Borrower or any
Guarantor of an attachment, injunction, execution, tax lien or
judgment for the payment of money.
j. In the event of any change in the voting control of the
Borrower. For purposes of this Loan Agreement, "VOTING
CONTROL" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management
and policies of the Borrower, whether through the ownership of
voting securities, by contract or otherwise.
k. Default in the payment of any sum due under any indebtedness
for borrowed money owed by the Borrower or any Guarantor to
any person, firm or corporation or any other default under
such indebtedness which results in such indebtedness being due
prior to its stated maturity.
l. The loss, revocation or failure to renew any license and/or
permit now held or hereafter acquired by the Borrower which is
necessary for the continued operation of the Borrower's
business.
m. In the event the Lender, in good faith, believes that the
prospect of payment or performance by the Borrower is
impaired.
Nothing in this Loan Agreement shall be construed to modify or limit
the unconditional right of the Lender in its sole discretion to demand
full or partial payment of the principal of, and interest on, any
demand Obligation. The right to make demand on any such Obligation
shall exist whether or not the Borrower is in compliance with the
covenants or
25
<PAGE> 26
conditions contained in this Loan Agreement or in any other agreements
between the Borrower and the Lender.
5.2 RIGHTS OF THE LENDER. In the event demand for payment is made of any
demand Obligation or upon an Event of Default and at any time
thereafter, all the Obligations shall, at the Lender's option,
immediately become due and payable without presentment, protest,
notice of protest or other notice of dishonor of any kind, all of
which are hereby expressly waived by the Borrower; and the Lender
shall have, in addition to all other rights provided herein and in any
Supplemental Agreement, the rights and remedies of a secured party
under the Uniform Commercial Code; and, further, the Lender may sell
and deliver any or all Receivables and any or all other security and
Collateral held by the Lender or for the Lender at public or private
sale, for cash, upon credit or otherwise, at such prices and upon such
terms as the Lender deems advisable, at the Lender's sole discretion.
In addition to all other sums due the Lender, the Borrower will pay to
the Lender all costs and expenses incurred by the Lender, including an
allowance for attorneys' fees, to obtain or enforce payment of
Receivables or Obligations, or in the prosecution or defense of any
action or proceeding either against the Lender or against the Borrower
concerning any matter arising out of or connected with this Loan
Agreement and all Supplemental Agreements. Any requirement of
reasonable notice shall be met if such notice is mailed postage
prepaid to the Borrower at the Borrower's address as set forth herein
at least five (5) days before the time of sale or other disposition.
The Lender may be the purchaser at any such sale, if it is public,
and, in the event the Lender is the purchaser, the Lender shall have
all the rights of a good faith, bona fide purchaser for value from a
secured party after default. The proceeds of sale shall be applied
first to all costs and expenses of sale, including attorneys' fees,
and second to the payment (in whatever order the Lender elects) of all
Obligations, and any remaining proceeds shall be applied in accordance
with the provisions of Part 5 of Article 9 of the Uniform Commercial
Code. The Borrower shall remain liable to the Lender for any
deficiency. Failure by the Lender to exercise any right, remedy or
option under this Loan Agreement or any present or future Supplemental
Agreement or in any other agreement between the Borrower and the
Lender, or delay by the Lender in exercising the same will not operate
as a waiver; no waiver by the Lender will be effective unless it is in
writing and then only to the extent specifically stated. The Lender's
rights and remedies under this Loan Agreement will be cumulative and
not exclusive of any other right or remedy which the Lender may have.
26
<PAGE> 27
SECTION 6. MISCELLANEOUS.
6.1 COUNSEL FEES AND EXPENSES. The Borrower agrees to pay all reasonable
counsel fees and expenses, including recording and filing fees,
incurred by the Lender in connection with the financing being
concluded this day as well as any reasonable counsel fees, consultant
fees, audit fees (subject to the provisions of Exhibit A) and expenses
of any kind and character hereafter incurred by the Lender, whether in
connection with efforts to collect the Obligations, or in the
enforcement or defense of any of the provisions of this Loan
Agreement; or negotiations regarding and consultation concerning this
Loan Agreement or any Supplemental Agreement, or preparation therefor,
or the financing extended thereunder; or the defense of any
proceedings involving any claims made or threatened against or arising
out of this Loan Agreement or any Supplemental Agreement, or the
financing extended thereunder, or which the Lender may hereafter incur
in protecting, enforcing, increasing or releasing any security held by
the Lender or any Obligation or any provision of this Loan Agreement
or any Supplemental Agreement, or the financing extended thereunder,
or otherwise. The Borrower's obligation to pay such counsel fees and
expenses of the Lender shall exist whether or not proceedings are
instituted or legal appearances made in any court of competent
jurisdiction on behalf of the Lender. The Borrower specifically
authorizes the Lender to pay all such fees and expenses and charge the
same to the Borrower's loan account.
6.2 LENDER ADVANCES. The Lender may, in its sole and absolute discretion
and without notice or demand, pay any amount which the Borrower has
failed to pay or perform any act which the Borrower has failed to
perform under this Loan Agreement (including, without limitation, (1)
the payment of taxes and assessments required under SECTION 4.7
hereof; (2) the cost of discharging any liens or encumbrances under
SECTION 3.8 hereof; and (3) the payment of insurance premiums and/or
the furnishing of insurance required under SECTION 3.7 hereof). In
such event the costs, disbursements, expenses and reasonable counsel
fees thereof, together with interest thereon from the date the expense
is paid or incurred, at the highest interest rate allowed under this
Loan Agreement shall be (i) added to the Obligation, (ii) payable on
demand to the Lender and (iii) secured by the Collateral. Nothing
herein contained shall obligate the Lender to make such payments nor
shall the making of one or more such payments constitute; (i) an
agreement on the Lender's part to take any further or similar action;
or (ii) a waiver of any Event of Default under this Loan Agreement.
6.3 FURTHER ASSURANCE. The Borrower agrees that any time, or from time to
time, upon the written request of the Lender,
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<PAGE> 28
the Borrower will execute and deliver such further documents and do
such other acts and things as the Lender may reasonably request in
order to fully effect the purposes of this Loan Agreement and the
Supplemental Agreements.
6.4 NOTICES. Any written notice required or permitted by this Loan
Agreement shall be delivered by depositing it (registered or certified
mail, return receipt requested) in the U.S. mail, postage prepaid, or
by telegraph, charges prepaid, addressed to the Borrower or to the
Lender at the address set forth on page "1" hereof. The date of
receipt of any notice shall be deemed to be, and shall be effective
from, the earlier of (1) the date of the actual receipt of such
notice, or (2) three (3) days after the same is deposited in the
United States mail as provided above, whether or not the same is
actually received by such party. Any party hereto shall have the right
to change the place to which any such notice shall be sent by a
similar notice sent in like manner to all parties hereto.
6.5 CONSTRUCTION. This Loan Agreement and the Supplemental Agreements may
not be amended orally.
6.6 SUCCESSORS. All rights of the Lender hereunder shall inure to the
benefit of its successors and assigns, and all obligations of the
Borrower shall bind the successors and assigns of the Borrower.
6.7 JOINT AND SEVERAL OBLIGATIONS. If the Borrower consists of more than
one party, all of the obligations, covenants, representations and
warranties of the Borrower contained in this Loan Agreement shall be
the joint and several obligations of the parties constituting the
"Borrower".
6.8 DURATION OF LIEN. All the collateral described in this Loan Agreement
shall remain collateral as security for the performance of all the
Obligations of the Borrower under this Loan Agreement until all monies
required to be paid under this Loan Agreement have been paid in full
and all obligations on the part of the Borrower to be paid, kept and
performed under this Loan Agreement have been paid, kept and
performed.
6.9 PAYMENTS. The acceptance of any check, draft or money order tendered in
full or partial payment of any Obligation hereunder is conditioned
upon and subject to the receipt of final payment in cash.
6.10 EXHIBITS. All exhibits referred to herein and annexed hereto are
hereby incorporated into this Loan Agreement and made a part hereof.
28
<PAGE> 29
6.11 OTHER TERMS AND CONDITIONS. See EXHIBIT "A" annexed hereto and made
a part hereof.
6.12 GOVERNING LAW. This Loan Agreement and the rights and obligations of the
parties hereunder and under the Supplemental Agreements shall be
construed in accordance with and be governed by the laws of the State of
Connecticut, including its conflict of laws principles.
6.13 SEVERABILITY. If any provision of this Loan Agreement or application
thereof to any person or circumstance shall to any extent be invalid, the
remainder of this Loan Agreement or the application of such provision to
persons, entities, or circumstances other than those as to which it is
held invalid, shall not be affected thereby and each provision of this
Loan Agreement shall be valid and enforceable to the fullest extent
permitted by law.
6.14 PRIOR AGREEMENTS. It is understood and agreed that this Loan Agreement is
supplemental to and in addition to, and not in substitution for, such
security agreements and other agreements as may exist between the Lender
and the Borrower. The Lender specifically reserves all rights to such
priority of liens and security interests as it may have under any other
security agreements or financing statements filed in connection
therewith. In the event of any conflict between the terms of this Loan
Agreement and said other agreements, this Loan Agreement shall govern.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
duly executed and delivered by the proper and duly authorized officers as of the
date and year first above written.
WITNESS: BORROWER:
/s/ [ILLEGIBLE] Q.E.P. Co., INC.
- ------------------------------
/s/ [ILLEGIBLE] BY /s/ [ILLEGIBLE]
- ------------------------------ ------------------------------
Its
Duly Authorized President
/s/ [ILLEGIBLE]
- ------------------------------ Q.E.P. O'TOOL, INC.
/s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
- ------------------------------ ------------------------------
Its
Duly Authorized President
29
<PAGE> 30
ROBERT DODA AMERICAN TROWEL AND FLOAT
- --------------------------------- COMPANY, INC.
MARY ROWLEY BY LEWIS GOULD
- --------------------------------- -----------------------------
Its
Duly Authorized President
ROBERT DODA MARION TOOL CORPORATION
- ---------------------------------
MARY ROWLEY BY LEWIS GOULD
- --------------------------------- -----------------------------
Its
Duly Authorized Chairman
ROBERT DODA Q.E.P. ANDREWS
- ---------------------------------
MARY ROWLEY BY LEWIS GOULD
- --------------------------------- -----------------------------
Its
Duly Authorized Chairman
ROBERT DODA WESTPOINT FOUNDRY, INC.
- ---------------------------------
MARY ROWLEY BY LEWIS GOULD
- --------------------------------- -----------------------------
Its
Duly Authorized Chairman
LENDER:
[ILLEGIBLE] SHAWMUT BANK CONNECTICUT, N.A.
- ---------------------------------
[ILLEGIBLE] BY ROBERT J. SANTIMAYS
- --------------------------------- -----------------------------
Robert J. Santimays
Its Vice President
Duly Authorized
30
<PAGE> 31
STATE OF FLORIDA )
) SS.:
COUNTY OF PALM BEACH )
The foregoing instrument was acknowledged before me this 13th day of
October, 1995, by the
of Q.E.P. Co., Inc., a New York corporation, on behalf of the corporation.
JUDITH F. DAVIDOFF JUDITH F. DAVIDOFF
My Commission CC443748 ----------------------------
[SEAL] Expires Mar. 07, 1999 Commissioner of the Superior Court
Bonded by HAI Notary Public
800-422-1555 My Commission Expires: 3-7-99
STATE OF FLORIDA )
) SS.:
COUNTY OF PALM BEACH )
The foregoing instrument was acknowledged before me this 13th day of
October by the
of Q.E.P. -- O'Tool, Inc., a California corporation, on behalf of the
corporation.
JUDITH F. DAVIDOFF
----------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: 3-7-99
JUDITH F. DAVIDOFF
My Commission CC443748
[SEAL] Expires Mar. 07, 1999
Bonded by HAI
800-422-1555
31
<PAGE> 32
STATE OF FLORIDA )
) SS.:
COUNTY OF PALM BEACH )
The foregoing instrument was acknowledged before me this 13th day of
October, 1995, by the
of American Trowel and Float Company, a Florida corporation, on behalf of the
corporation.
JUDITH F. DAVIDOFF JUDITH F. DAVIDOFF
My Commission CC443748 ----------------------------
[SEAL] Expires Mar. 07, 1999 Commissioner of the Superior Court
Bonded by HAI Notary Public
800-422-1555 My Commission Expires: 3-7-99
STATE OF FLORIDA )
) SS.:
COUNTY OF PALM BEACH )
The foregoing instrument was acknowledged before me this 13th day of
October, 1995, by the
of Marion Tool Corporation, an Indiana corporation, on behalf of the
corporation.
JUDITH F. DAVIDOFF JUDITH F. DAVIDOFF
My Commission CC443748 ----------------------------
[SEAL] Expires Mar. 07, 1999 Commissioner of the Superior Court
Bonded by HAI Notary Public
800-422-1555 My Commission Expires: 3-7-99
STATE OF FLORIDA )
) SS.:
COUNTY OF PALM BEACH )
The foregoing instrument was acknowledged before me this 13th day of
October, 1995, by the
of Q.E.P. Andrews, Inc., a Nevada corporation, on behalf of the corporation.
JUDITH F. DAVIDOFF JUDITH F. DAVIDOFF
My Commission CC443748 ----------------------------
[SEAL] Expires Mar. 07, 1999 Commissioner of the Superior Court
Bonded by HAI Notary Public
800-422-1555 My Commission Expires: 3-7-99
32
<PAGE> 33
STATE OF CONNECTICUT )
) ss.: Bridgeport
COUNTY OF FAIRFIELD )
The foregoing instrument was acknowledged before me this 13th day of
October, 1995, by Robert J. Santimays, Vice President of SHAWMUT BANK
CONNECTICUT, N.A., a national banking association, on behalf of the association.
/s/ PATRICIA WAIKSNIS
---------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: 1/31/97
PATRICIA WAIKSNIS
NOTARY PUBLIC
MY COMMISSION EXPIRES JAN. 31, 1997
33
<PAGE> 34
EXHIBIT "A"
TO REVOLVING LOAN AND SECURITY AGREEMENT
OTHER TERMS AND CONDITIONS
1. USE OF PROCEEDS. The proceeds of the Revolving Loan shall be used by
the Borrower for its working capital needs.
2. GUARANTOR(S). The payment and performance of the Obligations shall be
unconditionally guaranteed by Q.E.P. CO., INC., Q.E.P. - O'TOOL, INC.,
AMERICAN TROWEL AND FLOAT COMPANY, INC., MARION TOOL CORPORATION,
WESTPOINT FOUNDRY, INC. AND Q.E.P. ANDREWS, INC. in substantially the
form of EXHIBIT "C" annexed hereto, and by Lewis Gould (Limited
Guaranty) in substantially the form of EXHIBIT "D" annexed hereto.
3. LENDER'S AUDIT FEE. The Borrower agrees to pay to the Lender, upon
demand, an audit fee (the "AUDIT FEE") of up to FIFTEEN HUNDRED DOLLARS
($1500) per annum. In addition to the Audit Fee, the Borrower shall
reimburse the Lender, upon demand, for any reasonable travel expenses
incurred by the Lender in connection with such audit. Upon the
occurrence of an Event of Default, there shall be no limitation upon
reimbursable Audit Fees.
4. LIENS AND ENCUMBRANCES. The Collateral may be subject to the following
liens and encumbrances:
a.
b.
NOTE: As to the interests listed above, the listing thereof in this
Loan Agreement shall not, in any manner whatsoever, be deemed to be an
acknowledgement by the Lender as to the perfection, priority, validity
or enforceability thereof.
5. LOCATION OF COLLATERAL. The Collateral shall be held at the following
locations:
a.
b.
The Borrower shall immediately furnish written notification to the
Lender of any change or addition of location of any place of the
Borrower's business or location at which any assets of the Borrower are
located or stored.
6. TRADE NAMES. The Borrower presently conducts its business under the
following trade names:
a.
Exhibit A, Page 1
<PAGE> 35
b.
The Borrower shall immediately furnish written notification to the
Lender of any change of corporate name of the Borrower or the use of
any trade name.
7. ACCOUNTING TERMS. All accounting terms not specifically defined in
this Loan Agreement shall be construed in accordance with generally
accepted accounting principles and all financial data submitted
pursuant to this Loan Agreement shall be prepared in accordance with
such principles.
8. MINIMUM TANGIBLE NET WORTH REQUIREMENT. The Borrower shall maintain a
tangible net worth of not less than (1) TWO MILLION SIX HUNDRED
THOUSAND DOLLARS ($2,600,000) as of February 28, 1996 through January
31, 1997 and (2) TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
($2,700,000) as of February 1, 1997 and thereafter. For purposes of
this paragraph, the term "TANGIBLE NET WORTH" shall mean total assets
less total liabilities, excluding from the determination of total
assets (i) all assets which would be classified as intangible assets,
including, without limitation, goodwill, patents, trademarks, trade
names, copyrights and franchises, (ii) any amounts due to the Borrower
from affiliates, employees, officers or stockholders and (iii)
increases caused by a write-up of assets of the Borrower.
9. INTEREST COVERAGE RATIO. The Borrower shall maintain at all times a
minimum Interest Coverage Ratio at 3.5 to 1.0. For purposes of this
paragraph, "INTEREST COVERAGE RATIO" shall mean earnings (before
interest and taxes) divided by interest expense.
10. LEVERAGE RATIO. The Borrower shall maintain at all times a ratio of
total liabilities divided by Tangible Net Worth of not greater than 2.0
to 1.0.
11. ADVANCE REQUEST. Requests for advances hereunder shall be made by
Q.E.P. Co., Inc. for itself and on behalf of any other Borrower.
Exhibit A, Page 2
<PAGE> 36
REVOLVING PROMISSORY NOTE
$3,250,000.00 Mahwah, New Jersey
October 13, 1995
Q.E.P. CO., INC., a New York corporation with its chief executive
office and principal place office at 575 Corporate Drive, Suite 410, Mahwah,
New Jersey 07430, Q.E.P. - O'TOOL, INC., a California corporation with its
chief executive office and principal place of business at 20535 Belshaw Avenue,
Carson, California 90746, AMERICAN TROWEL AND FLOAT COMPANY, INC., a Florida
corporation with its chief executive office and principal place of business at
2511 N.E. 4th Avenue, Pompano Beach, Florida 33064, MARION TOOL CORPORATION,
an Indiana corporation with its chief executive office and principal place of
business at 11th Street and Miller Avenue, Marion, Indiana 46952, WESTPOINT
FOUNDRY, INC., an Indiana corporation with its chief executive office and
principal place of business at 11th Street and Miller Avenue, Marion, Indiana
46953 and Q.E.P. ANDREWS, INC., a Nevada corporation with its chief executive
office and principal place of business at 35 Stokes Drives, Carson City,
Nevada (all of the foregoing hereinafter collectively called the "BORROWER"
unless otherwise specifically indicated), for value received, promises to pay
to the order of SHAWMUT BANK CONNECTICUT, N.A., a national banking association
(hereinafter referred to as the "LENDER") at its office at 850 Main Street,
Bridgeport, Connecticut 06604 or at such other place as the holder of this Note
may from time to time designate in writing, on or before June 30, 1998, the
principal sum of THREE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS ($3,250,000),
or such lesser amount as has been advanced and remains outstanding under this
Note, with interest computed as set forth in a certain Revolving Loan and
Security Agreement between the Borrower and the Lender dated October 13, 1995,
as amended from time to time (the "LOAN AGREEMENT") from the date hereof until
this Note is fully paid.
All payments will be applied first to the payment of late charges, then
to accrued and unpaid interest and the balance on account of the unpaid
principal of this Note.
All sums due under this Note shall be payable together with all lawful
taxes and assessments levied thereon, or upon this Note, or upon the holder
hereof with respect to the same.
The happening of any of the following events or conditions shall
constitute an "EVENT OF DEFAULT" under this Note:
1. Failure to make when due any payment of principal or interest or
any sum due under this Note when the same shall be due and payable.
2. The occurrence of an Event of Default or notice of termination
under the Loan Agreement.
<PAGE> 37
Upon and after the occurrence of an Event of Default, the whole of said
indebtedness, both principal and interest, and including any other sums which
may become due under this Note, shall, at the option of the holder of this Note,
immediately become due and payable without presentment, demand, protest, notice
of protest, or other notice or notice of dishonor of any kind, all of which are
hereby expressly waived by the Borrower.
The Borrower agrees that no delay or failure on the part of the holder
in exercising any power, privilege, remedy, option or right under this Note
shall operate as a waiver thereof or of any other power, privilege, remedy, or
right; nor shall any single or partial exercise of any power, privilege, remedy,
option or right hereunder preclude any other or future exercise thereof or the
exercise of any other power, privilege, remedy, option or right. The rights and
remedies expressed herein are cumulative, and may be enforced successively,
alternately, or concurrently and are not exclusive of any rights or remedies
which holder may or would otherwise have under the provisions of all applicable
laws, and under the provisions of all agreements between the Borrower and the
Lender.
The Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, assents to any extension or
postponement of the time of payment or any other indulgence and/or to the
addition or release of any party or person primarily or secondarily liable.
The Borrower gives the Lender a lien and right of setoff for all of
Borrower's liabilities upon and against the Borrower's deposits, credits and
property, now or hereafter in the possession or control of the Lender or in
transit to it. The Lender may, at any time, apply the same or any part
thereof, to any of the Borrower's liability, though unmatured, without notice
and without first resorting to any other collateral.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut.
This Note is the Revolving Promissory Note referred to in, entitled to
the benefits of and subject to the terms and conditions of the Loan Agreement.
Q.E.P. CO., INC.
By: /s/ [ILLEGIBLE]
----------------------
Its
Duly Authorized
-2-
<PAGE> 38
Q.E.P. - O'TOOL, INC.
By: /s/ LEWIS GOULD
----------------------
Its
Duly Authorized President
AMERICAN TROWEL AND FLOAT
COMPANY, INC.
By: /s/ LEWIS GOULD
----------------------
Its
Duly Authorized President
MARION TOOL CORPORATION
By: /s/ LEWIS GOULD
----------------------
Its
Duly Authorized Chairman
WESTPOINT FOUNDRY, INC.
By: /s/ LEWIS GOULD
----------------------
Its
Duly Authorized Chairman
Q.E.P. ANDREWS, INC.
By: /s/ LEWIS GOULD
----------------------
Its
Duly Authorized Chairman
- 3 -
<PAGE> 39
LIMITED GUARANTY
To: Shawmut Bank Connecticut
850 Main Street
Bridgeport, CT 06604
To induce Shawmut Bank Connecticut, N.A. (hereinafter referred to as the
"LENDER") to enter into a Loan and Security Agreement bearing the effective date
of October 13, 1995 (hereinafter referred to as the "LOAN AGREEMENT") with
Q.E.P. Co., Inc., Q.E.P. - O'Tool, Inc., American Trowel and Float Company,
Inc., Westpoint Foundry, Inc., Marion Tool Corporation and Q.E.P. Andrews, Inc.
(all of the foregoing hereinafter collectively referred to as the "BORROWER")
and in consideration thereof and of any loans, advances or financial
accommodations heretofore or hereafter granted by the Lender to or for the
account of the Borrower, whether pursuant to the Loan Agreement or otherwise,
the undersigned Guarantor (hereinafter referred to as the "GUARANTOR"), to the
extent hereinafter set forth, unconditionally guarantees by this agreement (the
"GUARANTY") the payment and performance from or by the Borrower of any and all
obligations from the Borrower to the Lender (the "OBLIGATIONS"). "OBLIGATIONS"
shall mean any and all loans and advances made by the Lender prior to, on or
after the date hereof to or for the account of the Borrower, and any and all
interest, commissions, obligations, liabilities, indebtedness, charges and
expenses now or hereafter chargeable against the Borrower by the Lender or owing
by the Borrower to the Lender, whether any of the foregoing are direct or
indirect, joint or several, absolute or contingent, due or to become due, now
existing or hereafter arising, no matter how or when arising and whether under
any present or future agreement or instrument between the Borrower and the
Lender or otherwise, and the performance and fulfillment by the Borrower of all
of the terms, conditions, promises, covenants and provisions contained in the
Loan Agreement or in any note or notes secured thereby or in any present or
future agreement or instrument between the Borrower and the Lender, and
including all costs of collection and expenses, including reasonable attorneys'
fees incurred by the Lender to collect the Obligations from any party liable for
the payment thereof, whether as maker, endorser, guarantor, surety or otherwise,
or in protecting, enforcing or realizing upon the Lender's rights in connection
with any collateral securing the Obligations or any guaranty thereof.
The Guarantor also agrees: to indemnify the Lender and hold the Lender harmless
against all losses in any way suffered, incurred or paid by the Lender as a
result of or in any way arising out of, or following, or consequential to
transactions with the Borrower, whether under the Loan Agreement or otherwise;
that this Guaranty shall not be impaired by any modification, release or other
alteration of any of the Obligations or arrangements whatsoever with the
Borrower or anyone else; that the liability of the Guarantor is
<PAGE> 40
direct and unconditional and may be enforced without requiring the Lender first
to resort to any other right, remedy or security; that no Guarantor shall have
any right of subrogation, reimbursement or indemnity whatsoever, nor any right
of recourse to security for the debts and Obligations of the Borrower to the
Lender and the Guarantor hereby expressly waives any and all of said rights of
subrogation, reimbursement, indemnity and recourse to security; that the
Guarantor shall not be deemed a "creditor" of the Borrower with respect to the
Obligations as said term "creditor" is defined in the U.S. Bankruptcy Code, as
amended; that if there is more than one Guarantor, the liability of the
Guarantors hereunder shall be joint and several; that if the Borrower or any
Guarantor should at any time become insolvent or make a general assignment, or
if any petition in bankruptcy or any insolvency or reorganization proceedings
shall be filed or commenced by, against or in respect of the Borrower or any
Guarantor, any and all Obligations of each Guarantor shall, at the Lender's
option, forthwith become due and payable without notice; that the Lender's books
and records showing the account between the Lender and the Borrower shall be
admissible in any action or proceeding, shall be binding upon each Guarantor for
the purpose of establishing the items therein set forth and shall constitute
prima facie proof thereof; that this Guaranty is, as to each Guarantor, a
continuing Guaranty; that the death of any Guarantor shall not effect the
termination of this Guaranty as to such deceased or as to any other Guarantor;
that nothing shall discharge or satisfy the liability of any Guarantor hereunder
except the full payment and performance of all of the Borrower's said debts and
Obligations to the Lender with interest; that any and all present and future
debts and obligations of the Borrower to each Guarantor are hereby waived and
postponed in favor of and subordinated to the full payment and performance of
the Obligations; and that all sums at any time in the Lender's possession shall
be deemed held by the Lender as security for the Obligations to the Lender and
to the Lender's subsidiaries, no matter how or when arising, whether absolute or
contingent, whether due or to become due and whether under this Guaranty or
otherwise. The Guarantor hereby gives the Lender a lien and right of setoff for
the Obligations upon and against the deposits, credits and property of the
Guarantor now or hereafter in the Lender's possession or control or in transit
to the Lender. The Lender may at any time apply the same or any part thereof to
any of the Obligations, though unmatured, without notice and without first
resorting to any other collateral.
The Guarantor further agrees to furnish to the Lender, (a) on or before March
31st of every year, his annual financial statement in form satisfactory to the
Lender, (b) within thirty (30) days after filing a copy of his federal income
tax return filed with the Internal Revenue Service for the immediately preceding
tax year and (c) promptly after the Lender's request, such other information as
the Lender may, from time to time, reasonably request.
The Guarantor waives: notice of acceptance hereof; presentment and protest of
any instrument, and notice thereof; notice of default;
<PAGE> 41
and all other notices to which such Guarantor might otherwise be entitled.
This Guaranty shall be valid and binding upon the Guarantor, regardless of any
invalidity, irregularity, defect or unenforceability of or in any of the
Obligations. The Guarantor further agrees that this Guaranty shall continue to
be effective or be reinstated, as the case may be, if at any time payment of
all or any part of the Obligations is rescinded or otherwise must be restored
by the Lender to the Borrower or to the creditors of the Borrower or any
representative of the Borrower or representative of his creditors upon the
insolvency, bankruptcy or reorganization of the Borrower, or to any Guarantor
or the creditors of any Guarantor or any representative of any Guarantor or
representative of the creditors of any Guarantor upon the insolvency,
bankruptcy or reorganization of any Guarantor, or otherwise, all as though such
payments had not been made.
The Guarantor acknowledges that the transactions under which this Guaranty is a
part are commercial transactions, and the Guarantor hereby waives such rights
as the Guarantor may have to notice and/or hearing under any applicable federal
or state laws pertaining to the exercise by the Lender of such rights as the
Lender may have, including but not limited to the right to deprive the
Guarantor of or affect the use of or possession or enjoyment of the Guarantor's
property prior to the rendition of a final judgment against the Guarantor.
The Guarantor hereby waives the right to trial by jury in any action proceeding
of any kind or nature in any court in which an action may be commenced arising
out of this Guaranty or any assignment thereof or by reason of any other cause
or dispute between the Guarantor and the Lender.
The Guarantor hereby further agrees that the following courts:
State Court - Any state or local court of the State of
Connecticut.
Federal Court - United States District Court for the District
of Connecticut.
or at the option of the Lender, any court in which the Lender shall initiate
legal or equitable proceedings and which has subject matter jurisdiction over
the matter in controversy, shall have exclusive jurisdiction to hear and
determine any claims or disputes between the Guarantor and the Lender
pertaining directly or indirectly to this Guaranty or to any matter arising
in connection with this Guaranty. The Guarantor expressly submits and consents
in advance to such jurisdiction in any action or proceeding commenced in such
courts, hereby waiving personal service of the summons and complaint, or other
process or papers issued therein, and agreeing that service of such summons and
complaint, or other process or papers, may be made by registered or certified
mail addressed to
<PAGE> 42
the Guarantor at the address set forth herein. Should the Guarantor fail to
appear or answer any summons, complaint, process or papers so served within
thirty (30) days after the mailing thereof, it shall be deemed in default and
an order and/or judgment may be entered against it as demanded or prayed for in
such summons, complaint, process or papers. The exclusive choice of forum set
forth herein shall not be deemed to preclude the enforcement of any judgment
obtained in such forum or the taking of any action under this Guaranty to
enforce the same in any appropriate jurisdiction.
For the purposes of this Guaranty, the "BORROWER" shall mean and include any
successor of the Borrower including the Borrower as Debtor or any
representative of the Borrower under the provisions of any state or federal law
governing bankruptcy, insolvency, receivership or reorganization.
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the State of Connecticut, shall be binding upon the
heirs, executors, administrators, successors and assigns of each Guarantor and
shall inure to the benefit the Lender's successors and assigns.
Anything herein to the contrary notwithstanding, it is understood and
agreed that the liability of Guarantor hereunder shall not in any event exceed
the sum of $500,000.00. Such liability shall be a continuing liability and
shall not be affected by (nor shall anything herein contained be deemed to be a
limitation upon) the amount of credit which may be extended to Borrower, the
number of transactions with Borrower, repayments by Borrower to Lender, or the
allocation by Lender of repayments by Borrower, it being the understanding of
Guarantor that Guarantor's liability shall continue hereunder so long as there
are any Obligations from Borrower to Lender.
Dated: October 13, 1995.
WITNESS:
/s/ [ILLEGIBLE] /s/ LEWIS GOULD
- ------------------------- -------------------------
Lewis Gould
/s/ [ILLEGIBLE]
- -------------------------
Address:
2916 S. Ocean Blvd.
-------------------------
Highland Beach, FL 33487
-------------------------
<PAGE> 43
GUARANTY
To: Shawmut Bank Connecticut
850 Main Street
Bridgeport, CT 06604
To induce Shawmut Bank Connecticut, N.A. (hereinafter referred to as the
"LENDER") to enter into a Loan and Security Agreement bearing the effective
date of October 13, 1995 (hereinafter referred to as the "LOAN AGREEMENT") with
Q.E.P. Co., Inc., American Trowel and Float Company Inc., Marion Tool
Corporation, Westpoint Foundry, Inc. and Q.E.P. Andrews, Inc. (all of the
foregoing hereinafter collectively referred to as the "BORROWER") and in
consideration thereof and of any loans, advances or financial accommodations
heretofore or hereafter granted by the Lender to or for the account of the
Borrower, whether pursuant to the Loan Agreement or otherwise, the undersigned
Guarantor (hereinafter referred to as the "GUARANTOR") unconditionally
guarantees by this agreement (the "GUARANTY") the payment and performance from
or by the Borrower of any and all obligations from the Borrower to the Lender
(the "OBLIGATIONS"). "OBLIGATIONS" shall mean any and all loans and advances
made by the Lender prior to, on or after the date hereof to or for the account
of the Borrower, and any and all interest, commissions, obligations,
liabilities, indebtedness, charges and expenses now or hereafter chargeable
against the Borrower by the Lender or owing by the Borrower to the Lender,
whether any of the foregoing are direct or indirect, joint or several, absolute
or contingent, due or to become due, now existing or hereafter arising, no
matter how or when arising and whether under any present or future agreement or
instrument between the Borrower and the Lender or otherwise, and the
performance and fulfillment by the Borrower of all of the terms, conditions,
promises, covenants and provisions contained in the Loan Agreement or in any
note or notes secured thereby or in any present or future agreement or
instrument between the Borrower and the Lender, and including all costs of
collection and expenses, including reasonable attorneys' fees incurred by the
Lender to collect the Obligations from any party liable for the payment
thereof, whether as maker, endorser, guarantor, surety or otherwise, or in
protecting, enforcing or realizing upon the Lender's rights in connection with
any collateral securing the Obligations or any guaranty thereof.
The Guarantor also agrees: to indemnify the Lender and hold the Lender harmless
against all losses in any way suffered, incurred or paid by the Lender as a
result of or in any way arising out of, or following, or consequential to
transactions with the Borrower, whether under the Loan Agreement or otherwise;
that this Guaranty shall not be impaired by any modification, release or other
alteration of any of the Obligations or arrangements whatsoever with the
Borrower or anyone else; that the liability of the Guarantor is
1
<PAGE> 44
direct and unconditional and may be enforced without requiring the Lender first
to resort to any other right, remedy or security; that no Guarantor shall have
any right of subrogation, reimbursement or indemnity whatsoever, nor any right
of recourse to security for the debts and Obligations of the Borrower to the
Lender and the Guarantor hereby expressly waives any and all of said rights of
subrogation, reimbursement, indemnity and recourse to security; that the
Guarantor shall not be deemed a "creditor" of the Borrower with respect to the
Obligations as said term "creditor" is defined in the U.S. Bankruptcy Code, as
amended; that if there is more than one Guarantor, the liability of the
Guarantors hereunder shall be joint and several; that if the Borrower or any
Guarantor should at any time become insolvent or make a general assignment, or
if any petition in bankruptcy or any insolvency or reorganization proceedings
shall be filed or commenced by, against or in respect of the Borrower or any
Guarantor, any and all obligations of each Guarantor shall, at the Lender's
option, forthwith become due and payable without notice; that the Lender's
books and records showing the account between the Lender and the Borrower shall
be admissible in any action or proceeding, shall be binding upon each Guarantor
for the purpose of establishing the items therein set forth and shall
constitute prima facie proof thereof; that this Guaranty is, as to each
Guarantor, a continuing Guaranty; that the death of any Guarantor shall not
effect the termination of this Guaranty as to such deceased or as to any other
Guarantor; that nothing shall discharge or satisfy the liability of any
Guarantor hereunder except the full payment and performance of all of the
Borrower's said debts and Obligations to the Lender with interest; that any and
all present and future debts and obligations of the Borrower to each Guarantor
are hereby waived and postponed in favor of and subordinated to the full
payment and performance of the Obligations; and that all sums at any time in
the Lender's possession shall be deemed held by the Lender as security for the
Obligations to the Lender and to the Lender's subsidiaries, no matter how or
when arising, whether absolute or contingent, whether due or to become due and
whether under this Guaranty or otherwise. The Guarantor hereby gives the Lender
a lien and right of setoff for the Obligation upon and against the deposits,
credits and property of the Guarantor now or hereafter in the Lender's
possession or control or in transit to the Lender. The Lender may at any time
apply the same or any part thereof to any of the Obligations, though
unmatured, without notice and without first resorting to any other collateral.
The Guarantor further agrees to furnish to the Lender, (a) on or before March
31st of every year, its annual financial statement in form satisfactory to the
Lender, (b) within thirty (30) days of filing a copy of its federal income tax
return filed with the Internal Revenue Service for the immediately preceding tax
year and (c) promptly after the Lender's request, such other information as the
Lender may, from time to time, reasonably request.
2
<PAGE> 45
The Guarantor waives: notice of acceptance hereof; presentment and protest of
any instrument, and notice thereof; notice of default; and all other notices to
which such Guarantor might otherwise be entitled.
This Guaranty shall be valid and binding upon the Guarantor, regardless of any
invalidity, irregularity, defect or unenforceability of or in any of the
Obligations. The Guarantor further agrees that this Guaranty shall continue to
be effective or be reinstated, as the case may be, if at any time payment of
all or any part of the Obligations is rescinded or otherwise must be restored
by the Lender to the Borrower or to the creditors of the Borrower or any
representative of the Borrower or representative of its creditors upon the
insolvency, bankruptcy or reorganization of the Borrower, or to any Guarantor
or the creditors of any Guarantor or any representative of any Guarantor or
representative of the creditors of any Guarantor upon the insolvency,
bankruptcy or reorganization of any Guarantor, or otherwise, all as though such
payments had not been made.
The Guarantor acknowledges that the transactions under which this Guaranty is a
part are commercial transactions, and the Guarantor hereby waives such rights as
the Guarantor may have to notice and/or hearing under any applicable federal or
state laws pertaining to the exercise by the Lender of such rights as the Lender
may have, including but not limited to the right to deprive the Guarantor of or
affect the use of or possession or enjoyment of the Guarantor's property prior
to the rendition of a final judgment against the Guarantor.
The Guarantor hereby waives the right to trial by jury in any action or
proceeding of any kind or nature in any court in which an action may be
commenced arising out of this Guaranty or any assignment thereof or by reason
of any other cause or dispute between the Guarantor and the Lender.
The Guarantor hereby further agrees that the following courts:
State Court - Any state or local court of the State of
Connecticut.
Federal Court - United States District Court for the District
of Connecticut.
or at the option of the Lender, any court in which the Lender shall initiate
legal or equitable proceedings and which has subject matter jurisdiction over
the matter in controversy, shall have exclusive jurisdiction to hear and
determine any claims or disputes between the Guarantor and the Lender pertaining
directly or indirectly to this Guaranty or to any matter arising in connection
with this Guaranty. The Guarantor expressly submits and consents in advance to
such jurisdiction in any action or proceeding commenced in such courts, hereby
waiving personal service of the summons and
3
<PAGE> 46
complaint, or other process or papers issued therein, and agreeing that service
of such summons and complaint, or other process or papers, may be made by
registered or certified mail addressed to the Guarantor at the address set
forth herein. Should the Guarantor fail to appear or answer any summons,
complaint, process or papers so served within thirty (30) days after the
mailing thereof, it shall be deemed in default and an order and/or judgment may
be entered against it as demanded or prayed for in such summons, complaint,
process or papers. The exclusive choice of forum set forth herein shall not be
deemed to preclude the enforcement of any judgment obtained in such forum or
the taking of any action under this Guaranty to enforce the same in any
appropriate jurisdiction.
For the purposes of this Guaranty, the "BORROWER" shall mean and include any
successor of the Borrower including the Borrower as Debtor or any
representative of the Borrower under the provisions of any state or federal law
governing bankruptcy, insolvency, receivership or reorganization.
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the State of Connecticut, shall be binding upon the
heirs, executors, administrators, successors and assigns of each Guarantor and
shall inure to the benefit of the Lender's successors and assigns.
Dated: October 13, 1995.
WITNESS:
[ILLEGIBLE] Q.E.P.--O'TOOL, INC.
- -------------------------
[ILLEGIBLE] By: LEWIS GOULD
- ------------------------- ----------------------
Its
Duly Authorized Chairman
20535 Belshaw Avenue
Carson City, California
4
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF Q.E.P. CO., INC.
American Trowel and Float Company, Inc.
Marion Tool Corporation
Westpoint Foundry, Inc.
Q.E.P. Andrews, Inc.
Q.E.P. - O'Tool, Inc.
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated April 30, 1996 (except for Note N, as to
which the date is June 25, 1996), accompanying the financial statements and
schedules of Q.E.P. Co., Inc. and Subsidiaries contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ GRANT THORNTON LLP
- ----------------------
GRANT THORNTON LLP
New York, New York
June 28, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED FEBRUARY 29, 1996 AND UNAUDITED
FINANCIAL STATEMENTS FOR THE QUARTER ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-1 FOR Q.E.P. CO., INC.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> FEB-29-1996 MAY-31-1996
<PERIOD-START> MAR-01-1995 MAR-01-1996
<PERIOD-END> FEB-29-1996 MAY-31-1996
<CASH> 179,138 316,074
<SECURITIES> 0 0
<RECEIVABLES> 3,580,554 3,060,879
<ALLOWANCES> 0 0
<INVENTORY> 3,138,681 3,370,860
<CURRENT-ASSETS> 7,248,816 7,227,268
<PP&E> 266,610 240,666
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 7,879,964 7,818,138
<CURRENT-LIABILITIES> 4,317,551 3,826,135
<BONDS> 0 0
<COMMON> 1,500 1,500
0 0
503,047 503,047
<OTHER-SE> 30,762 30,762
<TOTAL-LIABILITY-AND-EQUITY> 7,879,964 7,818,138
<SALES> 25,271,715 7,702,148
<TOTAL-REVENUES> 25,271,715 7,702,148
<CGS> 15,976,971 4,800,998
<TOTAL-COSTS> 3,673,139 4,800,998
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 194,565 43,925
<INCOME-PRETAX> 7,006,661
<INCOME-TAX> 668,452 267,500
<INCOME-CONTINUING> 1,067,751 439,161
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,067,751 439,161
<EPS-PRIMARY> .68 .28
<EPS-DILUTED> .68 .28
</TABLE>
