UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the
transition period from _______________ to ___________
Commission File Number 0-21161
Q.E.P. CO., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2983807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1081 HOLLAND DRIVE, BOCA RATON, FLORIDA 33487
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 994-5550
Securities Registered Pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates as of
May 19, 1997 is $11,472,399, computed by reference to the closing price for such
shares on the NASDAQ National Market System as of such date.
The number of shares outstanding of each of the registrant's classes of
common stock, as of May 19, 1997 is: 2,654,894 shares of Common Stock, par value
$0.001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the definitive Proxy Statement which the Registrant will file
with the Securities and Exchange Commission in connection with the Registrant's
Annual Meeting of Stockholders to be held on July 28, 1997, are incorporated by
reference in Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Founded in 1979, Q.E.P. Co., Inc. (the "Company" or "QEP")
manufactures, markets and distributes a broad line of specialty tools and
related products for the home improvement market. Under brand names including
QEP/trademark/, O'TOOL/trademark/, MARION TOOL/trademark/ and ANDREWS
TOOLS/trademark/, 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. QEP's products include
trowels, floats, tile cutters, wet saws, spacers, nippers, pliers, carpet
trimmers and cutters, knives and abrasives, and are sold to 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 Tools and Red Devil. The Company's full line of
specialty tools and related products is marketed for use by do-it-yourself
consumers as well as construction and remodeling professionals.
The Company has experienced significant growth in net sales since
fiscal 1992, which management attributes to (i) the introduction of new products
and the Company's success in cross-marketing its products among its channels of
distribution, (ii) the Company's expansion of its customer base and market share
through sales to additional home improvement retailers, distributors, OEMs and
specialty retailers, (iii) growth experienced by the Company's customers within
the home improvement market, particularly among national and regional home
center retailers such as Home Depot and Lowe's, (iv) growth of the home
improvement market as a whole and (v) strategic acquisitions.
MARKET OVERVIEW
The Company currently competes in the specialty tool segment of the
tool industry which sells to the home improvement market. 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 (the most recent year for which data is available to the Company), 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. While this data reflects the broad trend in the home improvement
market in general, the Company believes that the trends within the specialty
tool segment are similar.
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 age
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.
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 of
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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. Based on data available to the Company, the
primary beneficiaries of this consolidation among home improvement retailers
have been the top two or three companies (ranked by annual sales volume), and
the balance of the top ten retailers have generally experienced declines in
sales and market share during the past several years. Thus, while the home
improvement market's retail sales have expanded, the market is being
increasingly dominated by the largest retailers.
The Company's two largest customers, Home Depot and Lowe's, experienced
compound annual sales growth rates of 29% and 25%, respectively, from 1993 to
1995, and have announced plans to continue increasing the number of stores each
operates. As consolidation continues among home improvement retailers, the
Company expects that sales of the largest national and regional home improvement
retailers will continue to increase at greater rates than the rate of sales
growth in the overall market. The Company expects that the growth trends in the
specialty tool segment of the home improvement market and among its customer
base will directly affect the Company's ability to generate growth in its sales
and net income, its expansion strategy and the nature of its sales and marketing
initiatives.
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 seeks to expand its product lines by adding specialty tools and related
products which can be marketed to the Company's existing customer base. For
example, during the last three fiscal years, the Company introduced a line of
carpet installation tools, three new power tools and a complete line of customer
oriented maintenance kits. The Company has also expanded its product lines
through acquisitions. The Company believes that broadening its product lines
will make the Company a more attractive supplier to the major home improvement
retailers and thereby increase the Company's sales and market penetration. The
Company also seeks to expand its market share by developing new customers
through marketing its product lines to home improvement retailers, distributors,
OEMs and specialty retailers who do not currently purchase products from the
Company.
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. A number of the products
manufactured and distributed by the Company may be used in multiple applications
and are therefore suitable for 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 markets products with multiple applications to a
variety of customers within different channels of distribution. As part of its
acquisition strategy, the Company seeks to identify acquisition candidates with
product lines complementary to those of the Company and to "cross sell" acquired
product lines to its existing customer base and its existing product lines to
the customers of the acquired business.
EMPHASIZE CUSTOMER SERVICE. The Company has developed and implemented a
customer service program to address the requirements of its retail, distributor
and OEM customers, under which 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
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provided by their vendors, the Company considers the maintenance of responsive
customer service programs to be an important facet of its business.
PURSUE ADDITIONAL STRATEGIC ACQUISITIONS. During 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, and Andrews Tools Company, a drywall and paint tool
manufacturer. Through these acquisitions, the Company broadened its product
lines, increased its customer base and consolidated certain manufacturing and
marketing activities. The Company intends to continue to seek and evaluate
acquisitions of specialty tool and component manufacturers, distributors and
other companies whose products, distribution channels and brand names are
complementary to those of the Company and which will offer further opportunities
for product cross selling, consolidation of manufacturing and marketing
operations and the addition of new customers.
EXPAND FOREIGN MARKET PRESENCE. The Company believes that international
markets provide a significant opportunity to increase sales of its products and
has implemented a foreign sales and marketing program which is designed to
increase the Company's presence in markets such as Canada, Central America,
Mexico, Europe and South America. The Company intends to pursue international
sales opportunities through marketing initiatives focused on its broad product
line and comprehensive customer service programs.
ENHANCE MANUFACTURING CAPABILITIES. The Company expects to continue to
selectively increase its manufacturing capabilities based upon its objectives of
controlling manufacturing costs, assuring high quality of its products, and
reducing product manufacturing and shipment times. The Company reviews its
product lines with a view to 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 used a portion of the proceeds of its initial public offering to
purchase capital equipment to increase its manufacturing capacity for certain
specialty tools formerly purchased by the Company from outside suppliers.
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
brand names including QEP/trademark/, O'TOOL/trademark/, MARION TOOL/trademark/
and ANDREWS TOOLS/trademark/ 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
Primary................. Home improvement Home improvement Distributors and OEMs
retailers retailers retailers
Secondary............... Tile retailers and Carpet retailers OEMs Distributors
distributors
PRODUCT OFFERINGS......... Full line Limited line Popular products High end
PRICE POSITIONING......... Multiple price points Multiple price points Middle to high Middle to low
</TABLE>
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The Company believes that its products are purchased at retail
predominately 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, blades and abrasives, are marketed through multiple
distribution channels for use in a variety of installation applications. 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 are generally sold at retail
for prices ranging from $1 to $200, although certain types of electric wet saws
are sold at retail for up to $800. A majority of the Company's revenue is
generated by sales of products priced at less than $10 retail. Although the
Company manufactures and distributes over 4,000 products, a majority of the
Company's sales are to customers who purchase between 20 and 150 individual
stock-keeping units.
Net sales of a single product accounted for approximately 7% of the
Company's net sales in fiscal 1995 and 5% of the Company's net sales in each of
fiscal 1996 and fiscal 1997. Management anticipates that the number and type of
products which account for 5% or more of the Company's net sales will vary from
period to period. As the Company seeks to broaden its product lines, the
competition for limited shelf space available at home improvement retailers for
specialty tools and related products may limit sales of existing or newly
introduced products.
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 evaluation 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.
RELATIONSHIP WITH MAJOR CUSTOMERS
In 1986, the Company began selling products to Home Depot, which is
currently the largest home improvement retailer in the United States based on
annual sales volume. In 1993, the Company added Lowe's as a customer, which is
now the second largest home improvement retailer in the country. Home Depot and
Lowe's are the Company's two largest customers, accounting for 50% and 11% of
the Company's fiscal 1997 net sales, respectively.
Because of the importance of home improvement retailers (including Home
Depot and Lowe's) to the Company, the Company has, in consultation with its
major customers, developed customer service programs to ensure that the specific
needs of these customers are given a high priority with direct attention from
senior officers of the Company. Features of the Company's customer service
programs for its major customers 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; operating a customer service hotline;
providing parts and repair service; assisting in tool and product sourcing;
extension of advertising allowances and special credit terms; accepting orders
electronically and billing through electronic data interchange; bar coding for
each individual stock keeping unit; incorporating anti-theft tags in packaging;
and using slip sheets in lieu of pallets for delivery. The Company believes that
its major
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customers place considerable value on service and promotional support and
frequently evaluates its service and promotional activities in an effort to
serve its customers more effectively.
The Company believes that the consolidation among home improvement
retailers will continue and that the national and large regional home
improvement retailers, especially Home Depot and Lowe's, will continue to
increase their market share in the near future. Each of Home Depot and Lowe's
has announced plans to increase significantly the number of stores each operates
over the next several years. While the Company is seeking to expand its customer
base, it expects that sales to Home Depot and Lowe's will continue to constitute
a major portion of the Company's total sales and that the results of operations
and business strategies of Home Depot and Lowe's will have a significant effect
on the Company's overall levels of net sales and profitability.
MANUFACTURING AND SUPPLIERS
The Company estimates that in fiscal 1997 products it manufactured
accounted for approximately 30% of net sales and finished products purchased
from outside suppliers accounted for approximately 60% of net sales. Parts and
components purchased and later assembled or finished by the Company accounted
for the remaining 10% of net sales. The Company utilizes in-house manufacturing
capabilities and manufacturing services provided by outside suppliers to (i)
reduce overall costs of goods sold by purchasing finished products and
components from suppliers able to produce such items at a lower cost than the
Company, (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 a high level of quality of the Company's
products, and (iv) capitalize on the Company's production expertise in instances
where production volumes warrant in-house manufacturing. The Company reviews its
product lines to identify 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 used a portion of the
proceeds of its initial public offering to purchase capital equipment to
increase its manufacturing capacity for certain specialty tools formerly
purchased by the Company from outside suppliers.
The Company purchased finished products and components from
approximately 75 different suppliers in fiscal 1997, of which less than 25% were
foreign sources. 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 the products and components purchased from outside
suppliers, and although the Company generally maintains at least two sources of
supply for each item purchased, interruptions in supply or price changes in the
items purchased by the Company could have a material adverse effect on the
Company's operations.
During fiscal 1997, the Company purchased approximately 14% of its
total purchases of finished products and components through a single foreign
sales agent. This foreign sales agent, together with other foreign sales agents
utilized by the Company, 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 during fiscal 1997. Although the Company believes it
could purchase products directly from a number of these manufacturers, sales
agents will generally warehouse finished and unfinished products and consolidate
products to allow more cost effective shipping, and 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 there are other sales agents through
which the Company could source its supply requirements, changes in sales agents
or the refusal of any such agents to deal with the Company could disrupt product
shipments, result in manufacturing delays or otherwise adversely affect the
Company's operations until new suppliers or sales agents could be procured.
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The Company currently relies on two foreign suppliers as the sources of
supply for two power tools which are currently among the Company's twenty best
selling products. While the Company believes that alternate sources of supply
exist for these products, an extended interruption in the supply of these
products prior to the location of alternate suppliers could adversely affect the
Company's results of operations.
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 finished product shipment date. Shipping from foreign
suppliers usually requires 30 additional days. The Company reviews its
production requirements weekly and updates its orders placed with foreign
suppliers. Because the Company seeks to fill customer orders promptly, the
Company must anticipate customer demand for finished products and products
manufactured with components obtained from foreign suppliers and establish its
production forecasts accordingly.
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 other customers. The Company provides a
limited 90-day warranty on select products. During fiscal 1997, returns and
allowances totalled 4.4%.
DISTRIBUTION, SALES AND MARKETING
PRODUCT DISTRIBUTION
The Company's specialty tools and related products are currently sold
through several distinct distribution channels. Management estimates that sales
through its primary distribution channels in fiscal 1997 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, including Home Depot, Lowe's and Hechinger/Home Quarters which
together accounted for over 65% of the Company's total sales during fiscal 1997.
Three regional home improvement retailers were also among the Company's ten
largest customers in fiscal 1997. 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-sized 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 sells its products to
a significant number of smaller retail accounts, including chain stores and
independent hardware stores, tile centers, paint stores and lumber yards.
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, Color Tile and CarpetMax. 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 several years.
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SALES
The Company's sales strategy is to (i) capitalize on growth among its
existing customer base, primarily among major home center retailers, (ii) add
new national and regional home improvement retailers as customers, (iii) extend
its product lines through introduction of new products, acquisitions and joint
ventures, (iv) cross-market products among its channels of distribution, and (v)
expand international sales. The Company's sales and marketing staff 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. Each of the
Company's sales managers is responsible for a different distribution channel and
utilizes an in-house telemarketing sales force and outside salaried and
commissioned sales representatives to generate product sales. The balance of the
Company's sales and marketing staff are employed in customer service capacities.
The Company also maintains a network of independent manufacturers'
representatives and firms, supported by the Company's sales and marketing
personnel, through which the Company's specialty tools and related products are
sold on a commission basis.
MARKETING
The Company has developed a direct mail marketing program under which
approximately 3,000 brochures are mailed to customers, usually on a monthly
basis. The Company coordinates its telemarketing sales force with direct mail
contacts. The Company utilizes extensive product catalogs, including color
catalogs covering most product lines, and has developed distinctive packaging
which uses uniform colors and stylistic letters to reinforce the Company's brand
images.
Company representatives attend 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's
marketing and sales representatives, or its manufacturers' representatives,
conduct monthly visits to many customers' individual retail stores. In addition,
the Company provides product knowledge classes for retail 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.
COMPETITION
The Company believes that competition in the home improvement product
market is based primarily on the retail gross profit margin potential of
products sold to retailers, delivery capabilities, brand name recognition,
product quality and availability of retail shelf space. The Company believes
that its competitive strengths are the retail gross profit margin potential of
its products, its delivery capabilities, and the brand recognition and quality
of its products. The Company faces competition largely on a regional basis, with
its most significant competitors being Superior Featherweight Corporation and
Walton Tool Company, each of which the Company believes to have lower annual
revenues and a less extensive product line than the Company.
Participants in the home improvement industry include a number of
large, well-capitalized home improvement product manufacturers that could,
should they so choose, market products in direct competition with the Company,
many of whom have greater financial, marketing and other resources than the
Company. For example, within the drywall tool market segment, the Company
competes with Marshalltown Trowel Company and Goldblatt Tools, a brand owned by
Stanley. Should these companies determine to enter additional market segments in
which the Company currently operates, the competitive pressures experienced by
the
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Company could be increased. The Company is aware of a number of foreign
competitors, many of which may have greater financial, marketing and other
resources than the Company. While foreign sales constituted less than 5% of the
Company's total sales during fiscal 1997, as the Company seeks to penetrate more
foreign markets, the Company may experience competition from such companies,
which could adversely affect the Company's gross margins on its foreign sales.
Certain of the Company's larger customers have in the past contacted
one or more of the Company's foreign suppliers to discuss purchasing home
improvement products directly from these suppliers. 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. If one or more of the Company's larger customers were to begin
purchasing products previously supplied by the Company directly from foreign
manufacturers, the Company's business would be materially adversely affected.
Increased competition from these manufacturers or others could result in lower
sales, price reductions and loss of market share, each of which would have a
material adverse effect on the Company's results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations
and ordinances governing 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 wastes, and imposing
liability for the cost of cleaning up, and certain damages resulting from, sites
of past spills, disposal or other releases of hazardous substances (together,
"Environmental Laws"). Sanctions which may be imposed for violation of
Environmental Laws include the payment or reimbursement of investigative and
remediation costs, administrative penalties and, in certain cases, prosecution
under environmental criminal statutes. The Company's manufacturing facilities
are subject to environmental regulation by, among other agencies, the
Environmental Protection Agency, the Occupational Safety and Health
Administration, and various state authorities in the states where such
facilities are located. The activities of the Company, including its
manufacturing operations, at its owned and leased facilities are subject to the
requirements of Environmental Laws. The Company believes that the cost of
compliance with environmental laws to date has not been material to the Company,
nor is the Company currently aware of any situations requiring remedial or other
action which would involve a material expense to the Company, or exposing the
Company to material liability under Environmental Laws. As the operations of the
Company involve the storage, handling, discharge and disposal of substances
which are subject to regulation under Environmental Laws, there can be no
assurance that the Company will not incur any material liability under
Environmental Laws in the future or will not be required to expend funds in
order to effect compliance with applicable Environmental Laws.
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, for an acquisition price of 425,547 shares of the
Company's Series A Preferred Stock, which carries a par value and liquidation
preference of $1 per share. At the same time, the Company acquired certain real
property used for manufacturing, warehouse and foundry operations of Marion Tool
Company in Marion, Indiana. Based upon the results of a series of environmental
reports obtained by the Company prior to completing the acquisition, above
ground storage tanks from which some petroleum contamination was evident 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, not all
contaminated soil was 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
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concerning the remaining contamination. There can be no assurance, however, that
further action with respect to the remaining contamination will not be required.
Marion Tool Company was also 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 interpreted 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 to the Company. While the Company
is not aware of any facts which would give rise to any other potential off-site
liability on the part of Marion Tool Company, if other disposal sites where
Marion Tool Company sent waste were determined to require cleanup under CERCLA
or other similar laws, Marion Tool Company could face similar claims in the
future. The Company has not received notice of any claims relating to disposal
of waste by Marion Tool Company at any other sites.
Pursuant to the terms of an escrow agreement by and among the Company
and the sellers of Marion Tool Company, the sellers deposited certificates
representing all 425,547 shares of Series A Preferred Stock issued in connection
with the acquisition in an escrow account at the date of closing. The escrow
agent is authorized to release the shares to the Company within 15 days after
receipt of a written statement, in form and substance satisfactory to the escrow
agent in its discretion, providing that there has been a material breach of the
representations and warranties of the sellers contained in the stock purchase
agreement for the Marion Tool Company acquisition. If a dispute arises as to the
existence of a breach of a representation or warranty, the escrow agent is
authorized to retain the certificates representing the shares of Preferred Stock
pending resolution of the dispute, or may interplead the certificates into the
registry of a court of competent jurisdiction. Upon the expiration of six years
from the closing date and in the absence of a notice from the Company of a
breach of representations and warranties by the sellers, the escrow agent is
authorized to deliver the certificates representing the shares of Preferred
Stock to the sellers. The sellers of Marion Tool Company represented and
warranted to the Company in the stock purchase agreement relating to the
acquisition that Marion Tool Company had not committed any violation of any
environmental laws or regulations and that there was no situation requiring
remedial action by Marion Tool Company under any environmental laws or
regulations. The stock purchase agreement also contains a joint and several
indemnification by Marion Tool Company and each of the selling shareholders in
favor of the Company.
To date, the Company has not notified the escrow agent of a violation
of any environmental laws or regulations, or any situation requiring remedial
action by the Company, or any other violation of a representation or warranty,
pursuant to which the Company claims the right to the return of any of the
Series A Preferred Stock. There are currently 319,158 shares of Series A
Preferred Stock remaining on deposit under the escrow agreement (106,387 of the
shares originally deposited were converted into shares of Company common stock
in connection with the Company's initial public offering), which will remain in
escrow through August 2000 and which are subject to return to the Company in
accordance with the terms of the escrow agreement. Although the Company believes
that any environmental liabilities incurred as a result of the previous
activities of Marion Tool Company will be materially less than the liquidation
preference of such shares, there can be no assurance that the value of the
shares held in escrow will be sufficient to address all environmental
liabilities incurred as a result of the prior activities of Marion Tool Company.
10
<PAGE>
INTELLECTUAL PROPERTY
The Company markets its specialty tools and related products under
various trademarks owned by the Company or its subsidiaries, including QEP(TM),
O'TOOL(TM), MARION TOOL(TM) and ANDREWS TOOLS(TM), and has applied for
registration of the Q.E.P. and O'Tool marks, as well as the mark consisting of
the Company's stylized logo, on the Principal Register of the United States
Patent and Trademark Office. The Company has devoted substantial time, effort
and expense to the development of brand name recognition and goodwill for
products sold under its trademarks, and has not received any notice that its use
of such marks infringes upon the rights of others, and is not aware of any
activities which would appear to constitute infringement of any of its marks.
The Company does not license any trademarks and does not own or license any
patents or patent rights.
The Company has received a notice alleging that certain of its products
infringe one or more patents of a competitor. After consultation with its legal
counsel, the Company advised the complaining party that its products do not
appear to infringe the cited patents. The Company has received no further
communication concerning this matter from the complaining party.
EMPLOYEES
As of May 1, 1997, the Company had 153 full-time employees, including
22 administrative employees, 29 sales and marketing employees, 67 manufacturing
employees and 35 employees engaged in packaging and shipping. Marion Tool
Company's nine 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. None of the Company's other employees are represented by a
labor union. The Company considers its relations with its employees to be good.
11
<PAGE>
ITEM 2. PROPERTIES
The Company currently leases two facilities located in Florida and
California which consist of an aggregate of approximately 106,200 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.
<TABLE>
<CAPTION>
SQUARE ANNUALIZED LEASE RENEWAL
LOCATION USE FEET COST EXPIRATION OPTION
-------- --- ------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Boca Raton, FL Executive offices;
warehouse......................... 77,000 $254,000 01/31/04 --
Marion, IN Manufacturing;
warehouse; assembly............... 40,000 N/A N/A --
Carson, CA Administrative, sales;
marketing; warehouse.............. 29,200 94,692 08/14/99 --
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, no material legal
proceedings are pending to which the Company or any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the period covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
On September 17, 1996, the Company completed its initial public offering
and the Common Stock commenced trading on the Nasdaq National Market System tier
of the Nasdaq Stock Market. The following table sets forth, for the periods
indicated, the high and low sales price per share for the Common Stock, as
reported on the Nasdaq National Market System.
FISCAL YEAR ENDED FEBRUARY 28, 1997 HIGH LOW
- ----------------------------------- ---- ---
Third quarter (beginning September 17, 1996) 9 5/8 7 1/8
Fourth Quarter 9 6 3/8
On May 19, 1997, the closing price of the Common Stock on the Nasdaq
National Market System was $8.50 per share. As of that date, there were 24
holders of record of the Common Stock and approximately 882 beneficial owners
of the Common Stock.
12
<PAGE>
The Company has not paid cash dividends and does not intend for the
foreseeable future to declare or pay any cash dividends on its Common Stock and
intends to retain earnings, if any, for the future operation and expansion of
the Company's business. Any determination to declare or pay dividends will be at
the discretion of the Company's board of directors and will depend upon the
Company's future earnings, results of operations, financial condition, capital
requirements, restrictions imposed by the terms of indebtedness, considerations
imposed by applicable law and other factors deemed relevant by the board of
directors. The Company's current bank credit facility prohibits the payment of
dividends except with the lender's consent.
The Company's Certificate of Incorporation provides that the Company is
authorized to issue up to 500,000 shares of Series A Preferred Stock, 1,000,000
shares of Series B Preferred Stock and 1,000,000 shares of Series C Preferred
Stock. As of May 19, 1997, there were 319,160 shares of Series A Preferred
Stock, no shares of Series B Preferred Stock, and 17,500 shares of Series C
Preferred Stock issued and outstanding. The Company does not have any current
plans to issue any additional shares of Preferred Stock. Holders of 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
October 1, 2000, the dividend rate shall equal the prime interest rate (as
described in the Certificate of Incorporation) as of the first day of the month
in which the dividends are payable, less 1 1/4%. 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. The Series C
Preferred Stock entitles the holders thereof to receive out of legally available
funds a cumulative dividend at the rate of $0.035 per share per annum. All of
the foregoing dividends must be paid before any dividend may be declared or paid
on the Company's Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
Effective June 30, 1996, the Company agreed to issue a total of 4,894
shares of Common Stock to certain of its then current shareholders in exchange
for a total of 166,385 shares of Preferred Stock owned by such shareholders. No
commission or other remuneration was paid or given directly or indirectly for
soliciting such exchange. 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 these issuances.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as
of and for each of the years in the five year period ended February 28, 1997.
This information is qualified in its entirety by, and should be read in
conjunction with, the consolidated financial statements and the notes thereto
which are included elsewhere in this report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29,
--------------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
OPERATING DATA: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............................................... $10,188 $13,407 $19,247 $25,272 $33,140
Cost of goods sold...................................... 6,459 8,416 12,105 15,977 20,119
------- ------- ------- ------- ------
Gross profit............................................ 3,729 4,991 7,142 9,295 13,021
Shipping................................................ 1,123 1,113 1,488 1,746 2,441
General and administrative.............................. 1,137 1,492 2,436 3,106 4,048
Selling and marketing................................... 905 1,218 1,800 2,512 3,569
Foreign exchange (gains) losses 10 153 115 --- 11
------- ------- ------- ------- ------
Total expenses................................. 3,175 3,976 5,839 7,364 10,069
------- ------- ------- ------- -------
Operating income........................................ 554 1,015 1,303 1,931 2,952
Interest expense, net................................... 123 135 149 195 7
------- ------- ------- ------- -------
Income before provision for income
taxes and cumulative effect of change
in accounting principle............................... 431 880 1,154 1,736 2,945
Provision for income taxes.............................. 176 341 429 668 1,143
------- ------- ------- ------- -------
Income before cumulative effect of change in
accounting principle.................................. 225 539 725 1,068 1,802
Cumulative effect of change in accounting for
income taxes(1) 57 --- --- --- ---
------- ------- ------- ------- -------
Net income.............................................. $ 312 $ 539 $ 725 $ 1,068 $ 1,802
======= ======= ======= ======= =======
Net income per common share(2) $ .21 $ .36 $ .47 $ .70 $ .89
======= ======= ======= ======= =======
Weighted average number of shares of common
stock outstanding..................................... 1,515 1,515 1,515 1,506 2,015
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29,
--------------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Working capital......................................... $ 404 $1,019 $1,948 $2,931 $12,695
Total assets............................................ 3,535 4,133 6,000 7,971 16,434
Total liabilities....................................... 2,864 2,798 3,502 4,545 2,981
Shareholders' equity.................................... 671 1,335 2,498 3,425 13,453
</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 paid on the Company's outstanding shares of Series A
Preferred Stock and Series C Preferred Stock are deducted from net
income per common share.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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 primarily used 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. Dollar figures
set forth below are rounded to the nearest thousand.
RESULTS OF OPERATIONS
FISCAL 1997 AS COMPARED TO FISCAL 1996
Net sales for the twelve months ended February 28, 1997 ("fiscal 1997"
or the "fiscal 1997 period") were $33,140,000, compared to $25,272,000 for the
twelve months ended February 29, 1996 ("fiscal 1996" or the "fiscal 1996
period"), an increase of $7,868,000 or 31.1%. The increase is primarily the
result of greater sales to home center retailers, specialty retailers and
independent distributors, resulting from increased market penetration, new store
openings by major home center chain customers and sales of new products.
Gross profit for fiscal 1997 was $13,021,000, compared to $9,295,000
for fiscal 1996, an increase of $3,726,000 or 40.1%. As a percentage of net
sales, gross profit increased to 39.3% in fiscal 1997 from 36.8% in fiscal 1996.
The increase in gross profit margin was primarily due to the Company's ability
to reduce its costs by purchasing from additional sources at lower prices and by
increased sales of higher margin products to its major customers.
Shipping expenses for the fiscal 1997 period were $2,441,000, compared
to $1,746,000 for the fiscal 1996 period, an increase of $695,000 or 39.8%. As a
percentage of net sales these expenses increased to 7.4% in the fiscal 1997
period from 6.9% in the fiscal 1996 period. The increase in these expenses is
primarily due to additional labor costs required to handle increased volume.
Freight costs also increased because of additional product volume and increased
freight rates charged by common carriers.
General and administrative expenses for the fiscal 1997 period were
$4,048,000, compared to $3,106,000 for the fiscal 1996 period, an increase of
$942,000 or 30.3%. As a percentage of net sales these expenses decreased to
12.2% in the fiscal 1997 period from 12.3% in the fiscal 1996 period. The
increase in these expenses was primarily due to increased administrative costs
related to the Company's continuing growth and the costs related to the
relocation of Company facilities from Mahwah, NJ, Carson City, NV, Boca Raton,
FL and Pompano Beach, FL to the Company's new headquarters facility in Boca
Raton, FL.
Selling and marketing costs for the fiscal 1997 period increased to
$3,569,000 from $2,512,000 in the fiscal 1996 period, an increase of $1,057,000
or 42.1%. As a percentage of net sales these expenses increased to 10.8% in the
fiscal 1997 period from 9.9% in the fiscal 1996 period. The increase in these
expenses is primarily the result of additional sales personnel and increased
commissions, as well as an increase in the Company's advertising and marketing
programs.
Interest expense, net, decreased from $195,000 in fiscal 1996 to $7,000
in fiscal 1997, a decrease of $188,000 or 96.4%. The primary reason for the
decrease was the application of a portion of the proceeds of the Company's
initial public offering to repay the Company's bank debt. The balance of the
proceeds has been invested resulting in interest income.
Provision for income taxes was $1,143,000 in fiscal 1997 compared to
$668,000 in the fiscal 1996 period, an increase of $475,000 or 71.1%. This
increase is a direct result of the increase in the Company's taxable income as
the Company's effective tax rate remained relatively consistent at 38.8% in
fiscal 1997 compared to 38.5% in fiscal 1996.
Net income for fiscal 1997 increased to $1,803,000, compared to
$1,068,000 in fiscal 1996, an increase of $735,000 or 68.8%. Net income as a
percentage of net sales increased to 5.4% in the fiscal 1997 period compared to
4.2% in the fiscal 1996 period for the reasons described above.
15
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 were $25,272,000, compared to $19,247,000 in
the twelve months ended February 28, 1995 ("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
Company's newly acquired subsidiaries. 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 center customer accounted for $364,000
of the net sales increase, while a full year of sales attributable to the
acquired subsidiaries increased net sales by $1,153,000. These increases were
partially offset by reduced sales to smaller customers affected by the
consolidation in 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 Company's 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 subsidiaries'
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, $117,000 represented increased rent and
payroll costs of the acquired subsidiaries, $173,000 primarily 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 contributions to the employee profit sharing plan. The remaining
increase was attributable to additional general and administrative expenses of
the acquired subsidiaries.
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 subsidiaries.
In particular, the Company incurred certain costs to publish catalogues and
sales materials for the acquired subsidiaries 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 bank borrowings
required to finance the Company's growth. The decrease as a percentage of sales
was attributable to the Company's ability to fund growth with a relatively lower
level of borrowing.
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 was primarily attributable to the incurrence of
nondeductible expenses.
16
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital for the fiscal 1997 period increased from $2,931,000 at
February 29, 1996 to $12,695,000 at February 28, 1997, an increase of $9,764,000
or 333.1%, primarily as a result of the completion of the Company's initial
public offering in September 1996. The Company invests cash in excess of
anticipated current operational requirements in short term commercial paper
rated AA or higher and states the value of such investments at market price.
Net cash used in operating activities was approximately $605,000 in
fiscal 1997, compared to $1,079,000 in fiscal 1996. The reason for the decrease
was a slower increase in inventory and accounts receivable from fiscal 1996 to
fiscal 1997 as compared to the increase in net income from fiscal 1996 to fiscal
1997.
The Company utilized approximately $214,000 in cash for capital
expenditures during fiscal 1997 compared to approximately $46,000 in fiscal
1996.
On September 17, 1996 the Company completed an initial public offering
of 1,000,000 shares of its common stock, par value $.001 per share ("Common
Stock"), at a price of $8.50 per share (less underwriting discount) and 120,000
warrants to purchase Common Stock at an exercise price of $10.20 per share with
an offering price of $.001 per warrant (the "Offering"). On November 6, 1996 the
underwriters exercised their over-allotment option and purchased an additional
150,000 shares of Common Stock at a price of $8.50 per share (less underwriting
discount). The net proceeds from the Offering and the exercise of the
over-allotment option were approximately $8,238,000. The Company used $2,448,000
of the proceeds from the Offering to retire existing bank debt. As a result, net
cash provided by financing activities was $5,541,000 in fiscal 1997 compared to
$1,189,000 in fiscal 1996. Net cash provided by financing activities during
fiscal 1996 was predominately the result of increased borrowings. The Company
has used a portion of the Offering proceeds to finance the growth in inventory
and accounts receivable, purchase additional manufacturing equipment and fund
capital improvements to expand and upgrade existing facilities. Other potential
uses of such funds include the possible investment in, strategic acquisition of,
or joint venture with, other businesses, as well as the possible acquisition of
other product lines. There can be no assurances that any acquisition will become
available on terms acceptable to the Company.
The Company has a bank line of credit facility (the "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 in the
Facility. Interest is charged on the outstanding principal balance at the bank's
base lending rate plus 1/2% or the LIBOR plus 225 basis points. Subsequent to
fiscal 1997 year end the rate was reduced to LIBOR plus 175 basis points. The
Company presently has no outstanding balance under the Facility, and the
Facility terminates on June 30, 1998. The Company believes that its existing
cash balances, cash flow from operations and the borrowings available to it
under the Facility will be sufficient to fund its working capital needs and
other capital requirements for the foreseeable future.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements which are made pursuant
to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
Statements as to what the Company "believes," "intends", "expects" or
"anticipates", and other similarly anticipatory expressions, are generally
forward-looking and are
17
<PAGE>
made only as of the date of this Report. Readers of this Report are cautioned
not to place undue reliance on such forward-looking statements, as they are
subject to risks and uncertainties which could cause actual results to differ
materially from those discussed in the forward-looking statements and from
historical results of operations. Among the risks and uncertainties which could
cause such a difference are those relating to the Company's dependence upon a
limited number of customers for a substantial portion of its sales, the
Company's reliance upon suppliers and sales agents for the purchase of finished
products which are then resold by the Company (which during fiscal 1997
constituted approximately 60% of the Company's total sales), the Company's
dependence upon certain key personnel, the Company's ability to manage its
growth, and the risks of economic and market factors affecting the Company or
its customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The response to this item is submitted in a separate section of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None required to be reported.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement to be filed by the
Company for the Annual Meeting of Stockholders to be held July 28, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item regarding compensation of officers
and directors is incorporated by reference from the definitive Proxy Statement
to be filed by the Company for the Annual Meeting of Stockholders to be held
July 28, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the
definitive Proxy Statement to be filed by the Company for the Annual Meeting of
Stockholders to be held July 28, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the
definitive Proxy Statement to be filed by the Company for the Annual Meeting of
Stockholders to be held July 28, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the report:
1. and 2. The financial statements filed as part of this
report are listed separately in the index to Financial
Statements beginning on page F-1 of this report.
3. For Exhibits see Item 14(c), below. Exhibit Nos. 10.1 and
10.1.1 consist of management contracts or compensatory plans
or arrangements required to be filed as exhibits to this
report.
(b) No reports on Form 8-K have been filed by the Company during
the final quarter of the period covered by this report.
(c) List of Exhibits:
EXHIBIT NO. DESCRIPTION
2.1 Form of Agreement and Plan of Merger regarding the change
in incorporation of the Company from a New York corporation to
a Delaware Corporation*
3.1.1 Certificate of Incorporation of the Company*
3.1.2 Bylaws of the Company+
19
<PAGE>
3.3 Form of Indemnification Agreement executed by Officers and Directors
of the Company and the Company*
4.1 Form of specimen certificate for Common Stock of the Company*
4.1.1 Form of Warrant issued by the Company to the representative of the
underwriters of the Company's initial public offering*
9 Voting Trust Agreement, dated August 3, 1996, by and between Lewis
Gould and Susan J. Gould*
10.1 Employment Agreement, dated August 3, 1996, by and between Lewis
Gould and the Company*
10.1.1 Q.E.P. Co., Inc. Omnibus Stock Plan of 1996+
10.2.5 Lease Agreement, dated June 1993, by and between Leo M. Rutten,
Alice J. Rutten and the Company*
10.2.6 Lease Agreement, dated September 17, 1996, by and among the
Company and Lawrence Z. Crockett, as Trustee of the Lawrence
Z. Crockett Trust dated March 31, 1994 and Marilyn M.
Crockett, as Trustee of the Marilyn M. Crockett Trust dated
March 31, 1994, including amendment thereto dated January 22,
1997+
10.2.7 Industrial Lease, dated August 1, 1996, by and between
JMB/Pennsylvania Associates - IV, L.P., 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*
21 Subsidiaries of the Company*
27 Financial Data Schedule+
- --------------------
* Incorporated by reference to Exhibit of the same number filed with the
Company's Registration Statement on Form S-1 (Reg. No. 333-07477).
+ Filed herewith.
(d) The financial statement schedule filed as part of this report is
listed separately in the Index to Financial Statements beginning on page F-1 of
this report.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of Boca
Raton, State of Florida, on May 23, 1997.
Q.E.P. CO., INC.
By:/S/ LEWIS GOULD
-----------------------
Lewis Gould
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/S/ LEWIS GOULD President, Chief Executive Officer May 23, 1997
- ----------------------------- and Director (Principal
Lewis Gould Executive Officer)
/S/ MARC APPLEBAUM Senior Vice President and Chief May 23, 1997
- ----------------------------- Financial Officer (Principal
Marc P. Applebaum Financial and Accounting Officer)
/S/ MICHAEL ACTIS-GRANDE Director May 23, 1997
- -----------------------------
Michael Actis-Grande
/S/ EDWARD RONAN Director May 23, 1997
- -----------------------------
Edward Ronan
- ----------------------------- Director May 23, 1997
Mervyn D. Fogel
/S/ NORMAN SNESIL Director May 23, 1997
- -----------------------------
Norman Snesil
</TABLE>
21
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Q.E.P. CO., INC. AND SUBSIDIARIES
February 28, 1997 and February 29, 1996
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statement of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7-F-24
Schedule II - Valuation and Qualifying Accounts F-25
F-1
<PAGE>
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 28, 1997 and February 29, 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended February 28, 1997.
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 28, 1997 and February 29, 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended February 28, 1997, in conformity
with generally accepted accounting principles.
We have also audited Schedule II of Q.E.P. Co. Inc. and Subsidiaries for each
of the three years in the period ended February 28, 1997. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
Grant Thornton LLP
New York, New York
April 30, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
Q.E.P. Co., Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
February 29, FEBRUARY 28,
ASSETS 1996 1997
--------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 179,138 $ 4,901,131
Accounts receivable, less allowance for doubtful
accounts of $54,500 as of February 29, 1996 and
$61,100 as of February 28, 1997 3,671,302 5,507,809
Inventories 3,138,681 4,696,400
Other current assets 350,443 425,578
---------- ------------
Total current assets 7,339,564 15,530,918
PROPERTY AND EQUIPMENT, net 266,610 415,064
DEFERRED INCOME TAXES 84,000 248,000
OTHER ASSETS 280,538 240,005
---------- ------------
$7,970,712 $16,433,987
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $1,911,303 $ 2,792,049
Loans payable 2,447,887
Other current liabilities 49,109 43,968
----------- -------------
Total current liabilities 4,408,299 2,836,017
OTHER LIABILITIES 137,088 144,893
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value; 2,500,000 shares authorized, $1 par value;
503,047 shares issued and outstanding at February 29, 1996 and 336,660
shares issued and outstanding at February 28, 1997, respectively 503,047 336,660
Common stock; 10,000,000 shares authorized, $.001
par value; 1,500,000 shares issued and outstanding
at February 29, 1996 and 2,654,894 shares issued
and outstanding February 28, 1997, respectively 1,500 2,655
Additional paid-in capital 30,762 8,433,719
Retained earnings 2,947,916 4,737,943
Cost of stock held in treasury (57,900) (57,900)
----------- -------------
3,425,325 13,453,077
--------- ----------
$7,970,712 $16,433,987
========= ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
Q.E.P. Co., Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year ended
------------------------------------------------------------
February 28, February 29, FEBRUARY 28,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $19,247,549 $25,271,715 $33,140,273
Cost of goods sold 12,105,099 15,976,971 20,118,824
---------- ---------- ----------
Gross profit 7,142,450 9,294,744 13,021,449
Costs and expenses
Shipping 1,488,243 1,745,745 2,440,535
General and administrative 2,435,574 3,105,861 4,048,358
Selling and marketing 1,799,822 2,511,898 3,568,908
Foreign exchange losses, net 114,635 472 11,080
------------ --------------- -------------
5,838,274 7,363,976 10,068,881
----------- ----------- ----------
Operating income 1,304,176 1,930,768 2,952,568
Interest expense, net 149,414 194,565 7,250
------------ ------------ --------------
Income before provision
for income taxes 1,154,762 1,736,203 2,945,318
Provision for income taxes 429,312 668,452 1,142,577
------------ ------------ -----------
NET INCOME $ 725,450 $ 1,067,751 $ 1,802,741
============ ========== ===========
Primary and fully diluted net income per
common share $.47 $.70 $.89
=== === ===
Weighted average number of shares
outstanding 1,515,152 1,505,682 2,015,168
========= ========= ===========
Pro forma net income per common
share $.67 $.89
=== ===
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
Q.E.P. Co., Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 1, 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)
Conversion of preferred stock to
common stock (166,387) (166,387) 4,894 5 166,382
Proceeds from initial public offering 1,150,000 1,150 8,236,575
Dividends (12,714)
Net income 1,802,741
--------- ---------- --------- ---------- ---------- ---------- -------
Balance at February 28, 1997 336,660 $ 336,660 2,654,894 $ 2,655 $8,433,719 $4,737,943 $ (57,900)
========= ========== ========= ========== ========== ========== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-5
<PAGE>
<TABLE>
<CAPTION>
Q.E.P. Co., Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
--------------------------------------------------------
February 28, February 29, FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 725,450 $1,067,751 $ 1,802,741
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization 52,209 85,131 77,228
Amortization of fair market value in
excess of cost of business acquired (22,500) (30,000) (30,000)
Deferred income taxes (69,500) 20,000 (164,000)
Changes in assets and liabilities
Accounts receivable 39,494 (1,223,019) (1,836,507)
Inventories (465,224) (434,520) (1,557,719)
Other current assets (13,820) (228,744) (75,135)
Other assets (1,929) 11,673 29,016
Accounts payable and accrued liabilities (342,780) (347,220) 1,149,519
-------- ---------- ----------
Net cash used in operating activities (98,600) (1,078,948) (604,857)
-------- ---------- ----------
Cash flows from investing activities
Capital expenditures (90,501) (45,671) (214,165)
Acquisitions, net of cash acquired (366,115)
-------- ---------- -----------
Net cash used in investing activities (456,616) (45,671) (214,165)
-------- ---------- -----------
Cash flows from financing activities
Proceeds from initial public offering 8,237,725
Redemption of preferred stock (65,000)
Net borrowings (payments) under line of credit 328,329 1,051,496 (2,447,887)
Net borrowings (payments) of debt (14,393) 8,885 32,664
Cash overdraft 275,392 268,773 (268,773)
Dividends (6,250) (17,264) (12,714)
Purchase of treasury stock (57,900)
--------- ----------- -----------
Net cash provided by financing activities 583,078 1,188,990 5,541,015
--------- ----------- -----------
NET INCREASE IN CASH 27,862 64,371 4,721,993
Cash and cash equivalents at beginning of year 86,905 114,767 179,138
--------- ----------- -----------
Cash and cash equivalents at end of year $ 114,767 $ 179,138 $ 4,901,131
========= =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-6
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1995, February 29, 1996 and February 28, 1997
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. INITIAL PUBLIC OFFERING
On September 17, 1996, the Company completed an initial public offering
of 1,000,000 shares of its common stock, par value $.001 per share
("Common Stock"), at an initial offering price of $8.50 per share and
120,000 warrants to purchase Common Stock at an exercise price of
$10.20 per share with an offering price of $.001 per warrant (the
"Offering"). On November 6, 1996, the underwriters exercised their
overallotment rights and purchased an additional 150,000 shares of
Common Stock of the Company at a price of $8.50 per share. The net
proceeds from the Offering and the exercise of the overallotment option
were approximately $8,238,000.
3. REINCORPORATION
The Company was originally incorporated in New York in 1979. In
connection with the Offering, the Company reincorporated as a Delaware
corporation with the same name and the New York corporation was merged
into it, continuing the business of the Company.
4. INVENTORIES
Inventories are stated at the lower of average cost or market.
F-7
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE B (CONTINUED)
5. 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.
6. INTANGIBLE ASSETS
Intangible assets are recorded at cost and are amortized over the
estimated periods of related benefit using the straight-line method.
7. 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.
8. REVENUE
Sales are recognized when merchandise is shipped.
9. 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 their expected useful life or the life of the respective lease,
whichever is shorter.
F-8
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE B (CONTINUED)
The following are the estimated lives of the Company's fixed assets:
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
Leasehold improvements 5 to 10 years
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.
10. ADVERTISING COST
All costs related to advertising are expensed in the period incurred.
11. 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 and common
stock equivalents. The computation reduces the net income available per
common share by the amount of preferred stock dividends.
12. 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 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.
F-9
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE B (CONTINUED)
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. STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees and directors with an exercise price equal to or greater than
the fair value of the shares at the date of grant. The Company has
adopted the disclosure-only provision of SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits the Company to account for
stock option grants in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, the Company recognizes no
compensation expense for the stock option grants.
15. RECLASSIFICATIONS
Certain amounts in 1996 have been reclassified to conform with the 1997
presentation.
16. NONCASH INVESTING AND FINANCING ACTIVITIES
In fiscal 1995, the Company purchased three companies. In conjunction
with the acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ 1,087,094
Less
Cash paid 400,000
Notes issued 230,000
Preferred stock issued 443,047
-----------
Liabilities assumed $ 14,047
============
F-10
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
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
$50,000 in notes and 17,500 shares of $1 par value preferred stock for
a total purchase price of $67,500. 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 29, 1996 and February 28, 1997, was $1,400 and $2,500,
respectively.
2. MARION TOOL AND WESTPOINT FOUNDRY
Effective October 31, 1994, the Company purchased all the common stock
of Marion Tool Company, 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 for a total purchase
price of $425,547 (see Note L). 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 29, 1996 and February 28, 1997 was $3,600 and $8,000,
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 $580,000, consisting of $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.
F-11
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE C (CONTINUED)
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 29, 1996 and February 28, 1997 was $52,500 and
$82,500, respectively.
The following unaudited pro forma consolidation shows the results of
operations assuming that the above purchases occurred on March 1, 1994.
The unaudited pro forma results for the year ended February 28, 1995
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.
Net sales $22,259,245
Net income 267,936
NOTE D - INVENTORIES
Inventories consisted of the following:
February 29, FEBRUARY 28,
1996 1997
----------- -----------
Raw materials and work-in-progress $ 376,433 $ 580,767
Finished goods 2,762,248 4,115,633
--------- ---------
$3,138,681 $ 4,696,400
========= =========
F-12
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
February 29, FEBRUARY 28,
1996 1997
----------- -----------
Land $ 7,509 $ 7,509
Machinery and warehouse equipment 292,278 406,448
Office furniture and equipment 178,069 180,472
Capital leased equipment 48,300 68,280
Building and leasehold improvements 132,727 205,305
-------- --------
658,883 868,014
Less accumulated depreciation and
amortization (392,273) (452,950)
-------- --------
$ 266,610 $ 415,064
======== ========
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 28, 1997) plus 1/2%, or
the LIBOR plus 2.25% (7.69% at February 28, 1997). Subsequent to year-end,
the rate was reduced to LIBOR plus 1.75%. 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 29, 1996 and February 28, 1997, 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.
F-13
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE F (CONTINUED)
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 (see 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 $67,000 and $552,000 as of
February 29, 1996 and February 28, 1997, respectively, of outstanding
letters of credit.
Interest paid for all debt was approximately $152,000, $218,000 and
$137,000 in fiscal 1995, 1996 and 1997, respectively.
NOTE G - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
February 29, FEBRUARY 28,
1996 1997
----------- -----------
Accounts payable $1,055,759 $1,153,983
Accrued payroll and employee
benefits 399,127 223,302
Accrued liabilities 365,669 779,856
Accrued volume and advertising
discount 90,748 408,804
Accrued income taxes 226,104
---------- ----------
$1,911,303 $2,792,049
========== ==========
F-14
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
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 28, 1997:
1998 $ 513,606
1999 488,491
2000 404,896
2001 369,855
2002 384,572
Thereafter 780,390
----------
$2,941,810
==========
Total rent expense under noncancellable operating leases approximated
$350,000, $404,000 and $701,000 in fiscal 1995, 1996 and 1997,
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 (see 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. 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
F-15
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE H (CONTINUED)
waste. Based on the testing, the consultant indicated 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
settlements reached by other parties in similar cases, the Company
believes that Marion Tool Company's liability for this matter will not
have a material adverse effect on the Company's financial condition or
results of operations. Although the Company does not believe that
Marion Tool Company has other potential offsite 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 Company has not received
notice of any claims relating to disposal of waste by Marion Tool
Company at any other site.
Pursuant to the terms of an escrow agreement by and among the Company
and the sellers of the Marion Tool Company, the sellers agreed to
deposit certificates representing the 425,547 shares of Series A
Preferred Stock in an escrow account at the date of closing. The escrow
agent is
F-16
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE H (CONTINUED)
authorized to release the shares of preferred stock to the Company
within 15 days after receipt of a written statement, in form and
substance satisfactory to the escrow agent in its discretion, providing
that there has been a material breach of the representations and
warranties of the sellers contained in the stock purchase agreement. In
the event of a dispute as to the existence of a breach of a
representation or warranty, the escrow agent is authorized to retain
the certificates representing the shares of a preferred stock pending
resolution of a dispute among the parties, or may interplead the
certificates into the registry of a court of competent jurisdiction.
Upon the expiration of six years from the closing date and in the
absence of a notice of breach of representations and warranties by the
sellers, the escrow agent is authorized to deliver the certificates
representing the shares of preferred stock to the sellers. The stock
purchase agreement between the Company and the sellers of Marion Tool
Company provided that Marion Tool Company had not committed any
violation of any environmental laws or regulations, and further
represented that there was no situation requiring remedial action by
Marion Tool Company under any environmental laws or regulations. The
stock purchase agreement also contained a joint and several
indemnification by Marion Tool Company and each of its shareholders in
favor of the Company.
To date, the Company has not notified the escrow agent of a violation
of any environmental laws or regulations, or any situation requiring
remedial action by the Company, or any other violation of a
representation or warranty, pursuant to which the Company claims the
right to the return of any of the Series A Preferred Stock. After
taking into account 106,387 shares of Series A Preferred Stock
converted into shares of common stock, there are issued and outstanding
319,160 shares of Series A Preferred Stock, par value $1.00 per share,
which will be held in escrow through August 2000 and which are subject
to return to the Company in accordance with the terms of the escrow
agreement (see Note L).
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, 1995, February 29, 1996 and February 28, 1997, the Company contributed
$172,000, $225,000 and $155,000, respectively.
F-17
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE J - INCOME TAXES
The components of the provision for taxes on income are as follows:
<TABLE>
<CAPTION>
February 28, February 29, FEBRUARY 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
U. S. Federal
Current tax provision $420,150 $558,118 $1,120,682
Deferred tax (benefit) provision (60,000) 15,500 (144,000)
-------- -------- ----------
360,150 573,618 976,682
-------- -------- ----------
State
Current tax provision 78,662 90,334 185,895
Deferred tax (benefit) provision (9,500) 4,500 (20,000)
-------- -------- ----------
69,162 94,834 165,895
-------- -------- ----------
Total income tax provision $429,312 $668,452 $1,142,577
======== ======== ==========
</TABLE>
The provision for income taxes reflects the use of the liability method
under SFAS No. 109.
Cash paid for income taxes was $300,352, $897,364 and $998,644 in fiscal
1995, 1996 and 1997, respectively.
The tax effects of temporary differences which gave rise to deferred tax
assets and liabilities are as follows:
February 29, FEBRUARY 28,
1996 1997
Provision for doubtful accounts $ 20,745 $ 22,716
Accrued expenses 10,456 206,240
Fixed assets 61,654 23,385
Inventory (8,855) (4,341)
Net operating loss carryforward 137,000 137,000
-------- --------
221,000 385,000
Valuation allowance (137,000) (137,000)
-------- --------
Net deferred tax asset $ 84,000 $ 248,000
========= ========
F-18
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE J (CONTINUED)
On October 31, 1994, the Company acquired Marion Tool Company ("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
--------------------------------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 29, 1996 FEBRUARY 28, 1997
--------------------- --------------------- ---------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Provision for Federal
income taxes at the
statutory rate $392,619 34.0% $590,309 34.0% $1,001,597 34.0%
State and local income
taxes, net of Federal
income tax benefit 51,917 4.5 59,620 3.4 122,691 4.2
Other (15,224) (1.3) 18,523 1.1 18,289 .6
-------- ----- -------- ----- ----------- ------
Actual provision for
income taxes $429,312 37.2% $668,452 38.5% $1,142,577 38.8%
======== ===== ======== ===== =========== ======
</TABLE>
F-19
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
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. One customer representing 46%,
51% and 50% and the other customer 9%, 10% and 11% of sales in fiscal
1995, 1996 and 1997, respectively. These same two customers represented
42%, 55% and 37% and 6%, 11% and 10% of accounts receivable at February
28, 1995, February 29, 1996 and, February 28, 1997, respectively.
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 28, 1997.
2. SIGNIFICANT VENDOR INFORMATION
The Company purchased 26%, 19% and 14% and 13%, 10% and 9% for the
years ended February 28, 1995, February 29, 1996 and February 28, 1997,
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
The Company is authorized to issue a maximum of 2,500,000 shares of $1
preferred stock.
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
F-20
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE L (CONTINUED)
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). In fiscal 1997, 106,387 of these shares
were converted to 3,129 shares of common stock. At February 28, 1997, there
were 319,160 shares of Series A Preferred Stock issued and outstanding. The
value of the preferred stock available for return to the Company under the
escrow agreement was reduced by 106,387 (see Note H). There were $0,
$13,653 and $12,103 dividends declared and paid during the fiscal years
1995, 1996 and 1997, respectively.
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. In 1996, the
Company bought back 65,000 shares at a price of $1.00 per share from one
supplier. In fiscal 1997, the remaining preferred stock were converted to
1,765 shares of common stock. There were $6,250, $3,000 and $-0- of
dividends declared and paid in fiscal years 1995, 1996 and 1997,
respectively.
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 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
F-21
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE L (CONTINUED)
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
and 1997, dividends of approximately $600 and $1,200, respectively, in
aggregate at $.035 per share were in arrears. In fiscal year 1997, a
dividend of approximately $600 was declared and paid.
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 - 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.
Stock options are granted at prices not less than 85% of the fair market
value on the date of the grant. Option terms, vesting and exercise periods
vary, except that the term of an option may not exceed five years.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, no compensation
cost has been recognized for the stock options granted to employees and
directors. Had compensation cost been determined based on the fair value at
the grant date for stock option awards in fiscal 1997 consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
for the year ended February 28, 1997 would have been decreased by
approximately $301,000 or $0.15 per share, respectively.
F-22
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE M (CONTINUED)
During the initial phase-in period of SFAS No. 123, such compensation may
not be representative of the future effects of applying this statement. The
weighted average fair value at date of grant for options granted during
1997 was $1.94 per option. The fair value of each option at date of grant
was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions for grants in 1997:
1997
----
Expected stock price volatility 23.9%
Expected lives of options
Directors and officers 3 years
Employees 3 years
Risk-free interest rate 6.3%
Expected dividend yield 0%
Information regarding these option plans for the year ended February 28,
1997 is as follows:
<TABLE>
<CAPTION>
Weighted
average
exercise
Shares price
------ -----
<S> <C> <C>
Options outstanding at beginning of year -0-
Exercised -0-
Granted 175,550 $7.38
Cancelled or forfeited (600) 7.23
-------
Options outstanding at end of year 174,950 7.38
=======
Exercisable 174,950
</TABLE>
F-23
<PAGE>
Q.E.P. Co., Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995, February 29, 1996 and February 28, 1997
NOTE M (CONTINUED)
The following table summarizes information about stock options outstanding
as of February 28, 1997:
<TABLE>
<CAPTION>
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life price exercisable price
--------------- ----------- ----------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
7.23 - 8.625 174,950 4.4 7.38 174,950 7.38
</TABLE>
NOTE N - FUTURE EFFECTS OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which is effective for
financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and
fully diluted earnings per share and requires presentation of basic and
diluted earnings per share together with disclosure of how the per share
amounts were computed. The effect of adopting this new standard is not
expected to have a material impact on the disclosure of earnings per share
in the financial statements.
F-24
<PAGE>
<TABLE>
<CAPTION>
Q.E.P. Co., Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------------
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end
Description of period expenses accounts (a) of period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended February 28, 1995
Deducted from asset accounts
Allowance for doubtful accounts $17,500 $ 30,748 $ 3,448 $44,800
Year ended February 29, 1996
Deducted from asset accounts
Allowance for doubtful accounts 44,800 101,830 92,130 54,500
Year ended February 28, 1997
Deducted from asset accounts
Allowance for doubtful accounts 54,500 58,755 52,155 61,100
</TABLE>
(a) Accounts written off as uncollectible, net of recoveries.
F-25
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.1.2 Bylaws of the Company
10.1.1 Q.E.P. Co., Inc. Omnibus Stock Plan of 1996
10.2.6 Lease Agreement, dated September 17, 1996, by and among the Company
and Lawrence Z. Crockett, as Trustee of the Lawrence Z. Crockett
Trust dated March 31, 1994 and Marilyn M. Crockett, as Trustee of the
Marilyn M. Crockett Trust dated March 31, 1994, including
amendment thereto dated January 22, 1997
10.2.7 Industrial Lease, dated August 1, 1996, by and between
JMB/Pennsylvania Associates - IV, L.P., and the Company
27 Financial Data Schedule
EXHIBIT 3.1.2
BYLAWS
OF
Q.E.P. CO., INC.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - Registered Office and Registered Agent.........................1
ARTICLE II - 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..........................................5
ARTICLE III - Directors....................................................6
Section 1. General Powers........................................6
Section 2. Number................................................6
Section 3. Tenure and Qualification..............................6
Section 4. Election..............................................6
Section 5. Vacancies.............................................6
Section 6. Resignation...........................................6
Section 7. Removal of Directors..................................7
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 - Officers......................................................8
Section 1. Officers Designated...................................8
Section 2. Elections, Qualification and Term of Office...........9
Section 3. Powers and Duties.....................................9
Section 4. Other Officers and Agents............................10
Section 5. Removal..............................................10
Section 6. Salaries.............................................10
<PAGE>
ARTICLE V - Share Certificates............................................10
Section 1. Share Certificates...................................10
Section 2. Consideration for Shares.............................10
Section 3. Transfers............................................10
Section 4. Loss or Destruction of Certificate...................11
ARTICLE VI - 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 - Corporate Seal..............................................11
ARTICLE VIII - Loans......................................................12
ARTICLE IX - Amendment of Bylaws..........................................12
Section 1. By the Shareholders..................................12
Section 2. By the Board of Directors............................12
ARTICLE X - Fiscal Year...................................................12
ARTICLE XI - Rules of Order...............................................12
<PAGE>
BYLAWS
OF
Q.E.P. CO., INC.
(as amended through 5/16/97)
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 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 (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 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>
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 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 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 there at 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
2
<PAGE>
entitled to receive payment of any dividend, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period not to exceed
60 days nor less than ten 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 60
days and, in case of a meeting of shareholders, not less than ten days prior to
the date on which the particular action requiring such determination is to
occur. In the absence of fixing any such record date for 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
constitute presence in person at a meeting.
SECTION 12. DIRECTOR NOMINATION. 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 90 days prior to the date of a scheduled shareholders' meeting,
regardless of postponements, deferrals, or adjournments of the meeting to a
later date; provided, however, that if less than 70 days' notice or prior public
disclosure of the schedule 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 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
3
<PAGE>
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
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 be
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 the 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 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
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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.
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 60 days nor more than 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 70 days'
notice or proper public disclosure of the shareholder to be timely must be so
delivered or received not later than the close of business on the tenth 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 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
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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 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 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 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
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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.
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. 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.
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 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 (either before or after such meeting) and will be waived
by any director by attendance.
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 days before the first meeting held pursuant
thereto.
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 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. 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
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transact business until adjournment, notwithstanding the withdrawal of enough
directors to leave less than a quorum.
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 or 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
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SECTION 1. OFFICERS. The officers of the corporation shall be the
President, Secretary and Treasurer, each of whom shall be elected by the Board
of Directors, and such other and additional officers and assistant officers,
including one or more Vice Presidents, as may be elected or appointed by the
Board of Directors or the President. Any two or more offices may be held by the
same person, except the offices of President and Secretary.
The Board of Director 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
President, Secretary and Treasurer shall be elected by and serve at the pleasure
of the Board of Directors. All other officers of the corporation, if any, shall
be elected or appointed by, and serve at the pleasure of, the Board of Directors
or the President, as the case may be.
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.
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(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 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 and the
President may appoint such other officers and agents as it or he 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 or the President, as the case may be.
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 the 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 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 an
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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 OF 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 ACCOUNT, 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 or holder of record of voting trust certificates
for shares of the corporation for at least six months, or any holder of record
of or the holder of record of 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.
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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".
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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 or 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
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 rules 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 stockholders and the Corporations'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.
"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.
"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.
"BOARD OF DIRECTORS" means the Board of Directors of the Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended.
"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
non-employee directors as 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.
"COMMON STOCK" means shares of the common stock, par value $.001 per
share, of the Corporation.
"CONSULTANT" means any individual who renders services directly to the
Corporation or a Subsidiary or to the Corporation's customers as defined and
designated from time to time by the Committee.
"CORPORATION" means Q.E.P. Co., Inc.
"DIRECTOR" means a member of the Board of Directors or a member of the
Board of Directors of a Subsidiary.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, as of a specified date, (i) if the Common
Stock is listed for trading on The Nasdaq Stock Market or a national securities
exchange, the per share closing sale price of the Common Stock on such date on
the exchange on which it is so listed, as the case may be, (ii) if the Common
Stock is not listed for trading on The Nasdaq Stock Market or a national
securities exchange, but is traded in the over-the-counter market, the per share
closing bid price of the Common Stock on such date as reported by Nasdaq or an
equivalent generally accepted reporting service, (iii) if the Common Stock is
not listed for trading on The Nasdaq Stock Market or on any national securities
exchange and if trading in the Common Stock is not reported by Nasdaq, the
lowest per share bid price of the Common Stock on such date as reported in the
"pink sheets" published by National Quotation Bureau, Incorporated, (iv) if no
such reported price is reported for such date pursuant to (i), (ii), or (iii)
above, then the closing sale price, closing bid price or lowest per share bid
price, respectively, on the first preceding day on which so reported, or (v) if
the Common Stock is not so traded and/or reported for a 30- day period
immediately preceding the date for determining Fair Market Value, the amount
determined by the Committee, acting in good faith and in conformity with the
requirements of Section 422 of the Code, pursuant to such method as it may
establish for determining Fair Market Value.
"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.
"PARTICIPANT" means any individual to whom an Award is granted under
the Plan.
"PERFORMANCE SHARE" means a Unit expressed in terms of, or valued by
reference to, a share of Common Stock.
"PERFORMANCE UNIT" means a Unit valued by reference to designated
criteria established by the Committee, other than Common Stock.
"PLAN" means this Plan, which shall be known as Q.E.P. Co., Inc.
Omnibus Stock Plan of 1996.
"RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
"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 the Corporation has the right to elect or appoint 50% or more
of the members of the board of directors or other governing body. A Subsidiary
shall include both currently owned Subsidiaries and any Subsidiary hereafter
acquired.
"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.
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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, Consultants 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 requirement 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 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. 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
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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, and shall
continue in effect until June 20, 2006.
7. AWARDS TO NON-EMPLOYEE DIRECTORS AND CONSULTANTS. Options granted to
Participants who are not Employees of the Corporation or a Subsidiary shall be
subject to the following terms:
(i) The exercise price of the option shall be not less than 85% of the
Fair Market Value on the date of grant of the option, payable in
accordance with the alternatives stated in Section 9.B.(ii) of the
Plan;
(ii) The term of the option shall be not less than five nor more than
ten years;
(iii) The options shall be exercisable in accordance with such vesting
and other conditions as the Committee shall specify; and
(iv) The options shall be subject to Section 14 of the Plan.
8. [Intentionally Omitted]
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 422 of the Code or
non-qualified stock options (i.e., stock options which are not incentive stock
options).
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 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.
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(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 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 years from the date of the grant.
(iii) No incentive stock option shall be granted to a person in his
capacity as an Employee of a Subsidiary if the Corporation has less
than 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 422 of the Code, or any successor statute, including that
such incentive stock options shall be granted only to Employees, that
such incentive stock options are non-transferrable, and which shall
conform to all other requirements of the Code.
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
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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 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 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 rights of a stockholder 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 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.
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 equivalent 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 (but not less than the Fair Market Value of
Common Stock on the date of grant).
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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.
13. DEFERRAL OF AWARDS. At the discretion of the Committee, payment of
an Award, dividend equivalent, or any potion 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 OR AWARDS UPON TERMINATION OF EMPLOYMENT
OR SERVICES.
A. Except as otherwise provided by the Committee or by the Board of
Directors pursuant to Section 14.B. hereof, and subject to Section 22 hereof,
options granted under the Plan shall be exercisable upon the Participant's
termination of service within the periods set forth below. With respect to
Consultants who receive options under the Plan, the Committee shall determine
what shall constitute termination of service for purposes of this Section 14.
(i) If on account of death, within 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 three months
of such termination;
(iii) If on account of resignation, options may be exercised within
one 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 the taking of leave of absence for the purpose of
servicing the government or the country in which the principal place of
employment of the Participant
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is located, either in a military or a civilian capacity, or for such
other 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 on account of disability, within one year following the
disability of the Participant; and
(vii) If for any reason other than death, retirement, resignation,
cause or disability, options may be exercised within three months of
such termination.
B. An unexercised option shall be exercisable after a Participant's
termination of service only to the extent that such option was exercisable on
the date of the Participant's termination of service. Notwithstanding the
foregoing, the Committee and the Board of Directors shall have the power to
accelerate the exercisability of options, whether before or after a
Participant's termination of service, and to permit options to remain
exercisable after a Participant's termination of service for periods longer than
those set forth in Section 14.A., subject to compliance with applicable law and
the provisions of Rule 16b-3.
C. In no case may an unexercised option be exercised to any extent by
anyone after expiration of its term.
D. To the extent any Award other than stock options is exercisable by a
Participant, such Award shall be exercisable after termination of service (in
the case of Employees) within the time periods specified in A(i) to A (vii)
above, subject to the provisions of Section 14.B. In the case of a non-Employee
Participant, such Award will be exercisable in accordance with the terms thereof
unless the Committee has required continued service to the Corporation or a
Subsidiary as a condition to the exercise of an Award, in which event the
exercise of an Award following termination of services by a non-Employee
Participant shall be provided for by the Committee.
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
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amount that has a material effect on the price of the shares of Common Stock;
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, subject to the receipt of stockholder approval where
required by 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.
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 stockholder of the Corporation until Participant
acquires an unconditional right under an Award to have shares of Common Stock
issued to such Participant. In the case of a recipient of a stock option, the
unconditional right to have shares of Common Stock issued to such Participant
shall be defined as the date upon which the Participant has exercised the stock
option and tendered valid consideration to the Corporation for the exercise
thereof. 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
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Exchange Act, except in the case of death or disability or unless Section 16
shall be amended to provide otherwise than as described below, in which event
this Plan shall be amended to conform to Section 16, as amended:
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 months from the date of grant; and
B. At lease six 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 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.
10
EXHIBIT 10.2.6
LEASE AGREEMENT EXHIBIT 10.1
THIS LEASE AGREEMENT (hereinafter referred to as the "Lease") is made and
entered into this 17 day of September, 1996, by and between LAWRENCE Z.
CROCKETT, AS TRUSTEE OF THE LAWRENCE Z. CROCKETT TRUST DATED MARCH 31, 1994 AND
MARILYN M. CROCKETT, AS TRUSTEE OF THE MARILYN M. CROCKETT TRUST DATED MARCH 31,
1994, (hereinafter referred to as "Landlord") and Q.E.P. CO., INC., A DELAWARE
CORPORATION AUTHORIZED TO TRANSACT BUSINESS in the State of Florida (hereinafter
referred to as "Tenant").
WITNESSETH:
THAT LANDLORD, in consideration of the rents, covenants and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, does hereby lease, demise and let to Tenant, and Tenant does
hereby Lease of and from Landlord, the property hereinafter described, subject
to the following terms and conditions.
ARTICLE I
DESCRIPTION OF PREMISES; TERM; USE OF PREMISES
SECTION 1.1. DESCRIPTION OF PREMISES. Landlord hereby leases to Tenant the
following described premises (hereinafter called the "Leased Property" or
"Leased Premises") located in the State of Florida and more particularly
described as that certain building located at 1081 Holland Drive, Boca Raton,
Florida containing approximately 77,120 square feet (the "Building") and located
on the real estate legally described on Exhibit "A" attached hereto (such real
estate is hereinafter called the "Land").
SECTION 1.2. TERM. Tenant shall have and hold the Leased Property for the
term commencing on the date hereof (the "Lease Commencement Date") and ending on
January 31, 2004, unless sooner terminated, or unless renewed as otherwise
provided herein (the "Term").
SECTION 1.3. USE OF PREMISES. Tenant shall use the Leased Premises during
the Term hereof and any renewal periods contained herein for any use permitted
by the M3 Industrial Zoning classification and for no other purpose without
first obtaining the written consent of Landlord. Tenant will not use or permit
the use of the Leased Premises or any part thereof for any unlawful purpose and
will not do or permit any act or thing which would materially impair the value
or usefulness of the Leased Premises or any part thereof, or which would
constitute a public or private nuisance or waste or which would be a nuisance or
annoyance, or which would invalidate any policies of insurance or increase the
premiums thereof, now or hereafter written on the Leased Premises.
<PAGE>
ARTICLE II
RENT
SECTION 2.1. PAYMENT OF RENT. Tenant's obligation to pay fixed minimum rent
("Base Rent"), and all other sums due hereunder as additional rent ("Additional
Rent") (Base Rent and Additional Rent shall collectively be referred to as
"Rent") shall commence the date this Lease is executed by both Landlord and
Tenant and shall be payable in advance, on the 15th day of each month thereafter
during the Term and any option or renewal term. Notwithstanding the foregoing,
Tenant shall have the right to take possession of the Leased Premises prior to
October 1, 1996 without paying Base Rent (but Tenant shall be required to pay
all Additional Rent hereunder.) All Rent payments shall be sent to Landlord at
its address set forth herein, or to such other place designated by Landlord,
without any prior demand therefore and without any deduction, hold back or set
off whatsoever unless otherwise provided for in this Lease.
SECTION 2.2. BASE RENT. Subject to Section 2.8 below, the Base Rent during
the Term of this Lease shall be as follows:
DATES MONTHLY AMOUNT OF BASE RENT
----- ---------------------------
10/1/96-1/31/97 $11,125.33
2/1/97-1/31/98 $21,125.33
2/1/98-1/31/99 $28,405.86
2/1/99-1/31/00 $29,562.66
2/1/00-1/31/01 $30,719,46
2/1/01-1/31/02 $31,940.53
2/1/02-1/31/03 $33,225.86
2/1/03-1/31/04 $34,575.46
SECTION 2.3. PAYMENT OF RENT. Each monthly payment of Rent shall be payable
in advance on the fifteen (15th) day of each month with the exception of the
first payment which will be paid by Tenant to Landlord on the date hereof.
SECTION 2.4. LATE CHARGE. In the event any monthly Rent payment or other
amount payable hereunder is not paid within ten (10) days after it is due, such
payment shall bear interest from the due date until received by Landlord at the
lesser of eighteen percent (18%) per annum or the maximum lawfull rate allowed
by law. Landlord's right to receive interest shall not in any way limit any
other remedies available to Landlord under this Lease or at law or equity in the
event of a default by Tenant hereunder.
SECTION 2.5. SALES TAX. Tenant shall pay to Landlord along with the monthly
payment of Rent all sales, use and excise taxes pertaining to the Base Rent and
Additional Rent.
SECTION 2.6. PAYMENT WITHOUT NOTICE OR DEMAND. Except as otherwise provided
in this Lease, the Rent called for hereunder
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shall be paid to Landlord without notice or demand, and without counterclaim,
offset, deduction, abatement, suspension, deferment, diminution or reduction, by
reason of, and the obligations of Tenant under this Lease shall not be affected
by, any circumstance or occurence whatsoever, and except as set forth herein,
Tenant hereby waives all rights now or hereafter conferred by statute or
otherwise to quit, terminate or surrender this Lease or the Leased Property or
any part thereof, or to any abatement, suspensions, deferment, diminution or
reduction of the Rent on account of any such circumstances or occurence.
SECTION 2.7. PLACE OF PAYMENT. All payments of Rent shall be made and paid
by Tenant to Landlord at 777 Sea Oak Drive, Apartment 719, Vero Beach, Florida
32963, or at such other place as Landlord may, from time to time , designate in
writing, and such Rent shall come due and be paid in each instance on the date
which it may become due. All Rent shall be payable in the current legal tender
of the United States, as the same is then by law constituted. Any extension,
indulgence or waiver granted or permitted by Landlord in the time, manner or
mode of payment of Rent, upon any occasion, shall not be construed as a
continuing extension or waiver and shall not preclude Landlord from demanding
strict compliance herewith.
SECTION 2.8. INCREASE IN BASE RENT DUE TO SUBLET RENTALS. For the first
sixteen (16) months of the term, Landlord has given Tenant a lower Base Rent
figure that is already reflected in the schedule referenced as Section 2.2
above. If during the first sixteen (16) months of the Term of the Lease, Tenant
subleases all or any portion of the Leased Premises, then the Base Rent shall be
increased to $17,313.33 per month for the period October 1, 1996 to January 31,
1997 and to $27,313.33 per month for the period from February 1, 1997 to January
31, 1998. (After the first sixteen (16) months of the Term, the Base Rent shall
be in accordance with the schedule referenced in Section 2.2 regardless of
whether Tenant subleases any space within the Leased Premises.) Notwithstanding
anything to the contrary, Tenant may utilize the entire Leased Premises for any
use permitted pursuant to this Lease and Base Rent shall not be increased if
Tenant is using the Leased Premises for its own operations (as opposed to
subleasing out the space to a third party.) Accordingly, the only instance in
which Base Rent would be increased by sublet rentals pursuant to this paragraph
is if Tenant actually sublets any space to a third party during the first
sixteen (16) months of the Lease.
ARTICLE III
OPERATING COSTS
SECTION 3.1. MAINTENANCE OF LEASED PREMISES BY TENANT. The Leased Premises
shall be maintained by Tenant, at Tenant's cost and expense (or maintained by
Landlord if Landlord takes over maintenance of the Leased Premises hereunder
pursuant to Section
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3.2 below), in good repair and condition and in a manner comparable to similar
buildings in the South Congress Industrial Center. Provided Tenant is not in
default under the Lease and maintains the Land and the Building as required
under the Lease and provided further that Tenant provides to Landlord no later
than the 15th day of each month a listing of all expenses incurred by Tenant in
connection with Tenant's maintenance and operation of the Land and Building
which listing shall include the name of each vendor and supplier, description
and service provided by each vendor and supplier, the amount and date each
vendor and supplier were paid, and any balance owed to each vendor and supplier,
then, Landlord shall not hire a manager for the Leased Premises, in which case
Tenant shall only be required to pay to Landlord One-Twelfth (1/12) of
Landlord's estimate of annual real estate taxes for each year throughout the
Term and Tenant shall not have to pay Landlord any Operating Costs referenced in
Section 3.2 below during the Term.
SECTION 3.2. OPERATING COSTS/FAILURE OF TENANT TO MAINTAIN LAND AND
BUILDING. Should Tenant fail, as determined by Landlord in its sole discretion,
to comply with its obligations referenced in Section 3.1 above, then Landlord
shall send written notice to Tenant enumerating the items that Tenant failed to
maintain. If Tenant fails to cure the maintenance items enumerated by Landlord
in said letter within thirty (30) days after receiving notice from Landlord,
then Landlord, at its option may assume the maintenance responsibility for the
Leased Premises. Landlord agrees to notify Tenant in writing if Landlord will be
assuming maintenance of the Leased Premises hereunder. Further, if Landlord
notifies Tenant twice in any calendar year of the Lease Term including any
renewals thereof, that Tenant is failing to comply with its maintenace
obligations in Section 3.1 above, then any other further notices (commencing
with the third notice sent to Tenant in a calendar year) stating that Tenant
has failed to comply with its maintenance obligations hereunder shall
automatically constitute a default under this Lease, (without having to wait for
the expiration of applicable grace or cure periods) and Landlord shall in
addition to any other remedies provided for hereunder, be permitted to assume
maintenance of the Leased Premises. Should Landlord assume maintenance
responsibilities hereunder then, in addition to Base Rent and all other charges
provided for in the Lease, Tenant agrees to pay to Landlord as Additional Rent,
all Operating Costs for the Leased Premises. The term "Operating Costs" shall
mean any and all expenses incurred by Landlord of whatever nature, kind or
description, paid or incurred by the Landlord for the servicing, operation,
maintenance and repair of the Land and Building. The term "Operating Costs"
shall not include, except to the extent that such costs are specifically
included in Operating Costs as described below, the following: (i) depreciation
of the Building; (ii) the cost of maintaining the Building's foundation, the
roof (including roof membrane and structural portions of the roof), and the
structural soundness of the exterior walls of the Building (which shall not
include windows, glass or plate glass, doors or special door fronts); (iii)
interest and principal payments on mortgages; (iv) income taxes
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imposed on Landlord; (v) cost of advertising and public relations information,
promotions for leasing of the Leased Premises; (vi) any costs, fines or
penalties incurred due to violations by Landlord, its employees, agents or
contractors of any governmental rule or authority; (vii) any other expense for
which Landlord actually receives reimbursement from insurance, condemnation
awards, or reimbursement of Operating Expenses from any other source; (viii)
costs incurred in connection with the sale, financing, refinancing, mortgaging,
selling or change of ownership of the Premises; (ix) costs arising from the
presence of hazardous waste, materials or substances in or about or below the
Land, Building, or Leased Premises, including without limitation hazardous
wastes, materials or substances in the groundwater or soil not caused or placed
upon the Leased Premises by the acts or omissions of Tenant, its subtenants or
licensees, Tenant's partners, directors, officers, agents, employees, invitees
or contractors; (Tenant agrees to comply with its obligations regarding
hazardous wastes, materials and substances enumerated in Article XV hereof); (x)
repairs necessitated by the negligence of Landlord, its beneficiaries or
trustees, licensees, partners, directors, officers, agents, employees or
contractors. By way of example and not by way of limitation, Operating Costs
shall include; (i) salaries, wages and health insurance paid for employees of
Landlord engaged in the repair, operation and maintenance of the Land and/or
Building; (ii) payroll taxes, workman's compensation and related expenses for
employees; (iii) the costs of all charges for common area utilities, garbage
collection and other utilities furnished to the Building and to the Land,
together with any taxes on such utilities; (iv) the costs of all charges for
rent, casualty, flood and liability insurance with respect to the Land and/or
Building and the maintenance and/or operation thereof (unless same are already
being paid by Tenant in accordance with Section 4.3 hereof); (v) the costs for
all supplies, tools, materials, and equipment and sales and other taxes thereon;
(vi) repairs and replacements made by Landlord pursuant to Lease at its expense;
(vii) reasonable legal, accounting and other professional fees incurred in
connection with the operation, maintenance and management of the Land and/or
Building; (viii) painting, refurbishing or landscaping any portion of the Land
and/or Building, which shall include but not be limited to: repainting, of
Building and maintenance of parking lot, including resealing if necessary, and
landscaping, including the replacement of dead trees, grass and miscellaneous
vegetation; (ix) cost of licenses and permits; (x) management fees which, if the
manager employed is an affiliate of the Landlord, shall not exceed five (5%)
percent of Base Rent received from Tenant, and which in all events shall be
comparable to management fees generally charged by building managers for similar
properties in the area in which the Building is located; and (xi) real estate
taxes and assessments, including ad valorem taxes and special assessments, any
expense incurred by Landlord in contesting such taxes or assessments and/or the
assessed value of the building and/or the Land, which expenses shall be
allocated to the tax year to which such expenses relate. If, at any time during
the term of this Lease, the methods of
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taxation prevailing on the date hereof shall be altered any additional or
substitute tax or assessment, levy, imposition, or charge shall be deemed to be
included within the term "taxes" for purposes hereof. Notwithstanding anything
to the contrary, should Landlord assume maintenance of the Leased Premises
hereunder then the management fee to be charged hereunder shall not include or
be calculated based upon any capital items or other maintenance that Tenant
actually performs itself in accordance with carrying out Tenant's maintenance,
repair and replacement obligations under the Lease.
SECTION 3.3. PAYMENT OF OPERATING COSTS. Commencing on the date hereof and
throughout the Term of the Lease, Tenant shall pay the estimated annual ad
valorem and real estate taxes, which are an estimate of the actual annual ad
valorem and real estate taxes to be incurred during such period.
Further, should Landlord assume maintenance of the Leased Premises in
accordance with Section 3.2 above, then Landlord shall furnish to Tenant prior
to January 15th of each year, a budget setting forth Landlord's estimate of
Operating Costs for the Leased Property for the next twelve (12) month period.
Tenant shall pay to Landlord on the fifteenth (15th) day of each month, as
Additional Rent, an amount equal to one-twelfth (1/12) of annual Operating
Costs. If, however, Landlord shall furnish any such estimate subsequent to the
commencement of any twelve (12) month period during the term of this Lease, then
and until the fifteenth (15th) day of the month following the month in which
such estimate is furnished to Tenant, Tenant shall pay to Landlord on the
fifteenth (15th) day of each month an amount equal to the monthly sum payable
during the preceding year. If there shall be any actual increase or decrease
from budgeted amounts in Operating Cost during any twelve (12) month period,
Landlord may furnish to Tenant a revised budget and the Additional Rent shall be
adjusted and paid or refunded as the case may be.
SECTION 3.4. ADJUSTMENT FOR ACTUAL OPERATING COSTS. Within on hundred
twenty (120) days after the end of each twelve (12) month period, Landlord shall
furnish to Tenant an operating statement showing actual Operating Costs incurred
for the preceding twelve (12) month period. If the operating statement shows
that the sums paid by Tenant under this Section exceed Tenant's payment of
Operating Costs, Tenant shall be entitled to a credit for such excess against
payments next to become due to Landlord on account of Tenant's required payment
of Operating Costs or during the last Lease year, Landlord will refund such
excess to Tenant within thirty (30) days following the expiration of the Term.
If the operating statement shows that the sums paid by Tenant were less than
Tenant's payment of Operating Costs, Tenant shall pay the amount of the
deficiency with ten (10) days after demand therefor. Each operating statement
given by Landlord shall be conclusive and binding upon Tenant unless within
thirty (30) days after the receipt thereof, Tenant shall notify Landlord that it
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disputes accuracy of such operating statement specifying the particular respects
in which the operating statement is claimed to be incorrect. Failure of Landlord
to submit the written statement referred to herein shall not waive any rights
of Landlord. Tenant's obligation to pay Operating Costs during the Lease term
shall survive the expiration or earlier termination of this Lease.
ARTICLE IV
MAINTENANCE, TAXES AND INSURANCE
SECTION 4.1. MAINTENANCE AND REPAIR.
(a) LANDLORD'S RESPONSIBILITY. Landlord shall, at its expense, maintain in
good repair the foundation of the building, the roof, including the roof
membrane and nonstructural portions of the roof, and the structural soundness of
the exterior walls of the Building. Additionally, Landlord shall, at its sole
cost and expense, repair, replace or pay for any damage or maintenance to the
Leased Premises caused by any acts, omissions, neglect or negligence of
Landlord, its beneficiaries, trustees, licensees, partners, directors, officers,
employees, agents, or contractors. The term "walls" as used herein shall not
include windows, glass or plate glass, doors or special store fronts. The
foregoing notwithstanding, Tenant shall at its sole cost and expense, repair,
replace and pay for any damage or maintenance to the roof, foundation and
exterior walls caused by any act or omission of Tenant, or any of Tenant's
subtenants or licensees, or Tenant's partners, directors, officers, agents,
employees, invitees, or contractors or by default of Tenant hereunder. Tenant
shall immediately give Landlord written notice of any need for maintenance or
repairs which Landlord is obligated to cure or provide pursuant to this Section
4.1(a) after which Landlord shall have a reasonable opportunity to repair the
same. Landlord's liability hereunder shall be limited only to the cost of
providing such maintenance or repairs and shall in no event be construed to
include any damage, consequential or otherwise, that may be sustained by Tenant
or any others by reason of such needed maintenance and repairs. Tenant waives
all rights to make repairs at the expense of Landlord as provided for in any
statute or law in effect or hereafter enacted.
(b) TENANT'S RESPONSIBILITY. Tenant shall, at its sole cost and expense,
promptly make or cause to be made all needed repairs, replacements, renewals or
additions to the Leased Premises (except those portions of the Leased Premises
which are the specific responsibility of Landlord pursuant to Section 4.1(a)
hereof), including, but not limited to windows, glass and plate glass, doors and
any special store-front, interior walls and finish work, floors
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and floor coverings, gutters, dock boards, plumbing and heating fixtures and
ventilation and air conditioning systems. All such repairs or replacements shall
be of first quality and shall be constructed and installed to the satisfaction
of Landlord and in compliance with all governmental codes or requirements.
(c) TENANT'S DEFAULT. If Tenant refuses or neglects to make any repairs or
replacements required hereunder to the reasonable satisfaction of Landlord
within thirty (30) days after written demand by landlord, Landlord may make such
repairs or replacements and Tenant shall pay Landlord's costs upon presentation
of a statement therefor, and all such costs shall be deemed Additional Rent
hereunder.
(d) TENANT'S RIGHT TO CURE LANDLORD'S DEFAULTS. In the event Landlord shall
neglect to pay when due any obligations on any mortgage or encumbrances
affecting title to the Leased Premises and to which this Lease shall be
subordinate or Landlord shall fail to perform any obligations specified in this
Lease, then Tenant may, after the continuance of any such default for thirty
(30) days after written notice thereof by Tenant to Landlord (or such longer
period of time if such default cannot be reasonably cured within thirty (30)
days, but in no event longer than ninety (90) days) Tenant may pay said
principle, interest or other charges or cure such default all on behalf of and
at the expense of Landlord and do all necessary work and make all necessary
payments in connection therewith and Landlord shall, on demand, pay Tenant
forthwith. Interest shall begin accruing within thirty days after written demand
by Tenant is received by Landlord at the rate of eighteen percent (18%) per
annum (or the highest rate permitted by law, whichever is lower) until the date
of repayment of such sums by Landlord to Tenant. Further, should Landlord fail
to reimburse Tenant said funds within thirty (30) days after Tenant's written
request therefore, Tenant may deduct same from any and all payments of Base Rent
and Additional Rent and any other charges payable by Tenant pursuant to this
Lease and apply same to the payment of such indebtedness. Tenant shall not be
required to give Landlord prior notice to cure a default hereunder in the event
of an emergency.
SECTION 4.2. SALES AND PERSONAL PROPERTY TAXES.
Tenant shall pay before delinquency, all personal property taxes and
assessments on all furniture, fixtures, inventory and equipment and other
property of Tenant located on or about the Leased Premises. Tenant shall also
pay, as Additional Rent, all sales/use/excise tax assessed against the Base Rent
and Additional Rent stated herein by the State of Florida or any other
governmental authority, although the taxing statute or ordinance may purport to
impose such sales tax against the Landlord. The payment of sales tax shall be
paid by Tenant on a monthly basis, concurrently with the payment of, and based
upon the total amount of the installment due, of the Base Rent and Additional
Rent.
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SECTION 4.3. TENANT'S INSURANCE.
(a) Tenant will carry and maintain during the course of this Lease, at its
sole cost and expense, the following types of insurance, in the amounts
specified and in the form hereinafter provided for:
(i) insurance against public liability, including that from personal
injury or property damage in or about the Leased Premises resulting from the
occupation, use or operation of the Leased Premises, insuring both Landlord and
Tenant, in amounts of not less than One Million Dollars ($1,000,000.00) in
respect to bodily injury or death to any one person, of not less than Three
Million Dollars ($3,000,000.00) in respect of bodily injury or death to more
than one person in one accident, and of not less than Five Hundred Thousand
Dollars ($500,000.00) in respect of property damage.
(ii) during the course of any construction or repair of the
improvements on the Leased Premises, Tenant shall acquire and maintain builder's
completed value risk insurance against all risks of physical loss, including
collapse and transit coverage, during construction of such improvements.
(iii) risk property insurance insuring Tenant's personal property
situated upon or about the Leased Property, including, but not limited to,
office furniture and furnishings, trade fixtures, inventory, vehicles,
equipment, and other such items.
(iv) casualty insurance insuring the Leased Premises to the extent of
its full insurable replacement value against loss or damage by fire or other
casualty, with extended coverage and rental loss coverage and coverage against
loss or damage by vandalism, malicious mischief, sprinkler leakage and, if
available, against other hazards as Landlord may reasonably require from time to
time in amounts sufficient to prevent Tenant and Landlord from being a
co-insurer under the terms of the applicable policies, but in any event in an
amount not less than the then full replacement cost of the Leased Premises
without deduction for physical depreciation.
(v) such other insurance on the Leased Premises as Landlord may
reasonably require in such amounts as may from time to time be required against
insurable casualties. Prior to taking possession of the Leased Premises, Tenant
agrees to provide Landlord with evidence that the premium for said policies are
paid in full for the first year of the Lease.
(b) All policies of insurance provided for in Section 4.3 (a) shall be in
form acceptable to Landlord and shall be issued by insurance companies qualified
to do business in Florida and with general policy holder's ratings of not less
than XI and a financial rating of AAA as rated in the most current available
"Best's" Insurance Reports. Each and every such policy:
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(i) shall be issued in the names of Landlord and Tenant and any other
party in interest from time to time designated in writing by notice from
Landlord to Tenant;
(ii) shall be for the mutual and joint benefit and protection of
Landlord and Tenant and any such other parties in interest;
(iii) shall (or a certificate thereof shall) be delivered to each of
Landlord and any such other parties in interest not later than ten (10) days
before delivery of possession of the Leased Premises to Tenant and thereafter
within thirty (30) days prior to the expiration of each policy, and, any
additional policies shall be procured and maintained in like manner and to like
extent;
(iv) shall contain a provision that the insurer will give to Landlord
and such other parties in interest at least thirty (30) days notice in writing
in advance of any modification, cancellation, termination or lapse of the
insurance;
(v) shall be written as a primary policy which does not contribute to
and is not in excess of coverage which Landlord may carry;
(vi) shall contain a provision that Landlord and any such other
parties in interest, although named as an insured, shall nevertheless be
entitled to recover under said policies for any loss occasioned to it, by its
servants, agents and employees by reason of the negligence of Tenant; and
(vii) shall not provide for deductibles in excess of Twenty Thousand
Dollars ($20,000.00) (provided that Tenant agrees to pay said deductibles in the
event of a casualty or claim on said Insurance policies.)
(c) Any insurance provided for in Section 4.3 (a) may be maintained by
means of a policy or policies of blanket insurance, covering additional items or
locations or insureds, provided, however, that: (i) Landlord and any other
parties in interest from time to time designated by Landlord to Tenant shall be
named as an additional insured thereunder as his interest may appear; (ii) the
coverage afforded Landlord and any such other parties in interest will not be
reduced or diminished by reason of the use of such blanket policy of insurance;
and (iii) the requirements set forth in this Section 4.3 are otherwise
satisfied.
(d) Tenant agrees to permit Landlord at all reasonable times to inspect the
policies of insurance of Tenant with respect to the Leased Premises for which
policies or copies thereof are not delivered to Landlord.
Section 4.4. (Intentionally omitted).
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SECTION 4.5. TRIPLE NET LEASE. This Lease shall be deemed to be a "triple
net" lease, it being the express understanding and intent of the Landlord and
Tenant that the Rent due hereunder shall be absolutely net to the Landlord.
Except as otherwise herein specifically set forth in the Lease, the Tenant shall
pay all expenses arising in connection with the Leased Premises, including
without limitation, all Operating Costs, utility charges, insurance premiums,
maintenance and repair costs, and all other costs, fees, interests, charges,
expenses, reimbursements and obligations of every kind and nature relating to
the Leased Premises, and all real estate taxes and other assessments. All of the
foregoing expenses shall be paid or discharged by the Tenant as Additional Rent
hereunder, and Tenant hereby agrees to indemnify, defend and save Landlord
harmless from and against the same.
SECTION 4.6. ACCESS AND RIGHT OF ENTRY BY LANDLORD. Landlord shall have the
right to enter the Leased Premises during business hours and after reasonable
notice given to Tenant and in a manner that minimizes the disruption to Tenant's
business and operations as little as possible, to examine the same, and to make
such repairs, alterations, improvements or additions as may be necessary or
required by the terms of this Lease.
SECTION 4.7. ACCEPTANCE OF PREMISES. Tenant acknowledges that Landlord shall
deliver and lease the Leased Property to Tenant in its "As Is" condition, and
that other than as expressly set forth in Section 20.19 or otherwise in the
Lease, Landlord shall have no duty or obligation to maintain, alter, improve, or
repair the Leased Property. Tenant further acknowledges that Landlord has not
made any representations or warranties with respect to the condition of the
Leased Premises and neither Landlord nor any assignee of Landlord shall be
liable for any latent or patent defect therein. Tenant acknowledges that it has
inspected the Leased Property to its satisfaction and is in all matters familiar
with the Leased Property and its physical and other conditions and
characteristics. Except as stated herein and except for the performance of
Landlord's Work pursuant to Section 20.19 hereof, the taking of possession of
the Leased Premises by Tenant shall be conclusive evidence that the Premises
were in good and satisfactory condition at the time such possession was taken.
SECTION 4.8. MUTUAL WAIVER OF SUBROGATION RIGHTS. Landlord and Tenant and
all parties claiming under them mutually release and discharge each other from
all claims and liabilities arising from or caused by any casualty or hazard
covered or required hereunder to be covered in whole or in part by insurance on
the Leased Premises or in connection with property on or activities conducted on
the Premises, and waive any right of subrogation which might otherwise exist in
or accrue to any person on account thereof, and agree to evidence such waiver by
endorsement to the required insurance policies. Should Tenant fail to carry
the insurance required hereunder, then Landlord shall not
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waive its subrogation rights against Tenant pursuant to this Section 4.8.
ARTICLE V
DESTRUCTION OF PREMISES; EMINENT DOMAIN
SECTION 5.1. TOTAL OR PARTIAL DESTRUCTION.
(a) Except as provided in sub-paragraph (d) hereof: (i) if the Building
shall be destroyed or damaged by fire or other insured cause to the extent of
twenty percent (20%) or less of the insured value of the Building, in the
reasonable opinion of Landlord, and if such Building may be repaired and
restored within one hundred eighty (180) days after the date of such damage,
then Landlord shall repair and restore the same with reasonable promptness
provided, however, that in no event shall Landlord be required to repair any
damage in excess of the insurance proceeds recovered therefor.
(b) If such damage is to the extent of more than twenty percent (20%) of
the insured value of the Building, in the reasonable opinion of the Landlord,
and if such Building may be repaired and restored within one hundred eighty
(180) days after the date of such damage or destruction, then Landlord shall
repair and restore same with reasonable promptness provided, however, that in no
event shall Landlord be required to repair any damage or destruction in excess
of the insurance proceeds recovered therefor. Notwithstanding the extent of such
damage or destruction, if, in the reasonable opinion of Landlord, such damage or
destruction cannot be repaired and restored within one hundred eighty (180) days
after the date of such damage, then either Landlord or Tenant shall have the
right to cancel and terminate this Lease and all rights and obligations of the
parties thereunder upon giving notice of same to the other party at any time
within thirty (30) days from the date such damage or destruction shall have
occurred.
(c) In the event any such damage or destruction, which renders the
Building, in the, reasonable opinion of Landlord, untenantable and if this Lease
shall not be canceled and terminated by reason of such damage (provided Landlord
receives reimbursement for the abatement of Base Rent due hereunder under an
insurance policy carried pursuant to this Lease), then Base Rent only shall
abate during the period beginning with the date of such fire or other insured
cause and ending with the date when the Building is again rendered tenantable by
an amount bearing the same ratio to the total amount of Base Rent for such
period as the untenable portion of the Building bears to the entire Building.
Should Landlord fail to receive reimbursement for the abatement of Base Rent
hereunder then Base Rent shall not abate.
(d) If any damage or destruction to the Building is the result of an act or
neglect of Tenant, its subtenants, licensees, or Tenant's partners, directors,
officers, agents, employees,
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invitees or contractors, such damage or destruction shall be repaired or
restored by Tenant, under the supervision and with the approval of Landlord, at
Tenant's sole cost and expense. Notwithstanding anything to the contrary, if the
insurance proceeds received by Tenant hereunder are insufficient to restore the
Leased Premises in accordance with the Lease and if the damage or destruction is
the result of an act or neglect of Landlord, its employees, agents, servants or
contractors, then Landlord shall be responsible for payment to Tenant of the
difference between the amount of insurance proceeds received by Tenant and the
actual cost to restore replace the Leased Premises.
(e) Tenant, as its sole remedy, may terminate this Lease if Tenant is
unable to use all or a substantial portion of the Building as a result of fire
or other casualty and if in the reasonable opinion of Landlord, such damage or
destruction cannot be repaired and restored within one hundred eighty (180) days
after the date of such damage. In order to so terminate, Tenant must provide
written notice to Landlord within thirty (30) days of the fire or casualty. In
the event that Tenant, its subtenants or licensees, or Tenant's partners,
directors, officers, agents, or employees, invitees, or contractors delay
Landlord in performing such repairs, Landlord shall have additional time to
complete the work equal to such delay. Notwithstanding the foregoing, Tenant may
not terminate the Lease if the fire or other casualty was the result of the
intentional acts of Tenant, its subtenants or licensees, or Tenant's partners,
directors, officers, agents, employees, invitees or contractors.
(f) In the event of termination of the Lease under this Article V whether
due to destruction or eminent domain, Landlord share immediately return to
Tenant the Security Deposit posted by Tenant provided Tenant has otherwise
complied with its obligations under the Lease.
SECTION 5.2. EMINENT DOMAIN.
(a) If the whole of the Leased Property shall be acquired or condemned by
eminent domain for any public or quasi-public use of purpose, then the term of
this Lease shall cease and terminate as of the date of title vesting in the
condemning governmental body or other authority pursuant to such proceeding,
and all Rent, Additional Rent and other charges shall be paid up to such date.
(b) If a substantial and material portion of the Leased Property shall be
acquired or condemned by eminent domain for any public or quasi-public use or
purpose, and such partial taking or condemnation shall render the Leased
Property unsuitable for Tenant's use of the Premises, then the term of this
Lease shall cease and terminate as of the date of title vesting in the
condemning governmental body or other authority pursuant to such proceeding. In
the event of a partial taking or condemnation which is not extensive enough to
render the Leased Property unsuitable for Tenant's use of the Premises, then
Landlord shall, to the
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extent condemnation proceeds received by Landlord, promptly restore the Leased
Property to a condition Comparable to its condition at the time of such
condemnation, less the portion lost in the taking, and this Lease shall continue
in full force and effect, with Base Rent being decreased to take into account
the portion of the Leased Property taken.
(c) In the event of any condemnation or taking as hereinbefore provided,
whether whole or partial, the Tenant shall be entitled to a portion of the
award, as damages or otherwise, for such condemnation, provided that any claim
made by Tenant shall not diminish the award to Landlord.
(d) A sale by Landlord to any authority having the power of eminent domain,
either under threat of condemnation or while condemnation proceedings are
pending, shall be deemed a taking under the power of eminent domain for all
purposes under this section.
(e) If twenty-five percent (25%) or more of the parking spaces on the Land
are taken and Landlord fails to replace such parking spaces with new parking
spaces located in reasonable proximity to the Leased Premises within thirty (30)
days of such taking, then Tenant may at its option terminate this Lease.
ARTICLE VI
ALTERATIONS AND REPAIR OF LEASED PROPERTY BY TENANT
SECTION 6.1. REPAIRS AND ALTERATIONS BY TENANT. Tenant covenants and agrees
with Landlord, at Tenant's own cost and expense, to promptly repair any damage
done to the Building or Land, or any part thereof, including replacement of
damaged portions or items, caused by Tenant or any of its subtenants or
licensees, or Tenant's partners, directors, officers, agents, employees,
invitees, or contractors, and Tenant covenants and agrees to make all such
repairs as may be required to restore the Building to as good a condition as it
was in prior to such damage. All such work or repairs by Tenant shall be
effected in compliance with all applicable laws; provided, however, if Tenant
fails to make such repairs or replacements within thirty (30) days after
receiving prior written notice from Landlord (or such longer period if such
repairs cannot be reasonably made within such time period, but in no event
longer than ninety (90) days), Landlord may, at its option, make such repairs or
replacements, and Tenant shall pay the cost thereof to the Landlord within
thirty (30) days of Landlord's demand therefor, as Additional Rent. Interest at
the rate of eighteen percent (18%) per annum (or the highest rate permitted by
law, whichever is lower) shall begin accruing thirty days after Landlord's
written demand is received by Tenant for said funds and until the date of
repayment by Tenant to Landlord. No such notice shall be required by either
Landlord or Tenant to make emergency repairs to the Leased Premises. Tenant
agrees with Landlord not to make or allow to be made any alterations to the
Premises costing in
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excess of Five Thousand and No/100 Dollars ($5,000.00), without first obtaining
the prior written consent of Landlord in each such instance, which consent shall
not be unreasonably withheld or delayed. Should Landlord fail to approve or
disapprove any proposed alterations submitted to Landlord after receipt of ten
(10) business days prior written notice, alterations shall be deemed approved.
Any and all alterations to the Premises shall become the Property of Landlord
upon termination of this Lease (except for movable equipment, trade fixtures, or
furniture owned by Tenant). Landlord may, nonetheless, require Tenant to remove
any and all fixtures, equipment and other improvements installed on the Leased
Property. In the event that Landlord so elects, and Tenant fails to remove such
improvements, Landlord may remove such improvements at Tenant's cost, and Tenant
shall pay Landlord on demand the cost of restoring the Leased Property.
SECTION 6.2. CONSTRUCTION LIENS. Nothing contained in this Lease shall be
construed as a consent on the part of the Landlord to subject the estate of the
Landlord to liability under the construction lien laws of the State of Florida,
it being expressly understood that the Landlord's estate shall not be subject to
such liability. Tenant shall strictly comply with the construction lien laws of
the State of Florida as set forth in the Florida Statutes. In the event that a
claim of lien is filed against the Leased Property in connection with any work
performed by or on behalf of the Tenant, the Tenant shall satisfy such claim, or
shall transfer same to security, within ten (10) days from the date of filing.
In the event that the Tenant fails to satisfy or transfer such claim within said
ten (10) day period, the Landlord may do so and thereafter charge the Tenant, as
additional rent, all costs incurred by the Landlord in connection with the
satisfaction or transfer of such claim, including attorneys' fees. Further, the
Tenant agrees to indemnify, defend and save the Landlord harmless from and
against any damage or loss incurred by the Landlord as a result of any such
claim of lien. The security deposit paid by the Tenant may be used by the
Landlord for the satisfaction or transfer of any claim of lien, as provided in
this Section. This Section shall survive the termination of this Lease.
ARTICLE VII
LANDLORD'S AND TENANT'S PROPERTY
SECTION 7.1. LANDLORD'S PROPERTY. All fixtures (other than storage shelving
and lighting fixtures of Tenant offered for either retail or wholesale sale),
equipment, improvements and appurtenances attached to or built into the Leased
Property at the commencement of or during the term of this Lease, whether or not
by or at the expense of Tenant, shall be and remain a part of the Leased
Property, shall be deemed the property of Landlord and shall not be removed by
Tenant except as set forth therein. Further, any carpeting shall be and shall,
remain Landlord's property and shall hot be removed by Tenant.
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SECTION 7.2. TENANT'S PROPERTY. All machinery and equipment and office
equipment, whether or not attached to or built into the Leased Property, which
is installed in the Leased Property by or for the account of Tenant without
expense to Landlord and which can be removed without structural damage to the
Leased Property, and all furniture, storage shelving, furnishings, lighting
fixtures offered for either retail or wholesale sale and other articles of
movable personal property owned by Tenant and located in the Leased Property
(hereinafter collectively referred to as "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at anytime during the
term of this Lease. In the event Tenant's Property is so removed, Tenant shall
repair or pay the cost of repairing any damage to the Leased Property resulting
from the installation and/or removal thereof and restore the Premises to the
same physical condition and layout as they existed at the time Tenant was given
possession of the Leased Property.
SECTION 7.3. REMOVAL OF TENANT'S PROPERTY. At or before the expiration date
of this Lease, or within five (5) days after an earlier termination hereof,
Tenant, at its expense, shall remove from the Leased Property all of Tenant's
Property (except such items thereof as Landlord shall have expressly permitted
to remain, which property shall become the property of Landlord), and Tenant
shall repair any damage to the Leased Property resulting from any installation
and/or removal of Tenant's Property and restore the Leased Property to the same
physical condition and layout as they existed at the time Tenant was given
possession of Leased Property, except for reasonable wear and tear, casualty,
condemnation, and damage arising from any cause not required to be repaired or
replaced by Tenant pursuant to this Lease. Any other items of Tenant's Property
which shall remain in the Leased Property after the expiration date of this
Lease, or after a period of 5 days following an earlier termination date, may,
at the option of Landlord, be deemed to have been abandoned, and in such case,
such items may be retained by Landlord as his property or disposed of by
Landlord, without accountability, in such manner as. Landlord shall determine,
at Tenant's expense.
ARTICLE VIII
COMPLIANCE WITH LAW
SECTION 8.1. OBLIGATIONS OF TENANT. Tenant shall, during the term of this
Lease, at its sole cost and expense, comply with all valid laws, ordinances,
regulations, orders and requirements of any governmental authority which may be
applicable to the Leased Property or to the use, manner of use or occupancy
thereof, whether or not the same shall interfere with the use or occupancy of
the Leased Property arising from: (a) Tenant's use of the Leased Property; (b)
the manner or conduct of Tenant's business or operation of its installations,
equipment or other property therein; (c) any cause or condition created by or at
the instance
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of Tenant; or (d) breach of any of Tenant's obligations hereunder, whether or
not such compliance requires work which is structural or nonstructural, ordinary
or extraordinary, foreseen or unforeseen; and Tenant shall pay all of the costs,
expenses, fines, penalties and damages which may be imposed upon Landlord by
reason or arising out of Tenant's failure to fully and promptly comply with and
observe the provisions of this Section. Tenant shall give prompt notice to
Landlord of any notice it receives of the violation of any law or requirement of
any public authority with respect to the Leased Property or the use or
occupation thereof. Notwithstanding the foregoing, Tenant shall not be
responsible for repairs and replacements that are Landlord's responsibility
pursuant to Section 4.1 (a) hereof and Tenant shall not be responsible for
removal of Hazardous or Toxic Materials placed on the Leased Premises by
Landlord, its employees, licensees, trustees, beneficiaries, officers,
directors, agents, contractors, and prior tenants leasing the Leased Premises
from Landlord prior to the date hereof and prior owners.
SECTION 8.2. RIGHT TO CONTEST. Tenant shall have the right, by appropriate
legal proceedings in the name of Tenant or Landlord or both, but at Tenant's
sole cost and expense, to contest the validity of any law, ordinance, order,
regulation or requirement. If compliance therewith may legally be held in
abeyance, Tenant may postpone compliance until final determination under any
such proceedings.
Further, Tenant shall have the right to participate in all negotiations of
ad valorem, real estate taxes or assessments levied against Leased Premises and
may pay same under protest or take such other steps as Tenant may deem
appropriate; provided, however Tenant shall take no action which will cause or
allow the institution of any foreclosure proceedings or similar action against
the Leased Premises. Landlord shall cooperate at Tenant's expense in the
institution and prosecution of any such proceedings initiated by Tenant and will
execute reasonable documents and Landlord will at Tenant's expense, make
appearances required therefor.
ARTICLE IX
SECURITY DEPOSIT
SECTION 9.1. AMOUNT OF SECURITY DEPOSIT. Tenant, simultaneously with the
execution of this Lease, has delivered to Landlord a letter of credit in the
amount of Three Hundred and Twenty-Seven Thousand Seven Hundred and Sixty 00/100
Dollars ($327,760.00) (the "Security Deposit"). The form of the letter of credit
shall be a clean, irrevocable letter of credit issued by a lending institution
approved by Landlord in its sole discretion and shall contain such terms and
conditions as Landlord may reasonably require including, without limitation, (i)
the amount of the letter
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of credit shall be Three Hundred and Twenty-Seven Thousand Seven Hundred and
Sixty 00/100 Dollars ($327,760.00), (ii) the letter of credit shall expire no
earlier than thirty (30) days after the expiration of the Term or thirty (30)
days after the expiration of any option or renewal term, and (iii) the amount
payable under the letter of credit shall be paid to Landlord upon Landlord's
presentment to the maker thereof of a certificate indicating that Tenant has
defaulted under the Lease. Should the letter of credit be ready to expire and
Tenant has not renewed same, then Landlord may draw upon the letter of credit
and the proceeds of the letter of credit shall be deemed the same as a cash
security deposit under this Lease. If the Security Deposit shall be in the form
of cash, it may be commingled with other funds of Landlord, and Landlord, shall
have no liability for the accrual or payment of any interest thereon. If at any
time during the term of this Lease any of the Base Rent, Additional Rent or
other amount payable hereunder shall be overdue and unpaid, then Landlord may,
at the option of Landlord, appropriate and apply all or any portion of said
Security Deposit to the payment of any such overdue Base Rent, Additional Rent
or other sum, after expiration of all grace periods and cure periods in favor of
Tenant have expired. Notwithstanding anything to the contrary, should Tenant
close on a public offering within sixty (60) days of the Lease Commencement Date
that raises at least Eight Million 00/100 Dollars ($8,000,000.00), then Landlord
shall return the letter of credit to Tenant (assuming that Tenant is not
otherwise in default under the Lease) upon Tenant's posting of either a cash
security deposit or letter of credit in the amount of Sixty Thousand and 00/100
Dollars ($60,000.00). Such letter of credit shall comply with the terms
described above but shall instead be in the amount of $60,000.00. Should Tenant
consummate an initial public offering after the expiration of sixty (60) days of
the Lease Commencement Date, then Landlord shall release the letter of credit
posted by Tenant upon receiving a cash security deposit or letter of credit in
the amount of $60,000.00 as more particularly described above, upon approval, in
Landlord's sole discretion, of the financial condition of Tenant.
SECTION 9.2. USE AND RETURN OF DEPOSIT. In the event of the failure of
Tenant to keep and perform any of the terms, covenants and conditions of this
Lease to be kept and performed by Tenant, (after expiration of all applicable
grace periods granted to Tenant under the Lease, provided however that at the
end of the Lease Term or the renewal term as the case may be, any grace periods
shall be deemed to expire not later than five (5) business days prior to the end
of the Lease Term or Renewal Term), then the Landlord, at its option, may
appropriate and apply said Security Deposit, or so much thereof as Landlord may
deem necessary, to compensate the Landlord for all loss or damage sustained or
suffered by Landlord due to such default or failure on the part of Tenant.
Should the entire Security Deposit, or any portion thereof, be appropriated and
applied by Landlord for the payment of overdue Base Rent or Additional Rent or
other sums due and payable by Tenant hereunder, then Tenant shall, upon the
demand of Landlord, forthwith remit to
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Landlord a sufficient amount in cash to restore said Security Deposit to the
original sum deposited, and Tenant's failure to do so within five (5) days after
receipt of such demand shall constitute a default of this Lease. Should Tenant
comply with all of said terms, covenants and conditions and promptly pay all of
the Base Rent and Additional Rent herein provided for as it falls due, and all
other sums payable by Tenant to Landlord hereunder, the said Security Deposit
shall be returned in full to Tenant at the end of the term of this Lease, or
upon the earlier termination hereof. Should Landlord sell or otherwise transfer
the Leased Premises, then Landlord shall transfer the Security Deposit posted by
Tenant to such transferring and requiring that such transferee execute an
assignment and assumption of this Lease.
ARTICLE X
RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
SECTION 10.1. PAYMENT OR PERFORMANCE. Landlord shall have the right at any
time, upon five (5) days' prior written notice to Tenant (or without notice in
case of emergency) of Tenant's failure to comply with the covenants and
obligations of Tenant set forth in this Lease prior to the expiration of any
applicable cure period, to make any payment or perform any act required of
Tenant under any provision in this Lease, and in exercising such right, to incur
necessary and incidental costs and expenses, including reasonable counsel fees.
Nothing herein shall imply any obligation on the part of Landlord to make any
payment or perform any act required of Tenant, and the exercise of the right to
so do shall not constitute a release of any obligation or a waiver of default.
SECTION 10.2. REIMBURSEMENT. All payments made and all costs and expenses
incurred in connection with any exercise of the right set forth in Section 10.1
shall be reimbursed by Tenant within ten (10) days after receipt of a bill
setting forth the amounts so expended together with interest at the lesser of
eighteen percent (18%) per annum or the maximum lawful rate from the respective
dates of the making of such payments or the incurring of such costs and
expenses, to Landlord.
ARTICLE XI
ASSIGNMENT AND SUBLETTING
SECTION 11.1. ASSIGNMENT AND SUBLEASE. Tenant shall not, whether
voluntarily, involuntarily, or by operation of law or otherwise (a) assign this
Lease or the term hereby granted, or offer or advertise to do so, (b) sublet the
Leased Property or any part thereof, or offer or advertise to do so, or (c)
allow the same to be used, occupied or utilized by anyone other than Tenant,
without in each instance obtaining the prior written consent of Landlord, which
consent will not be unreasonably withheld or
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delayed if the conditions set forth in Section 11.2 hereof have been met. Should
the Landlord fail to respond to Tenant's request for approval within ten (10)
business days of receipt from Tenant, then the proposed assignee or sublessee
shall be deemed approved.
SECTION 11.2. APPROVAL OF LANDLORD. Landlord shall approve an assignment or
sublease provided that each of the following conditions are met:
(i) The assignee or subtenant is a reputable person or entity of good
character and has a net worth computed in accordance with generally accepted
accounting principals at least equal to the net worth of Tenant immediately
prior to such assignment or sublease;
(ii) The subtenant or assignee shall have executed an instrument, in
form and substance satisfactory to Landlord, acknowledging the assignment or
sublet, and agreeing to be bound by the terms of this Lease;
(iii) The Tenant shall execute an instrument, in form and substance
satisfactory to Landlord, in which Tenant acknowledges that notwithstanding any
assignment or sublet, Tenant shall continue to remain liable for all obligations
under this Lease, including the obligation to pay Base Rent and Additional Rent;
(iv) Tenant shall not then be in default under this Lease;
(v) The assignee or subtenant shall use the Leased Property in
accordance with Section 1.3 hereof;
(vi) Tenant and the assignee or subtenant shall satisfy such other
conditions as Landlord may reasonably require.
SECTION 11.3. (Intentionally omitted).
SECTION 11.4. CONTINUING LIABILITY. Each subletting or assignment shall be
subject to all of the covenants, agreements, terms, provisions and conditions
contained in this Lease. Notwithstanding any such subletting, assignment and/or
acceptance of rent by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment of the Base Rent and Additional Rent due and to
become due hereunder and for the performance of all the covenants, agreements,
terms, provisions and conditions contained in this Lease on the part of the
Tenant to be performed.
ARTICLE XII
SUBORDINATION AND ATTORNMENT
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SECTION 12.1. SUBORDINATION. This Lease, and all rights of Tenant
hereunder, are and shall be subject and subordinate to all mortgages executed by
Landlord which may now or hereafter affect the Leased Property, provided that
Landlord obtains a subordination non-disturbance and attornment agreement in a
form reasonably acceptable to Tenant, including, without limitation that certain
mortgage (the "United of Omaha Mortgage") executed by Lawrence Z. Crockett and
Marilyn M. Crockett, as tenants by the entirety and not as tenants in common, in
favor of First Union National Bank of Florida, bearing the date July 24, 1990,
recorded July 30, 1990 in Official Records Book 6532, Page 1036, of the Public
Records of Palm Beach County, Florida, securing the original principal sum of
One Million Seven Hundred Fifty Thousand and 00/100 Dollars ($1,750,000.00);
said mortgage having been assigned to United of Omaha Life Insurance Company, a
Nebraska corporation, by instrument dated and recorded on September 21, 1990, in
Official Records Book 6590, Page 1074; said mortgage having been amended and
restated by instrument dated and recorded on September 24, 1990 in Official
Records Book 6590, Page 1075; said mortgage having been assumed by Landlord and
modified by instrument dated March 11, 1996, recorded April 2, 1996 in Official
Records Book 9192, Page 85. This subordination shall likewise apply to each and
every advance made or hereafter to be made under such mortgages to all renewals,
modifications and replacements and extensions of such mortgages and to spreaders
and consolidations of such mortgages. This Section shall be self-operative and
no further instrument of subordination shall be required. In confirmation of
such subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord or the holder of any such mortgage (or their respective
successors in interest) may reasonably request to evidence such subordination.
If Tenant fails to execute, acknowledge or deliver any such instrument within
ten (10) days after request therefor, Tenant hereby irrevocably constitutes and
appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to
execute and deliver any such instruments for and on behalf of Tenant. Any
mortgage to which this Lease is subject and subordinate is hereinafter referred
to as a "Superior Mortgage" and the holder of a Superior Mortgage is hereinafter
referred to as a "Superior Mortgagee". No action taken by a Superior Mortgage to
enforce such Superior Mortgage, by foreclosure or by accepting a deed in lieu of
foreclosure, or by exercise of the power of sale or by resorting to any other
remedies available to such Superior Mortgage shall terminate this Lease or
invalidate any of the terms thereof or any of the terms of any guaranty of such
Lease. Landlord shall obtain the form of Subordination, Non-Disturbance and
Attornment Agreement attached as Exhibit "D" from the holder of the United
Mutual of Omaha Mortgage, its successors and assigns, within sixty (60) days
after execution of this Lease, failing which Tenant may terminate this Lease
upon thirty (30) days prior written notice to Landlord and receive its Security
Deposit back. Tenant agrees to sign the estoppel letter referenced in Exhibit
"D" and provide same to Landlord upon execution of this Lease.
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SECTION 12.2. NOTICE OF MORTGAGES. If any act or omission of Landlord would
give Tenant the right, immediately or after the lapse of a period of time, to
cancel this Lease or to claim a partial or total eviction, Tenant shall not
exercise such right: (a) until it has given written notice of such act or
omission to Landlord and each Superior Mortgagee whose name and address shall
previously have been furnished to Tenant; and (b) until a reasonable period of
remedying such act or omission shall have elapsed following the giving of such
notice and following the time when such Superior Mortgagee shall have become
entitled under such Superior Mortgage to remedy the same (which reasonable
period shall in no event be less than the period to which Landlord would be
entitled under this Lease or otherwise, after similar notice to effect such
remedy), provided such Superior Mortgagee shall, with due diligence, give Tenant
notice of intention to, and commence and continue to, remedy such act or
omission, but in no event shall such Superior Mortgagee's time period to cure
any such defaults exceed a total of ninety (90) days after Landlord's default.
SECTION 12.3. ATTORNMENT. If any Superior Mortgagee shall succeed to the
rights of Landlord hereunder, whether through possession or foreclosure action
or delivery of a new lease or deed or, if any other party shall acquire the
Leased Property at a foreclosure sale, by a voluntary conveyance or upon the
exercise of a power of sale, then, at the request of such party (hereinafter
referred to as "Successor Landlord"), Tenant shall attorn to and recognize each
Successor Landlord as Tenant's landlord under this Lease and shall promptly
execute and deliver any instrument such Successor Landlord may reasonably
request to evidence such attornment. Upon such attornment, this Lease shall
continue in full force and effect as a direct lease between the Successor
Landlord and Tenant upon all the terms, conditions, and covenants as set forth
in this Lease.
ARTICLE XIII
NON-LIABILITY AND INDEMNIFICATION
SECTION 13.1. NON-LIABILITY OF LANDLORD. Neither Landlord nor any
beneficiary, agent, servant, or employee of Landlord, nor any Superior
Mortgagee, shall be liable to Tenant for any loss, injury, or damage to Tenant
or to any other person, or to its or their property, irrespective of the cause
of such injury, damage or loss, unless (i) caused by or resulting from the gross
negligence of Landlord, his agents, servants or employees in the operation or
maintenance of the Leased Property, subject to the doctrine of comparative
negligence in the event of contributory negligence on the part of Tenant or any
of its subtenants or licensees, or Tenant's partners, directors, officers,
agents, employees, invitees or contractors; or (ii) caused by the Landlord, its
trustees, beneficiaries', partner's, director's officer's, employees' or agents'
failure to apply any insurance proceeds received by Landlord or its trustees,
beneficiaries, partners, directors,
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officers, agents, employees, invitees or contractors in accordance with this
Lease. Tenant recognizes that the Superior Mortgagee will not be liable to
Tenant for injury, damage or loss caused by or resulting from the gross
negligence of the Landlord. Further, neither Landlord, nor any trustee,
beneficiary, director, officer, agent, servant, or employee of Landlord shall be
liable: (a) for any such damage caused by other persons in, upon or about the
Leased Property, or caused by operations in construction of any private, public
or quasi-public work; or (b) even if negligent, for consequential damages
arising out of any loss of use of the Leased Property or any equipment or
facilities therein by Tenant or any person claiming through or under Tenant.
SECTION 13.2. INDEMNIFICATION BY TENANT. Tenant shall indemnify and hold
Landlord and all Superior Mortgagees and its and their respective trustees,
partners, directors, officers, agents, employees and beneficiaries harmless from
and against any and all claims from or in connection with: (a) any act, omission
or negligence of Tenant or any of its subtenants or licensees, or Tenant's
partners, directors, officers, agents, employees, invitees, or contractors; (b)
any accident, injury or damage whatsoever (unless caused by Landlord's, its
trustees', beneficiaries', licensees', partners', directors', officers',
employees', contractor's, or agents' negligence) occurring in, at or upon the
Leased Property; and (c) any breach or default by Tenant in the full and prompt
payment and performance of Tenant's obligations under this Lease; together with
all costs, expenses and liabilities incurred in or in connection with each such
claim or action or proceeding brought thereon including, without limitation, all
reasonable attorneys' fees and expenses. In case any action or proceeding be
brought against Landlord and/or Superior Mortgagee and/or its or their partners,
trustees, beneficiaries, directors, officers, agents and/or employees by reason
of any such claim, Tenant, upon notice from Landlord or such Superior Mortgagee,
shall resist and defend such action or proceeding (by counsel reasonably
satisfactory to Landlord or such Superior Mortgagee).
SECTION 13.3. INDEMIFICATION BY LANDLORD. Landlord shall indemnify and hold
Tenant and its respective partners, directors, officers, agents, and employees
harmless from and against any and all claims from or in connection with: (a) any
act, omission or negligence of Landlord, Landlord's beneficiaries or trustees,
or any of Landlord's licensees, partners, directors, officers, agents, employees
or contractors; and (b) any breach or default by Landlord in the full and prompt
payment and performance of Landlord's obligations under this Lease, together
with all costs, expenses and liabilities incurred in or in connection with each
such claim or action or proceeding brought thereon including, without
limitation, all reasonable attorneys' fees and expenses. In case any action or
proceeding be brought against Tenant, its partners, directors, officers, agents
or employees by reason of any such claim, Landlord, upon notice from Tenant,
shall resist and defend such
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action or proceeding (by counsel reasonably satisfactory to Tenant).
SECTION 13.4. INDEPENDENT OBLIGATIONS; FORCE MAJEURE. The obligations of
Tenant hereunder shall not be affected, impaired or excused, nor shall Landlord
have any liability whatsoever to Tenant, because: (a) Landlord is unable to
fulfill, or is delayed in fulfilling any of his obligations under this Lease by
reason of strike, other labor trouble, governmental preemption of priorities or
other controls in connection with a national or other public emergency or
shortages of fuel, supplies, labor or materials, Acts of God or any other cause,
whether similar or dissimilar, beyond Landlord's reasonable control (except that
lack of funds shall not be considered an excuse to delay Landlord's performance
or a force majeure event); or (b) of any failure or defect in the supply,
quantity or character of electricity or water furnished to the Leased Property,
by reason of any requirement, act or omission of the public utility or others
serving the Leased Property with electric energy, steam, oil, gas or water, or
for any other reason whether similar or dissimilar, beyond Landlord's reasonable
control. Landlord agrees to use reasonable efforts to remedy and/or mitigate the
effects of such events referenced in subparagraphs (a) and (b) above and
Landlord shall give Tenant written notice within five (5) business days of such
force majeure event if same will delay Landlord's performance of any obligations
under this Lease. Tenant shall not hold Landlord liable for any latent defect in
the Leased Property nor shall Landlord be liable for injury or damage to person
or property caused by fire, theft, or resulting from the operation of elevators,
heating or air conditioning or lighting apparatus, or from falling plaster, or
from steam, gas, electricity water, rain, or dampness, which may leak or flow
from any part of the Leased Property, or from the pipes, appliances or plumbing
work of the same.
ARTICLE XIV
DEFAULT; LANDLORD'S REMEDIES
SECTION 14.1. EVENTS OF DEFAULT. The Tenant shall be in default under this
Lease if any one or more of the following events (an "Event of Default") shall
occur:
(a) Tenant shall fail to pay any installment of the Base Rent or Additional
Rent called for hereunder as and when the same shall become due and payable, and
such default shall continue for a period of ten (10) days after the same is due;
(b) Tenant shall fail to comply with the provisions set forth in Article IV
hereof, and such default shall continue for a period of ten (10) days after the
giving of written notice thereof from Landlord to Tenant.
(c) Tenant shall default in the performance of or compliance
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with any of the other terms or provisions of this Lease, and such default shall
continue for a period of thirty (30) days after the giving of written notice
thereof from Landlord to Tenant, or, in the case of any such default which
cannot, with bona fide due diligence, be cured within thirty (30) days, Tenant
shall fail to proceed promptly after the giving of such notice with bona fide
due diligence to cure such default and thereafter to prosecute the curing
thereof with said due diligence within such period of thirty (30) days (it
being intended that as to a default not susceptible of being cured with due
diligence within thirty (30) days, the time within which such default may be
cured shall be extended for such period as may be necessary to permit the same
to be cured with due diligence which period shall not exceed sixty (60) days;
(d) Tenant shall assign or sublet the Premises in a manner not permitted by
Article XI hereof.
(e) Tenant shall file a voluntary petition in bankruptcy or an Order for
Relief be entered against it, or shall file any petition or answer seeking any
arrangement, reorganization, composition, readjustment or similar relief under
any present or future bankruptcy or other applicable law, or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Tenant of all or any substantial part of Tenant's properties; or
(f) If, within sixty (60) days after the filing of an involuntary petition
in bankruptcy against Tenant or the commencement of any proceeding against
Tenant seeking any arrangement, reorganization, composition, readjustment or
similar relief under any law, such proceeding shall not have been dismissed, or
if, within sixty (60) days after the appointment, without the consent or
acquiescence of Tenant, of any substantial part of its properties, such
appointment shall not have been vacated or stayed on appeal or otherwise, or if,
within ninety (90) days after the expiration of any such stay, such appointment
shall not have been vacated;
then, and in any such event, or during the continuance thereof, Landlord
may, at his option, exercise any of the remedies set forth in Section 14.2
hereof or as otherwise provided by law.
SECTION 14.2. REMEDIES OF LANDLORD.
(a) If any Event of Default occurs, the Landlord shall have the right, at
the option of Landlord, to terminate this Lease upon ten (10) days written
notice to Tenant, and to thereupon re-enter and take possession of the Leased
Property with or without legal process. Tenant shall, notwithstanding such
termination, remain liable to Landlord for damages by virtue of all Base Rent
and Additional Rent unpaid and herein reserved for the balance of the lease term
herein granted. If any Event of Default occurs, Landlord shall have the right,
at its option, from time to time, without terminating this Lease, to re-enter
and re-let the Leased
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Property or any part thereof, with or without legal process, as the agent and
for the account of Tenant upon such terms and conditions as Landlord may deem
advisable or satisfactory, in which event the rents received on such re-letting
shall be applied first to the expenses of such reletting and collection
including but not limited to, necessary renovation and alterations of the Leased
Property, reasonable attorney's fees, any real estate commissions paid, and
thereafter toward payment of all sums due or to become due Landlord hereunder,
and if a sufficient sum shall not be thus realized or secured to pay such sums
and other charges, (i) at Landlord's option, Tenant shall pay Landlord any
deficiency monthly, notwithstanding Landlord may have received rental in excess
of the rental stipulated in this Lease in previous or subsequent months, and
Landlord may bring an action therefor as such monthly deficiency shall arise, or
(ii) at Landlord's option, the entire deficiency, which is subject to
ascertainment for the remaining term of this Lease, shall be immediately due and
payable by Tenant. Nothing herein, however, shall be construed to require
Landlord to reenter and relet in any event. The Landlord shall not, in any
event, be required to pay Tenant any surplus of any sums received by Landlord on
a re-letting of said Leased Property in excess of the rent provided in this
Lease.
(b) If any Event of Default occurs, the Landlord shall have the right, at
its option, to declare all Base Rent and Additional Rent (or any portion
thereof) for the entire remaining term, and other indebtedness owing by Tenant
to Landlord, if any, immediately due and payable without regard to whether
possession of the Leased Property shall have been surrendered to or taken by
Landlord, and may commence action immediately thereupon and recover judgment
therefor.
(c) If any Event of Default occurs, the Landlord, in addition to other
rights and remedies it may have, shall have the right to remove all or any part
of the Tenant's property from the Leased Property and any property removed may
be stored in any public warehouse or elsewhere at the cost of, and for the
account of Tenant and the Landlord shall not be responsible for the care or
safekeeping thereof whether in transport, storage or otherwise, and the Tenant
hereby waives any and all claim against Landlord for loss, destruction and/or
damage or injury which may be occasioned by any of the aforesaid acts.
(d) No such re-entry or taking possession of the Leased Property by
Landlord shall be construed as an election on Landlord's part to terminate this
Lease unless a written notice of such intention is given to Tenant.
Notwithstanding any such reletting without termination, Landlord may at all
times thereafter elect to terminate this Lease for such previous default. Any
such re-entry shall be allowed by Tenant without hindrance, and Landlord shall
not be liable in damages for any such re-entry, or guilty of trespass or
forcible entry.
(e) Any Rent which may be due Landlord, whether by
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acceleration or otherwise, as herein provided in this Article, shall include
Base Rent, Additional Rent and any other rents, costs and expenses required to
be paid to Landlord hereunder, all of which shall be deemed to be additional
rent in this Lease.
(f) It is expressly agreed that the forbearance on the part of the Landlord
in the institution of any suit or entry of judgment for any part of the rent
herein reserved to the Landlord, shall in no way serve as a defense against nor
prejudice a subsequent action for such rent. The Tenant hereby expressly waives
Tenant's right to claim a merger or waiver of such subsequent action in any
previous suit or in the judgment entered therein.
(g) Any and all rights, remedies and options given in this Lease to
Landlord shall be cumulative and in addition to and without waiver of, or in
derogation of, any right or remedy given to it under any law now or hereafter in
effect.
(h) Landlord shall use reasonable efforts to mitigate its damages in the
event of Tenant's default.
ARTICLE XV
ENVIRONMENTAL MATTERS
SECTION 15.1. ENVIRONMENTAL GUARANTY. Tenant hereby indemnities and agrees
to defend and save and hold Landlord and its directors, officers, beneficiaries,
trustees, employees, agents, successors and assigns harmless from and against
any and all losses, liabilities (including, without limitation, strict liability
and common law liability), obligations, damages (including, without limitation,
injuries to the environment), defenses, charges, penalties, interest, expenses,
fees (including attorneys' fees at all administrative and judicial hearings,
trial and all appellate levels), costs (including, without limitations, costs of
any settlement), judgments, administrative or judicial proceedings and orders,
remedial action requirements, enforcement actions, claims and demands of any and
every kind whatsoever paid (hereinafter collectively referred to as
"Liabilities"), incurred or suffered by, or asserted against Landlord by any
person or entity or governmental agency or body for, with respect to, related
to, arising out of, or as a direct or indirect result of, in whole or in part,
the violation by Tenant, its subtenants or licensees, or Tenant's partners,
directors, officers, agents, employees, invitees or contractors of any
Environmental Laws applicable to the Leased Property or any activity conducted
thereon, for the present and future use, generation, release, treatment,
discharge, emission, escape, seepage, leakage, spillage, handling, storage,
transportation, disposal, clean-up or presence, at, on or under the Leased
Property, or to the soil, air or to the surface or ground water thereat, of any
Hazardous or Toxic Materials by Tenant, or any of Tenant's subtenants or
licensees or Tenant's partners, directors, officers, agents, employees, invitees
or contractors.
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All sums paid and costs incurred by Landlord with respect to the foregoing
matters shall bear interest at the highest applicable legal rate.
Notwithstanding anything to the contrary, Tenant shall not be liable for and
Tenant shall not be required to indemnify and hold Landlord harmless from and
against the Liabilities for any acts or omissions of Landlord, its agents,
licensees, trustees, partners, beneficiaries, employees, directors, officers,
contractors, prior tenants that leased the Leased Premises from Landlord before
the date hereof, prior owners, or other parties' actions or omissions that
occurred prior to the Lease Commencement Date. This indemnification shall inure
to the benefit of any transferee of title to the Leased Premises.
Landlord hereby indemnifies and agrees to defend and save and hold Tenant,
its partners, directors, officers, employees, agents, successors and assigns
harmless from and against any and all losses, liabilities (including, without
limitation, strict liability and common law liability), obligations, damages
(including, without limitation, injuries to the environment), defenses, charges,
penalties, interest, expenses, fees (including attorneys' fees at all
administrative and judicial hearings, trial and all appellate levels), costs
(including, without limitations, costs of any settlement), judgments,
administrative or judicial proceedings and orders, remedial action requirements,
enforcement actions, claims and demands of any and every kind whatsoever paid,
incurred or suffered by, or asserted against Tenant by any person or entity or
governmental agency or body for, with respect to, related to, arising out of, or
as a direct or indirect result of, in whole or in part, the violation by
Landlord, its beneficiaries, trustees, employees, contractors, officers,
directors, agents, invitees, prior tenants that leased the Leased Premises from
Landlord prior to the date hereof and prior owners, of any Environmental Laws
applicable to the Leased Property or any activity conducted thereon prior to the
Lease Commencement Date for the use prior to the date hereof, the generation,
release, treatment, discharge, emission, escape, seepage, leakage, spillage,
handling, storage, transportation, disposal, clean-up or presence, at, on or
under the Leased Property, or to the soil, air or to the surface or ground water
thereat, of any Hazardous or Toxic Materials by Landlord, its employees,
trustees, beneficiaries, officers, contractors, directors, agents, invitees, and
prior tenants that leased the Leased Premises from Landlord prior to the date
hereof and prior owners. Notwithstanding anything to the contrary, Landlord
shall not be liable for and Landlord shall not be required to indemnify and hold
Tenant harmless for any acts or omissions of Tenant, its subtenants or
licensees, or Tenant's partners, directors, officers, agents, employees or
contractors. All sums paid and costs, incurred by Tenant with respect to the
foregoing matters shall bear interest at the highest applicable legal rate. This
indemnification shall inure to the benefit of any transferee of this Lease.
SECTION 15.2. DEFINED TERMS. For purposes of Section 15.1, the terms
Hazardous or Toxic Materials and Environmental Laws shall
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be defined as follows:
(a) "Hazardous and Toxic Materials" included but is not limited to (i)
materials defined as "Hazardous Waste" under the Federal Resource Conservation
and Recovery Act and similar state laws, and (ii) "hazardous substances" as
identified under the Federal Comprehensive Environmental Response, Compensation
and Liability Act and especially in CERCLA (101(14)) and as set forth in Title
40, Code of Federal Regulations, Part 302, and (iii) those elements or compounds
which are contained in the list of hazardous substances adopted by the United
States Environmental Protection Agency (EPA) and the list of toxic pollutants
designated by Congress or the EPA or defined by any other Federal, state or
local statute, law, ordinance, code, rule regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning any hazardous, toxic, polluting, or dangerous waste, substance or
material, as such lists are now or at any time, hereafter in effect, and (iv),
asbestos, and (v) radon, and (vi) polychlorinated biphenyls, and (vii) petroleum
products, and (viii) such other materials, substances or waste which are
otherwise dangerous, hazardous, harmful or deleterious to human, plant or animal
health or well being.
(b) "Environmental Laws" shall mean all federal, state or local
environmental laws, statutes, ordinances, or regulations.
SECTION 15.3. ENVIRONMENTAL TESTING AND AUDITS.
(a) Tenant acknowledges that its proposed use of the Leased Premises may,
if not properly monitored, result in the violation of Environmental Laws. Tenant
hereby authorizes Landlord to cause an environmental consultant selected by
Landlord to, on a quarterly basis, (i) conduct a walk-through inspection of the
Leased Property, (ii) sample and test the ground water through the existing
monitoring well located on the Leased Premises, and (iii) submit to Landlord a
written report of its findings. Tenant agrees to pay for up to (and not to
exceed) $2,000.00 per annum of the cost of the environmental consultant's
quarterly reports.
(b) If the quarterly testing to be conducted in accordance with Section
15.3(a) shall recommend that additional testing be done, Landlord, at its sole
option, may obtain at Tenant's expense, an environmental audit prepared by an
independent engineer or other qualified environmental consultant of Landlord's
choice which evaluates (i) whether any Hazardous or Toxic Materials are present
in the soil or surface or ground water at the site of the Leased Property or in
the soil or surface or ground water adjacent to such site in quantities that
would violate applicable Environmental laws, (ii) whether any Hazardous or Toxic
Materials have previously been released, intentionally or unintentionally, to
the soil or to surface or ground water at the site of the Leased Property, (iii)
whether Hazardous or Toxic Materials are now or have been previously used,
generated, released, treated, discharged, emitted, escaped, seeped, leaked,
spilled, handled, stored, transported or
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<PAGE>
disposed of at the site of the Premises and is in compliance with all applicable
Environmental Laws. The environmental audit shall be based upon sampling of the
soil, air, waters, visual inspection, and such other methods as shall be
appropriate. All sampling shall be conducted using accepted and scientifically
valid technology and methodologies. The consultant shall prepare a written
report detailing its findings and conclusions.
(c) Tenant agrees that in the event Landlord requests such an audit
pursuant to this Section, and if said audit indicates the presence of Hazardous
or Toxic Materials exist as a result of the acts or omissions of Tenant, its
subtenants or licensees or Tenant's partners, directors, officers, agents,
employees, invitees or contractors from the use, generation, release, treatment,
discharge, emission, escape, seepage, leakage, spillage, handling, storage,
transportation, disposal, or clean-up of Hazardous or Toxic Wastes, then
Landlord may, in its sole discretion, require that Tenant take all steps
necessary to further define the nature of the Hazardous or Toxic Materials, any
risks related to or resulting therefrom, and possible remedial measures and
thereafter Landlord may also require that all violations of law with respect to
Hazardous or Toxic Materials due to Tenant, or any of its subtenant's or
licensees or Tenant's partner's, director's, officer's, agent's, employees',
invitees' or contractor's acts or omissions, be corrected by Tenant and that
Tenant obtain all necessary environmental permits and approvals associated
therewith.
(d) Landlord agrees that in the event Landlord requests such an audit
pursuant to this Section, and if said audit indicates that Hazardous or Toxic
Wastes exist as a result of the acts or omissions of Landlord, Landlord's
employees, licensees, officers, directors, agents, trustees, beneficiaries,
invitees, contractors, prior owners, or prior tenants that leased the Leased
Premises prior to the date hereof, from the use, generation, release, treatment,
discharge, emission, escape, seepage, leakage, spillage, handling, storage,
transportation, disposal, clean-up of Hazardous or Toxic Wastes, then, Tenant
may, in its sole discretion, require that Landlord at Landlord's sole cost and
expense take all steps necessary to further define the nature of the Hazardous
or Toxic Materials, any risks related to or resulting therefrom, and possible
remedial measures and thereafter may also require that all violations of law due
to Landlord, Landlord's employees, licensees, trustees, beneficiaries, officers,
directors, agents, contractors, and prior tenants leasing the Leased Premises
from Landlord prior to the date hereof and prior owners, with respect to
Hazardous or Toxic Materials be corrected by Landlord and that Landlord obtain
all necessary environmental permits and approvals associated therewith.
SECTION 15.4. NOTICES OF VIOLATION. If any party receives any notice of (i)
the happening of any material event involving the use, generation, release,
treatment, discharge, emission, escape, seepage, leakage, spillage, handling,
storage, transportation,
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<PAGE>
disposal or clean-up of any Hazardous or Toxic Materials on or at the site of
the Leased Property or adjacent thereto, or in connection with the operations
thereon or (ii) any complaint, order, citation, notice of violation or other
notice with regard to air emissions, water discharges, or any other
environmental, health or safety matter affecting Tenant, Landlord, or the Leased
Premises (an "Environmental Complaint") from any person or entity or
governmental agency or body (including, without limitation, the EPA), then
Tenant and Landlord shall immediately notify each other party orally and in
writing of said notice.
SECTION 15.5. REMEDIATION. Landlord shall have the right but not the
obligation, and without limitation of Landlord's rights under this Lease, to
enter onto the Leased Premises or to take such other actions as it deems
necessary or advisable to clean up, remove, decontaminate, detoxify, resolve or
minimize the impact of, or otherwise deal with, any such Hazardous or Toxic
Materials or Environmental Complaint following receipt of any notice from any
person or entity (including, without limitation, the EPA) asserting the
existence of any Hazardous or Toxic Materials or an Environmental Complaint
pertaining to the Land or any part thereof which, if true, could result in an
order, suit or other action against Tenant. All reasonable costs and expenses
incurred by Landlord that are the result of Tenant's, or any its subtenants or
licensees or Tenant's partners', directors', officers', agents', employees',
invitees' or contractor's acts or omissions with respect to the use,
generation, release, treatment, discharge, emission, escape, seepage, leakage,
spillage, handling, storage, transportation, disposal, or clean-up of Hazardous
or Toxic Materials shall be payable by Tenant on demand.
SECTION 15.6. SURVIVAL. The terms of this Article XV shall survive the
termination of the Lease.
ARTICLE XVI
QUIET ENJOYMENT
Landlord agrees that Tenant, upon paying all Rent and all other charges
herein provided for and observing and keeping the covenants, agreements, terms,
and conditions of this Lease and the rules and regulations of the Landlord
affecting the Leased Property on its part to be performed, shall lawfully and
quietly hold, occupy and enjoy the hindrance or molestation by Landlord or any
party claiming by, under or through Landlord.
ARTICLE XVII
LANDLORD'S RIGHT OF ACCESS
SECTION 17.1. ACCESS FOR MAINTENANCE AND REPAIR. Upon five
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(5) days prior written notice to Tenant, (except in the case of an emergency in
which case no such notice shall be required), Landlord shall have the right but
not the obligation to make such repairs and maintenance as it deems necessary in
its reasonable discretion. Landlord shall be allowed to take all materials into
and upon the Leased Property that may be required in connection therewith,
without any liability to Tenant and without any reduction of Tenant's covenants
and obligations hereunder.
SECTION 17.2. ACCESS DURING EMERGENCIES. In case of any emergency
originating in or threatening the Leased Property, regardless of the time of day
or, whether the Tenant is present at the time of such emergency, the Landlord,
its agents and employees, shall have the right to enter the Leased Property for
the purpose of remedying or abating the cause of such emergency and such right
of entry shall be immediate and without the necessity of prior notice to or
consent of Tenant. To facilitate entry in the event of such emergency, the
Tenant shall deposit under the control of the Landlord a key to the Leased
Property.
SECTION 17.3. ACCESS FOR INSPECTION AND SHOWING. Upon reasonable notice to
Tenant (not less than one (1) business day) and during normal business hours
Landlord and its agents shall have the right to enter and/or pass through the
Leased Property at any time or times to examine the Leased Property and to show
them to actual and prospective Superior Mortgagees, or prospective purchasers,
mortgagors or lessors of the building. During the period of 18 months prior to
the expiration date of this Lease, Landlord and its agents may exhibit the
Leased Property to prospective tenants.
ARTICLE XVIII
SIGNS
Tenant may, at its expense, place or cause to be placed in on or about the
Leased Property such signs, or other advertising matter, provided that the
foregoing shall comply with all applicable laws. Tenant further agrees to
maintain such sign, lettering, or other thing in good condition and repair at
all times and to remove the same at the end of the term of this Lease if
requested by Landlord. Upon removal thereof, Tenant agrees to repair any damage
to the Leased Property caused by such installation and/or removal.
ARTICLE XIX
NOTICES
Any notices under this Lease shall be given in writing by mailing the same
by certified mail, return receipt requested, first class postage prepaid, from a
post office station or by
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recognized and reputable courier service, to Landlord or Tenant, as the case may
be, addressed as follows:
As to Landlord: Lawrence Z. Crockett
777 Sea Oak Drive, Apt. 719
Vero Beach, Florida 32963
With a copy to: Schroeder and Larche, P.A.
One Boca Place, Suite 319-A
2255 Glades Road
Boca Raton, Florida 33431-7313
Attn: Michael A. Schroeder, Esq.
As to Tenant: 1081 Holland Drive
South Congress Industrial Center
Boca Raton, Florida 33487
Attn: Lewis Gould
or to such address as either party may from time to time direct by notice in
writing. Except as herein otherwise provided, any such notice shall be deemed to
be given or delivered at the time of mailing. The failure by Tenant to give
proper and timely notice to Landlord shall preclude Tenant from all rights to
which the notice relates.
ARTICLE XX
MISCELLANEOUS
SECTION 20.1. BROKERAGE COMMISSION. Landlord and Tenant covenant, warrant
and represent that they have not dealt with any brokers in connection with the
negotiation, execution and delivery of this Lease, other than CB Commercial Real
Estate Group, Inc. and Brenner Real Estate Group, Inc. (the "Broker"). Landlord
shall be responsible for the payment of the commissions owing to Broker pursuant
to the terms of a separate agreement. Both parties agree to indemnify the other
against and from any claims for any other brokerage commissions and all costs,
expenses and liabilities in connection therewith, including, without limitation,
reasonable attorneys' fees and expenses, for any breach of the foregoing.
SECTION 20.2. FINANCIAL STATEMENTS. Throughout the Term of this Lease,
Tenant shall provide to Landlord Tenant's annual report once a year.
SECTION 20.3. ESTOPPEL CERTIFICATES. Tenant agrees, at any time and from
time to time, as requested by Landlord to execute and deliver to Landlord a
statement certifying that this Lease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as modified and stating the modifications), certifying the dates to which the
Rent has been paid, stating whether or not, Landlord is in default in
performance of any of its obligations under this
33
<PAGE>
Lease, and, if so, specifying each such default and stating whether or not, any
event has occurred which with the giving of notice or passage of time, or both,
would constitute such a default, and, if so, specifying each such event. Any
such statement delivered pursuant hereto shall be deemed a representation and
warranty to be relied upon by the Landlord and by others with whom Landlord may
be dealing, regardless of independent investigation. Tenant also shall include
in any such statements such other information concerning this Lease as Landlord
may reasonably request. In the event Tenant fails to comply with this Section,
such failure shall constitute a default hereunder.
SECTION 20.4. NO RECORDATION. This Lease shall not be recorded by Tenant in
the Public Records of Palm Beach County, Florida or in any other place except
that Tenant may record at its expense a memorandum of lease provided that Tenant
provides Landlord with a termination of said memorandum of lease which
termination shall be held in escrow by Landlord and not recorded by Landlord
unless this Lease is terminated in accordance with the terms and conditions
herein. Any attempted recordation by Tenant shall render this Lease null and
void and entitle the Landlord to the remedies provided for Tenant's default.
SECTION 20.5. ENTIRE AGREEMENT, ETC. This Lease and the writings referred
to herein constitute the entire understanding between the parties and shall bind
the parties, their successors and assigns. No representations, except as herein
expressly set forth, have been made by any party to the other, and this Lease
cannot be amended, modified or canceled, except by a writing, signed by Landlord
and Tenant during the Term of this Lease. The headings and captions contained in
this Lease are inserted for convenience only and shall not be deemed part of or
be used in construing this Lease.
SECTION 20.6. ENFORCEMENT COSTS. If any legal action, proceeding in
arbitration or other proceeding, is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provision of this Agreement, the
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees (including appellate, bankruptcy and post judgment proceedings), court
costs and all expenses even if not taxable as court costs incurred in that
action or proceeding in addition to any other relief to which such party or
parties may be entitled.
SECTION 20.7. HOLDOVER. Should Tenant hold over and remain in possession of
the Leased Property at the expiration of the tenancy created hereunder, and
without the execution of a new Lease, Tenant at the option of Landlord shall be
deemed to be occupying the Premises as a tenant at sufferance at a monthly
rental equal to one and one-half (1-1/2) times the Rent payable during the last
month of the Lease term.
SECTION 20.8. LANDLORD'S CONSENT. Unless otherwise expressly
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<PAGE>
provided herein, in every instance under this Lease in which the Landlord is
called upon to give its consent, such consent shall not be unreasonably withheld
or delayed.
SECTION 20.9. LIMITED LIABILITY. Tenant shall look solely to Landlord's
interest in the Leased Property for the satisfaction of any of Tenant's rights
or remedies or for the collection of a judgment or other judicial process
requiring the payment of money by Landlord in the event of any default by
Landlord hereunder. No other property or assets of Landlord or its partners,
officers, directors, shareholders or principals, disclosed or undisclosed,
shall be subject to the levy, execution, judgment or other enforcement procedure
for the satisfaction of any of Tenant's rights or remedies under or with respect
to this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use
or occupancy of the Leased Property.
SECTION 20.10. (Intentionally omitted).
SECTION 20.11. OPTION TO RENEW.
(a) Landlord hereby grants to Tenant the option to extend (the "Option")
the term of this Lease for two (2) consecutive renewal terms (each a "Renewal
Term") of five (5) years each, commencing on the first (1st) day following the
expiration of the Term or the then current Renewal Term. During the Renewal Term
the same terms and conditions as set forth in this Lease shall remain in full
force and effect, except that the Base Rent shall be determined in accordance
with Section 20.11(b).
(b) The Base Rent for the first (1st) twelve (12) month period of the
first (1st) Renewal Term shall equal ninety-five percent (95%) of the Prevailing
Rental Rate (as hereinafter defined). (Notwithstanding anything to the contrary,
under no circumstances shall the Base Rent for the first year of any Renewal
Term be less than one hundred and ten percent (110%) of such amount of Base Rent
for the year preceding exercise of the Option.) On each anniversary thereafter,
the Base Rent shall equal one hundred four percent (104%) of the Base Rent for
the prior twelve (12) month period. The Base Rent for the first (1st) twelve
(12) month period of the second (2nd) Renewal Term shall equal ninety-five
percent (95%) of the then Prevailing Rental Rate (as hereinafter defined). On
each anniversary thereafter, the Base Rent shall equal one hundred four percent
(104%) of the Base Rent for the prior twelve (12) month period. For purposes of
this section 20.11(b), the Prevailing Rental Rate shall mean an amount equal to
the fair market rental rate of the Leased Premises based on Tenant's use of
Leased Premises for the last year of the then current term, taking into account
such factors such as the current and projected rents for similar spaces in Palm
Beach and Broward Counties which are then for rent (or, if none, which have been
rented during the prior 12 months), or projected to be for rent during the Term,
set by Landlord in good faith and in Landlord's reasonable discretion. Landlord
and Tenant shall employ the
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procedure and time table described below for the purpose of computing the
Prevailing Rental Rate of the Leased Premises and the Base Rent payable during
the first year of the Renewal Term:
(i) INITIAL NOTICE OF INTENT TO RENEW. Not later than two hundred and
ten (210) days prior to the expiration of then-current term (the
"Expiration"), Tenant shall deliver to Landlord a notice that
Tenant is interested in renewing the Term for the Leased
Premises, subject to Tenant's review and approval of Landlord's
determination of the Prevailing Rental Rate (the "Initial Renewal
Notice".) In no event shall Tenant's Initial Renewal Notice to
Landlord be deemed a binding renewal of the Lease. Within ten
(10) business days of receipt of the Initial Renewal Notice from
Tenant, Landlord shall deliver to Tenant its proposed Base Rent
figure as provided above, together with such reasonable back up
information utilized by Landlord in determining the Prevailing
Rental Rate.
(ii) TENANT'S FINAL NOTICE. Not later than ten business (10) days
after receiving such information from Landlord, if Tenant desires
to renew the Term at the Prevailing Rental Rate, then, Tenant
shall send to Landlord a final notice renewing the Lease (the
"Final Notice") accompanied by a letter of credit for the length
of the renewal term, plus thirty (30) days and containing such
term as described in Section 9.1 above and in the same amount
that was required in the Lease Term pursuant to Section 9.1
above, (unless the letter of credit was released pursuant to
Section 9.1 in which case, no letter of credit shall be
required.) In the event Tenant does not send Landlord the Initial
Renewal Notice or the Final Notice then it shall be conclusively
deemed that Tenant does not intend to renew the Lease.
(iii) EXTENSION OF TIME FOR PERFORMANCE. In the event that any of the
dates set forth in the paragraphs above occurs on a Saturday,
Sunday, or holiday, then the time for performance shall be
extended to the next business day.
Under no circumstances shall the Base Rent for the first year of any
Renewal Term ever be less than one hundred ten percent (110%) of such amount of
Base Rent for the year preceding exercise of the Option, regardless of the
Prevailing Rental Rate, as determined in accordance with the foregoing
provision.
(c) Tenant shall not have the right to exercise the Option in the event
this Lease shall not be in full force and effect, or Tenant is in material
default of any provision of this Lease. Tenant's failure to timely exercise the
option for any reason shall conclusively be deemed a waiver of such Option. Once
Tenant shall have sent Landlord the Final Notice to exercise the Option, Tenant
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may not thereafter revoke the exercise of such Option, and shall be bound under
the terms and conditions of this Lease for the full Renewal Term. In the event
Tenant fails to timely and properly exercise its option for the first (1st)
Renewal Term, Tenant's right to exercise its option for the second (2nd) Renewal
Term shall be void and of no further force and effect.
SECTION 20.12. CORPORATE TENANT. If Tenant is or will be a corporation,
the persons executing this Lease on behalf of Tenant hereby covenant, represent
and warrant that Tenant is a duly incorporated or duly qualified (if a foreign
corporation) corporation and authorized to do business in the State of Florida;
and that the person or persons executing this Lease on behalf of Tenant is an
officer or are officers of such Tenant and that he or they as such officers were
duly authorized to sign and execute this Lease. Upon request of Landlord to
Tenant, Tenant shall deliver to Landlord documentation satisfactory to Landlord
evidencing Tenant's compliance with the provisions of this paragraph.
SECTION 20.13. WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive
trial by jury any action, proceeding or counterclaim brought by either of the
parties hereto against the other or in respect of any manner whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant hereunder, Tenant's use or occupancy of the Premises and/or any claim of
"injury or damage".
SECTION 20.14. RADON DISCLOSURE. RADON IS A NATURAL OCCURRING RADIOACTIVE
GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY
PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF
RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN
FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON TESTING MAY BE
OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT.
SECTION 20.15. EXHIBITS/ADDENDUM. In addition to the Exhibits, the
Addendum between Landlord and Tenant of even date herewith is made a part of
this Lease for all purposes.
SECTION 20.16. MISCELLANEOUS. This Lease shall be governed by and
construed in accordance with the laws of the State of Florida. If any provision
of this Lease or the application thereof to any person or circumstance shall,
for any reason and to any extent be invalid or enforceable, the remainder of
this Lease and the application of that provision to other persons or
circumstances shall not be affected but rather shall be enforced to the extent
permitted by law. The table of contents, captions, headings and titles in this
Lease are solely for convenience of reference and shall not affect its
interpretation. This Lease shall be construed without regard to any presumption
or other rule requiring construction against the party causing this Lease to be
drafted. Each covenant, agreement, obligation, or other provision of this Lease
on Tenant's part to be performed, shall be deemed and construed as a separate
and independent covenant of Tenant, not
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dependent on any other provision of this Lease. All terms and words used in this
Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require. Time is of the essence with respect to the performance of every
provision of this Lease.
SECTION 20.17. LANDLORD'S AUTHORITY AND TITLE. Landlord covenants,
represents and warrants that it has full right and power to execute and perform
this Lease and to grant the estate demised herein and that Landlord has good and
marketable title to the Leased Premises subject only to the permitted title
exceptions referenced as Exhibit "B" attached hereto and made a part hereof.
SECTION 20.18. PARKING. Tenant shall have the right to utilize all parking
on the Land without payment of any additional consideration under this Lease.
SECTION 20.19. PERFORMANCE OF LANDLORD'S WORK. Landlord covenants,
represents and warrants that it shall correct all the defects in the Leased
Premises referenced on Exhibit "C" attached hereto and made a part hereof
("Landlord's Work".) Notwithstanding anything to the contrary in this Lease,
Tenant's acceptance of possession of the Leased Premises prior to Landlord's
completion of Landlord's Work shall not deemed to be an acceptance of the Leased
Premises or a waiver of Tenant's right to insist on Landlord's work. Further,
should Landlord fail to complete all of Landlord's work within thirty (30) days
of occupancy by Tenant, except for minor punch list items (which are
inconsequential defects which are aesthetic in nature rather than functional and
provided that correction of such items do not materially and adversely affect
Tenant's possession and operation of its business in the Leased Premises), then
Tenant shall have the right to exercise its self-help rights to complete such
work and offset the cost of the completion, together with interest, all as more
particularly described in Section 4.1 hereof.
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IN WHITNESS WHEREOF, the parties have executed this Lease the day and
year first hereinabove written.
WITNESSES: LANDLORD:
/s/ GRACE K. WOODY /s/ LAWRENCE Z. CROCKETT
- ---------------------- ------------------------
LAWRENCE Z. CROCKETT, AS TRUSTEE
GRACE K. WOODY OF THE LAWRENCE Z. CROCKETT
- ---------------------- TRUST DATED MARCH 31, 1994
Print Name of Witness
/s/ DONNA V. GRAGG /s/ MARILYN M. CROCKETT
- ---------------------- -----------------------
MARILYN M. CROCKETT, AS TRUSTEE
DONNA V. GRAGG OF THE MARILYN M. CROCKETT
- ---------------------- TRUST DATED MARCH 31, 1994
Print Name of Witness
/s/ GRACE K. WOODY
- ----------------------
GRACE K. WOODY
- ----------------------
Print Name of Witness
/s/ DONNA V. GRAGG
- ----------------------
DONNA V. GRAGG
- ----------------------
Print Name of Witness
TENANT:
Q.E.P. CO., INC. A DELAWARE CORPORATION
AUTHORIZED TO TRANSACT BUSINESS IN THE STATE
OF FLORIDA
/s/ ROBERT DODN BY: /s/ LEWIS GOULD
- ---------------------- -------------------
ROBERT DODN LEWIS GOULD, as Prsident
- ----------------------
Print Name of Witness
/s/ SYDNEY LEVY
- ----------------------
SYDNEY LEVY
- ----------------------
Print Name of Witness
39
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement (the "First Amendment") is made and
entered into this 27th day of January, 1997, by and between LAWRENCE Z.
CROCKETT, AS TRUSTEE OF THE LAWRENCE Z. CROCKETT TRUST DATED MARCH 31, 1994 AND
MARILYN M. CROCKETT, AS TRUSTEE OF THE MARILYN M. CROCKETT TRUST DATED MARCH 31,
1994 (hereinafter referred to as "Landlord") and Q.E.P. CO., INC., A DELAWARE
CORPORATION AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF FLORIDA (hereinafter
referred to as "Tenant").
R E C I T A L S:
A. Landlord and Tenant have entered into that certain Lease Agreement dated
September 17, 1996 which pertains to the real property described on Exhibit "A"
attached hereto (the "Lease").
B. Landlord and Tenant desire to amend the Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. The Recitals set forth above are true and correct.
2. Notwithstanding anything to the contrary contained in the Lease,
Landlord shall, at Tenant's expense, remove from the Leased Premises, air
conditioning units 1, 2, 3, 4, 6, 7, 8 and 11 (as numbered on the roof) and the
Liebert Split System (collectively, the "Removed Property"). From and after the
date the Removed Property is removed, notwithstanding anything to the contrary
in the Lease, Tenant shall have no further liability or responsibility with
respect to the Removed Property.
3. Tenant acknowledges that Landlord has advised Tenant that air
conditioning unit 5 should be replaced by Tenant rather than repaired. Tenant
has elected to have air conditioner unit 5 repaired rather than replaced.
Landlord shall, at Tenant's expense, have air conditioning unit 5 repaired (the
"Repair Work").
4. Tenant shall pay to Landlord, the costs of removing the Removed Property
and the cost of completing the Repair Work which costs shall not exceed Fifteen
Thousand Dollars ($15,000.00) and shall be paid by Tenant to Landlord upon
receipt by Tenant of invoices for such work.
5. Tenant acknowledges and agrees that except for the Removed Property, all
other air conditioning units shall remain on the roof and are operational.
6. Except as expressly provided herein, the maintenance and repair
obligations of Tenant as set forth in the Lease will remain in full force and
effect.
<PAGE>
7. Tenant acknowledges and agrees that except for the work contemplated in
Paragraphs 2 and 5 hereof, Landlord has satisfied all of its obligations set
forth in Section 20.19 of the Lease.
8. This First Amendment may be executed in counterparts and all
counterparts taken together shall be deemed one and the same instrument.
9. In the event of any conflict between the terms of this First Amendment
and the terms of the Lease, the terms of this First Amendment shall control.
IN WITNESS WHEREOF, this First Amendment has been executed on the date and
year first above written.
Signed, sealed and delivered LANDLORD:
in the presence of:
/s/ LINDA CASCIO /s/ LAWRENCE Z. CROCKETT
- --------------------- ----------------------------------
Linda Cascio LAWRENCE Z. CROCKETT, AS TRUSTEE
- --------------------- OF THE LAWRENCE Z. CROCKETT
Printed Name of Witness TRUST DATED MARCH 31, 1994
/s/ GEORGE DADUFALZA
- ---------------------
George Dadufalza
- ---------------------
Printed Name of Witness
/s/ LINDA CASCIO /s/ MARILYN M. CROCKETT AS TRUSTEE
- --------------------- ----------------------------------
Linda Cascio MARILYN M. CROCKETT, AS TRUSTEE
- --------------------- OF THE MARILYN M. CROCKETT
Printed Name of Witness TRUST DATED MARCH 31, 1994
/s/ GEORGE DADUFALZA
- ---------------------
George Dadufalza
- ---------------------
Printed Name of Witness
TENANT:
Q.E.P. CO., INC.,
a Delaware corporation
authorized to transact business
in the State of Florida
/s/ SYDNEY LEVY By:/s/ LEWIS GOULD
- --------------------- ----------------------------------
Sydney Levy LOUIS GOULD
- --------------------- Its: President
Printed Name of Witness
/s/ PAULA B. SIEGEL
- ---------------------
Paula B. Seigel
- ---------------------
Printed Name of Witness
2
EXHIBIT 10.2.7
INDUSTRIAL LEASE
between
JMB/PENNSYLVANIA ASSOCIATES-IV, L.P.,
A DELAWARE LIMITED PARTNERSHIP
(LANDLORD)
and
Q.E.P. COMPANY, INC., A NEW YORK CORPORTATION
---------------------------------------------
CORPORATION
---------------------------------------------
(TENANT)
<PAGE>
TABLE OF CONTENTS
INDUSTRIAL LEASE
ARTICLE TITLE PAGE
1 Definitions 1
2 Premises 2
3 Term 2
4 Rental; Adjustments 2
5 Security Deposit 5
6 Use of Premises 5
7 Utilities and Services 7
8 Maintenance and Repairs 8
9 Alterations, Additions and Improvements 9
10 Indemnification and Insurance 9
11 Damage or Destruction 11
12 Condemnation 12
13 Relocation 12
14 Assignment and Subletting 12
15 Default and Remedies 14
16 Attorneys' Fees; Costs of Suit 15
17 Subordination and Attornment 16
18 Quiet Enjoyment 16
19 Parking 16
20 Rules and Regulations 17
21 Estoppel Certificates 17
22 Entry by Landlord 17
23 Landlord's Lease Undertakings-Exculpation
from Personal Liability; Transfer of Landlord's 17
Interest
24 Surrender; Holdover Tenancy 18
25 Notices 18
26 Brokers 18
27 Communications and Computer Lines 18
28 Miscellaneous 19
29 Floor Load Limits 20
30 Landlord's Lien 20
31 Uniform Commercial Code 20
EXHIBITS
Exhibit A Floor Plan of the Premises
Exhibit C Suite Acceptance Letter
Exhibit D Tenant Operations Inquiry
Schedule I List of Permissible Hazardous Materials and
to Exhibit D Quantities for Tenant
Exhibit E List of Additional Insureds
Exhibit F Rules and Regulations
Supplemental Rider
<PAGE>
CARSON INDUSTRIAL PARK II
INDUSTRIAL LEASE
[FORM NET LEASE/MULTI-TENANT]
THIS LEASE ("Lease"), dated August 1, 1996, is made and entered into by and
between JMB/PENNSYLVANIA ASSOCIATES-IV, L.P., a Delaware limited partnership
("Landlord") and Q.E.P. Company, Inc., a New York corporation ("Tenant") upon
the following terms and conditions:
ARTICLE I-DEFINITIONS
Unless the context otherwise specifies or requires, the following terms
shall have the meanings specified herein:
1.01 BUILDING. The term "Building" shall mean that certain office/warehouse
building located at 20535 South Belshaw Avenue, Carson, California, together
with all related site land, improvements, parking facilities, common areas,
driveways, sidewalks and landscaping. If the Building is in a development
containing one or more other buildings, such buildings together with all related
site land, improvements, parking facilities, common areas, driveways, sidewalks
and landscaping, and together with the Building, shall be referred to herein as
the "Project".
1.02 PREMISES. The term "Premises" shall mean the space leased to Tenant in
the Building, as more particularly outlined on the drawing attached hereto as
Exhibit A and incorporated herein by reference.
1.03 RENTABLE AREA OF THE PREMISES. The term "Rentable Area of the
Premises" shall mean 29,227 square feet, which Landlord and Tenant have
stipulated as the Rentable Area of the Premises. Tenant acknowledges that the
Rentable Area of the Premises includes the usable area, without deduction for
columns or projections, multiplied by a load factor to reflect a share of
certain areas, which may include lobbies, corridors, mechanical, utility,
janitorial, boiler and service rooms and closets, restrooms and other public,
common and service areas of the Building.
1.04 LEASE TERM. The terms "Lease Term" or "Term" shall mean the period
between the Commencement Date and the Expiration Date (as such terms are
hereinafter defined), unless sooner terminated or renewed as otherwise provided
in this Lease.
1.05 COMMENCEMENT DATE. Subject to adjustment as provided in Article 3, the
term "Commencement Date" shall mean August 15, 1996.
1.06 EXPIRATION DATE. Subject to adjustment as provided in Article 3, the
term "Expiration Date" shall mean August 14, 1999.
1.07 BASE RENT. Subject to adjustment as provided in Article 4, the term
"Base Rent" shall mean Seven thousand eight hundred ninety one and 29/100
Dollars ($7,891.29) per month.
1.08 TENANT'S PERCENTAGE SHARE. The term "Tenant's Percentage Share" shall
mean six and 5/100 percent (6.5%) with respect to Operating Expenses (as
hereinafter defined), One hundred percent (100%) with respect to Property Taxes
(as hereinafter defined) six and 5/100 percent (6.5%) with respect to Insurance
Expenses (as hereinafter defined) and six and 5/100 percent (6.5%) with respect
to Tenant's law compliance obligations under Section 6.02(C) of this Lease and
for all other purposes under this Lease. Landlord may reasonably redetermine
Tenant's Percentage Share from time to time to reflect reconfigurations,
additions or modifications to the Building.
1.09 SECURITY DEPOSIT. The term "Security Deposit" shall mean Ten thousand
five hundred thirty nine and 72/100 Dollars ($10,539.72).*
1.10 TENANT'S PERMITTED USE. The term "Tenant's Permitted Use" shall mean
general office and warehousing duties associated with the distribution of
contractor tools and manufacturing and assembly of tools and no other use.
1. II LANDLORD'S ADDRESS FOR NOTICES. The term "Landlord's Address for
Notices" shall mean Heitman Properties Ltd., 9601 Wilshire Boulevard, Suite 200,
Beverly Hills, California 90210, with a copy to Heitman Properties Ltd., 180
North LaSalle Street, Suite 3600, Chicago, Illinois 60601, Attn: Property
Management.
1
* THE SECURITY DEPOSIT OF $10,539.72 HAS BEEN PREVIOUSLY PAID BY TENANT'S
PREDECESSOR IN INTEREST, O'TOOL COMPANY, INC. TO LANDLORD AS A PART OF THAT
CERTAIN LEASE DATED JANUARY 3, 1991 BETWEEN LANDLORD AND O'TOOL COMPANY, INC.
WHICH WAS ASSIGNED TO TENANT BY THAT CERTAIN ASSIGNMENT OF LEASE EFFECTIVE JUNE
9, 1994.
<PAGE>
1.12 TENANT'S ADDRESS FOR NOTICES. The term "Tenant's Address for Notices"
shall mean Q.E.P. Company, Inc., 575 Corporate Drive, Suite 410, Mahwah, New
Jersey 07430.
1.13 BROKER. The term "Broker" shall mean Heitman Properties Ltd.
1.14 GUARANTOR. The term "Guarantor" shall mean N/A.
ARTICLE II - PREMISES
2.01 LEASE OF PREMISES. Landlord hereby leases the Premises to Tenant, and
Tenant hereby leases the Premises from Landlord, upon all of the terms,
covenants and conditions contained in this Lease.
2.02 ACCEPTANCE OF PREMISES. Tenant acknowledges that Landlord has not made
any representation or warranty with respect to the condition of the Premises or
the Building or with respect to the suitability or fitness of either for the
conduct of Tenant's Permitted Use or for any other purpose. Tenant shall execute
a Suite Acceptance Letter in the form and content of Exhibit C, accepting the
Premises. Tenant agrees to accept the Premises in its "as is" physical condition
without any agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or improvements (or to
provide any allowance for same).
2.03 COMMON AREAS. Tenant and Tenant's employees and invitees may use the
common areas of the Building, and the Project, if applicable, on a non-exclusive
basis in common with all other parties to whom the right to use such common
areas has been or is hereafter granted. Tenant shal1 not interfere in any way
with the use of the common areas by such other parties, and Tenant's use of the
common areas shall be subject to the other provisions of this Lease. Landlord
shall administer, operate, clean, maintain and repair the common areas of the
Building, and the Project, if applicable, and the costs and expenses thereof
shall be included in the definition of "Operating Expenses" set forth below. If
the Building is in a Project containing one or more other buildings, Landlord
may designate separate common areas for the Building, for the Project as a whole
("Project Common Areas"), and for other portions of the Project ("Other Common
Areas"). In such case, Tenant and Tenant's employees and invitees shall not use
the Other Common Areas.
ARTICLE III - TERM
3.01 Except as otherwise provided in this Lease, the Lease Term shall be
for the period described in Section 1.04 of this Lease, commencing on the
Commencement Date described in Section 1.05 of this Lease and ending on the
Expiration Date described in Section 1.06 of this Lease; provided, however,
that, if, for any reason, Landlord is unable to deliver possession of the
Premises on the date described in Section 1.05 of this Lease, Landlord shall not
be liable for any damage caused thereby, nor shall the Lease be void or
voidable, but, rather, the Lease Term shall commence upon, and the Commencement
Date shall be, the date that possession of the Premises is so tendered to Tenant
(except for Tenant-caused delays which shall not be deemed to delay commencement
of the Lease Term), and, unless Landlord elects otherwise, the Expiration Date
described in Section 1.06 of this Lease shall be extended by an equal number of
days.
ARTICLE IV - RENTAL; ADJUSTMENTS
4.01 DEFINITIONS. As used herein,
(A) "Property Taxes" shall mean the aggregate amount of all real estate
taxes, assessments (whether they be general or special), sewer rents and
charges, transit taxes, taxes based upon the receipt of rent and any other
federal, state or local governmental charge, general, special, ordinary or
extraordinary (but not including income or franchise taxes, capital stock,
inheritance, estate, gift, or any other taxes imposed upon or measured by
Landlord's gross income or profits, unless the same shall be imposed in
lieu of real estate taxes or other ad valorem taxes), which Landlord shall
pay or become obligated to pay in connection with the Building or the
Project, if applicable, or any part thereof. Property Taxes shall also
include all fees and costs, including attorneys' fees, appraisals and
consultants' fees, incurred by Landlord in seeking to obtain a
reassessment, reduction of, or a limit on the increase in, any Property
Taxes, regardless of whether any reduction or limitation is obtained.
Property Taxes for any calendar year shall be Property Taxes which are due
for payment or are paid during such year. Property Taxes shall include any
tax, assessment, levy, imposition or charge imposed upon Landlord, and
measured by or based in whole or in part upon the Building or the Project,
if applicable, or the rents or other income from the Building or the
Project, if applicable, to the extent that such items would be payable if
the Building or the Project, if applicable, was the only property of
Landlord subject to same and the income received by Landlord from the
Building or the Project, if applicable, was the only income of Landlord.
Property Taxes shall also include any personal property taxes imposed upon
the furniture, fixtures,
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<PAGE>
machinery, equipment, apparatus, systems and appurtenances of Landlord used
in connection with the Building or the Project, if applicable.
(B) "Operating Expenses" shall mean all costs, fees, disbursements and
expenses paid or incurred by or on behalf of Landlord in the operation,
ownership, maintenance, administration, insurance, management, replacement
and repair of the Building or the Project, if applicable, (excluding
Property Taxes). If the Building is part of a Project containing one or
more other buildings: (i) Landlord may reasonably allocate expenses (or
categories thereof) incurred in connection with the Project Common Areas
between such buildings (based on the relative square footage thereof or
such other factors as Landlord reasonably deems appropriate), in which case
the amount allocated to the Building shall be added to "Operating Expenses"
for the Building for such year, or (ii) Landlord may determine expenses (or
categories thereof) incurred in connection with the Project Common Areas as
a whole, in which case Tenant's Percentage Share of "Operating Expenses"
shall be based on the Rentable Area of the Premises as a percentage of the
total rentable area occupied by tenants in all buildings in the Project
(excluding single tenant buildings for which the tenants maintain the Other
Common Areas applicable thereto) and Tenant shall pay Tenant's Percentage
Share of Operating Expenses for the Project.
Operating Expenses shall not include costs of alteration of the premises of
tenants of the Building or the Project, if applicable, depreciation
charges, interest and principal payments on mortgages, ground rental
payments, real estate brokerage and leasing commissions, expenses incurred
in enforcing obligations of tenants of the Building or the Project, if
applicable, salaries and other compensation of executive officers of the
managing agent of the Building or the Project, if applicable, senior to the
Building manager, costs of any special service provided to any one tenant
of the Building or the Project, if applicable, but not to tenants of the
Building or the Project, if applicable, generally, and costs of marketing
or advertising the Building or the Project, if applicable.
(C) "Insurance Expenses" shall mean all costs, fees. disbursements and
expenses paid or incurred by or on behalf of Landlord for premiums for
hazard, "all risk", casualty, rent interruption and liability insurance and
all other insurance, obtained by Landlord in connection with or relating to
the Building or the Project, if applicable.
For purposes of calculating the Tax Adjustment, the Operating Expense
Adjustment, and the Insurance Adjustment (as such terms are defined in Sections
4.02, B, C and D hereof), Property Taxes, Operating Expenses and Insurance
Expenses hereinabove defined shall each be increased by ten 10% percent to
cover Landlord's administrative costs in connection with the Building or the
Project, if applicable.
If the Building or the Project, if applicable, does not have one hundred
percent (100%) occupancy during an entire calendar year, then the variable cost
components of Property Taxes, Operating Expenses and Insurance Expenses shall be
adjusted so that the total amount of Property Taxes, Operating Expenses and
Insurance Expenses equals the total amount which would have been paid or
incurred by Landlord had the Building or the Project, if applicable, been one
hundred percent (100%) occupied for the entire calendar year.
4.02 BASE RENT. During the Lease Term, Tenant shall pay to Landlord as
rental for the Premises the Base Rent described in Section 1.07 above, subject
to the following adjustments (herein collectively called the "Rent
Adjustments"):
(A) Effective the l9th month of the Lease term, the Base Rent payable by
Tenant to Landlord as described in Section 1.07 shall be increased to the sum of
(i) the amount contained in Section 1.07; plus (ii) the product obtained by
multiplying such amount by the percentage increase in the Consumer Price Index
(as defined below) from the second calendar month preceding the calendar month
containing the Commencement Date to the second calendar month preceding the
calendar month containing the annual anniversary of the Commencement Date in the
applicable adjustment year in which the rental increase is to occur (herein
called the "CPI Adjustment"). As used herein, the term "Consumer Price Index"
shall mean the Consumer Price Index for All Urban Consumers, U.S. City Average,
All Items, (1982-84=100) issued by the United States Department of Labor, Bureau
of Labor Statistics; provided, however, that if said Consumer Price Index shall
cease to exist, or be changed, the term "Consumer Price Index" shall mean such
other or similar index or formula as Landlord reasonably selects to measure
change in the purchasing power of the U.S. Dollar. Landlord shall notify Tenant
in writing when each adjustment under this Section 4.02(A) occurs. A decrease in
the Consumer Price Index below the Consumer Price Index for the second calendar
month preceding the calendar month containing the Commencement Date shall not
decrease the amount of the Base Rent due hereunder or give rise to a credit in
favor of Tenant. Notwithstanding the foregoing, said increase shall not be less
than 4.5%.
(B) During each calendar year during the Lease Term, the Base Rent payable
by Tenant to Landlord, as adjusted pursuant to Section 4.02(A) above, shall be
increased by Tenant's Percentage Share of the Property Taxes for such year (the
"Tax Adjustment").
(C) During each calendar year during the Lease Term, the Base Rent payable
hy Tenant to Landlord, as adjusted pursuant to Section 4.02(A) above, also shall
be increased by Tenant's Percentage Share of the Operating Expenses paid or
incurred by Landlord during such year (the "Operating Expense Adjustment ").
(D) During each calendar year during the Lease Term, the Base Rent payable
by Tenant to Landlord, as adjusted pursuant to Section 4.02(A) above, also
shall be increased by Tenant's Percentage Share of the Insurance Expenses
for such year (the "Insurance Adjustment").
(E) The Tax Adjustment, the Operating Expense Adjustment and the Insurance
Adjustment are hereinafter referred to collectively as the "Tax, Operating
Expense and Insurance Adjustments".
4.03 ADIUSTMENT PROCEDURE; ESTIMATES. The Tax, Operating Expense and
Insurance Adjustments specified in Sections 4.02(B), 4.02(C) and 4.02(D) shall
be determined and paid as follows:
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(A) During each calendar year during the Lease Term, Landlord shall
give Tenant written notice of Landlord's estimate of amounts payable under
Sections 4.02(B), 4.02(C) and 4.02(D) for that calendar year. On or before
the first day of each calendar month during the calendar year. Tenant shall
pay to Landlord one-twelfth (1/12th) of such estimated amounts; provided,
however, that, not more often than quarterly, Landlord may, by written
notice to Tenant, revise its estimate for such year, and subsequent
payments by Tenant for such year shall be based upon such revised estimate.
(B) Within one hundred twenty (120) days after the close of each
calendar year in which any Rent Adjustment is made or as soon thereafter
as is practicable, Landlord shall deliver to Tenant a statement of that
year's Property Taxes, Operating Expenses and Insurance Expenses, and the
actual Tax, Operating Expense and Insurance Expense Adjustments to be made
pursuant to Sections 4.02(B), 4.02(C) and 4.02(D) for such calendar year,
as determined and certified by Landlord (the "Landlord's Statement") and
such Landlord's Statement shall be binding upon Tenant, except as provided
in Section 4.04 below. If the amount of the actual Tax Adjustment,
Insurance Adjustment or Operating Expense Adjustment is more than the
estimated payments for the Tax Adjustment, Insurance Adjustment or
Operating Expense Adjustment for such calendar year made by Tenant, Tenant
shall pay the deficiency to Landlord upon receipt of Landlord's Statement.
If the amount of the actual Tax Adjustment, Insurance Adjustment or
Operating Expense Adjustment is less than the estimated payments for such
calendar year made by Tenant, any excess shall be credited against Rent (as
hereinafter defined) next payable by Tenant under this Lease or, if the
Lease Term has expired, any excess thereof shall be paid to Tenant. No
delay in providing the statements described in this Section 4.03(B) shall
act as a waiver of Landlord's right to payment under Sections 4.02(B),
4.02(C) or 4.02(D) above. Notwithstanding the foregoing, Tenant's right to
receive any credit or payment pursuant to the preceding sentences of this
Section 4.03(B) is conditioned on this Lease being in full force and effect
and Tenant not being in default under this Lease on the date such credit or
payment is due.
(C) If this Lease shall terminate on a day other than the end of a
calendar year, the amount of the Tax, Operating Expense and Insurance
Adjustments to be paid pursuant to Sections 4.02(B), 4.02(C) and 4.02(D)
that is applicable to the calendar year in which such termination occurs
shall be prorated on the basis of the number of days from January 1 of the
calendar year to the termination date bears to 365. The termination of this
Lease shall not affect the obligations of Landlord and Tenant pursuant to
Sections 4.03(B) and 4.03(C) to be performed after such termination.
4.04 REVIEW OF LANDLORD'S STATEMENT. Provided this Lease is in full force
and effect and that Tenant is not then in default under this Lease and provided
further that Tenant strictly complies with the provisions of this Section 4.04,
Tenant shall have the right, once each calendar year, to reasonably review
supporting data for any portion of a Landlord's Statement that Tenant claims is
incorrect, in accordance with the following procedure:
(A) Tenant shall, within ten (10) business days after any such
Landlord's Statement is delivered, deliver a written notice to Landlord
specifying the portions of the Landlord's Statement that are claimed to be
incorrect, and Tenant shall simultaneously pay to Landlord all amounts due
from Tenant to Landlord as specified in the Landlord's Statement. Except as
expressly set forth in subsection (C) below, in no event shall Tenant be
entitled to withhold, deduct, or offset any monetary obligation of Tenant
to Landlord under the Lease (including without limitation, Tenant's
obligation to make all payments of Base Rent including the CPI Adjustment
and all payments of Tenant's Tax, Operating Expense and Insurance
Adjustments) pending the completion of and regardless of the results of any
review of records under this Section 4.04. The right of Tenant under this
Section 4.04 may only be exercised once for any Landlord's Statement, and
if Tenant fails to meet any of the above conditions as a prerequisite to
the exercise of such right, the right of Tenant under this Section 4.04 for
a particular Landlord's Statement shall be deemed waived.
(B) Tenant acknowledges that Landlord maintains its records for the
Building or the Project, if applicable, at Landlord's manager's corporate
offices and Tenant agrees that any review of records under this Section
4.04 shall be at the sole expense of Tenant and shall be conducted by an
independent firm of certified public accountants of national standing.
Tenant acknowledges and agrees that any records reviewed under this Section
4.04 constitute confidential information of Landlord, which shall not be
disclosed to anyone other than the accountants performing the review and
the principals of Tenant who receive the results of the review. The
disclosure of such information to any other person, whether or not caused
by the conduct of Tenant, shall constitute a material breach of this Lease.
(C) Any errors disclosed by the review shall be promptly corrected by
Landlord, provided, however, that if Landlord disagrees with any such
claimed errors, Landlord shall have the right to cause another review to be
made by an independent firm of certified public accountants of national
standing. In the event of a disagreement between the two accounting firms,
the review that discloses the least amount of deviation from the Landlord's
Statement shall be deemed to be correct. In the event that the results of
the review of records (taking into account, if applicable, the results of
any additional review caused by Landlord) reveal that Tenant has overpaid
obligations for a preceding period, the amount of such overpayment shall be
credited against Tenant's subsequent installment obligations to pay the
estimated Tax, Operating Expense and Insurance Adjustments. In the event
that such results show that Tenant has underpaid its obligations for a
preceding period, Tenant shall be liable for Landlord's actual accounting
fees, and the amount of such underpayment shall be paid by Tenant to
Landlord with the next succeeding installment obligation of estimated Tax,
Operating Expense and Insurance Adjustments.
4.05 PAYMENT. Concurrently with the execution hereof, Tenant shall pay
Landlord Base Rent for the first calendar month of the Lease Term. Thereafter
the Base Rent described in Section 1.07, as adjusted in accordance with Section
4.02, shall be payable in advance on the first day of each calendar month. If
the Commencement Date is other than the first day of a calendar month, the
prepaid Base Rent for such partial month shall be prorated in the proportion
that the number of days this Lease is in effect during such partial month bears
to the total number of days in the calendar month. All Rent, and all other
amounts payable to Landlord by Tenant pursuant to the provisions of this Lease,
shall be paid to Landlord, without notice, demand, abatement, deduction or
offset, in lawful money of the United States at Landlord's office in the
Building or to such other person or at such other place as Landlord may
designate from time to time by written notice given to Tenant. No payment by
Tenant or receipt
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by Landlord of a lesser amount than the correct Rent due hereunder shall be
deemed to be other than a payment on account; nor shall any endorsement or
statement on any check or any letter accompanying any check or payment be deemed
to effect or evidence an accord and satisfaction; and Landlord may accept such
check or payment without prejudice to Landlord's right to recover the balance or
pursue any other remedy in this Lease or at law or in equity provided.
4.06 LATE CHARGE; INTEREST. Tenant acknowledges that the late payment of
Base Rent or any other amounts payable by Tenant to Landlord hereunder (all of
which shall constitute additional rent to the same extent as Base Rent) will
cause Landlord to incur administrative costs and other damages, the exact amount
of which would be impracticable or extremely difficult to ascertain. Landlord
and Tenant agree that if Landlord does not receive any such payment on or before
five (5) days after the date the payment is due, Tenant shall pay to Landlord,
as additional rental, (a) a late charge equal to five percent (5%) of the
overdue amount to cover such additional administrative costs; and (b) interest
on the delinquent amounts at the lesser of the maximum rate permitted by law if
any or twelve percent (12%) per annum from the date due to the date paid.
4.07 ADDITIONAL RENT. For purposes of this Lease, all amounts payable by
Tenant to Landlord pursuant to this Lease. whether or not denominated as such
shall constitute additional rental hereunder. Such additional rental, together
with the Base Rent and Rent Adjustments, shall sometimes be referred to in this
Lease as "Rent".
4.08 ADDITIONAL TAXES. In addition to the Rent and other charges to be paid
by Tenant hereunder, Tenant shall reimburse Landlord upon demand for all taxes
payable by or imposed upon Landlord upon or with respect to: any fixtures or
personal property located in the Premises; any leasehold improvements made in or
to the Premises by or for Tenant; the Rent payable hereunder, including, without
limitation, any gross receipts tax, license fee or excise tax levied by any
governmental authority; the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of any portion of the Premises
(including, without limitation, any applicable possessory interest taxes); or
this transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises.
ARTICLE V - SECURITY DEPOSIT
5.01 Upon the execution of this Lease, Tenant shall deposit with Landlord
the Security Deposit described in Section 1.09 above. The Security Deposit is
made by Tenant to secure the faithful performance of all the terms, covenants
and conditions of this Lease to be performed by Tenant. If Tenant shall default
with respect to any covenant or provision hereof, Landlord may use, apply or
retain all or any portion of the Security Deposit to cure such default or to
compensate Landlord for any loss or damage which Landlord may suffer thereby. If
Landlord so uses or applies all or any portion of the Security Deposit, Tenant
shall immediately upon written demand deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to the full amount hereinabove
stated. Landlord shall not be required to keep the Security Deposit separate
from its general accounts and Tenant shall not be entitled to interest on the
Security Deposit. Within thirty (30) days after the expiration of the Lease Term
and the vacation of the Premises by Tenant, the Security Deposit, or such part
as has not been applied to cure the default, shall be returned to Tenant. In the
event of any bankruptcy or other proceeding initiated by or against Tenant, it
is agreed that all such Security Deposit held hereunder shall be deemed to be
applied by Landlord to rent, sales tax and all other charges due from Tenant to
Landlord for the last month of the Term and each preceding month until such
Security Deposit is fully applied.
ARTICLE VI - USE OF PREMISES
6.01 TENANT'S PERMITTED USE. Tenant shall use the Premises only for
Tenant's Permitted Use as set forth in Section 1.10 above and shall not use or
permit the Premises to be used for any other purpose. Tenant shall, at its sole
cost and expense, obtain all governmental licenses and permits required to allow
Tenant to conduct Tenant's Permitted Use. Landlord disclaims any warranty that
the Premises are suitable for Tenant's use and Tenant acknowledges that it has
had a full opportunity to make its own determination in this regard.
6.02 COMPLIANCE WITH LAWS AND OTHER REOUIREMENTS.
(A) Tenant shall cause the Premises to comply in all material respects
with all laws, ordinances, regulations and directives of any governmental
authority having jurisdiction including without limitation any certificate
of occupancy and any law, ordinance, regulation, covenant, condition or
restriction affecting the Building or the Premises which in the future may
become applicable to the Premises (collectively "Applicable Laws").
(B) Tenant shall not use the Premises, or permit the Premises to be
used, in any manner which: (a) violates any Applicable Law; (b) causes or
is reasonably likely to cause damage to the Building, the Project, if
applicable, or the Premises; (c) violates a requirement or condition of any
fire and extended insurance policy covering the Building or the Project, if
applicable; and/or the Premises, or increases the cost of such policy; (d)
constitutes or is reasonably likely to constitute a nuisance, annoyance or
inconvenience to other tenants or occupants of the Building or the Project,
if applicable, or their equipment, facilities or systems; (e) interferes
with, or is reasonably likely to interfere with, the transmission or
reception of microwave, television, radio, telephone or other communication
signals by antennae or other facilities located in the Building or the
Project, if applicable; or (f) violates the Rules and Regulations described
in Article XX.
(C) In addition to any other amounts payable by Tenant to Landlord
hereunder, Tenant shall pay to Landlord, as and when billed to Tenant and
as additional rental, Tenant's Percentage Share of the cost of any
improvements, capital expenditures, repairs or replacements to the Building
or the Project, if applicable, or any equipment or machinery used in
connection with the Building or the Project, if applicable, if any such
item is required under any Applicable Law as of the date of this Lease and
throughout the Lease Term; provided, however, that any such costs which are
properly charged to a capital account (together with reasonable financing
charges) shall be amortized for purposes of this Lease over the shorter of
(i) their useful lives, or (ii) three (3) years and only the annual
amortization amount (prorated
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based on the number of days of the Lease term in the calendar year) shall be
payable by the Tenant with respect to any calendar year.
6.03 HAZARDOUS MATERIALS.
(A) No Hazardous Materials (as defined herein) shall be Handled (as
defined herein) upon, about, above or beneath the Premises or any portion
of the Building or the Project, if applicable. by or on behalf of a
Responsible Party (as defined herein), unless the Hazardous Materials are
iisted in Exhibit D hereto and then only in the quantities listed in the
exhibit. Any such Hazardous Materials so Handled, or the presence or
migration of which is a result of the act or omission of a Responsible
Party, shall be known as Tenant's Hazardous Materials. Notwithstanding the
foregoing, Landlord acknowledges that, due to Tenant's permitted use of the
Premises, as indicated in Paragraph 6.01 of this Lease, Tenant will
occasionally Handle Hazardous Materials on the Premises which are in
transit to their final destination; however, such presence and Handling of
Hazardous Materials shall be in compliance with all applicable federal,
state, local and environmental laws and regulations and the following
guidelines: (i) no nuclear or explosive materials will be Handled by Tenant
on the Premises, except such radioactive isotopes as Tenant may Handle from
time to time; provided that such Handling shall be in accordance with the
U.S. Department of Transportation regulations and the International
Airtransport Association Dangerous Goods regulations; (ii) all Hazardous
Materials will be Handled in a well-marked area which is segregated from
other storage and handling areas and is used exclusively for hazardous
materials; (iii) Hazardous Materials will be Handled in such a way that any
such Materials which are incompatible or reactive to each other shall be
kept separate at all times such Materials are on the Premises; (iv)
Hazardous Materials shall only be Handled on the Premises for a maximum
period of twenty-four (24) hours; (v) Tenant shall provide written
documents or other written evidence to Landlord upon execution of the Lease
that all personnel who are responsible for the Handling or other contact
with Hazardous Materials have been properly trained, in accordance with any
applicable laws and/or regulations, to handle spills of Hazardous Materials
and that the required, appropriate spill response equipment is maintained
on site; (vi) Tenant will provide Landlord with written evidence that it is
maintaining the appropriate insurance coverage for the occasional presence
of such Hazardous Materials on the Premises upon execution of this Lease;
and (vii) Tenant will provide Landlord with written evidence that all of
its employees whose responsibilities include driving Tenant's trucks or
other vehicles are licensed in accordance with state, federal and local
laws and regulations to transport and Handle Hazardous Materials. Also,
notwithstanding the foregoing, normal quantities of those Tenant Hazardous
Materials customarily used in the conduct of general administrative and
executive office activities (e.g., copier fluids and cleaning supplies)
may be Handled at the Premises without Landlord's prior written consent.
(B) Tenant's Hazardous Materials shall be Handled at all times in
compliance with the manufacturer's instructions therefor and all applicable
Environmental Laws (as defined herein). Tenant's Hazardous Materials shall
not be disposed of, released, discharged or permitted to spill, leak or
migrate upon about, above or beneath the Premises or any portion of the
Building.
(C) Tenant agrees to maintain only the Hazardous Materials listed in
Schedule I to Exhibit D in or at the Premises or the Building and only in
the quantities listed in Schedule I to Exhibit D. Tenant further agrees
that changes to the type and quantities of such Tenant's Hazardous
Materials may be done only with the prior written consent of the Landlord,
which consent shall not be unreasonably withheld. Tenant further agrees
that Landlord shall have the right to inspect the Building to verify the
types and quantities of the materials stored therein.
(D) Notwithstanding the obligation of Tenant to indemnify Landlord
pursuant to this Lease, Tenant shall, at its sole cost and expense,
promptly take all actions required by any Regulatory Authority, or
necessary for Landlord to make full economic use of the Premises or any
portion of the Building, or the Project, if applicable, which requirements
or necessity arises from the Handling, presence or migration of Tenant's
Hazardous Materials upon, about, above or beneath the Premises or any
portion of the Building, or the Project, if applicable. Such actions shall
include, but not be limited to, the investigation of the environmental
condition of the Premises or any portion of the Building, or the Project,
if applicable, the preparation of any feasibility studies or reports and
the performance of any cleanup, remedial, removal or restoration work.
Tenant shall take all actions necessary to restore the Premises or any
portion of the Building or the Project, if applicable, to the condition
existing prior to the introduction of Tenant's Hazardous Materials,
notwithstanding any less stringent standards or remediation allowable under
applicable Environmental Laws. Tenant shall nevertheless obtain Landlord's
written approval prior to undertaking any actions required by this Section,
which approval shall not be unreasonably withheld so long as such actions
would not potentially have a material adverse long-term or short-term
effect on the Premises or any portion of the Building or the Project, if
applicable.
(E) Tenant shall immediately notify Landlord of; (i) its knowledge of
any disposal, release, discharge, spill, leak on, about, above, or beneath,
or any migration to or from the Premises or the Building of Hazardous
Materials, (ii) any inspection, enforcement, cleanup or other regulatory
action taken or threatened by any Regulatory Authority with respect to any
Hazardous Materials on, about, above, beneath or from the Premises or the
Building or the migration thereof from or to other property, (iii) any
demands or claims made or threatened by any party relating to any loss or
injury claimed to have resulted from any Hazardous Materials on, about,
above, beneath or from the Building, and (iv) any matters where Tenant is
required by Law to give a notice to any Regulatory Authority concerning
Hazardous Materials on or from the Premises or the Building. Landlord shall
have the right but not the obligation to notify Regulatory Authorities
concerning actual and claimed violations of this Article.
(F) Tenant agrees to execute affidavits, representations and the like
from time to time at Landlord's request stating Tenant's best knowledge and
belief regarding the presence of Hazardous Materials in the Premises or in
or at the Building.
(G) "Environmental Laws" means and includes all now and hereafter
existing statutes, laws, ordinances, codes, regulations, rules, rulings,
orders, decrees, directives, policies and requirements by any
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federal, state or local governmental authority regulating, relating to, or
imposing liability or standards of conduct concerning public health and
safety or the environment.
(H) "Hazardous Materials" means: (a) any material or substance: (i)
which is defined or becomes defined as a "hazardous substance", "hazardous
waste," "infectious waste," "chemical mixture or substance," or "air
pollutant" under Environmental Laws; (ii) containing petroleum, crude oil
or any fraction thereof; (iii) containing polychlorinated biphenyls
(PCB's); (iv) containing asbestos; (v) which is radioactive; (b) any other
material or substance displaying toxic, reactive, ignitable or corrosive
characteristics, as all such terms are used in their broadest sense, and
are defined or become defined by Environmental Laws, or (c) materials which
cause a nuisance upon or waste to the Premises or any portion of the
Building or the Project, if applicable.
(I) "Handle", "handle", "Handled", "handled", "Handling" or "handling"
shall mean any installation, handling, generation, storage, treatment, use,
disposal, discharge, release, manufacture, refinement, emission, abatement,
removal, transportation, or any other activity of any type in connection
with or involving Hazardous Materials.
(J) "Responsible Party" shall mean Tenant, its subtenants and its
assignees and their respective contractors, clients, officers, directors,
employees, agents, and invitees, or any of them, as the case may be.
(K) "Regulatory Authority" shall mean any federal, state or local
governmental agency, commission, board or political subdivision.
ARTICLE VII - UTILITIES AND SERVICES
7.01 SERVTCES. Landlord shall permit Tenant to use any existing utility
service connection into the Premises and Tenant, at its sole expense, shall
arrange with the appropriate utility company to install all necessary
connections and without fail to maintain in continuous operation during the
entire term of the Lease, all such utility service, whether or not Tenant is in
actual possession of the Premises. Tenant shall pay to the appropriate utility
company or other provider directly, or at Landlord's election as provided in
Section 7.02 below, to Landlord, for all water, gas, heat, electricity, light,
power, sweeping and other janitorial services, rubbish and trash disposal, pest
and rodent control, sewer, steam, fire protection, alarm or other security
services and any other utilities and services supplied in, about or related to
the Premises, together with any taxes thereon, connection charges and deposits,
and also shall pay for all electrical light bulbs, lamps and tubes in connection
therewith. Landlord reserves the right during the Term of this Lease to grant
easements or public utility purposes on, over, or below the Premises without any
abatement in rent, provided that said easements do not unreasonably interfere
with the normal operation of the business conducted by Tenant in the Premises.
Landlord shall not be required to pay for any service, supplies or upkeep in
connection with the Premises. Tenant shall arrange for and pay for all telephone
and other communication services and equipment, including any additions or
alterations to the existing telephone service boards and conduit, which shall be
completed without interference to the service and/or equipment of other tenants
in the Building or the Project, if applicable, and which shall be appropriately
labeled upon the termination of this Lease.
7.02 SEPARATE METERING. If any utilities are not separately metered for the
Premises, Landlord may: (i) require that Tenant make reasonable arrangements to
share such utilities with the other parties whose premises are on such meter,
(ii) require that Tenant pay Landlord a share of such utilities based on the
Rentable Area of the Premises as a percentage of the total rentable area of
occupied space that is jointly metered, or (iii) require that Tenant pay
Landlord a share of such utilities based on consumption estimates of Landlord's
engineer or consultant (in which case, such engineer's or consultant's fees and
costs shall be added to the utility bills). In such case, either Landlord or
Tenant may elect to install separate meters (but the costs of installing,
maintaining and reading such meters shall be borne by Tenant). Landlord may
reasonably estimate in advance any amounts payable by Tenant to Landlord
hereunder and Tenant shall pay such amounts within ten (10) days after the same
are billed, subject to periodic adjustment (and additional payment by Tenant or
credit or refund by Landlord) after the actual amounts have been determined.
7.03 INSTALLATION, CONNECTION AND USE OF UTILITY EQUIPMENT. Tenant shall
install and connect all equipment and lines required to supply such utilities to
the extent not already available at or serving the Premises, or at Landlord's
option shall repair, alter or replace any such existing items (or Tenant shall
share the costs thereof for any equipment shared with other tenants), subject to
the terms of Section 2.02 hereof. Tenant shall maintain, repair and replace all
such items, operate the same, and keep the same in good working order, condition
and repair, as provided in Section 8.02. Tenant shall not install any equipment
or fixtures, or use the same, so as to exceed the safe and lawful capacity of
any utility equipment or lines serving the same. The installation, alteration,
replacement or connection of any utility equipment and lines shall be subject to
the requirements for Alterations of the Premises set forth in Article 9. Tenant
shall ensure that any supplemental HVAC equipment is installed and all HVAC
equipment is operated at all times in a manner to prevent roof leaks, damage or
noise due to vibrations or improper installation, maintenance or operation.
Tenant shall at all times keep the Premises sufficiently heated to avoid
freezing of pipes.
7.04 INTERRUPTION OF SERVICES. Landlord shall not be liable for any failure
to furnish, stoppage of, or interruption in furnishing any of the services or
utilities described in Section 7.01, when such failure is caused by accident,
breakage, repairs, strikes, lockouts, labor disputes, labor disturbances,
governmental regulation, civil disturbances, acts of war, moratorium or other
governmental action, or any other cause beyond Landlord's reasonable control,
and, in such event, Tenant shall not be entitled to any damages nor shall any
failure or interruption abate or suspend Tenant's obligation to pay Base Rent
and additional rent required under this Lease or constitute or be construed as a
constructive or other eviction of Tenant. Further, in the event any governmental
authority or public utility promulgates or revises any law, ordinance, rule or
regu1ation, or issues mandatory controls or voluntary controls relating to the
use or conservation of energy, water, gas, light or electricity, the reduction
of automobile or other emissions, or the provision of any other utility or
service, Landlord may take any reasonably appropriate action to comply with such
law, ordinance, rule, regulation, mandatory control or voluntary guideline and
Tenant's obligations hereunder shall not be affected by any such action of
Landlord. The parties acknowledge
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that safety and security devices, services and programs provided by Landlord,
if any, while intended to deter crime and ensure safety, may not in given
instances prevent theft or other criminal acts, or ensure safety of persons or
property. The risk that any safety or security device, service or program may
not be effective, or may malfunction, or be circumvented by a criminal, is
assumed by Tenant with respect to Tenant's property and interests, and Tenant
shall obtain insurance coverage to the extent Tenant desires protection against
such criminal acts and other losses, as further described in this Lease. Tenant
agrees to cooperate in any reasonable safety or security program developed by
Landlord or required by Law.
Any amounts which Tenant is required to pay to Landlord pursuant to this
Article Vll shall be payable upon demand by Landlord and shall constitute
additional rent or Rent under this Lease.
ARTICLE VIII - MAINTENANCE AND REPAIRS
8.01 LANDLORD'S OBLIGATIONS.
(A) During the Lease Term, Landlord shall, at its expense, maintain
only the foundation and the structural soundness of the exterior walls
(excluding all windows, plate glass, doors and pest control and
extermination) of the portion of the Building containing the Premises in
good working order, repair and condition except for reasonable wear and
tear. Landlord also shall maintain, at its expense, subject to
reimbursement as part of Operating Expenses, the roof, downspouts and fire
safety sprinkler system of the Building. If Tenant determines that any such
repair or maintenance by Landlord is required, Tenant shall promptly give
written notice to Landlord of the need for such repair or maintenance and
unless Landlord in good faith disagrees with such determination by Tenant,
Landlord shall proceed with reasonable promptness to perform such
maintenance. Landlord shall not be liable to Tenant, except as otherwise
expressly provided in this Lease, for any damage or inconvenience. Tenant
shall not be entitled to any abatement or reduction of Rent by reason of
any repairs, alterations or additions made by Landlord under this Lease.
(B) Tenant shall, at its sole cost, pay for any damage to the
foundation and/or external walls of the Building, or the Project, if
applicable, caused by any act, omission, negligence or fault of Tenant or
any employee, agent or contractor of Tenant.
8.02 TENANT'S OBLIGATIONS. During the Lease Term, Tenant shall, at its risk
and at its own sole cost and expense maintain all other parts of the Building
and other improvements in or on the Premises in good working order, repair and
condition (including all necessary replacements), including, but not limited to,
HVAC systems, all glass elements, doors (including dock doors), dock bumpers,
light bulbs, light fixtures, regular mowing of any grass, trimming, weed
removal, and regular removal of debris. However, in a multi-occupancy Building,
Landlord reserves the right to perform lawn and other common area maintenance
(including, without limitation, exterior painting and maintenance of any HVAC
system serving the common areas of the Building or serving the Premises as well
as other premises in the Building) and in such instance Tenant agrees to pay
Landlord for lawn and other common area maintenance (including, without
limitation, exterior painting and HVAC maintenance) based on Tenant's Percentage
Share with respect to Operating Expenses, as provided in Article IV hereof (or,
with respect to HVAC maintenance, based on the ratio of the Rentable Area of the
Premises to the rentable area of all premises served by said HVAC system).
Tenant shall take good care of all property and its fixtures, including all
landscaping, and suffer no waste. Tenant shall engage a certified pest control
firm to perform regular (not less frequent than monthly but more frequent if
Landlord determines the need therefor) extermination for pests including, but
not limited to, roaches, rodents and termites. Should Tenant neglect to keep and
maintain the Premises as required herein, the Landlord shall have the right, but
not the obligation, to have the work done and any reasonable costs plus a ten
percent (10%) overhead charge therefor shall be charged to Tenant as additional
rental and shall become payable by Tenant with the payment of the rental next
due under this Lease. In connection with Tenant's maintenance and repair of the
HVAC systems, Tenant shall provide Landlord during the Term of this Lease and
any renewal hereof with a duplicate original of a maintenance contract, in form
and substance acceptable to Landlord, with an HVAC maintenance firm acceptable
to Landlord. Further, Tenant shall be responsible for, and upon demand by
Landlord shall promptly reimburse Landlord for, any damage to any portion of the
Project, if applicable, the Building or the Premises caused by (a) Tenant's
activities in the Building or the Premises; (b) the performance or existence of
any alterations, additions or improvements made by Tenant in or to the Premises;
(c) the installation, use, operation or movement of Tenant's property in or
about the Building or the Premises; or (d) any act or omission by Tenant or its
officers, partners, employees, agents, contractors or invitees.
8.03 REPAIR DAMAGE. Tenant shall, at its own cost and expense, repair or
replace any damage or injury to all or any part of the Premises, the Building
and the Project, if applicable, caused by Tenant or Tenant's agents, employees,
invitees, licensees or visitors; provided, however, if Tenant fails to make such
repairs or replacements promptly, Landlord may, at its option, make such repairs
or replacements and Tenant shall reimburse the cost, plus a ten percent (10%)
overhead charge therefor, to Landlord on demand.
8.04 NO WASTE. Tenant shall not commit or allow any waste or damage to be
committed on any portion of the Premises.
8.05 LANDLORD'S RIGHTS. Landlord and its contractors shall have the right,
at all reasonable times and upon prior oral or telephone notice to Tenant at the
Premises, other than in the case of any emergency in which case no notice shall
be required, to enter upon the Premises to make any repairs to the Premises or
the Building reasonably required or deemed reasonably necessary by Landlord and
to erect such equipment, including scaffolding, as is reasonably necessary to
effect such repairs. During the pendency of such repairs, Landlord shall use
reasonable efforts to minimize any material interruption of Tenant's business;
provided, that if such repairs by Landlord are required to remedy an emergency
situation or to cure a breach or default by Tenant under this Lease, Landlord
shall not be obligated to minimize such interference.
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<PAGE>
ARTICLE IX - ALTERATIONS, ADDITIONS AND IMPROVEMENTS
9.01 LANDLORD'S CONSENT; CONDITIONS. Tenant shall not make or permit to be
made any alterations, additions, or improvements in or to the Premises
("Alterationsn) without the prior written consent of Landlord which consent,
with respect to non-structural alterations, shall not be unreasonably withheld.
or delayed, Landlord may impose as a condition to making any Alterations such
requirements as Landlord in its sole discretion deems necessary or desirable
including without limitation: Tenant's submission to Landlord, for Landlord's
prior written approval, of all plans and specifications relating to the
Alterations; Landlord's prior written approval of the time or times when the
Alterations are to be performed; Landlord's prior written approval of the
contractors and subcontractors performing work in connection with the
Alterations; employment only of union contractors and subcontractors who shall
not cause labor disharmony; Tenant's receipt of all necessary permits and
approvals from all governmental authorities having jurisdiction over the
Premises prior to the construction of the Alterations; Tenant's delivery to
Landlord of such bonds and insurance as Landlord shall reasonably require; and
Tenant's payment to Landlord of all costs and expenses incurred by Landlord
because of Tenant's Alterations, including but not limited to costs incurred in
reviewing the plans and specifications for, and the progress of, the
Alterations. Tenant is required to provide Landlord written notice of whether
the Alterations include the Handling of any Hazardous Materials and whether
these materials are of a customary and typical nature for industry practices.
Upon completion of the Alterations. Tenant shall provide Landlord with copies of
as-built plans. Neither the approval bv Landlord of plans and specifications
relating to any Alterations nor Landlord's supervision or monitoring of any
Alterations shall constitute any warranty by Landlord to Tenant of the adequacy
of the design for Tenant's intended use or the proper performance of the
Alterations. *
9.02 PERFORTNANCE OF ALTERATIONS WORK. All work relating to the Alterations
shall be performed in compliance with the plans and specifications approved by
Landlord, all applicable laws, ordinances, rules, regulations and directives of
all governmental authorities having jurisdiction (including without limitation
Title 24 of the California Administrative Code) and the requirements of all
carriers of insurance on the Premises and the Building, the Board of
Underwriters, Fire Rating Bureau, or similar organization. All work shall be
performed in a diligent, first class manner and so as not to unreasonably
interfere with any other tenants or occupants of the Building or the Project, if
applicable. All costs incurred by Landlord relating to the Alterations shall be
payable to Landlord by Tenant as additional rent upon demand. No
asbestos-containing materials shall be used or incorporated in the Alterations,
No lead-containing surfacing material, solder, or other construction materials
or fixtures where the presence of lead might create a condition or exposure not
in compliance with Environmental Laws shall be incorporated in the Alterations.
9.03 LIENS. Tenant shall pay when due all costs for work performed and
materials supplied to the Premises. Tenant shall keep Landlord, the Premises and
the Building free from all liens, stop notices and violation notices relating to
the Alterations or any other work performed for, materials furnished to or
obligations incurred by or for Tenant and Tenant shall protect, indemnify, hold
harmless and defend Landlord, the Premises and the Building of and from any and
all loss, cost, damage, liability and expense, including attorneys' fees,
arising out of or related to any such liens or notices. Further, Tenant shall
give Landlord not less than seven (7) business days prior written notice before
commencing any Alterations in or about the Premises to permit Landlord to post
appropriate notices of non-responsibility. Tenant shall also secure, prior to
commencing any Alterations, at Tenant's sole expense, a completion and lien
indemnity bond satisfactory to Landlord for such work. During the progress of
such work, Tenant shall, upon Landlord's request, furnish Landlord with sworn
contractor's statements and lien waivers covering all work theretofore
performed. Tenant shall satisfy or otherwise discharge all liens, stop notices
or other claims or encumbrances within ten (10) days after Landlord notifies
Tenant in writing that any such lien, stop notice, claim or encumbrance has been
filed. If Tenant fails to pay and remove such lien, claim or encumbrance within
such ten (10) days, Landlord, at its election, may pay and satisfy the same and
in such event the sums so paid by Landlord, with interest from the date of
payment at the rate set forth in Section 4.06 hereof for amounts owed Landlord
by Tenant shall be deemed to be additional rent due and payable by Tenant at
once without notice or demand.
9.04 REMOVAL OF ALTERATIONS. All Alterations shall become a part of the
Premises and shall become the property of Landlord upon the expiration or
earlier termination of this Lease, unless Landlord shall, by written notice
given to Tenant, require Tenant to remove some or all of Tenant's Alterations,
(whether installed during the Term of this Lease or any previous occupancy of
the Premises by Tenant), in which event Tenant shall promptly remove the
designated Alterations and shall promptly repair any resulting damage, all at
Tenant's sole expense. All business and trade fixtures, machinery and equipment,
furniture, movable partitions and items of personal property owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant; upon the expiration or earlier termination of this Lease,
Tenant shall, at its sole expense, remove all such items and repair any damage
to the Premises or the Building caused by such removal. If Tenant fails to
remove any such items or repair such damage promptly after the expiration or
earlier termination of the Lease, Landlord may, but need not, do so with no
liability to Tenant, and Tenant shall pay Landlord the cost thereof upon demand.
Notwithstanding the foregoing to the contrary, in the event Landlord gives its
consent, pursuant to the provisions of Section 9.01 of this Lease, to allow
Tenant to make an Alteration in the Premises, Landlord agrees, upon Tenant's
written request, to notify Tenant in writing at the time of the giving of such
consent whether Landlord will require Tenant, at Tenant's cost, to remove such
Alteration at the end of the Lease Term.
ARTICLE X - INDEMNIFICATION AND INSURANCE
10.01 INDEMNIFICATION.
(A) Tenant agrees to protect, indemnify, hold harmless and defend
Landlord and any Mortgagee, as defined herein, and each of their
respective partners, directors, officers, agents and employees, successors
and assigns, regardless of any negligence of, or imputed to Landlord as
owner of the Building, Premises or underlying real property, from and
against:
(i) any and all loss, cost, damage, liability or expense as
incurred (including but not limited to actual attorneys' fees
and legal costs) arising out of or related to any claim, suit or judgment
brought by or in favor of any person or persons for damage, loss or
expense due to, but not limited to, bodily
9
* NOTWITHSTANDING THE HREGOING AND THE PROVISIONS OF ARTICLE 9.01 TENANT
MAY MAKE NON-STRUCTURAL ALTERATIONS TO THE INTERIOR OF THE PREMISES COSTING
LESS THAN $5,000.00 WITHOUT OBTAINING THE LANDLORD'S CONSENT.
<PAGE>
injury, including death, or property damage sustained by such person or
persons which arises out of, is occasioned by or is in any way attributable
to the use or occupancy of the Premises or any portion of the Building or
the Project, if applicable, by Tenant or the acts or omissions of Tenant or
its agents, employees, contractors, clients, invitees or subtenants except
that caused by the sole active negligence of Landlord or its agents or
employees. Such loss or damage shall include, but not be limited to, any
injury or damage to, or death of, Landlord's employees or agents or damage
to the Premises or any portion of the Building or the Project, if
applicable.
(ii) any and all environmental damages which arise from: (i) the
Handling, presence or migration of any Tenant's Hazardous Materials, as
defined in Section 6.03 or (ii) the breach of any of the provisions of this
Lease. For the purpose of this Lease, "environmental damages" shall mean
(a) all claims, judgments, damages, penalties, fines, costs, liabilities,
and losses (including without limitation, diminution in the value of the
Premises or any portion of the Building or the Project, if applicable,
damages for the loss of or restriction on the use of rentable or usable
space or of any amenity of the Premises or any portion of the Building or
the Project, if applicable, and from any adverse impact of Landlord's
marketing of space); (b) all reasonable sums paid for settlement of claims,
attorneys' fees, consultants' fees and experts' fees; and (c) all costs
incurred by Landlord in connection with investigation or remediation
relating to the Handling of Tenant's Hazardous Materials, whether or not
required by Environmental Laws, necessary for Landlord to make full
economic use of the Premises or any portion of the Building or the Project,
if applicable, or otherwise required under this Lease. To the extent that
Landlord is strictly liable under any Environmental Laws, Tenant's
obligation to Landlord and the other indemnities under the foregoing
indemnification shall likewise be without regard to fault on Tenant's part
with respect to the violation of any Environmental Law which results in
liability to the indemnitee. Tenant's obligations and liabilities pursuant
to this Section 10.01 shall survive the expiration or earlier termination
of this Lease.
(iii) any and all testing or investigation as may be requested by
any governmental agency or lender for the purpose of investigating the
presence of Tenant's Hazardous Materials that may not be in compliance with
Environmental Laws.
(B) Notwithstanding anything to the contrary contained herein, nothing
shall be interpreted or used to in any way affect, limit, reduce or
abrogate any insurance coverage provided by any insurers to either Tenant
or Landlord.
(C) Notwithstanding anything to the contrary contained in this Lease,
nothing herein shall be construed to infer or imply that Tenant is a
partner, joint venturer, agent, employee, or otherwise acting by or at the
direction of Landlord.
10.02 PROPERTY INSURANCE.
(A) At all times during the Lease Term, Tenant shall procure and
maintain, at its sole expense, "all-risk" property insurance, for damage or
other loss caused by fire or other casualty or cause including, but not
limited to, vandalism and malicious mischief, theft, water damage of any
type, including sprinkler leakage, bursting of pipes, explosion, in an
amount not less than one hundred percent (100%) of the replacement cost
covering (a) all leasehold improvements in and to the Premises and (b)
Tenant's trade fixtures, equipment, business records and other personal
property from time to time situated in the Premises, including, without
limitation, all floor and wall coverings. The proceeds of such insurance
shall be used for the repair or replacement of the property so insured,
except that if not so applied or if this Lease is terminated following a
casualty, the proceeds applicable to the leasehold improvements shall be
paid to Landlord and the proceeds applicable to Tenant's personal property
shall be paid to Tenant.
(B) At all times during the Lease Term, Tenant shall procure and
maintain business interruption insurance in such amount as will reimburse
Tenant for direct or indirect loss of earnings attributable to all perils
insured against in Section 10.02(A).
(C) Landlord shall at all times during the Lease Term procure and
maintain "all-risk" property insurance in the amount not less than ninety
percent (90%) of the insurable replacement cost covering the Building in
which the Premises are located and such other insurance as may be required
by a Mortgagee or otherwise desired by Landlord.
10.03 LIABILITY INSURANCE.
(A) At all times during the Lease Term, Tenant shall procure and
maintain, at its sole expense, commercial general liability insurance
applying to the use and occupancy of the Premises and the business operated
by Tenant. Such insurance shall have a minimum combined single limit of
liability of at least Two Million Dollars ($2,000,000) per occurrence and a
general aggregate limit of at least Two Million Dollars, ($2,000,000). All
such policies shall be written to apply to all bodily injury, property
damage, personal injury losses and shall be endorsed to include Landlord
and its agents, beneficiaries, partners, employees, and any deed of trust
holder or mortgagee of Landlord or any ground lessor as additional
insureds. (A list of the current persons and entities to be named as
additional insureds is attached hereto as Exhibit E.) Such liability
insurance shall be written as primary policies, not excess or
contributing with or secondary to any other insurance as may be available
to the Landlord or additional insureds.
(B) Prior to the sale, storage, use or giving away of alcoholic
beverages on or from the Premises by Tenant or another person, Tenant, at
its own expense, shall obtain a policy or policies of insurance issued by
a responsible insurance company and in a form acceptable to Landlord saving
harmless and protecting Landlord and the Premises against any and all
damages, claims, liens, judgments, expenses and costs, including actual
attorney's fees, arising under any present or future law, statute, or
ordinance of the State of California or other governmental authority having
jurisdiction of the Premises, by reason of any storage, sale, use or giving
away of alcoholic beverages on or from the Premises. Such policy or
policies of insurance shall have a minimum combined single limit of One
Million Dollars ($1,000,000) per occurrence and shall apply to bodily
injury, fatal or nonfatal; injury to means of support; and injury to
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property of any person. Such policy or policies of insurance shall name the
Landlord and its agents, beneficiaries, partners, employees and any
mortgagee of Landlord or any ground lessor of Landlord as additional
insureds. (A list of the current persons and entities to be named as
additional insureds is attached hereto as Exhibit E.)
(C) Landlord shall, at all times during the Lease Term, procure and
maintain commercial general liability insurance for the Building and Common
Area in which the Premises are located. Such insurance shall have minimum
combined single limit of liability of at least Two Million Dollars
($2,000,000) per occurrence, and a general aggregate limit of at least Two
Million Dollars ($2,000,000).
10.04 WORKERS' COMPENSATION INSURANCE. At all times during the Lease Term,
Tenant shall procure and maintain Workers' Compensation Insurance in accordance
with the laws of the State of California, and Employers' Liability insurance
with a limit not less than One Million Dollars ($1,000,000) Bodily Injury Each
Accident; One Million Dollars ($1,000,000) Bodily Injury By Disease - Each
Person; and One Million Dollars ($1,000,000) Bodily Injury by Disease - Policy
Limit.
10.05 AUTOMOBILE LIABILITY INSURANCE. At all times during the Lease Term,
Tenant shall provide and maintain, at its sole expense, commercial automobile
liability insurance including owned, non-owned and hired vehicles, applying to
the use of any vehicles arising out of the operations of Tenant. Such insurance
shall apply to bodily injury and property damage in a combined single limit of
not less than One Million Dollars ($1,000,000) per accident.
10.06 PLATE GLASS INSURANCE. At any time during the Lease Term when there
is plate glass in or on the Premises, Tenant shall procure and maintain, at its
sole expense, plate glass insurance covering all the plate glass of the Premises
in amounts satisfactory to Landlord.
10.07 Warehouseman's Insurance. At any time during the Lease Term when
Tenant's use of the Premises includes or involves any activity as a bonded
agent, consignee or warehouseman, Tenant shall procure and maintain, at its sole
expense, insurance covering all goods and materials held at the Premises in such
capacity, providing protection against all damage, loss, theft, or other peril
which may occur in connection therewith in an amount not less than Five Million
Dollars ($5,000,000.00).
10.08 POLICY REQUIREMENTS. All insurance required to be maintained by
Tenant shall be issued by insurance companies authorized to do insurance
business in the State of California and rated not less than A-VIII in Best's
Insurance Guide or a Standard and Poor's claims paying ability rating of not
less than AA. A certificate of insurance (or, at Landlord's option, copies of
the applicable policies) evidencing the insurance required under this Article X
shall be delivered to Landlord not less than thirty (30) days prior to the
Commencement Date. No such policy shall be subject to cancellation or
modification without thirty (30) days prior written notice to Landlord and to
any deed of trust holder, mortgagee or ground lessor designated by Landlord to
Tenant. Tenant shall furnish Landlord with a replacement certificate with
respect to any insurance not less than thirty (30) days prior to the expiration
of the current policy. Tenant shall have the right to provide the insurance
required by this Article X pursuant to blanket policies, but only if such
blanket policies expressly provide coverage to the Premises and the Landlord as
required by this Lease.
10.09 WAIVER OF CLAIMS. Except for claims arising from Landlord's
intentional or grossly negligent acts that are not covered by Tenant's insurance
hereunder, Tenant waives all claims against Landlord for injury or death to
persons, damage to property or to any other interest of Tenant sustained by
Tenant or any party claiming through Tenant resulting from: (i) any occurrence
in or upon the Premises, (ii) leaking of roofs, bursting, stoppage or leaking of
water, gas, sewer or steam pipes or equipment, including sprinklers, (iii) wind,
rain, snow, ice, flooding, freezing, fire, explosion, earthquake, excessive heat
or cold, fire or other casualty, (iv) the Building, Premises, systems or
equipment therefor being defective, out of repair, or failing, and (v)
vandalism, malicious mischief, theft or other acts or omissions of any other
parties including, without limitation, other tenants, contractors and invitees.
To the extent that Tenant is required to or does carry insurance hereunder,
Tenant agrees that Tenant's property loss risks shall be borne by such
insurance, and Tenant agrees to look solely to and seek recovery only from its
insurance carriers in the event of such losses; for purposes hereof, any
deductible amount shall be treated as though it were recoverable under such
policies.
10.10 WAIVER OF SUBROGATION. Each party hereby waives any right of recovery
against the other for injury or loss covered by insurance or required to be
covered, to the extent of the injury or loss covered thereby. Any policy of
insurance to be provided by Tenant pursuant to this Article X shall contain a
clause denying the insurer any right of subrogation against Landlord.
10.11 FAILURE TO INSURE. If Tenant fails to maintain any insurance which
Tenant is required to maintain pursuant to this Article X, Tenant shall be
liable to Landlord for any loss or cost resulting from such failure to maintain.
Tenant may not self-insure against any risks required to be covered by insurance
without Landlord's prior written consent.
ARTICLE Xl - DAMAGE OR DESTRUCTION
11.01 TOTAL DESTRUCTION. Except as provided in Section 11.03 below, this
Lease shall automatically terminate if the Building is totally destroyed.
11.02 PARTIAL DESTRUCTION OF PREMISE. If the Premises are damaged by any
casualty and, in Landlord's opinion, the Premises (exclusive of any Alterations
made to the Premises by Tenant) can be restored to its pre-existing condition
within one hundred eighty (180) days after the date of the damage or destruction
using only the insurance proceeds made available to Landlord, Landlord shall,
upon written notice from Tenant to Landlord of such damage, except as provided
in Section 11.03, promptly and with due diligence use available insurance
proceeds to repair any damage to the Premises (exclusive of any Alterations to
the Premises made by Tenant, which shall be promptly repaired by Tenant at its
sole expense) and, until such repairs are completed, the Rent shall be abated
from the date of damage or destruction in the same proportion that the rentable
area of the portion of the Premises which is unusable by Tenant in the conduct
of its business bears to the total rentable area of the Premises. If such
repairs cannot, in Landlord's opinion, either (i) be made within said one
hundred eighty day (180) period, or (ii) be
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completed using only the insurance proceeds made available to Landlord, then
Landlord may, at its option, exercisable by written notice given to Tenant
within thirty (30) days after the date of the damage or destruction elect to
make the repairs within a reasonable time after the damage or destruction, in
which event this Lease shall remain in full force and effect but the Rent shall
be abated as provided in the preceding sentence; if Landlord does not so elect
to make the repairs, then either Landlord or Tenant shall have the right, by
written notice given to the other within sixty (60) days after the date of the
damage or destruction, to terminate this Lease as of the date of the damage or
destruction.
11.03 EXCEPTIONS TO LANDLORD'S OBLIGATIONS. Notwithstanding anything to the
contrary contained in this Article Xl, Landlord shall have no obligation to
repair the Premises if either: (a) the Building in which the Premises are
located is so damaged as to require repairs to the Building exceeding twenty
percent (20%) of the full insurable value of the Building; or (b) Landlord
elects to demolish the Building in which the Premises are located; or (c) the
damage or destruction occurs less than two (2) years prior to the Expiration
Date, exclusive of option periods. In addition, Landlord's obligation to repair
as set forth in this Article Xl shall be limited to the extent of insurance
proceeds made available to Landlord. Further, Tenant's Rent shall not be abated
if either (i) the damage or destruction is repaired within five (5) business
days after Landlord receives written notice from Tenant of the casualty, or (ii)
Tenant, or any officers, partners, employees, agents or invitees of Tenant, or
any assignee or subtenant of Tenant, is, in whole or in part, responsible for
the damage or destruction.
11.04 WAIVER. The provisions contained in this Lease shall supersede any
contrary laws (whether statutory, common law or otherwise) now or hereafter in
effect relating to damage, destruction, self-help or termination, including
California Civil Code Sections 1932 and 1933. Notwithstanding the provisions of
Article XI, in the event the Lease is terminated by either Landlord or Tenant
under Article XI the Security Deposit shall be returned to Tenant.
ARTICLE XII - CONDEMNATION
12.01 TAKING. If the entire Premises or so much of the Premises as to
render the balance unusable by Tenant shall be taken by condemnation, sale in
lieu of condemnation or in any other manner for any public or quasi-public
purpose (collectively "Condemnation"), and if the Landlord, at its option, is
unable or unwilling to provide substitute premises containing at least as much
rentable area as described in Section 1.02 above, then this Lease shall
terminate on the date that title or possession to the Premises is taken by the
condemning authority, whichever is earlier.
12.02 AWARD. In the event of any Condemnation, the entire award for such
taking shall belong to Landlord. Tenant shall have no claim against Landlord or
the award for the value of any unexpired term of this Lease or otherwise. Tenant
shall be entitled to independently pursue a separate award in a separate
proceeding for Tenant's relocation costs directly associated with the taking,
provided such separate award does not diminish Landlord's award.
12.03 TEMPORARY TAKING. No temporary taking of the Premises shall terminate
this Lease or entitle Tenant to any abatement of the Rent payable to Landlord
under this Lease; provided, further, that any award for such temporary taking
shall belong to Tenant to the extent that the award applies to any time period
during the Lease Term and to Landlord to the extent that the award applies to
any time period outside the Lease Term.
ARTICLE XIII - DELETED
ARTICLE XIV - ASSIGNMENT AND SUBLETTING
14.01 Restriction. Without the prior written consent of Landlord, Tenant
shall not, either voluntarily or by operation of law, assign, encumber, or
otherwise transfer this Lease or any interest herein, or sublet the Premises or
any part thereof, or permit the Premises to be occupied by anyone other than
Tenant or Tenant's employees (any such assignment, encumbrance, subletting,
occupation or transfer is hereinafter referred to as a "Transfer"). For purposes
of this Lease, the term "Transfer" shall also include (a) if Tenant is a
partnership, the withdrawal or change, voluntary, involuntary or by operation of
law, of a majority of the partners, or a transfer of a majority of partnership
interests, within a twelve month period, or the dissolution of the partnership,
and (b) if Tenant is a closely held corporation (i.e. whose stock is not
publicly held and not traded through an exchange or over the counter), or a
limited liability company, the dissolution, merger, consolidation, division,
liquidation or other reorganization of Tenant, or within a twelve month period:
(i) the sale or other transfer of more than an aggregate of 50% of the voting
securities of Tenant (other than to immediate family members by reason of gift
or death) or (ii) the sale, mortgage, hypothecation or pledge of more than an
aggregate of 50% of Tenant's net assets. An assignment, subletting or other
action in violation of the foregoing shall be void and, at Landlord's option,
shall constitute a material breach of this Lease. Notwithstanding anything
contained in this Article XIV to the contrary, Tenant shall have the right to
assign the Lease or sublease the Premises, or any part thereof, to an
"Affiliate" without the prior written consent of Landlord, but upon at least
twenty (20) days prior written notice to Landlord, provided that the use of the
Premises by said Affiliate is identical to the use in Section 1.10 of the Lease,
and provided further that said Affiliate is not in default under any other lease
for space in a property that is managed by Heitman Properties Ltd. or any of its
affiliates. For purposes of this provision, the term "Affiliate" shall mean any
corporation or other entity controlling, controlled by, or under common control
with (directly or indirectly) Tenant, including, without limitation, any parent
corporation controlling Tenant or any subsidiary that Tenant controls. The term
"control", as used herein, shall mean the power to direct or cause the direction
of the
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management and policies of the controlled entity through the ownership of more
than fifty percent (50%) of the voting securities in such controlled entity.
Notwithstanding anything contained in this Article XIV to the contrary, Tenant
expressly covenants and agrees not to enter into any lease, sublease, license,
concession or other agreement for use, occupancy or utilization of the Premises
which provides for rental or other payment for such use, occupancy or
utilization based in whole or in part on the net income or proftts derived by
any person from the property leased, used, occupied or utilized (other than an
amount based on a fixed percentage or percentages of receipts or sales), and
that any such purported lease, sublease, license, concession or other agreement
shall be absolutely void and ineffective as a conveyance of any right or
interest in the possession, use, occupancy or utilization of any part of the
Premises.
14.02 NOTICE TO LANDLORD. If Tenant desires to assign this Lease or any
interest herein, or to sublet all or any part of the Premises, then at least
thirty (30) days but not more than one hundred eighty (180) days prior to the
effective date of the proposed assignment or subletting, Tenant shall submit to
Landlord in connection with Tenant's request for Landlord's consent:
(A) A statement containing (i) the name and address of the proposed
assignee or subtenant: (ii) such financial information with respect to the
proposed assignee or subtenant as Landlord shall reasonably require; (iii)
the type of use proposed for the Premises; and (iv) all of the principal
terms of the proposed assignment or subletting; and
(B) Four (4) originals of the assignment or sublease on a form approved
by Landlord and four (4) originals of the Landlord's Consent to Sublease or
Assignment and Assumption of Lease and Consent.
14.03 LANDLORD'S RECAPTURE RIGHTS. At any time within twenty (20) business
days after Landlord's receipt of all (but not less than all) of the information
and documents described in Section 14.02 above, Landlord may, at its option by
written notice to Tenant, elect to: (a) sublease the Premises or the portion
thereof proposed to be sublet by Tenant upon the same terms as those offered to
the proposed subtenant; (b) take an assignment of the Lease upon the same terms
as those offered to the proposed assignee; or (c) terminate the Lease in its
entirety or as to the portion of the Premises proposed to be assigned or sublet,
with a proportionate adjustment in the Rent payable hereunder if the Lease is
terminated as to less than all of the Premises. If Landlord does not exercise
any of the options described in the preceding sentence, then, during the
above-described twenty (20) business day period, Landlord shall either consent
or deny its consent to the proposed assignment or subletting.*
14.04 LANDLORD'S CONSENT; STANDARDS. Landlord's consent to a proposed
assignment or subletting shall not be unreasonably withheld; but, in addition to
any other grounds for denial, Landlord's consent shall be deemed reasonably
withheld if, in Landlord's good faith judgment: (i) the proposed assignee or
subtenant does not have the financial strength to perform its obligations under
this Lease or any proposed sublease; (ii) the business and operations of the
proposed assignee or subtenant are not of comparable quality to the business and
operations being conducted by other tenants in the Building; (iii) the proposed
assignee or subtenant intends to use any part of the Premises for a purpose not
permitted under this Lease; (iv) either the proposed assignee or subtenant, or
any person which directly or indirectly controls, is controlled by, or is under
common control with the proposed assignee or subtenant occupies space in the
Building or the Project, if applicable, or is negotiating with Landlord to lease
space in the Building or the Project, if applicable; (v) the proposed assignee
or subtenant is disreputable; or (vi) the use of the Premises or the Building by
the proposed assignee or subtenant would, in Landlord's reasonable judgment
impact the Building in a negative manner including, but not limited to,
significantly increasing the pedestrian traffic, parking capacity and
requirements, and truck traffic in and out of the Building or requiring any
alterations to the Building to comply with applicable laws; (vii) the subject
space is not regular in shape with appropriate means of ingress and egress
suitable for normal renting purposes; (viii) the transferee is a government (or
agency or instrumentality thereof) or (ix) Tenant has failed to cure a default
at the time Tenant requests consent to the proposed Transfer.
14.05 ADDITIONAL RENT. If Landlord consents to any such assignment or
subletting, all sums or other economic consideration received by Tenant in
connection with such assignment or subletting, whether denominated as rental or
otherwise, exceeds, in the aggregate, the total sum which Tenant is obligated to
pay Landlord under this Lease (prorated to reflect obligations allocable to less
than all of the Premises under a sublease) shall be paid to Landlord promptly
after receipt as additional Rent under the Lease without affecting or reducing
any other obligation of Tenant hereunder.
14.06 LANDLORD'S COSTS. If Tenant shall Transfer this Lease of all or any
part of the Premises or shall request the consent of Landlord to any Transfer,
Tenant shall pay to Landlord as additional rent Landlord's costs related
thereto, including Landlord's reasonable attorneys' fees and a minimum fee to
Landlord of Five Hundred Dollars ($500.00).
14.07 CONTINUING LIABILITY OF TENANT. Notwithstanding any Transfer,
including an assignment or sublease to an affiliate, Tenant shall remain as
fully and primarily liable for the payment of Rent and for the performance of
all other obligations of Tenant contained in this Lease to the same extent as if
the Transfer had not occurred; provided, however, that any act or omission of
any transferee that violates the terms of this Lease shall be deemed a violation
of this Lease by Tenant.
14.08 NON-WAIVER. The consent by Landlord to any Transfer shall not relieve
Tenant, or any person claiming through or by Tenant, of the obligation to obtain
the consent of Landlord, pursuant to this Article XIV, to any further Transfer.
In the event of an assignment or subletting, Landlord may collect rent from the
assignee or the subtenant without waiving any rights hereunder and collection of
the rent from a person other than Tenant shall not be deemed a waiver of any of
Landlord's rights under this Article XIV, an acceptance of assignee or subtenant
as Tenant, or a release of Tenant from the performance of Tenant's obligations
under this Lease. If Tenant shall default under this Lease and fail to cure
within the time permitted, Landlord is irrevocably authorized, as Tenant's agent
and attorney-in-fact, to direct any assignee or subtenant to make all payments
under or in connection with the Transfer directly to Landlord (which Landlord
shall apply towards Tenant's obligations under this Lease) until such default is
cured.
* "NOTWITHSTANDING THE FOREGOING, LANDLORD'S TERMINATION RIGHT SET FORTH IN THIS
PARAGRAPH SHALL NOT APPLY TO THE EXTENT OF A SUBLEASE OR ASSIGNMENT OF LESS THAN
25% OF THE RENTABLE SQUARE FOOTAGE IN THE PREMISES. IN ADDITION, IN THE EVENT
LANDLORD ELECTS TO TERMINATE THE LEASE IN ACCORDANCE WITH THE TERMS OF THIS
ARTICLE, SUCH TERMINATION SHALL NOT BE EFFECTIVE AND THE LEASE SHALL REMAIN IN
FULL FORCE AND EFFECT IF TENANT REVOKES IN WRITING ITS PRIOR REQUEST FOR CONSENT
WITHIN 48 HOURS AFTER RECEIVING LANDLORD'S TENNINATION NOTICE".
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ARTICLE XV - DEFAULT AND REMEDIES
15.01 EVENTS OF DEFAULT BY TENANT. The occurrence of any of the following
shall constitute a material default and breach of this Lease by Tenant:
(A) The failure by Tenant to pay Base Rent or make any other payment
required to be made by Tenant hereunder as and when due.
(B) The abandonment of the Premises by Tenant or the vacation of the
Premises by Tenant for fourteen (14) consecutive days (with or without the
payment of Rent).
(C) The making by Tenant of any assignment of this Lease or any
sublease of all or part of the Premises, except as expressly permitted
under Article XIV of this Lease.
(D) The failure by Tenant to observe or perform any other provision of
this Lease to be observed or performed by Tenant, other than those
described in Sections 15.01(A), 15.01(B) or 15.01(C) above, if such failure
continues for thirty (30) days after written notice thereof by Landlord to
Tenant: provided, however, that if the nature of the default is such that
it cannot be cured within the thirty (30) day period, no default shall be
deemed to exist if Tenant commences the curing of the default promptly
within such thirty (30) day period and thereafter diligently prosecutes the
same to completion and achieves the same within sixty (60) days after the
occurrence of such default. The thirty (30) day notice described herein
shall be in lieu of, and not in addition to, any notice required under
Section 1161 of the California Code of Civil Procedure or any other law now
or hereafter in effect requiring that notice of default be given prior to
the commencement of an unlawful detainer or other legal proceeding.
(E) The making by Tenant of any general assignment for the benefit of
creditors, the filing by or against Tenant or any one or more of the
Guarantors, if any, of a petition under any federal or state bankruptcy or
insolvency laws (unless, in the case of a petition filed against Tenant or
any one or more of the Guarantors, if any, the same is dismissed within
thirty (30) days after filing); the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets at the Premises or
Tenant's interest in this Lease or the Premises, when possession is not
restored to Tenant within thirty (30) days; the attachment, execution or
other seizure of substantially all of Tenant's assets located at the
Premises or Tenant's interest in this Lease or the Premises, if such
seizure is not discharged within thirty (30) days; or the death or the
dissolution of Tenant or any one or more of the Guarantors, if any.
(F) Any material misrepresentation herein, or material
misrepresentation or omission in any financial statements or other
materials provided by Tenant in connection with negotiating or entering
into this Lease or in connection with any Transfer under Section 14.01.
15.02 LANDLORD'S RIGHT TO TERMINATE UPON TENANT DEFAULT. In the event of
any default by Tenant as provided in Section 15.01 above, Landlord shall have
the right to terminate this Lease and recover possession of the Premises by
giving written notice to Tenant of Landlord's election to terminate this Lease,
in which event Landlord shall be entitled to receive from Tenant:
(A) The worth at the time of award of any unpaid Rent which had been
earned at the time of such termination; plus
(B) The worth at the time of award of the amount by which the unpaid
Rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
(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 Tenant proves could be reasonably avoided; plus
(D) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely
to result therefrom; and
(E) At Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in subparagraphs (A) and (B) above, "worth at the time of award"
shall be computed by allowing interest on such amounts at the then highest
lawful rate of interest, but in no event to exceed one percent (1%) per annum
plus the rate established bv the Federal Reserve Bank of San Francisco on
advances made to member banks under Sections 13 and 13a of the Federal Reserve
Act ("discount rate") prevailing at the time of the award. As used in paragraph
(C) above, "worth at the time of award" shall be computed by discounting such
amount by (i) the discount rate of the Federal Reserve Bank of San Francisco
prevailing at the time of award plus (ii) one percent (1%).
15.03 MITIGATION OF DAMAGES. If Landlord terminates this Lease or Tenant's
right to possession of the Premises, Landlord shall have no obligation to
mitigate Landlord's damages except to the extent required by applicable law. If
Landlord has not terminated this Lease or Tenant's right to possession of the
Premises, Landlord shall have no obligation to mitigate under any circumstances
and may permit the Premises to remain vacant or abandoned. If Landlord is
required to mitigate damages as provided herein: (i) Landlord shall be required
only to use reasonable efforts to mitigate, which shall not exceed such efforts
as Landlord generally uses to lease other space in the Building, (ii) Landlord
will not be deemed to have failed to mitigate if Landlord or its affiliates
lease any other portions of the Building, Project or other projects owned by
Landlord or its affiliates in the same geographic area, before reletting all or
any portion of the Premises, and (iii) any failure to mitigate as described
herein with respect to any period of time shall only reduce the Rent and other
amounts to which Landlord is entitled hereunder by the reasonable rental value
of the Premises during such period. In recognition that the value of the
Building depends on the rental rates and terms of leases therein, Landlord's
rejection of a prospective replacement
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tenant based on an offer of rentals below Landlord's published rates for new
leases of comparable space at the Building at the time in question, or at
Landlord's option, below the rates provided in this Lease, or containing terms
less favorable than those contained herein, shall not give rise to a claim by
Tenant that Landlord failed to mitigate Landlord's damages.
15.04 LANDLORD'S RIGHT TO CONTINUE LEASE UPON TENANT DEFAULT. In the event
of a default of this Lease and abandonment of the Premises by Tenant, if
Landlord does not elect to terminate this Lease as provided in Section 15.02
above Landlord may from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease. Without limiting the foregoing,
Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due, if Tenant has the right to
Transfer, subject only to reasonable limitations). In the event Landlord re-lets
the Premises, to the fullest extent permitted by law, the proceeds of any
reletting shall be applied first to pay to Landlord all costs and expenses of
such reletting (including without limitation, costs and expenses of retaking or
repossessing the Premises, removing persons and property therefrom, securing new
tenants, including expenses for redecoration, alterations and other costs in
connection with preparing the Premises for the new tenant, and if Landlord shall
maintain and operate the Premises, the costs thereof) and receivers' fees
incurred in connection with the appointment of and performance by a receiver to
protect the Premises and Landlord's interest under this Lease and any necessary
or reasonable alterations; second, to the payment of any indebtedness of Tenant
to Landlord other than Rent due and unpaid hereunder; third, to the payment of
Rent due and unpaid hereunder: and the residue, if any, shall be held by
Landlord and applied in payment of other or future obligations of Tenant to
Landlord as the same may become due and payable, and Tenant shall not be
entitled to receive any portion of such revenue.
15.05 RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense. If Tenant shall fail to pay any sum of money, other than
Rent, required to be paid by it hereunder or shall fail to perform any other act
on its part to be performed hereunder, Landlord may, but shall not be obligated
to, make any payment or perform any such other act on Tenant's part to be made
or performed, without waiving or releasing Tenant of its obligations under this
Lease. Any sums so paid by Landlord and all necessary incidental costs, together
with interest thereon at the lesser of the maximum rate permitted by law if any
or twelve percent (12%) per annum from the date of such payment, shall be
payable to Landlord as additional rent on demand and Landlord shall have the
same rights and remedies in the event of nonpayment as in the case of default by
Tenant in the payment of Rent.
15.06 DEFAULT UNDER OTHER LEASES. If the term of any lease, other than this
Lease, heretofore or hereafter made by Tenant for any space in the Building or
the Project, if applicable, shall be terminated or terminable after the making
of this Lease because of any default by Tenant under such other lease, such fact
shall empower Landlord, at Landlord's sole option, to terminate this Lease by
notice to Tenant or to exercise any of the rights or remedies set forth in
Section 15.02.
15.07 NON-WAIVER. Nothing in this Article shall be deemed to affect
Landlord's rights to indemnification for liability or liabilities arising prior
to termination of this Lease or Tenant's right to possession of the Premises for
personal injury or property damages under the indemnification clause or clauses
contained in this Lease. No acceptance by Landlord of a lesser sum than the Rent
then due shall be deemed to be other than on account of the earliest installment
of such Rent due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or pursue any other
remedy in the Lease provided. The delivery of keys to any employee of Landlord
or to Landlord's agent or any employee thereof shall not operate as a
termination of this Lease or a surrender of the Premises, unless Landlord in
writing both accepts such surrender and acknowledges such termination.
15.08 CUMULATIVE REMEDIES. The specific remedies to which Landlord may
resort under the terms of the Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Tenant of any provisions
of the Lease. In addition to the other remedies provided in the Lease, Landlord
shall be entitled to a restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of the
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
15.09 DEFAULT BY LANDLORD. Landlord's failure to perform or observe any of
its obligations under this Lease shall constitute a default by Landlord under
this Lease only if such failure shall continue for a period of thirty (30) days
(or the additional time, if any, that is reasonably necessary to promptly and
diligently cure the failure) after Landlord receives written notice from Tenant
specifying the default. The notice shall give in reasonable detail the nature
and extent of the failure and shall identify the Lease provision(s) containing
the obligation(s). If Landlord shall default in the performance of any of its
obligations under this Lease (after notice and opportunity to cure as provided
herein), Tenant may pursue any remedies available to it under the law and this
Lease, except that, in no event shall Landlord be liable for punitive damages,
lost profits, business interruption, speculative, consequential or other such
damages.
ARTICLE XVI-ATTORNEYS FEES: COSTS OF SUIT
If either Landlord or Tenant shall commence any action or other proceeding
against the other arising out of, or relating to, this Lease or the Premises,
the prevailing party shall be entitled to recover from the losing party, in
addition to any other relief, its actual attorneys fees irrespective of whether
or not the action or other proceeding is prosecuted to judgment and irrespective
of any court schedule of reasonable attorneys' fees. In addition, Tenant shall
reimburse Landlord, upon demand, for all reasonable attorneys' fees incurred in
collecting Rent or otherwise seeking enforcement against Tenant, its sublessees
and assigns, of Tenant's obligations under this Lease.
Should Landlord be made a party to any litigation instituted by Tenant
against a party other than Landlord, or by a third party against Tenant, Tenant
shall indemnify, hold harmless and defend Landlord from any and all loss, cost,
liability, darnage or expense incurred by Landlord, including attorneys' fees,
in connection with the litigation, unless a final non-appealable judgment is
rendered against Landlord in such litigation.
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ARTICLE XVII-SUBORDINATION AND ATTORNMENT
17.01 SUBORDINATION. This Lease, and the rights of Tenant hereunder, are
and shall be subject and subordinate to the interests of (i) all present and
future ground leases and master leases of all or any part of the Building: (ii)
present and future mortgages and deeds of trust encumbering all or any part of
the Building or the underlying real estate; (iii) all past and future advances
made under any such mortgages or deeds of trust; and (iv) all renewals,
modifications, replacements and extensions of any such ground leases, master
leases, mortgages and deeds of trust; provided, however, that any lessor under
any such ground lease or master lease or any mortgagee or beneficiary under any
such mortgage or deed of trust (any such lessor, mortgagee or beneficiary is
hereafter referred to as a "Mortgagee") shall have the right to elect, by
written notice given to Tenant, to have this Lease made superior in whole or in
part to any such ground lease, master lease, mortgage or deed of trust (or
subject and subordinate to such ground lease, master lease, mortgage or deed of
trust but superior to any junior mortgage or junior deed of trust). Upon demand,
Tenant shall execute, acknowledge and deliver any instruments reasonably
requested by Landlord or any such Mortgagee to effect the purposes of this
Section 17.01. Such instruments may contain, among other things, provisions to
the effect that such Mortgagee (hereafter, for the purposes of this Section
17.01, a "Successor Landlord") shall (i) not be liable for any act or omission
of Landlord or its predecessors, if any, prior to the date of such Successor
Landlord's succession to Landlord's interest under this Lease: (ii) not be
subject to any offsets or defenses which Tenant might have been able to assert
against Landlord or its predecessors. if any, prior to the date of such
Successor Landlord's succession to Landlord's interest under this Lease; (iii)
not be liable for the return of any security deposit under the Lease unless the
same shall have actually been deposited with such Successor Landlord; and (iv)
be entitled to receive notice of any Landlord default under this Lease plus a
reasonable opportunity to cure such default prior to Tenant having any right or
ability to terminate this Lease as a result of such Landlord default; (v) not be
bound by any rent or additional rent which Tenant might have paid for more than
the current month to Landlord; (vi) not be bound by any amendment or
modification of the Lease or any cancellation or surrender of the same made
without Successor Landlord's prior written consent; (vii) not be bound by any
obligation to make any payment to Tenant which was required to be made prior to
the time such Successor Landlord succeeded to Landlord's interest and (viii) not
be bound by any obligation under the Lease to perform any work or to make any
improvements to the demised Premises. Any obligations of any Successor Landlord
under its respective lease shall be non-recourse as to any assets of such
Successor Landlord other than its interest in the Premises and improvements.
(see Supplemental Rider Insert #1)
17.02 ATTORNMENT. If requested to do so, Tenant shall attorn to and
recognize as Tenant's landlord under this Lease any superior Mortgagee or other
purchaser or person taking title to the Building by reason of the termination of
any superior lease or the foreclosure of any superior mortgage or deed of trust,
and Tenant shall, upon demand, execute any documents reasonably requested by any
such person to evidence the attornment described in this Section 17.02.
17.03 MORTGAGE AND GROUND LESSOR PROTECTION. Tenant agrees to give any
Mortgagee, by registered or certified mail, a copy of any notice of default
served upon the Landlord by Tenant, provided that prior to such notice Tenant
has been notified in writing (by way of service on Tenant of a copy of
Assignment of Rents and Leases, or otherwise) of the address of such Mortgagee
(hereafter the "Notified Party"). Tenant further agrees that if Landlord shall
have failed to cure such default within twenty (20) days after such notice to
Landlord (or if such default cannot be cured or corrected within that time, then
such additional time as may be necessary if Landlord has commenced within such
twenty (20) days and is diligently pursuing the remedies or steps necessary to
cure or correct such default), then the Notified Party shall have an additional
thirty (30) days within which to cure or correct such default (or if such
default cannot be cured or corrected within that time, then such additional time
as may be necessary if the Notified Party has commenced within such thirty (30)
days and is diligently pursuing the remedies or steps necessary to cure or
correct such default). Until the time allowed, as aforesaid, for the Notified
Party to cure such default has expired without cure, Tenant shall nave no right
to, and shall not, terminate this Lease on account of Landlord's default.
ARTICLE XVIII - OUIET ENJOYMENT
18.01 Provided that Tenant performs all of its obligations hereunder,
Tenant shall have and peaceably enjoy the Premises during the Lease Term free of
claims by or through Landlord, subject to all of the terms and conditions
contained in this Lease.
ARTICLE XIX - PARKING
19.01 Tenant, its employees and invitees, are hereby granted the
non-exclusive privilege to use parking spaces adjacent to the Premises as
described in Exhibit A. Tenant shall abide by all rules and regulations
regarding the use of the parking area as may now exist or as may hereinafter be
promulgated by Landlord. Landlord reserves the right to modify, restripe and
otherwise change the location of drives, parking spaces and parking area
adjacent to the Premises as described in Exhibit A. Landlord may, but shall
have no obligation to, designate certain parking spaces for trucks, handicapped
persons or designated tenants as Landlord, in its sole discretion, may deem
necessary for the professional and efficient operation of the parking area and
the Building or the Project, if applicable. Landlord shall have the right to
reasonably restrict the number and location of truck/tractor trailers for the
overall benefit of all tenants, it being agreed by Tenant that it is not the
intent of this Lease to provide unrestricted parking for truck/tractor trailers.
Tenant agrees not to overburden the parking facilities and agrees to cooperate
with Landlord and other tenants in the use of parking facilities. Tenant will
reimburse Landlord upon demand for any damage caused to the parking surfaces or
facilities caused by Tenant's or any of its employees', agents' or invitees'
trucks/tractor trailers or any other vehicles. Landlord reserves the right in
its absolute discretion to determine whether parking facilities are becoming
crowded and, in such event, to allocate parking spaces among Tenant and other
tenants. At no time shall the parking of any vehicle be permitted in the fire
lanes or handicapped parking areas servicing the Building or the Project, if
applicable.
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ARTICLE XX - RULES AND REGULATIONS
20.01 The Rules and Regulations attached hereto as Exhibit F are hereby
incorporated by reference herein and made a part hereof. Tenant shall abide by,
and faithfully observe and comply with the Rules and Regulations and any
reasonable and non-discriminatory amendments, modifications and/or additions
thereto as may hereafter be adopted and published by written notice to tenants
by Landlord for the safety, care, security, good order and/or cleanliness of the
Premises, the Building and/or the Project, if applicable. Landlord shall not be
liable to Tenant for any violation of such rules and regulations by any other
tenant or occupant of the Building or the Project, if applicable.
ARTICLE XXI - ESTOPPEL CERTIFICATES
21.01 Tenant agrees at any time and from time to time upon not less than
ten (10) days' prior written notice from Landlord to execute, acknowledge and
deliver to Landlord a statement in writing addressed and certifying to Landlord,
to any current or prospective Mortgagee or any assignee thereof, prospective
purchaser of the land, improvements or both comprising the Building and to any
other party designated by Landlord, that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications); that Tenant has
accepted possession of the Premises, which are acceptable in all respects, and
that any improvements required by the terms of this Lease to be made by Landlord
have been completed to the satisfaction of Tenant; that Tenant is in full
occupancy of the Premises; that no rent has been paid more than thirty (30) days
in advance; that the first month's Base Rent has been paid; that Tenant is
entitled to no free Rent or other concessions except as stated in this Lease;
that Tenant has not been notified of any previous assignment of Landlord's or
any predecessor landlord's interest under this Lease; the dates to which Base
Rent, additional rental and other charges have been paid; that Tenant, as of the
date of such certificate, has no charge, lien or claim of setoff under this
Lease or otherwise against Base Rent, additional rental or other charges due or
to become due under this Lease; that Landlord is not in default in performance
of any covenant, agreement or condition contained in this Lease; or any other
matter relating to this Lease or the Premises or, if so, specifying each such
default. If there is a Guaranty under this Lease, said Guarantor shall confirm
the validity of the Guaranty by joining in the execution of the Estoppel
Certificate or other documents so requested by Landlord or Mortgagee. In
addition, in the event that such certificate is being given to any Mortgagee,
such statement may contain certifications of such other matters, and any other
provisions, customarily required by such Mortgagee including, without
limitation, an agreement on the part of Tenant to furnish to such Mortgagee,
written notice of any Landlord default and a reasonable opportunity for such
Mortgagee to cure such default prior to Tenant being able to terminate this
Lease. Any such statement delivered pursuant to this Section may be relied upon
by Landlord or any Mortgagee, or prospective purchaser to whom it is addressed
and such statement, if required by its addressee, may so specifically state. If
Tenant does not execute, acknowledge and deliver to Landlord the statement as
and when required herein, Landlord is hereby granted an irrevocable
power-of-attorney, coupled with an interest, to execute such statement on
Tenant's behalf, which statement shall be binding on Tenant to the same extent
as if executed by Tenant (and such grant shall not be in limitation of
Landlord's other remedies for such failure by Tenant).
ARTICLE XXII - ENTRY BY LANDLORD
22.01 Landlord may enter the Premises at all reasonable times to: inspect
the same; exhibit the same to prospective purchasers, Mortgagees or tenants:
determine whether Tenant is complying with all of its obligations under this
Lease; supply janitorial and other services to be provided by Landlord to Tenant
under this Lease; post notices of non-responsibility; and make repairs or
improvements in or to the Building or the Premises; provided, however, that all
such work shall be done as promptly as reasonably possible and so as to cause as
little interference to Tenant as reasonably possible. Tenant hereby waives any
claim for damages for any injury or inconvenience to, or interference with,
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or
any other loss occasioned by such entry. As provided for in clause (xiii) of
Section 27.19 of this Lease, Landlord shall at all times have the right, but not
the obligation, to obtain from Tenant and retain a key with which to unlock all
of the doors in, on or about the Premises (excluding Tenant's vaults, safes and
similar areas designated by Tenant in writing in advance), and Landlord shall
have the right to use any and all means by which Landlord may deem proper to
open such doors to obtain entry to the Premises, and any entry to the Premises
obtained by Landlord by any such means, or otherwise, shall not under any
circumstances be deemed or construed to be a forcible or unlawful entry into or
a detainer of the Premises or an eviction, actual or constructive, of Tenant
from any part of the Premises. Such entry by Landlord shall not act as a
termination of this Lease. If Landlord shall be required to obtain entry by
means other than a key provided by Tenant, the cost of such entry shall be
payable by Tenant to Landlord as additional rent.
ARTICLE XXIII
LANDLORD'S LEASE UNDERTAKINGS - EXCULPATION
FROM PERSONAL LlABlLITY;
TRANSFER OF LANDLORD'S INTEREST
23.01 LANDLORD'S LEASE UNDERTAKINGS. Notwithstanding anything to the
contrary contained in this Lease or in any exhibits, Riders or addenda hereto
attached (collectively the "Lease Documents"), it is expressly understood and
agreed by and between the parties hereto that: (a) the recourse of Tenant or its
successors or assigns against Landlord with respect to the alleged breach by or
on the part of Landlord of any representation, warranty, covenant undertaking or
agreement contained in any of the Lease Documents or otherwise arising out of
this transaction or Tenant's use of the Premises or the Building or the Project,
if applicable (collectively, "Landlord's Lease Undertakings") shall extend only
to Landlord's interest in the real estate of which the Premises demised under
the Lease Documents are a part ("Landlord's Real Estate"), and not to any other
assets of Landlord or its constituent partners; and (b) except to the extent of
Landlord's interest in Landlord's Real Estate, no personal liability or personal
responsibility of any sort with respect to any of Landlord's Lease Undertakings
or any alleged breach thereof is assumed by, or shall at any time be asserted or
enforceable against, Landlord, its constituent partners, Heitman Capital
Management Corporation, or Heitman Properties Ltd. or against any of their
respective directors, officers, shareholders, employees, agents, constituent
partners, beneficiaries, trustees or representatives.
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<PAGE>
23.02 TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building, Landlord shall be automatically freed and
relieved from all applicable liability with respect to performance of any
covenant or obligation on the part of Landlord, provided any deposits or advance
rents held by Landlord are turned over to the grantee and said grantee expressly
assumes, subject to the limitations of this Section 23, all the terms, covenants
and conditions of this Lease to be performed on the part of Landlord, it being
intended hereby that the convenants and obligations contained in this Lease on
the part of Landlord shall, subject to all the provisions of this Section 23, be
binding on Landlord, its successors and assigns, only during their respective
successive periods of ownership.
ARTICLE XXIV - SURRENDER; HOLDOVER TENANCY
24.01 CONDITION OF PREMISES AND REMOVAL OF PROPERTY. At the expiration or
earlier termination of this Lease or Tenant's right to possession of the
Premises, Tenant shall: (a) surrender possession of the Premises in broom-clean
condition and good repair, free of debris, and otherwise in the condition
required under Section 8.02, ordinary wear and tear excepted, (b) ensure that
all signs, movable trade fixtures and personal property (except items originally
provided by Landlord) have been removed from the Premises as required under
Section 9.04 hereof (subject to Article XXIX hereof), (c) ensure that all
Alterations required to be removed from the Premises pursuant to Section 9.04
have been removed from the Premises, (d) ensure that any damage caused by such
removal has been repaired in a good and workmanlike manner as required under
Section 9.04 hereof (and Landlord may deny permission to remove items where such
removal may damage the structural integrity of the Building), and (e) ensure
that all actions required under the Rules and Regulations set forth in Exhibit F
to this Lease have been taken. Tenant understands that "ordinary wear and tear"
does not mean Tenant shall be relieved of performing its obligations under this
Lease relating to maintenance, repairs and replacements as provided for in the
Lease. The cost and expense of any repairs necessary to restore the condition of
the Premises shall be borne by Tenant, and if Landlord undertakes to restore the
Premises, it shall have a right of reimbursement against Tenant.
24.02 ABANDONED PROPERTY. If Tenant shall fail to perform any repairs or
restoration, or fail to remove any items from the Premises as required
hereunder, Landlord may do so at Tenant's expense as provided in Sections 9.04
and 15.04 hereof and Tenant shall pay Landlord's charges therefor upon demand.
All property removed from the Premises by Landlord hereunder may be handled,
discarded or stored by Landlord at Tenant's expense, and Landlord shall in no
event be responsible for the value, preservation or safekeeping thereof. All
such property shall at Landlord's option be conclusively deemed to have been
conveyed by Tenant to Landlord as if by bill of sale without payment by
Landlord. If Landlord arranges for storage of any such property, Landlord shall
have a lien against such property for costs incurred in removing and storing the
same.
24.03 HOLDOVER TENANCY. If Tenant holds possession of the Premises after
the expiration or termination of the Lease Term, by lapse of time or otherwise,
Tenant shall become a tenant at sufferance upon all of the terms contained
herein, except as to Lease Term and Rent. During such holdover period, Tenant
shall pay to Landlord a monthly rental equivalent to*. The monthly rent
payable for such holdover period shall in no event be construed as a penalty or
as liquidated damages for such retention of possession. Without limiting the
foregoing, Tenant hereby agrees to indemnify, defend and hold harmless Landlord,
its beneficiary, and their respective agents, contractors and employees, from
and against any and all claims, liabilities, actions, losses, damages (including
without limitation, direct, indirect, incidental and consequential) and expenses
(including, without limitation, court costs and reasonable attorneys' fees)
asserted against or sustained by any such party and arising from or by reason of
such retention of possession, which obligations shall survive the expiration or
termination of the Lease Term.
ARTICLE XXV - NOTICES
25.01 All notices which Landlord or Tenant may be required, or may desire,
to serve on the other may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, postage prepaid, or may be
sent by overnight courier, addressed to the Landlord at the address for Landlord
set forth in Section 1.11 above and to Tenant at the address for Tenant set
forth in Section 1.12 above, or, from and after the Commencement Date, to the
Tenant at the Premises whether or not Tenant has departed from, abandoned or
vacated the Premises, or addressed to such other address or addresses as either
Landlord or Tenant may from time to time designate to the other in writing. Any
notice shall be deemed to have been given and served when delivered personally
or otherwise at the time the same was posted, except that any notice given by
overnight courier shall be deemed given on the first business day following the
date such notice is delivered by such courier provided such courier verifies
delivery thereof.
ARTICLE XXVI - BROKERS
26.01 The parties recognize as the Broker(s) who procured this Lease the
firm(s) specified in Section 1.13 and agree that Landlord shall be solely
responsible for the payment of any brokerage commissions to said Broker(s), and
that Tenant shall have no responsibility therefor unless written provision to
the contrary has been made a part of this Lease. If Tenant has dealt with any
other person or real estate broker in respect to leasing, subleasing or renting
space in the Building or the Project, if applicable, Tenant shall be solely
responsible for the payment of any fee due said person or firm and Tenant
shall protect, indemnify, hold harmless and defend Landlord from any liability
in respect thereto.
ARTICLE XXVII-COMMUICATIONS AND COMPUTER LINES
27.01 Tenant may, in a manner consistent with the provisions and
requirements of this Lease, install, maintain, replace, remove or use any
communications or computer wires, cables and related devices (collectively the
"Lines") at the Building in or serving the Premises, provided: (a) Tenant shall
obtain Landlord's prior written consent, which consent may be conditioned as
required by Landlord, (b) if Tentant at any time uses any equipment that mav
create an electromagnetic field exceeding the normal insulation ratings of
ordinary twisted pair riser cable or cause radiation higher than normal
background radiation, the Lines therefor (including riser cables) shall be
appropriately insulated to prevent such excessive electromagnetic fields or
radiation, and (c) Tenant shall pay all costs in connection therewith. Landlord
reserves the right to require that Tenant remove any Lines which are installed
in violation of these provisions.
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* 150% OF THE RENT PAYABLE BY TENANT TO LANDLORD WITH RESPECT TO THE LAST MONTH
OF THE LEASE TERM FOR THE FIRST MONTH OF SUCH HOLDOVER PERIOD AND 200% OF SAID
RENT PAYABLE FOR SUCH HOLDOVER PERIOD EXCEEDING THE FIRST MONTH.
<PAGE>
Landlord may (but shall not have the obligation to): (i) install new Lines
at the Property, and (ii) create additional space for Lines at the Property, and
adopt reasonable and uniform rules and regulations with respect to the Lines.
Notwithstanding anything to the contrary contained in Article IX, Landlord
reserves the right to require that Tenant remove any or all Lines installed by
or for Tenant within or serving the Premises upon termination of this Lease.
Tenant shall not, without the prior written consent of Landlord in each
instance, grant to any third party a security interest or lien in or on the
Lines, and any such security interest or lien granted without Landlord's written
consent shall be null and void. Except to the extent arising from the
intentional or negligent acts of Landlord or Landlord's agents or employees.
Landlord shall have no liability for damages arising from, and Landlord does not
warrant that the Tenant's use of any Lines will be free from the following
(collectively called "Line Problems"): (x) any eavesdropping or wire-tapping by
unauthorized parties, (y) any failure of any lines to satisfy Tenant's
requirements, or (z) any shortages, failures, variations, interruptions,
disconnections, loss or damage caused by the installation, maintenance,
replacement, use or removal of Lines by or for other tenants or occupants at the
Property. Under no circumstances shall any Line Problems be deemed an actual or
constructive eviction of Tenant, render Landlord liable to Tenant for abatement
of Rent, or relieve Tenant from performance of Tenant's obligations under this
Lease. Landlord in no event shall be liable for damages by reason of loss of
profits, business interruption or other consequential damage arising from any
Line Problems.
ARTICLE XXVIII - MISCELLANEOUS
28.01 ENTIRE AGREEMENT. This Lease contains all of the agreements and
understandings relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection with such leasing. Landlord has not made, and
Tenant is not relying upon, any warranties, or representations, promises or
statements made by Landlord or any agent of Landlord, except as expressly set
forth herein. This Lease supersedes any and all prior agreements and
understandings between Landlord and Tenant and alone expresses the agreement of
the parties.
28.02 AMENDMENTS. This Lease shall not be amended, changed or modified in
any way unless in writing executed by Landlord and Tenant. Landlord shall not
have waived or released any of its rights hereunder unless in writing and
executed by the Landlord.
28.03 SUCCESSORS. Except as expressly provided herein, this Lease and the
obligations of Landlord and Tenant contained herein shall bind and benefit the
successors and assigns of the parties hereto.
28.04 FORCE MAJEURE. Landlord shall incur no liability to Tenant with
respect to, and shall not be responsible for any failure to perform, any of
Landlord's obligations hereunder if such failure is caused by any reason beyond
the control of Landlord including, but not limited to strike, labor trouble,
governmental rule, regulations, ordinance, statute or interpretation, fire,
earthquake, civil commotion, or failure or disruption of utility services. The
amount of time for Landlord to perform any of Landlord's obligations shall be
extended by the amount of time Landlord is delayed in performing such
obligation by reason of any force majeure occurrence whether similar to or
different from the foregoing types of occurrences.
28.05. SURVIVAL OF OBLIGATIONS. Any obligations of Tenant accruing prior to
the expiration of the Lease shall survive the expiration or earlier termination
of the Lease, and Tenant shall promptly perform all such obligations whether or
not this Lease has expired or been terminated.
28.06 LIGHT AND AIR. No diminution or shutting off of any light, air or
view by any structure now or hereafter erected shall in any manner affect this
Lease or the obligations of Tenant hereunder, or increase any of the obligations
of Landlord hereunder.
28.07 GOVERNING LAW. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
28.08 SEVERABILITY. In the event any provision of this Lease is found to be
unenforceable, the remainder of this Lease shall not be affected, and any
provision found to be invalid shall be enforceable to the extent permitted by
law. The parties agree that in the event two different interpretations may be
given to any provision hereunder, one of which will render the provision
unenforceable, and one of which will render the provision enforceable, the
interpretation rendering the provision enforceable shall be adopted.
28.09 CAPTIONS. All captions, headings, titles, numerical references and
computer highlighting are for convenience only and shall have no effect on the
interpretation of this Lease.
28.10 INTERPRETATION. Tenant acknowledges that it has read and reviewed
this Lease and that it has had the opportunity to confer with counsel in the
negotiation of this Lease. Accordingly, this Lease shall be construed neither
for nor against Landlord or Tenant, but shall be given a fair and reasonable
interpretation in accordance with the meaning of its terms and the intent of the
parties.
28.11 INDEPENDENT COVENANTS. Each covenant, agreement, obligation or other
provision of this Lease to be performed by Tenant are separate and independent
covenants of Tenant, and not dependent on any other provision of the Lease.
28.12 NUMBER AND GENDER. All terms and words used in this Lease, regardless
of the number or gender in which they are used, shall be deemed to include the
appropriate number and gender, as the context may require.
28.13 TIME IS OF THE ESSENCE. Time is of the essence of this Lease and the
performance of all obligations hereunder.
28.14 JOINT AND SEVERAL LIABILITY. If Tenant comprises more than one person
or entity, or if this Lease is guaranteed by any party, all such persons shall
be jointly and severally liable for payment of rents and the performance of
Tenant's obligations hereunder.
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28.15 EXHIBITS AND SCHEDULES. Exhibits A (Outline of Premises), B (Work
Letter Agreement), C (Suite Acceptance Letter), D (Tenant Operations Inquiry), E
(List of Additional Insureds), F (Rules and Regulations) and G (Guaranty), and
Schedule 1 to Exhibit D (List of Permissible Hazardous Materials and Quantities)
are incorporated into this Lease by reference and made a part hereof.
28.16 OFFER TO LEASE. The submission of this Lease to Tenant or its broker
or other agent, does not constitute an offer to Tenant to lease the Premises.
This Lease shall have no force and effect until (a) it is executed and delivered
by Tenant to Landlord and (b) it is fully reviewed and executed by Landlord;
provided, however, that, upon execution of this Lease by Tenant and delivery to
Landlord, such execution and delivery by Tenant shall, in consideration of the
time and expense incurred by Landlord in reviewing the Lease and Tenant's
credit, constitute an offer by Tenant to Lease the Premises upon the terms and
conditions set forth herein (which offer to Lease shall be irrevocable for
twenty (20) business days following the date of delivery).
28.17 WAIVER; NO COUNTERCLAIM; CHOICE OF LAWS. To the extent permitted by
applicable law, Tenant hereby waives the right to a jury trial in any action or
proceeding regarding this Lease and the tenancy created by this Lease. It is
mutually agreed that in the event Landlord commences any summary proceeding for
non-payment of Rent, Tenant will not interpose any counterclaim of whatever
nature or description in any such proceeding. In addition, Tenant hereby submits
to local jurisdiction in the State of California and agrees that any action by
Tenant against Landlord shall be instituted in the State of California and that
Landlord shall have personal jurisdiction over Tenant for any action brought by
Landlord against Tenant in the State of California. To the extent permitted by
applicable law, Tenant hereby waives any and all rights of redemption granted by
any present or future laws.
28.18 ELECTRICAL SERVICE TO THE PREMISES. Anything set forth in Section
7.01 or elsewhere in this Lease to the contrary notwithstanding, electricity to
the Premises shall not be furnished by Landlord, but shall be furnished by the
approved electric utility company serving the Building. Landlord shall permit
Tenant to receive such service directly from such utility company at Tenant's
cost (except as otherwise provided herein) and shall permit Landlord's wire and
conduits, to the extent available, suitable and safely capable, to be used for
such purposes.
28.19 RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights
exercisable without notice (except as otherwise expressly provided to the
contrary in this Lease) and without being deemed an eviction or disturbance of
Tenant's use or possession of the Premises or giving rise to any claim for
set-off or abatement of Rent: (i) to change the name or street address of the
Building; (ii) to install, affix and maintain all signs on the exterior and/or
interior of the Building; (iii) to designate and/or approve prior to
installation, all types of signs, window shades, blinds, drapes, awnings or
other similar items, and all internal lighting that may be visible from the
exterior of the Premises; (iv) to change the arrangement of entrances, doors,
corridors, elevators and/or stairs in the Building, provided no such change
shall materially adversely affect access to the Premises; (v) to grant any party
the exclusive right to conduct any business or render any service in the
Building, provided such exclusive right shall not operate to prohibit Tenant
from using the Premises for the purposes permitted under this Lease: (vi) to
prohibit the placement of vending or dispensing machines of any kind in or about
the Premises other than for use by Tenant's employees; (vii) to prohibit the
placement of video or other electronic games in the Premises; (viii) to have
access for Landlord and other tenants of the Building to any mail chutes and
boxes located in or on the Premises according to the rules of the United States
Post Office; (ix) to close the Building after normal business hours, except that
Tenant and its employees and invitees shall be entitled to admission at all
times under such rules and regulations as Landlord prescribes for security
purposes; (x) to install, operate and maintain security systems which monitor,
by close circuit television or otherwise, all persons entering or leaving the
Building; (xi) to install and maintain pipes, ducts, conduits, wires and
structural elements located in the Premises which serve other parts or other
tenants of the Building; and (xii) to retain at all times master keys or pass
keys to the Premises.
28.20 TENANT OPERATIONS INQUIRY. As a material inducement to Landlord to
enter into this Lease (i) Tenant has completed Exhibit D hereto, and (ii) Tenant
represents and warrants to Landlord that Exhibit D is true and correct in all
material respects and is not misleading.
ARTICLE XXIX - FLOOR LOAD LIMITS
29.01 FLOOR LOAD LIMITS. Tenant shall not place a load upon any floor of
the Premises exceeding the floor load per square foot area which it was designed
to carry and which is allowed by law. Landlord reserves the right to prescribe
the weight and position of all safes, business machines and mechanical equipment
in the Building. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Landlord's judgment, to absorb and
prevent vibration, noise and annoyance to occupants of the Building, the
Project, if applicable, or any adjacent property.
ARTICLE XXX - LANDLORD'S LIEN
30.01 LANDLORD'S LIEN. As security for Tenant's payment of Rent, damages
and all other payments required to be made by this Lease, Tenant hereby grants
to Landlord a lien upon all property of Tenant now or subsequently located upon
the Premises. If Lessee abandons or vacates any substantial portion of the
Premises or is in default in the payment of any rentals, damage or other
payments required to be made by this Lease, Landlord may take any action it
deems necessary and may be available to it under the laws of the State of
California. The proceeds of the sale of the personal property shall be applied
by Landlord toward the cost of the sale and then toward the payment of all sums
then due by Tenant to Landlord under the terms of this Lease.
20
<PAGE>
NOTE: Need to file UCC-I Financing Statement describing such collateral in
Secretary of State's office and county recorder
IN WITNESS WHEREOF, the parties hereto have executed this lease as of
the date first above written.
<TABLE>
<CAPTION>
TENANT: LANDLORD:
<S> <C>
Q.E.P. Company, Inc., a New York JMB/PENNSYLVANIA ASSOCIATES-IV, L.P.,
corporation a Delaware limited partnership
By: HEITMAN/JMB INSTITUTIONAL REALTY ADVISORS L.P.,
an Illinois limited partnership,
general partner
By:/s/ ILLEGIBLE
- ---------------- By: HEITMAN/JMB INSTITUTIONAL REALTY ADVISORS, INC.,
Its: President an Illinois limited corporation,
general partner
ATTEST:
/s/ PAULA B. SIEGEL [SEAL] By: /s/ ILLEGIBLE
- ------------------- -------------------
Paula B. Siegel Its: Vice President
WITNESSES
/s/ H. TIMOTHY SARL
- -------------------
H. Timothy Sarl
/s/ ILLEGIBLE
- ------------------- WITNESSES:
/s/ WANDA W. LEWIS
------------------
Wanda W. Lewis
/s/ JULIE OSBORNE
-------------------
Julie Osborne
</TABLE>
21
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<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
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<SECURITIES> 0
<RECEIVABLES> 6,507,809
<ALLOWANCES> (61,000)
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0
336,660
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<SALES> 33,140,273
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