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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 July 31, 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 0-21695
MANCHESTER EQUIPMENT CO., INC.
(Exact name of Registrant as specified in its charter)
New York 11-2312854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I. D. Number)
160 Oser Avenue 11788
Hauppauge, New York (Zip Code)
Address of principal executive offices)
Registrant's telephone number, including area code: (516) 435-1199
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: YES __X__ NO _____
Indicate by check mark if the 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 the voting stock held by non-affiliates of the
Registrant as of October 21, 1997 was $15,194,231 (3,241,436 shares at a closing
sale price of $4.6875).
As of October 21, 1997, 8,525,000 shares of Common Stock ($.01 par value) of the
Registrant were issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
None
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MANCHESTER EQUIPMENT CO., INC.
FORM 10-K
YEAR ENDED JULY 31, 1997
TABLE OF CONTENTS
Page
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Part I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5 Market for the Registrant's Common Stock and Related Stockholder
Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 16
Item 9. Disagreements on Accounting and Financial Disclosures 16
Part III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Transactions 20
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 22
Signatures Chief Executive Officer, Chief Financial Officer, and Directors 40
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PART I
This Report contains certain forward-looking statements that are based on
current expectations. The actual results of Manchester Equipment Co., Inc. (the
"Company") may differ materially from the results discussed herein as a result
of a number of unknown factors. Such factors include, but are not limited to ,
there being no assurance that the acquisition of Electrograph Systems, Inc. will
continue to add to the Company's profitability, the Company will be successful
in its efforts to focus on value-added services, the Company will be successful
in attracting and retaining highly skilled technical personnel and sales
representatives necessary to implement the Company's growth strategies, the
Company will be adversely affected by continued intense competition in the
computer industry, a lack of product availability or deterioration in
relationships with manufacturers, or a loss or decline in sales to any of its
major customers. See "Products" and "Competition" in Part I, Item 1 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II, Item 7 of this report for a discussion of important
factors that could affect the validity of any forward looking statements.
ITEM 1. Business
General
Manchester Equipment Co., Inc. ("Manchester" or the "Company") is a
systems integrator and reseller of computer hardware, software and networking
products, primarily for commercial customers. The Company offers its customers
single-source solutions customized to their information systems needs by
combining value-added services with hardware, software, networking products and
peripherals from leading vendors. Over the past 20 years, the Company has forged
long-standing relationships with both customers and suppliers and capitalized on
the rapid developments in the computer industry, including the shift toward
client/server-based platforms.
Manchester's marketing focus is on mid- to large-sized companies, which
have become increasingly dependent upon complex information systems in an effort
to gain competitive advantages. While many of these companies have the financial
resources to make the required capital investments in information systems, often
they do not have the necessary information technology personnel to design,
install or maintain complex systems or to incorporate the continuously evolving
technologies. As a result, these companies are turning to independent third
parties to procure, design, install, maintain and upgrade their information
systems.
The Company offers its customers a variety of value-added services,
such as consulting, integration and support services, together with a broad
range of computer and networking products from leading vendors. Consulting
services include systems design, performance analysis, and migration planning.
Integration services include product procurement, configuration, testing and
systems installation and implementation. Support services include network
management, "help-desk" support, and enhancement, maintenance and repair of
computer systems. Most of the Company's revenues are derived from sales to
customers located in the New York Metropolitan area, with approximately 90% of
the Company's revenues being generated from its Long Island and New York City
offices.
The Company was incorporated in New York in 1973 and has three active
wholly-owned subsidiaries; Manchester International, Ltd., a New York
corporation which sells computer hardware, software and networking products to
resellers domestically and internationally; Mantech Computer Services, Inc. a
New York corporation which identifies and provides temporary information
technology positions and solutions for commercial customers; and Electrograph
Systems, Inc. a New York corporation which distributes microcomputer peripherals
throughout the United States.
Industry
Businesses have become increasingly dependent upon complex information
systems in an effort to gain competitive advantages or to maintain competitive
positions. Computer technology and related products are continuously evolving,
making predecessor technologies or products obsolete within a few years or, in
some cases, within months. The constant changes in hardware and software and the
competitive pressure to upgrade existing products create significant challenges
to companies.
Over the last several years, the increase in performance of personal
computers, the development of a variety of effective business productivity
software programs and the ability to interconnect personal computers in high
speed networks have led to an industry shift away from mainframe computer
systems to client/server systems based on personal computer technology. In such
systems, the client computer, in addition to its stand-alone capabilities, is
able to obtain resources from a central server or servers. Accordingly, personal
computers may share everything from data files to printers. Recently, networked
applications such as electronic mail and work group productivity software,
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coupled with widespread acceptance of Internet technologies, have led companies
to implement corporate intranets (networks that enable end-users (e.g.,
employees) to share information). The use of a corporate intranet allows a
company to warehouse valuable information, which may be "mined" or accessed by
employees or other authorized users through readily available Internet tools
such as Web browsers and other graphical user interfaces.
With these advances in information systems and networking, many
companies are reengineering their businesses using these technologies to enhance
their revenues and productivity. However, as the design of information systems
has become more complex to accommodate the proliferating network applications,
the configuration, selection and integration of the necessary hardware and
software products have become increasingly more difficult and complicated. While
many companies have the financial resources to make the required capital
investments, they often do not have the necessary information technology
personnel to design, install or maintain complex systems and may not be able to
provide appropriate or sufficient funding or internal management for the
maintenance of their information systems. As a result, such companies are
increasingly turning to independent third parties to procure, design, install,
maintain and upgrade their information systems. By utilizing the services of
such third parties, companies are able to acquire state-of-the-art equipment and
expertise on a cost-effective basis.
The Manchester Solution
Manchester offers its customers single-source solutions customized to
their information systems needs. The Manchester solution includes a variety of
value-added services, including consulting, integration, network management,
"help-desk" support, and enhancement, maintenance and repair of computer
systems, together with a broad range of computer and networking products from
leading vendors. Manchester believes it provides state-of-the-art,
cost-effective information systems designed to meet its customers' particular
needs.
As a result of the Company's long-standing relationships with certain
suppliers and its large volume purchases, the Company is often able to obtain
significant purchase discounts which can result in cost-savings for its
customers. Manchester's relationships with its suppliers, its inventory
management system and industry knowledge generally enable it to procure desired
products on a timely basis and therefore to offer its customers timely product
delivery.
Strategy
The key elements of the Company's strategy include:
Emphasizing Value-added Services. Value-added services, such as
consulting, integration and support services, generally provide higher profit
margins than computer hardware sales. The Company has increased its focus on
providing these services through a number of key strategies. The Company has and
continues to recruit additional technical personnel with broad-based knowledge
in systems design and specialized knowledge in different areas of systems
integration, including application software, inter-networking (including
bridges, routers and switches), database design and management. The Company
actively promotes the benefits of corporate intranets and has introduced
additional services, including remote network management services and fee-based
"help desk" services. The remote network management system consists of dedicated
servers and software located at the Company's Long Island headquarters. This
system allows the Company's specially trained engineers to solve their
customers' network systems problems from the Company's facilities. The fee-based
"help desk" services are available for end-users, regardless of whether they
purchase products or other services from the Company.
Increasing Marketing Focus on Companies Outside the Fortune 500.
Manchester has decided to increase its marketing focus on those companies
outside the Fortune 500 in order to increase its value-added services revenue.
Manchester's experience is that companies are increasingly looking to third
parties to provide a complete solution to their information systems needs from
both a service and product standpoint. Such companies often do not have the
necessary information technology personnel to procure, design, install or
maintain complex systems or to incorporate continuously evolving technologies.
Manchester believes that it can provide these companies with solutions to their
information systems requirements by providing a variety of value-added services
together with a broad range of computer and networking products.
Introducing an Electronic Ordering System. Manchester has implemented
an electronic ordering system. This ordering system enables participating
customers to access the Company via the Internet, review various products,
systems and services offered by the Company and place their orders on-line.
Customers will also be able to obtain immediate customized information regarding
products, systems and services that meet their specific requirements. The
ordering system produces a matrix of alternative fully compatible packages,
together with their availability and related costs, based on parameters
indicated by the customer. Customers are not be granted access to this system
without prior credit clearance.
Increasing Sales Force Productivity. Manchester is addressing a variety
of strategies to increase sales force productivity. The Company is implementing
an electronic sales information system utilizing similar technology to the
electronic ordering system described above. The electronic sales information
system will allow the Company's sales representatives to obtain immediate
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customized information regarding products and services that meet the specific
system requirements of customers and the availability and related costs of such
products and services. The Company believes that this system will increase the
productivity of its sales representatives by enabling them to offer rapid and
comprehensive solutions to their customers' needs while reducing the possibility
of returns based on incompatible products.
Manchester also has upgraded its internal telecommunications system.
Through this enhanced system, installed in August, 1997, the Company intends to
institute a system whereby telephone calls can be automatically placed to a
targeted list of existing or potential customers and, upon connection, routed
automatically to available sales representatives with on-screen information
containing product and service data for current customers and market demographic
data for potential customers. The system also has the capability to route
automatically in-coming calls to available sales representatives in response to
a caller's answers to automated queries.
The Company provides training of its sales representatives in matters
relating to value-added services, such as consulting and integration services.
To facilitate such training, the Company constructed a dedicated training
facility located in one of its existing offices in Long Island.
Expanding New York Metropolitan Area Presence. The Company believes
that it has a strong presence and wide name recognition in the New York
Metropolitan area, where there is a growing corporate demand for computer
products and services. Manchester is seeking to expand its presence in this area
by enlarging its New York City office and increasing the sales and service
capabilities of such office, and expanding its sales, service and training
capabilities at its Long Island headquarters. The Company believes that these
steps will enable it to capture a greater percentage of the New York
Metropolitan area market. In fiscal 1997, the Company entered into a lease for
new office space in New York City which is approximately double the size of the
existing space.
Occupancy of the new space is anticipated in November 1997.
Expanding into Additional Business Centers. The Company has regional
offices in Newton, Massachusetts and Boca Raton and Tampa, Florida, from which
it derived approximately 10% of its revenues for the fiscal year ended July 31,
1997. The Company intends to continue to expand geographically into growing
business centers in the eastern half of the United States. It is anticipated
that each office would have the capability to perform a broad array of services
as well as engage in product sales.
Services and Products
The Company offers customized single-source solutions to its customers'
information systems requirements, including consulting, integration and support
services, together with a broad range of computer and networking products from a
variety of leading vendors. The Company provides its services through a skilled
staff of engineers who are trained and certified in leading products and
technology, including Microsoft Windows NT, Novell NetWare and Cisco Systems
routers and switches.
Services. The Company's services include consulting, integration and
support services.
Consulting. The Company's staff of senior systems engineers provides
consulting services consisting of systems design, performance and security
analysis and migration planning services.
Systems design services include network, communications, applications
and custom solutions design. Network design services involve analysis of a
customer's overall network needs, including access to the Internet;
communications design services involve analysis and creation of enterprise-wide
networks, including corporate intranets; applications design services include
creation of relational databases meeting customers' specific business
requirements; and custom solutions design services include design of storage
systems, remote access systems and document retention through scanning
technology.
Performance analysis involves analyzing a customer's information
systems to assess potential points of failure, to determine where performance
could be increased and to prepare for change and growth. This service includes
the evaluation of applications and their interaction with the network in order
to maximize existing computer resources. Through this evaluation process, which
includes a detailed report to the end-user, a plan for the optimization of the
customer's existing system is created, as well as recommendations for
enhancements and future systems.
Security analysis involves working with customers to develop security
policies covering network security, as well as risk analysis. After a policy is
developed, a security strategy is planned and deployed using a variety of tools,
including physical firewalls, packet filtering, encryption and user
authentication.
Migration planning involves the performance of a detailed assessment of
existing mission critical systems, followed by an analysis of the end-user's
future requirements. Working closely with the customer, Manchester's consultants
develop a migration strategy using a defined project plan that encompasses
skills transfer and training, checking for data integrity, project management
and consolidation and reallocation of resources. The primary objective of this
service is to rapidly move the customer from a slow or expensive system to a
newer, more efficient and cost-effective solution.
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Integration. Integration services include product procurement,
configuration, testing, installation and implementation.
The Company maintains a sophisticated systems build and test area,
adjacent to its warehousing facilities, where computer systems are configured
and tested through the use of automated systems. Manchester manages the
installation and implementation of its customers' information systems, and
provides critical path analysis, vendor management and facility management
services. Critical path analysis involves the management and coordination of the
various hardware and software networking components of a systems design project.
The Company's engineers prepare reports setting forth coordinated timetables
with respect to installing and integrating the customer's information systems.
Vendor management includes interfacing with the suppliers of computer products
in installing a project; facility management involves management of the labor
aspects of a project, including supervision of electricians and other tradesmen.
Support. The Company offers support services for its customers'
existing information systems, including network management, "help-desk"
services, and enhancement, maintenance and repair.
Network management consists of managing the compatibility of, and
communication between, the various components comprising a customer's
information system. The increased expense associated with the ownership of
information systems has encouraged customers to outsource the management of
computer networks, including local area networks ("LANs") and wide area networks
("WANs"). Currently, the Company's engineers provide network management services
on site at customers' facilities.
"Help-desk" services consist of providing customers with telephone
support. In addition, the Company's service call management system, which the
Company is in the process of enhancing, will enable the Company's "help-desk"
technicians to access an archive of prior service calls concerning similar
problems and their solutions, resulting in a more efficient response to
customers' calls.
Enhancement, maintenance and repair services range from broad on-site
coverage to less expensive, basic maintenance and repair of itemized hardware or
software, as well as enhancements such as upgrades of existing systems. Field
representatives are equipped with notebook computers to facilitate the exchange
of information with both the information systems at the Company's headquarters
and with technical databases available on the Internet. The Company maintains a
laboratory at its Long Island facilities where the Company prototypes customer
problems for quicker solutions without jeopardizing customers' information
systems.
Products. Manchester offers a wide variety of personal computer and
networking products and peripherals, including:
Bridges and Routers Servers
Desktop Computers Software
Internet Access Products Storage Subsystems
Modems Switches
Monitors Supplies and Accessories
Network Equipment Teleconferencing Equipment
Notebook Computers Terminals
Printers Wireless Products
Scanners Workstations
The Company has long-standing relationships with many manufacturers,
which the Company believes assists it in procuring desired products on a timely
basis and on desirable financial terms. The Company sells products from most
major manufacturers, including:
AST Research, Inc. Motorola, Inc..
Bay Networks, Inc. NEC Technologies, Inc.
Cisco Systems, Inc. Novell, Inc.
Compaq Computer Corporation Philips Electronics N.V.
Epson America, Inc. Seagate Technology, Inc.
Hayes Microcomputer Products, Inc. Standard Microsystems Corporation
Hewlett-Packard Company Texas Instruments Inc.
Intel Corporation 3Com Corp.
Microsoft Corporation Toshiba America Information Systems,
Inc.
For the fiscal years ended July 31, 1997, 1996 and 1995, sales by the
Company of products manufactured by Toshiba, Hewlett-Packard, NEC and Compaq
collectively comprised approximately 56%, 53% and 52%, respectively, of the
Company's revenues. In these fiscal years, sales of products manufactured by
Toshiba accounted for approximately 26%, 23% and 24%, respectively, of the
Company's revenues, substantially all of which were sales of notebook computers
and related accessories. The total dollar volume of products purchased directly
from manufacturers, as opposed to distributors or resellers, was approximately
$103 million, $117 million and $118 million for the fiscal years ended July 31,
1997, 1996 and 1995, respectively, and as a percentage of total cost of products
sold was approximately 64%, 72% and 82%, respectively.
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The Company has entered into agreements with its principal suppliers that
include provisions providing for periodic renewals and permitting termination by
the vendor without cause, generally upon 30 to 90 days written notice, depending
upon the vendor. Toshiba, Hewlett-Packard, NEC and Compaq have regularly renewed
their respective agreements with the Company, although there can be no assurance
that the regular renewal of the Company's dealer agreements will continue. The
termination, or non-renewal, of any or all of these dealer agreements would
materially adversely affect the Company's business. The Company, however, is not
aware of any reason for the termination, or non-renewal, of any of those dealer
agreements and believes that its relationships with Toshiba, Hewlett-Packard,
NEC and Compaq are satisfactory.
The Company is dependent upon the continued supply of products from its
suppliers, particularly Toshiba, Hewlett-Packard, NEC and Compaq. Historically
certain suppliers occasionally experience shortages of select product that
render components unavailable or necessitate product allocations among
resellers. While certain shortages existed throughout fiscal 1997, the Company
believes that product availability issues are as a result of the present
dynamics of the personal computer industry as a whole, which include high
customer product demand, shortened product life cycles and increased frequency
of new product introductions into the marketplace. While there can be no
assurance that product unavailability or product allocation, or both, will not
increase in fiscal 1998, the impact of such an interruption is not expected to
be unduly troublesome due to the breadth of alternative product lines available
to the Company.
The Company seeks to obtain volume discounts for large customer orders
directly from manufacturers and through aggregators and distributors.
Customers
The Company believes that it benefits from its long-standing
relationships with many of its customers, providing opportunities for continued
sales and services. Manchester believes that its broad range of capabilities
with respect to both products and services is attractive to companies of all
sizes. Although Manchester is planning to target companies outside the Fortune
500 as one part of its strategy, it has sold, and anticipates that it will
continue to sell, to some of the largest companies in the United States. For the
fiscal years ended July 31, 1997, 1996 and 1995, approximately 15%, 16% and 22%
of the Company's total revenues, respectively, were derived from United Parcel
Service of America, Inc. Some of the Company's other significant commercial
customers currently include Barnes & Noble Inc., Cabletron Systems Inc., J&R
Music World, National Broadcasting Company Inc., Sterling Doubleday Enterprises
(New York Mets), Pfizer Inc., Reuters America Inc., SONY Theaters, Time Warner
Inc., United Nations International Children's Emergency Fund and the United
States Merchant Marine Academy.
The Company's return policy generally allows customers to return
hardware and unopened software, without restocking charges, within 30 days of
the original invoice date, subject to advance approval and certain other
conditions.
The Company grants credit to customers meeting specified criteria and
maintains a centralized credit department that reviews credit applications.
Accounts are regularly monitored for collectibility and appropriate action is
taken upon indication of risk.
Sales and Marketing
The Company's sales are generated primarily by its 65 person sales
force. These sales representatives generally are responsible for meeting all of
their customers' product and service needs and are supervised by sales managers
with significant industry experience. The sales managers are responsible for
overseeing sales representative training, establishing sales objectives and
monitoring account management principles and procedures. Sales representatives
attend seminars conducted by manufacturers' representatives at the Company's
facilities, at which the Company's new and existing product and service
offerings are discussed.
The Company's sales representatives are assisted by technical personnel
who support and supplement the sales efforts. The responsibilities of technical
support personnel include answering preliminary inquiries from customers
regarding systems design, and on-site visits to customers' facilities. At
customers' facilities, the technical personnel gather information necessary to
assist customers in making informed decisions regarding their information
systems. Such data include the nature of the customer's current information
systems, the existing hardware and networking environment, the customer's level
of expertise and its applications needs.
Manchester believes that its name is widely recognized for high
quality, competitively priced products and services. The Company promotes name
recognition and the sale of its products and services through regional business
directories, trade magazine advertisements, radio advertisements, direct
mailings to customers and participation in computer trade shows and special
events. The Company advertises at numerous sporting events in the New York
metropolitan region, including full page four-color advertisements in yearbooks
and/or program guides for sports teams such as the New York Mets, the New York
Knicks and the New York Rangers. The Company also promotes interest in its
products and services through its website on the Internet, and has expanded its
website information to provide an electronic catalog of its products and
services. Several manufacturers offer market development funds, cooperative
advertising and other promotional programs, on which the Company relies for many
of its advertising and promotional campaigns.
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Sales force training is an integral part of the Company's strategy to
increase its focus on providing value-added services. As client/server-based
systems, applications and network capabilities grow in complexity, the need for
technically knowledgeable sales personnel becomes critical to the sale of
value-added services. Accordingly, the Company has expanded its training
capabilities at one of its Long Island facilities to conduct seminars for sales
representatives. The seminars address such topics as general developments in the
computer industry, systems integration services and the Company's management
information systems. The Company utilizes its technical personnel to conduct
such seminars and may hire additional dedicated trainers as needed.
Management Information Systems
The Company currently uses an IBM AS/400 integrated management
information system, which is an on-line system enabling instantaneous access.
The Company maintains a proprietary inventory management system on its computer
system pursuant to which product purchases and sales are continually tracked and
analyzed. The Company's computer system is also used for accounting, billing and
invoicing.
The Company's information system assists management in maintaining
controls over the Company's inventory and receivables. Manchester's average
inventory turnover was 17, 18 and 16 times for the fiscal years ended July 31,
1997, 1996 and 1995, respectively, and Manchester experienced bad debt expense
of less than .3% of revenues in each of these years.
During the fiscal year ended July 31, 1997, the Company invested in its
management information systems, including upgrading and expanding the IBM AS/400
system, implementing a client/server-based management system to track services
rendered for customers, and upgrading servers and network infrastructures for
its headquarters. The Company utilizes experienced in-house technical personnel,
assisted by the Company's senior engineers, to upgrade and integrate additional
functions into the Company's management information systems.
Competition
The computer industry is characterized by intense competition primarily
in the area of price, product availability and breadth of product line. The
Company directly competes with local, regional and national systems integrators,
value-added resellers and distributors as well as with certain computer
manufacturers that market through direct sales forces. While the Company's
competitors vary depending upon the particular market, some of the national and
regional competitors of the Company include Alphanet Solutions, Inc., CompuCom
Systems, Inc., Dataflex Corporation, Entex Information Services, Inc., Pomeroy
Computer Resources, Inc., and Vanstar Corporation. The computer industry has
recently experienced a significant amount of consolidation through mergers and
acquisitions, and manufacturers of personal computers may increase competition
by offering a range of services in addition to their current product and service
offerings. In the future, the Company may face further competition from new
market entrants and possible alliances between existing competitors. Some of the
Company's competitors have, or may have, greater financial, marketing and other
resources, and may offer a broader range of products and services, than the
Company. As a result, they may be able to respond more quickly to new or
emerging technologies or changes in customer requirements, benefit from greater
purchasing economies, offer more aggressive hardware and service pricing or
devote greater resources to the promotion of their products and services.
The Company's ability to compete successfully depends on a number of
factors such as breadth of product and service offerings, sales and marketing
efforts, product and service pricing, and quality and reliability of services.
In addition, product margins may decline due to pricing to win new business and
increasing pricing pressures from competition. The Company believes that gross
margins will continue to be reactive to industry-wide changes. Future
profitability will depend on the Company's ability to increase focus on
providing technical service and support to customers, competition, manufacturer
pricing strategies, as well as the Company's control of operating expenses,
product availability, and effective utilization of vendor programs. It will also
depend on the ability to attract and retain quality service personnel and sales
representatives while effectively managing the utilization of such personnel and
representatives. There can be no assurance that the Company will be able to
attract and retain such skilled personnel and representatives. The loss of a
significant number of the Company's existing technical personnel or sales
representatives or difficulty in hiring or retaining additional technical
personnel or sales representatives or reclassification of the Company's sales
representatives as employees could have a material adverse effect on the
Company's business, results of operations and financial condition.
Recent Acquisition
On April 25, 1997, the Company, through a newly formed wholly-owned
subsidiary, acquired substantially all of the assets and assumed certain
liabilities of Electrograph Systems, Inc. ("Electrograph"). Electrograph is a
specialized distributor of microcomputer peripherals, throughout the United
States. The purchase price and transaction costs aggregated approximately $2.6
million. The major categories of products presently distributed by Electrograph
include printers and monitors. Electrograph does not stock significant amounts
of inventory relative to the number of different products it carries. Most
products are stocked to provide a 30-day supply.
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Electrograph provides technical assistance to customers through its
Hauppauge, New York office. Electrograph will ship returns of defective products
to the manufacturer or to an authorized repair center. Returns have historically
been approximately 3% of revenue. The Company does not believe that such a
breakdown or the dollar amounts of product returns is material, however, as
substantially all of these costs are reimbursed to Electrograph by its
suppliersthrough credits and replacements, and also through restocking charges
and resale. As a result, Electrograph's costs charged to operations for such
returns have been minimal.
Products are selected by Electrograph to minimize competition among
suppliers' products while maintaining some overlap to provide protection against
product shortages and discontinuations and to provide different price points for
certain items. Management believes Electrograph's relationships with its
suppliers are enhanced by providing feedback to suppliers on products, advising
suppliers of customer preferences, working with suppliers to develop marketing
programs, and offering suppliers the opportunity to provide seminars for
Electrograph's customers.
Like most of its competitors, Electrograph distributes products for
manufacturers throughout the United States on a non-exclusive basis without
geographic restrictions. Electrograph has supplier agreements with many of its
suppliers which it believes are in a form customarily used by each manufacturer.
These agreements usually contain provisions which allow termination without
cause, by the supplier generally upon 30 to 60 days notice.
None of Electrograph's material supplier agreements require the sale of
specified quantities of products or restrict Electrograph from selling similar
products manufactured by competitors. Electrograph, therefore, has the ability
to terminate or curtail sales of one product line in favor of another product
line as a result of technological change, pricing considerations, customer
demand or supplier distribution policy.
Electrograph has never been terminated by any of its suppliers.
Most of Electrograph's major suppliers provide price protection, by way
of credits, against price reductions by the supplier between the time of the
initial sale to Electrograph and the subsequent sale by Electrograph to its
customer. Additionally, most of Electrograph's suppliers accept defective
merchandise returned within 12 to 15 months after shipment to Electrograph. Some
suppliers permit Electrograph to rotate its inventory by returning slow moving
inventory for other inventory. Credits, refunds or other payments to which
Electrograph was entitled by reason of price protection, advertising allowances,
stock rotations and refunds for defective merchandise totaled approximately 1%
of revenue for fiscal 1997.
While Electrograph distributes products of more than 15 suppliers,
approximately 48% of Electrograph's revenue in fiscal 1997 was derived from
products manufactured by Mitsubishi, Electrograph's largest supplier.
Electrograph's distribution operations are currently conducted from two
distribution centers in Hauppauge, New York and Long Beach, California.
Electrograph also maintains sales offices in Baltimore, Maryland, Northville,
New York and Long Beach, California.
Credit is extended in most circumstances, and is generally limited to
30-day payment terms.
Employees
At August 31, 1997, the Company had 263 full-time employees consisting
of 23 sales representatives, 26 management personnel, 50 technical personnel and
123 distribution and clerical personnel. In addition, at August 31, 1997, the
Company had 36 independent sales representatives. The Company is not a party to
any collective bargaining agreements and believes its relations with its
employees are good.
Intellectual Property
The Company owns one federally registered service mark with respect to
its name and logo. Most of the Company's various dealer agreements permit the
Company to refer to itself as an "authorized dealer" of the products of those
manufacturers and to use their trademarks and trade names for marketing
purposes. The Company considers the use of these trademarks and trade names in
its marketing to be important to its business.
9
<PAGE>
ITEM 2. Properties
Properties
The Company and Electrograph currently have nine sales branches
nationwide including the corporate headquarters located in Hauppauge, New York.
The following table identifies the principal leased facilities.
<TABLE>
<CAPTION>
Approximate
Square Footage Lease
Facility Location Office Warehouse Expiration Date
- -------- -------- ------ --------- ---------------
<S> <C> <C> <C> <C>
Corporate 160 Oser Avenue(1)
Headquarters Hauppauge, NY 30,000 - July 2000
Warehouse and 40 and 50 Marcus Blvd.(1) October 2005 - 40
Service Center Hauppauge, NY 20,000 43,000 January 1998 - 50
Warehouse 125 Marcus Blvd. - 5,000 June 1998
Hauppauge, NY
Office 684 Broadway(1)
Massapequa, NY 500 - Month to month
New York City 469 Seventh Avenue(2)
Sales office New York, NY 13,000 January 1999
352 Seventh Avenue Fl 12A 7,000 - July 1999
New York, NY
Boca Raton 902 Clint Moore Road
Sales Office Boca Raton, FL 2,500 - July 1998
Boston 25-27 Christina Street(2) 3,000 - October 2002
Sales office Newton, MA
Tampa 6304 Benjamin Road
Sales office Tampa, FL 1,200 - December 1997
Electrograph 175 Commerce Drive
Corporate HQ Hauppauge, NY 5,000 5,000 June 2002
Baltimore 57 W. Timonium Rd. 650 - Month to month
Sales Office Timonium, MD
</TABLE>
(1) Leased from entities controlled by or affiliated with certain of the
Company's executive officers, directors and principal shareholders. Effective
with the consummation of the Company's initial public offering in November 1996,
the leases with related parties were amended to provide terms comparable to
those that could be obtained from independent third parties.
(2) Lease signed during fiscal 1997, occupancy expected in the first quarter of
fiscal 1998.
10
<PAGE>
ITEM 3. Legal Proceedings
On March 28, 1997 a complaint was filed by plaintiff Vincent Manngard in the
United States District Court for the Eastern District of New York against the
Company, its President and Chief Executive Officer, its Executive Vice President
and Secretary, and its Chief Financial Officer. The plaintiff claims to have
purchased shares in the Company's Offering and purports to sue on his own behalf
and on behalf of a class of persons who purchased the Company's common stock
either pursuant to the Offering or in the period from November 26, 1996 through
February 13, 1997. The Complaint asserts that the Company and the individual
defendants made false or misleading statements and omissions in connection with
the Offering in violation of Section 11, 12(a)(2) and 15 of the federal
Securities Act of 1933, and seeks damages on behalf of the putative class in an
unspecified amount and/or rescission, together with costs and expenses of
litigation. The Company believes that the allegations in the complaint are
entirely without merit and intends vigorously to defend this matter.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, based on advice
from its legal counsel, the ultimate disposition of these matters will not have
a material adverse effect.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders during the fourth
quarter of the fiscal year ended July 31, 1997.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock commenced trading on November 26, 1996 at $10.00 and
is traded on the Nasdaq National Market under the symbol MANC. The following
table sets forth the quarterly high and low sale prices for the Common Stock as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal Year 1997 High Low
---- ---
<S> <C> <C>
Second Quarter (starting November 26, 1996) 10-1/2 6-1/4
Third Quarter 7 3-1/4
Fourth Quarter 4-1/2 3-3/8
</TABLE>
On October 21, 1997 the closing sale price for the Company's Common Stock was
$4.6875 per share. As of October 21, 1997 there were 28 shareholders of record
of the Company's Common Stock.
Manchester has never declared or paid any dividends to shareholders. At this
time the Company intends to continue its policy of retaining earnings for the
continued development and expansion of its business.
Report on Sale of Securities and Uses of Proceeds Therefrom
Subsequent to the Company's initial public offering, effective November
25, 1996 (Registration No. 333-13345), and pursuant to the requirements of the
Securities Act of 1993, as amended and then in effect, the Company filed an
initial report on Form SR with the Securities and Exchange Commission on March
6, 1997.
The following table sets forth the amount of direct or indirect
payments to others from such effective date through July 31, 1997 which have
changed since the most recently filed report on Form SR.
<TABLE>
<CAPTION>
USE OF PROCEEDS DIRECT OR INDIRECT PAYMENTS TO OTHERS
<S> <C>
Construction of plant, building
and facilities $ 250,000
Purchase and installation
of machinery and equipment $ 500,000
Acquisition of other business(es) $2,600,000
Working capital $9,361,493
</TABLE>
11
<PAGE>
ITEM 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share amounts)
The selected consolidated financial data presented below are derived
from the audited consolidated financial statements of the Company. The
Consolidated Financial Statements as of July 31, 1997 and 1996 and for each of
the years in the three-year period ended July 31, 1997 and the report thereon of
KPMG Peat Marwick LLP, independent auditors, are included elsewhere in this
Report. The data should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Report.
<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
--------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue $187,801 $ 189,659 $ 170,818 $ 137,361 $ 118,898
Cost of revenue 161,186 163,128 146,323 117,377 101,046
------- --------- --------- --------- ---------
Gross profit 26,615 26,531 24,495 19,984 17,852
Selling, general and
administrative expenses 21,023 22,598 21,280 17,380 16,065
------ --------- --------- --------- ---------
Income from operations 5,592 3,933 3,215 2,604 1,787
Interest and other income
(expenses), net 395 (365) (392) (172) 34
Provision for income taxes 2,450 1,430(1) 1,160 1,042 689
Cumulative effect of change in
accounting for income taxes - - - 386 _____-
------- -------- -------- --------- -
Net income $3,537 $ 2,138(1) $ 1,663 $ 1,776 $ 1,132
===== ========= ========= ========= =========
Net income per share $0.45 $ .34(1) $ .27 $ .28 $ .18
==== ========= ========= ======== =========
Weighted average shares of
common stock outstanding 7,779,484 6,246,970 6,262,626 6,262,626 6,262,626
========= ========= ========= ========= =========
July 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital $30,578 $ 9,841 $ 9,189 $ 7,701 $ 6,274
Total assets 58,208 37,761 31,635 25,879 22,002
Short-term debt, including
current maturities of
capital lease obligation 1,637 6,952 5,600 5,400 2,200
Capital lease obligation,
excluding current maturities 77 175 - - -
Redeemable common stock(2) - 4,739 5,210 5,210 5,210
Shareholders' equity 36,877 8,175 6,037 4,374 2,598
</TABLE>
- ---------------------
(1) Pro forma provision for income taxes, pro forma net income and pro
forma net income per share for the fiscal year ended July 31, 1996
would have been $2,835, $4,246 and $.68 per share, respectively, after
giving effect to the assumed reduction of (i) $3,209 in officers'
compensation payable to the Company's Chief Executive Officer,
Executive Vice President and Chief Financial Officer to an aggregate of
$1,125, exclusive of fringe benefits, to reflect (A) the annual
compensation that the Company's Chief Executive Officer and Executive
Vice President have agreed to receive without any diminished duties or
responsibilities, and (B) the reduction from the amount of annual
compensation paid to the former Chief Financial Officer to the annual
compensation currently payable to the present Chief Financial Officer,
net of applicable income taxes, and (ii) $304 in rent paid to related
parties to amounts stipulated in current leases, net of applicable
income taxes. See "Management" and "Certain Transactions."
(2) Represents the aggregate amounts payable by the Company to redeem
shares of common stock under the shareholder put right and
shareholders' agreements between the Company and certain shareholders.
See Note 12 of notes to the consolidated financial statements.
12
<PAGE>
ITEM 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto appearing
elsewhere in this Report. The following discussion contains certain
forward-looking statements within the meaning of Securities Act of 1933 as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
which are not historical facts and involve risks and uncertainties that could
cause actual results to differ materially from the results anticipated in those
forward-looking statements. These risks and uncertainties include, but are not
limited to those set forth below and the risk factors described in the Company's
prospectus dated November 25, 1996.
General
Manchester is a systems integrator and reseller of computer hardware,
software and networking products, primarily for commercial customers. The
Company offers its customers single-source solutions customized to their
information systems needs by combining value-added services with hardware,
software, networking products and peripherals from leading vendors. To date,
most of the Company's revenues have been derived from product sales. The Company
generally does not develop or sell software products. However, certain computer
hardware products sold by the Company are loaded with pre-packaged software
products.
As a result of intense price competition within the computer industry
as well as other industry conditions, the Company has experienced increasing
pressure on per unit prices as well as on its gross profit and operating margins
with respect to the sale of products. Manchester's strategy includes increasing
its focus on providing value-added services with operating margins that are
higher than those obtained with respect to the sale of products. The Company's
future performance will depend in part on its ability to manage successfully a
continuing shift in its operations towards value-added services.
The Company directly competes with local, regional and national systems
integrators, value-added resellers ("VARs") and distributors as well as with
certain computer manufacturers that market through direct sales forces. In the
future, the Company may face further competition from new market entrants and
possible alliances between existing competitors. In addition, certain suppliers
and manufacturers may choose to market products directly to end users through a
direct sales force rather than or in addition to channel distribution. Some of
the Company's competitors have, or may have, greater financial marketing and
other resources, and may offer a broader range of products and services, than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies or changes in customer requirements, benefit from greater
purchasing economies, offer more aggressive hardware and service pricing or
devote greater resources to the promotion of their products and services. There
can be no assurance that the Company will be able to compete successfully in the
future with these or other current or potential future competitors.
The Company's business is dependent upon its relationships with major
manufacturers in the computer industry. There can be no assurance that the
pricing and related terms offered by major manufacturers will not adversely
change in the future. The failure to obtain an adequate supply of products, the
loss of a major manufacturer, the deterioration of the Company's relationship
with a major manufacturer or the Company's inability in the future to develop
new relationships with other manufacturers could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company's largest customer accounted for approximately 15%, 16% and
22% of the Company's revenues for the fiscal years ended July 31, 1997, 1996 and
1995, respectively, substantially all of which revenues were derived from the
sale of hardware products. There can be no assurance that the Company will
continue to derive substantial revenues from this customer.
The Company's profitability has been enhanced by its ability to obtain
volume discounts from certain manufacturers, which has been dependent, in part,
upon Manchester's ability to sell large quantities of products to computer
resellers, including VARs. There can be no assurance that the Company will be
able to continue to sell products to resellers and thereby obtain the desired
discounts from manufacturers or that the Company will be able to increase sales
to end-users to offset the need to rely upon sales to resellers.
The markets for the Company's products and services are characterized
by rapidly changing technology and frequent introductions of new hardware and
software products and services, which render many existing products
noncompetitive, less profitable or obsolete. The Company believes that its
inventory controls have contributed to its ability to respond effectively to
these technological changes. As of July 31, 1997, 1996 and 1995, inventories
represented 17%, 24% and 30% of total assets, respectively. During these same
fiscal years, the Company's average inventory turnover was 17, 18 and 16 times,
respectively. The failure of the Company to anticipate technology trends or to
continue to effectively manage its inventory could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company believes its controls on accounts receivable have
contributed to its profitability. The Company's bad debt expense represented
.2%, .1% and .1% of total revenues for the fiscal years ended July 31, 1997,
1996 and 1995, respectively.
13
<PAGE>
The Company's quarterly revenue and operating results have varied
significantly in the past and are expected to continue to do so in the future.
Quarterly revenues and operating results generally fluctuate as a result of the
demand for the Company's products and services, the introduction of new hardware
and software technologies with improved features, the introduction of new
services by the Company and its competitors, changes in the level of the
Company's operating expenses, competitive conditions and economic conditions. In
particular, the Company currently is increasing certain of its fixed operating
expenses, including a significant increase in personnel, as part of its strategy
to increase its focus on providing higher margin, value-added services.
Accordingly, the Company believes that period-to-period comparisons of its
operating results should not be relied upon as an indication of future
performance. In addition, the results of any quarterly period are not indicative
of results to be expected for a full fiscal year.
As a result of the rapid changes which are taking place in computer and
networking technologies, product life cycles are short. Accordingly, the
Company's product offerings change constantly. Prices of products change with
generally higher prices early in the life cycle of the product and lower prices
near the end of the product's life cycle. The Company believes that the impact
of price or volume changes of any particular product or products is not material
to the Company's Consolidated Financial Statements.
The Company's Chief Executive Officer has entered into an employment
agreement with the Company under which he will receive $550,000 in compensation,
exclusive of fringe benefits, for each of the fiscal years ending July 31, 1997
and 1998. In addition, the Company's Executive Vice President has agreed to
receive base compensation, exclusive of fringe benefits, of $450,000 for the
fiscal years ending July 31, 1997 and 1998. These officers have agreed that they
will not be entitled to any bonuses for fiscal 1997 and that any bonus payable
to either of these officers in fiscal 1998 will require the approval of a
majority of the independent directors of the Company. The Company leases certain
warehouses and offices from entities that are owned or controlled by the
Company's majority shareholder. Each of the leases with related parties has been
amended effective with the closing of the Company's initial public offering to
reduce the rent payable under that lease to then current market rates.
Recent Acquisition
On April 25, 1997, the Company, through a newly formed wholly-owned
subsidiary, acquired substantially all of the assets and assumed certain
liabilities of Electrograph Systems, Inc., a wholly owned subsidiary of Bitwise
Designs, Inc. Electrograph is a specialized distributor of microcomputer
peripherals, primarily in the eastern United States. The purchase price and
transaction costs aggregated approximately $2.6 million. Included in the assumed
liabilities of Electrograph was debt with balances of $1,274,000 in notes
payable - bank and $264,000 in notes payable - other as of July 31, 1997.
The acquisition has been accounted for as a purchase and the operating
results of Electrograph are included in the consolidated statements of income
from the date of acquisition. The acquisition resulted in goodwill of
approximately $1,500,000 which is being amortized on the straight-line basis
over 20 years.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of income expressed as a
percentage of revenues.
<TABLE>
<CAPTION>
Percentage of
Revenue for
the Year Ended July 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of revenue 85.8 86.0 85.7
---- ---- -----
Gross profit 14.2 14.0 14.3
Selling, general and administrative expenses 11.2 11.9 12.4
---- ---- -----
Income from operations 3.0 2.1 1.9
Interest and other income (expenses), net .2 ( 0.2) ( 0.2)
---- ----- -----
Income before income taxes 3.2 1.9 1.7
Provision for income taxes 1.3 0.8 0.7
--- --- ---
Net income 1.9% 1.1% 1.0%
=== ==== ====
</TABLE>
Year Ended July 31, 1997 Compared to Year Ended July 31, 1996
Revenue. The Company's revenue decreased $1.9 million or 1.0% from
$189.7 million in fiscal 1996 to $187.8 in fiscal 1997. This decrease is due
primarily to lower shipments to the Company's major customer as well as
generally lower prices for personal computers, partially offset by increases in
units shipped and $5.1 million of revenue from the Company's Electrograph
subsidiary which was acquired on April 25, 1997.
Gross Profit. Cost of revenues includes direct costs of products sold,
freight and the personnel costs associated with providing technical services,
14
<PAGE>
offset in part by certain market development funds provided by manufacturers.
All other operating costs are included in selling, general and administrative
expenses. Gross profit increased by $84,000 or 0.3% from $26.5 million in fiscal
1996 to $26.6 million in fiscal 1997. Gross profit as a percentage of revenues
increased from 14.0% in fiscal 1996 to 14.2% in fiscal 1997. The improvement in
gross profit as a percentage of revenue reflects a more favorable product mix.
Competitive pressures, changes in the types of products or services sold and
product availability result in fluctuations in gross profit from period to
period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.6 million or 7.0% from $22.6 million in
fiscal 1996 to $21.0 million in the most recent fiscal year. This decrease is
primarily due to lower officer salaries and rents paid to related parties due to
agreements that were entered into in connection with the Company's initial
public offering, partially offset by higher salaries, legal expenses, bad debts
and depreciation costs as well as additional operating expenses incurred as a
result of the acquisition of Electrograph Systems, Inc. on April 25, 1997.
Giving pro forma effect to the changes in officers' compensation and rents to
related parties, described below and under General, the pro forma selling,
general and administrative expenses would have been approximately $19.1 million
or 10.1% of revenues for the year ended July 31, 1996.
Interest Income. Interest income increased significantly in 1997 due to
earnings on short term investments made with certain of the proceeds from the
Company's initial public offering.
Provision For Income Taxes. The effective tax rate increased
slightly from 40.1% in fiscal 1996 to 40.9% in fiscal 1997.
Year Ended July 31, 1996 Compared to Year Ended July 31, 1995
Revenue. The Company's revenue increased $18.8 million or 11.0% from
$170.8 million in fiscal 1995 to $189.7 million in fiscal 1996 due to increased
revenues from both new and existing customers. Many factors contributed to this
increase, including new product introductions, special product purchases and
volume and price changes with no one factor having a material effect on this
increase.
Gross Profit. Gross profit increased $2.0 million or 8.3% from $24.5
million in fiscal 1995 to $26.5 million in fiscal 1996 primarily as a result of
the increase in revenue. Gross profit as a percentage of revenue decreased from
14.3% to 14.0%. The decrease in the gross profit percentage was due to changes
in product mix as well as increased pricing pressures prevalent within the
industry. Competitive pressures, changes in the types of products or services
sold and product availability result in fluctuations in gross profit from period
to period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.3 million or 6.2% from $21.3 million in
fiscal 1995 to $22.6 million in fiscal 1996. Approximately $261,000 of this
increase related to higher payroll and related costs due primarily to a $917,000
increase associated with the hiring of additional technical and administrative
staff in support of the Company's strategy to increase its value-added services
revenue partially offset by a $656,000 reduction in officers' compensation from
approximately $5.0 million in fiscal 1995 to approximately $4.3 million in
fiscal 1996. Rent and occupancy costs increased by approximately $408,000 due
primarily to higher rent principally paid to related parties as well as the
leasing of an additional facility to meet the Company's current and future
needs. In addition, commissions paid to the Company's sales force increased
approximately $328,000 due to the increase in revenues in fiscal 1996.
The Company's Chief Executive Officer has entered into an employment
agreement with the Company under which he will receive $550,000 in compensation,
exclusive of fringe benefits, for each of the fiscal years ending July 31, 1997
and 1998. In addition, the Company's Executive Vice President has agreed to
receive base compensation, exclusive of fringe benefits, of $450,000 for the
fiscal years ending July 31, 1997 and 1998. These officers have agreed that they
will not be entitled to any bonuses for fiscal 1997 and that any bonus payable
to either of these officers in fiscal 1998 will require the approval of a
majority of the independent directors of the Company. The compensation to be
paid to the Company's President and Executive Vice President in fiscal 1999 and
thereafter will be based upon agreements to be negotiated at the expiration of
their current respective employment agreements, which compensation the Company
believes will reflect the then fair value of the services to be rendered to the
Company by such individuals. If the revised compensation terms had been in
effect for the entire fiscal 1996 period, and had the Company's former Chief
Financial Officer been compensated at the annual compensation payable to the
current Chief Financial Officer, officers' compensation would have been reduced
by approximately $3.2 million. See "Management." Each of the leases with related
parties has been amended effective with the closing of this offering, to reduce
the rent payable under that lease to current market rates. If the revised leases
had been in effect for the entire fiscal 1996 period, rent expense would have
been reduced by $304,000 from the reported amount. Giving pro forma effect to
the foregoing reductions in officers' compensation and rents to related parties,
the pro forma selling, general and administrative expenses would have been
approximately $19.1 million or 10.1% of revenues in fiscal 1996.
Interest Expense, Net. Interest expense, net increased from
$346,000 in fiscal 1995 to $374,000 in fiscal 1996 primarily due to increased
borrowings.
15
<PAGE>
Provision for Income Taxes. The effective income tax rate decreased
slightly from approximately 41% in fiscal 1995 to approximately 40% in fiscal
1996.
Liquidity and Capital Resources
The Company's primary sources of financing have been internally generated
working capital from profitable operations and a line of credit from a financial
institution.
For the year ended July 31, 1997, cash provided by operating activities
was $4.6 million consisting primarily of net income and a decrease in inventory,
offset by increases in accounts receivable net of an increase in accounts
payable and accrued expenses. The Company's accounts receivable and accounts
payable and accrued expenses balances as well as its investment in inventory can
fluctuate significantly from one period to the next due to the receipt of large
customer orders or payments or variations in product availability and vendor
shipping patterns at any particular date. Generally, the Company's experience is
that increases in accounts receivable, inventory and accounts payable and
accrued expenses will coincide with growth in revenue and increased operating
levels. In addition, during the year ended July 31, 1997 the Company used
approximately $2.4 million for capital expenditures, $1.9 million (net of cash
acquired) for the purchase of Electrograph Systems, Inc. and $4.4 million for
the purchase of marketable securities and generated $13.4 million in cash from
financing activities primarily from the net proceeds of the Company's initial
public offering (IPO) ($20.4 million) partially offset by the net repayments of
$7.0 million of debt.
The Company and a subsidiary have available lines of credit with a
financial institution in the aggregate amount of $10.0 million. All amounts
outstanding under this line at the completion of the IPO were repaid by the
Company with the proceeds from the IPO described below. At July 31, 1997, a
subsidiary of the Company had $1.3 million outstanding under its line of credit.
This outstanding balance was repaid in full in August 1997.
On December 2, 1996, the Company completed the IPO of 2,325,000 shares of
its common stock resulting in net proceeds to the Company, after deducting
underwriting discount and expenses, of approximately $20.4 million. The Company
utilized $7.7 million of the proceeds from the IPO to repay the balance
outstanding at that date under its line of credit with a financial institution.
In addition, the Company utilized $2.4 million for capital improvements and $1.9
million (net of cash acquired) for the purchase of Electrograph Systems, Inc.
The remaining net proceeds have been invested in short-term, interest bearing,
investment grade securities.
The Company believes that its current balances in cash and cash
equivalents and marketable securities, expected cash flows from operations and
available borrowings under the lines of credit will be adequate to support
current operating levels for the foreseeable future, specifically through at
least the end of fiscal 1998. The Company has entered into commitments for the
renovation and expansion of certain of its sales and service facilities which is
currently underway and expected to be completed in the next fiscal year. The
aggregate commitment for these projects is approximately $1.0 million which will
be paid out of the Company's available cash balances. The Company currently has
no other material commitments for capital expenditures. Future capital
requirements of the Company include those for the growth of working capital
items such as accounts receivable and inventory and the purchase of equipment
and expansion of facilities as well as the possible opening of new offices and
potential acquisitions.
Inflation
The Company does not believe that inflation has had a material effect on
the Company's operations.
New Accounting Standard
Net income per share is based on the weighted average number of shares of
Common Stock and dilutive common stock equivalents (stock options and warrants)
outstanding during the period.
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", is required to be adopted for interim and annual periods ending after
December 15, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and restate all prior
periods. Basic and diluted earnings per share will replace primary and fully
diluted earnings per share. The dilutive effect of stock options and other
common stock equivalents will be excluded from the calculation of basic earnings
per share, but will be reflected in diluted earnings per share. The
implementation of SFAS No. 128 would not have had an impact on fiscal 1997 net
income per share.
ITEM 8. Financial Statements and Supplementary Data
See Item 14.
ITEM 9. Changes and Disagreements with Accountants and Accounting and Financial
Disclosure
None.
16
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The following table sets forth information concerning each of the
directors and executive officers of the Company:
Name Age Position
Barry R. Steinberg 55 Chairman of the Board, President,
Executive Chief Officer and Director
Joel G. Stemple, Ph.D 55 Executive Vice President, Secretary
and Director
Joseph Looney 40 Chief Financial Officer
William F. Scheibel, Jr. 42 Chief Technology Officer
Joel Rothlein, Esq. 68 Director
George Bagetakos 51 Director
Julian Sandler 53 Director
Barry R. Steinberg, the founder of the Company, has served as its Chairman
of the Board, President and Chief Executive Officer and as a director since
Manchester's formation in 1973. Mr. Steinberg previously served as a systems
analyst for Sleepwater, Inc. and Henry Glass and Co.
Joel G. Stemple, Ph.D. has served as Executive Vice President since
September 1996 and as Vice President and as a director since August 1982. Dr.
Stemple previously performed consulting services for the Company and, from 1966
to 1982, served as Assistant and Associate Professor of Mathematics at Queens
College, City University of New York.
Joseph Looney has served as the Company's Chief Financial Officer since May
1996. Prior to joining the Company, from 1984 to 1996, Mr. Looney served in
various positions with KPMG Peat Marwick LLP, including Senior Audit Manager at
the end of his tenure at such firm. Mr. Looney is a Certified Public Accountant,
a member of the AICPA, the New York State Society of Certified Public
Accountants and the Institute of Internal Auditors.
William F. Scheibel, Jr. has served as the Company's Chief Technology
Officer since September 1996 and served as Manager of Technical Services and
Support from September 1995 through August 1996. Before joining the Company,
from 1990 to 1995, Mr. Scheibel served in various positions with Bay Networks,
Inc., a manufacturer of computer networking equipment, including Director of
Field Support for North and South America at the end of his tenure at such firm.
Joel Rothlein, Esq. has been a director of the Company since October 1996.
Mr. Rothlein is a partner in the law firm of Kressel Rothlein & Roth, Esqs.,
Massapequa, New York, where he has practiced law since 1955. Kressel Rothlein &
Roth, Esqs. and its predecessor firms have acted as outside general counsel to
the Company since the Company's inception.
George Bagetakos became a director on December 2, 1996. Mr. Bagetakos
has been the Director of Sales, Major Accounts for Northern Telecom, Inc., a
supplier of telecommunications equipment products, since July 1995, and served
as Manager, National Accounts for Northern Telecom, Inc. from 1984 to June 1995.
Prior to joining Northern Telecom, Mr. Bagetakos was Corporate Vice President,
Telecommunications for American Express Company from 1979 to 1983.
17
<PAGE>
Julian Sandler became a director on December 2, 1996. Mr. Sandler is
Chief Executive Officer of Rent-a-PC, Inc., a full-service provider of
short-term computer rentals, which Mr. Sandler founded in 1984. Mr. Sandler is
also the founder and was the President from 1974 to 1993 of Brookvale
Associates, a national organization specializing in the remarketing of hardware
manufactured by Digital Equipment Corporation. Mr. Sandler also co-founded and
from 1970 to 1973 was Vice President of Periphonics Corporation, a developer and
manufacturer of voice response systems.
Section 16(a) Beneficial Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, requires
that officers, directors and holders of more than 10% of the Common Stock
(collectively, "Reporting Persons") file reports of their trading in the
Company's equity securities with the Securities and Exchange Commission. Based
on a review of Section 16 forms filed by the Reporting Persons during the last
fiscal year, (a) the Reporting Persons filed Form 3 two days late; b) Barry R.
Steinberg, a Reporting Person, filed his Form 4 reporting the acquisition of
additional shares of the Common Stock approximately two and one-half months
late; and (c) Julian Sandler, a Director of the Company, filed his Form 4
reporting the acquisition of shares of the Common Stock approximately ten months
late. Except as noted, the Company believes that the Reporting Persons timely
complied with all applicable Section 16 filing requirements.
ITEM 11. Summary Compensation.
The following table sets forth a summary of the compensation paid or
accrued by the Company during the fiscal years ended July 31, 1997 and 1996 to
the Company's Chief Executive Officer and the other executive officers whose
compensation exceeded $100,000:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation(5)
- --------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Barry R. Steinberg, Chief Executive Officer 1997 $550,000 - $59,252(1)
1996 $271,800 $1,816,439 $59,210(1)
Joel G. Stemple, Executive Vice President 1997 50,000 - $33,050(2)
1996 $251,800 $1,669,193 $29,000(2)
Joseph Looney, Chief Financial Officer(3) 1997 $125,489 $ 47,500 $ 7,610
1996 $ 31,250 $ 10,000 $1,275
William F. Scheibel, Jr., Chief Technology
Officer(4) 1997 $128,956 $ 22,500 $ 8,266
1996 $ 96,157 $ 17,500 $ 4,250
- ---------------------
</TABLE>
(1) Includes $50,000 of premiums paid by the Company for a whole life
insurance policy in the name of Mr. Steinberg having a face value of
$2,600,000 and under which his daughters, on the one hand, and the
Company, on the other hand, are beneficiaries and share equally in the
death benefits payable under the policy.
(2) Includes $25,000 of premiums paid by the Company for a whole life
insurance policy in the name of the executive officer having a face value
of $1,300,000 and under which his spouse and the Company are beneficiaries
and are entitled to $600,000 and $700,000, respectively, of the death
benefits payable under the policy.
(3) Began employment with the Company on May 2, 1996.
(4) Began employment with the Company on September 7, 1995.
(5) Includes in fiscal 1997 employer matching contributions to the Company's
defined contribution plan of $6,252, $6,675, $2,510, and $3,166 for
Messrs. Steinberg, Stemple, Looney and Scheibel, respectively.
18
<PAGE>
No restricted stock awards, stock appreciation rights or long-term
incentive plan awards (all as defined in the proxy regulations promulgated by
the Securities and Exchange Commission) were awarded to, earned by, or paid to
the Named Executive Officers during the fiscal year ended July 31, 1997.
Barry R. Steinberg has agreed with the Company that his annual base
salary for services rendered to the Company in his current positions as
President and Chief Executive Officer shall be $550,000 in each of the fiscal
years ending July 31, 1997 and 1998. Mr. Steinberg has agreed that he will not
be eligible to receive any bonus in fiscal 1997 and that any bonus payable for
fiscal 1998 will require the approval of a majority of the independent directors
of the Company. The Company will continue to make available to him the car
allowance and deferred compensation benefits that he is currently receiving. Mr.
Steinberg will also be able to participate in other benefits that the Company
makes generally available to its employees, such as medical and other insurance,
and Mr. Steinberg will be able to participate under the Company's stock option
plan. In the event Mr. Steinberg's employment with the Company were terminated,
he would not be precluded from competing with the Company.
The Company has an employment agreement with Joel G. Stemple, Ph.D.,
under which Dr. Stemple receives a base salary of $450,000 in each of the fiscal
years ending July 31, 1997 and 1998. Under the employment agreement, Dr. Stemple
is not eligible to receive any bonus in fiscal 1997 and any bonus payable to Dr.
Stemple for fiscal 1998 must be approved by a majority of the independent
directors of the Company. Under the employment agreement, the Company provides
Dr. Stemple with an automobile and certain deferred compensation benefits and
provides Dr. Stemple with medical and other benefits generally offered by the
Company to its employees. Dr. Stemple also is able to participate in the
Company's stock option plan. The employment agreement is terminable by either
party on 90 days' prior notice. In the event the Company so terminates Dr.
Stemple's employment, or the Company elects not to renew his employment
agreement, he is entitled to severance equal to 12 months of his then current
base salary. This severance will be payable in accordance with the Company's
customary payroll practices. Under the employment agreement, if Dr. Stemple
terminates his employment, or the Company terminates his employment for cause,
Dr. Stemple is prohibited, for a two-year period from such termination, from
competing with the Company in the eastern half of the United States.
Option Grants in the Last Fiscal Year
The following table sets forth the information with respect to grants of
stock options to purchase the Company's common stock, par value $0.01 per share
(the "Common Stock"), pursuant to the Company's Amended and Restated 1996
Incentive and Non-Incentive Stock Option Plan (the "Plan") granted to the Named
Executive Officers during the fiscal year ended July 31, 1997 and all options
outstanding to the named Executive Officers as of July 31, 1997.
<TABLE>
<CAPTION>
Individual Grants
-----------------
Number of Percent of Potential Realizable
Securities Total Options Value at Assumed
Underlying Granted to Annual Rates of Stock
Options Employees in Exercise Expiration Price Appreciation
Granted Fiscal year Price Date For Option Term
------- ----------- ----- ---- ---------------
Name (#) ($/sh) 5% 10%
---- ---- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Joseph Looney 50,000(1) 6.3% $10.00 2/03/2007 $29,000 $343,000
20,000(2) 2.5% $ 5.00 3/26/2007 - $20,000
William F. Scheibel, Jr. 50,000(1) 6.3% $10.00 2/03/2007 $29,000 $343,000
20,000(2) 2.5% $ 5.00 3/26/2007 - $20,000
</TABLE>
No options outstanding were exercised or exercisable during the fiscal
year ended July 31, 1997 or as of July 31, 1997. There were no in-the-money
exercisable or unexercisable options at July 31, 1997.
- --------------
(1) Exercisable cumulatively at the rate of 20% per annum commencing February 3,
1999.
(2) Exercisable cumulatively at the rate of 25% per annum commencing May 5,
1999.
19
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of October 21,
1997 (except as otherwise indicated) with respect to the number of shares of the
Company's common stock beneficially owned by each person who is known to the
Company to beneficially own more than 5% of the common stock, the number of
shares of common stock beneficially owned by each director of the Company and
each executive officer of the Company, and the number of shares of common stock
beneficially owned by all executive officers and directors of the Company as a
group. Except as otherwise indicated, each such shareholder has sole voting and
investment power with respect to the shares beneficially owned by such
shareholder.
Shares Percent
Beneficially of Shares
Name and Address Owned Outstanding
---------------- ----- -----------
Barry R. Steinberg(1)(3) 4,630,101 54.3%
Joel G. Stemple(1) 626,263 7.3
Joseph Looney(1) 4,700 *
William F. Scheibel, Jr.(1) -
Joel Rothlein(2) 16,500 *
George Bagetakos(1)(4) 2,500 *
Julian Sandler(1)(5) 3,500 *
All executive officers and
directors as a group
(6 persons) 5,283,564
(1) Address is 160 Oser Avenue, Hauppauge, New York 11788.
(2) Address is 684 Broadway, Massapequa, New York 11758; consists of 3,300
shares held by Kressel, Rothlein & Roth, Esqs., in which Mr. Rothlein is
a partner, and 13,200 shares held by the Kressel, Rothlein & Roth Profit
Sharing Plan. Mr. Rothlein disclaims beneficial ownership of the Common
Stock owned by Kressel Rothlein & Roth, Esq., except to the extent of his
equitable interest in the firm, and of the Common Stock owned by the
Kressel Rothlein & Roth Profit Sharing Plan, except to the extent of his
beneficial interest in such plan.
(3) Excludes 29,000 shares owned by Ilene Steinberg and 29,000 shares owned by
Sheryl Steinberg, daughters of Mr. Steinberg, which shares were purchased
with the proceeds of a loan from Mr. Steinberg. As reported on Schedule
13D filed on March 24, 1997, as amended, Mr. Steinberg, Ilene Steinberg,
and Sheryl Steinberg each disclaim beneficial ownership of the common
stock owned by the others.
(4) Consists of option exercisable on December 18, 1997.
(5) Includes option to purchase 2,500 shares exercisable on December 18, 1997.
* Represents less than one tenth of one percent of outstanding shares.
ITEM 13. Certain Relationships and Related Transactions
Until August 1994, the Company was affiliated with Electrograph
Systems, Inc. ("Electrograph"). Barry R. Steinberg, the Company's President and
Chief Executive Officer and its majority shareholder, served as Electrograph's
Chairman of the Board and Chief Financial Officer and had beneficial ownership
(directly and through shares held by his spouse and certain trusts, of which his
children are beneficiaries) of 35.5% of the outstanding shares of common stock
of Electrograph. During the fiscal years ended July 31, 1993 and 1994, the
Company paid approximately $322,000 and $385,000, respectively, to Electrograph
for the purchase of products. In August 1994, Bitwise Designs, Inc. ("Bitwise"),
a publicly-traded company engaged in the manufacture and distribution of
document imaging systems, personal and industrial computers and related
peripherals, acquired Electrograph through a stock-for-stock merger; Mr.
Steinberg acquired beneficial ownership of less than 1% of the outstanding
capital stock of Bitwise for the common stock of Electrograph in which he had a
direct or indirect beneficial interest. Mr. Steinberg served as a director of,
and provided consulting services to, Bitwise from August 1994 through September
17, 1996. On April 25, 1997, the Company purchased substantially all of the
assets of Electrograph Systems, Inc. See Item 1 - Business "Recent Acquisition".
20
<PAGE>
Three of the Company's four Hauppauge, New York facilities are leased
from entities affiliated with certain of the Company's executive officers,
directors or principal shareholders. The property located at 40 Marcus
Boulevard, Hauppauge, New York is leased from a limited liability company owned
70% by Mr. Steinberg and his relatives, 20% by Joel G. Stemple, Ph.D., the
Company's Executive Vice President and a principal shareholder, and 10% by
Michael Bivona, a principal shareholder of the Company. For the fiscal years
ended July 31, 1997 and 1996, the Company made lease payments of $174,000 and
$216,000, respectfully, to such entity. The Company's offices at 160 Oser
Avenue, Hauppauge, New York are leased from a limited liability company owned
65% by Mr. Steinberg, 17.5% by Dr. Stemple and 17.5% by Mr. Bivona. For the
fiscal years ended July 31, 1997, 1996 and 1995, the Company made lease payments
of $259,000, $360,000 and $255,000, respectively, to such entity. The property
located at 50 Marcus Boulevard, Hauppauge, New York is leased from Mr. Steinberg
doing business in the name of Marcus Realty. For the fiscal years ended July 31,
1997, 1996 and 1995, the Company made lease payments of $329,000, $435,000 and
$417,000, respectively, to such entity. The Company leases an additional office
in Massapequa, New York at $300 per month ($881 per month through May 1997) on a
month-to-month basis from an entity of which Messrs. Rothlein and Bivona own 25%
and 50%, respectively. See "Business--Properties."
Joel Rothlein, Esq., a director of the Company, is a partner of Kressel
Rothlein & Roth, Esqs., which, with its predecessor firms, has acted as outside
general counsel to the Company since the Company's inception. Kressel Rothlein &
Roth, Esqs. was paid approximately $89,000 (exclusive of disbursements) from the
Company for legal fees in the fiscal year ended July 31, 1996 and received fees
of approximately $655,000 from the Company in the fiscal year ended July 31,
1997, which sum includes fees paid to special counsel ($286,000).
During the year ended July 31, 1997, the Company recorded revenue of
$130,000 in connection with the sale of computer equipment to a company
controlled by Julian Sandler.
21
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The financial statements included herein are filed as a part
of this Report.
Manchester Equipment Co., Inc.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report 23
Consolidated Financial Statements:
Balance Sheets as of July 31, 1997 and 1996 24
Statements of Income for the years ended July 31, 1997,
1996 and 1995 25
Statements of Shareholders' Equity for the years
ended July 31, 1997, 1996 and 1995 26
Statements of Cash Flows for the years ended
July 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28
22
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Manchester Equipment Co., Inc.:
We have audited the accompanying consolidated balance sheets of Manchester
Equipment Co., Inc. and subsidiaries as of July 31, 1997 and 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended July 31, 1997. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Manchester Equipment
Co., Inc. and subsidiaries at July 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Jericho, New York
September 24, 1997
23
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Consolidated Balance Sheets
July 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
(in thousands, except
share amounts)
<S> <C> <C>
Current assets:
Cash and cash equivalents $15,049 $ 5,774
Investments 4,408 -
Accounts receivable, net of allowance
for doubtful accounts
of $1,051 and $800, respectively 21,473 19,068
Inventory 10,127 8,957
Deferred income taxes 440 334
Prepaid expenses and other current assets 248 197
--- ---
Total current assets 51,745 34,330
Property and equipment, net 4,073 2,244
Goodwill, net 1,524 -
Deferred income taxes 379 395
Other assets 487 792
--- -------
$58,208 $37,761
======= ======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 99 $ 99
Notes payable-bank 1,274 6,500
Notes payable-shareholder - 353
Notes payable - other 264 -
Accounts payable and accrued expenses 19,283 17,113
Deferred service contract revenue 247 129
Income taxes payable - 295
----- ---
Total current liabilities 21,167 24,489
Long-term debt, less current maturities 77 175
Deferred compensation payable 87 183
Commitments and contingencies (note 8)
Redeemable common stock - 4,739
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 25,000,000 shares
authorized, 8,525,000 and 6,200,000 shares issued
and outstanding 85 62
Additional paid-in capital 20,403 -
Retained earnings 16,389 8,113
------ -----
Total shareholders' equity 36,877 8,175
------ -----
$58,208 $37,761
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Consolidated Statements of Income
Years ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands except share and per share amounts)
<S> <C> <C> <C>
Revenue $187,801 $189,659 $170,818
Cost of revenue 161,186 163,128 146,323
------- ------- -------
Gross profit 26,615 26,531 24,495
Selling, general and administrative expenses 21,023 22,598 21,280
------ ------ ------
Income from operations 5,592 3,933 3,215
Other income (expense):
Interest expense (225) (399) (360)
Interest income 560 25 14
Other 60 9 (46)
----- ------- ---
Income before provision for income taxes 5,987 3,568 2,823
Provision for income taxes 2,450 1,430 1,160
----- ----- -----
Net income $3,537 $2,138 $1,663
====== ===== =====
Net income per share $0.45 $0.34 $0.27
===== ===== =====
Weighted average shares of common
stock outstanding 7,779,484 6,246,970 6,262,626
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional
Common Par Paid-in Retained
Shares Value Capital earnings Total
(in thousands except share amounts)
<S> <C> <C> <C> <C> <C>
Balance July 31, 1994 6,262,626 $63 $ - $4,311 $4,374
Net income - - - 1,663 1,663
-------- --- - ----- -----
Balance July 31, 1995 6,262,626 63 - 5,974 6,037
Net income - - - 2,138 2,138
Purchase and retirement of
stock (62,626) (1) - 1 -
------- ------- --- ------ ----
Balance July 31, 1996 6,200,000 62 - 8,113 8,175
Issuance of common stock 2,325,000 23 20,391 - 20,414
Stock option commission expense - - 12 - 12
Transfer of redeemable common stock - - - 4,739 4,739
Net income - - - 3,537 3,537
--------- --- ------ ----- -----
- - -
Balance July 31, 1997 8,525,000 $85 $20,403 $16,389 $36,877
========= == ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net income $3,537 $2,138 $1,663
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 720 473 395
Allowance for doubtful accounts 210 132 161
Stock options commission expense 12 - -
Deferred income taxes (90) (86) (71)
(Gain) Loss on disposition of assets (37) (9) 71
Change in assets and liabilities; net of the
effects of the purchase of Electrograph:
Increase in accounts receivable (545) (1,700) (1,954)
(Increase) decrease in inventory 515 548 (2,382)
(Increase) decrease in prepaid expenses and
other current assets (44) 41 (24)
(Increase) decrease in other assets 342 (307) (113)
Increase in accounts payable and
accrued expenses 221 2,715 4,371
(Decrease) increase in deferred service
contract revenue 118 27 (79)
Increase (decrease) in income taxes payable (295) 205 (468)
Decrease in deferred compensation payable (96) (15) -
--- ---- ------
Net cash provided by operating activities 4,568 4,162 1,570
----- ----- -----
Cash flows from investing activities:
Capital expenditures (2,439) (1,028) (545)
Proceeds from the sale of assets - 55 105
Purchase of marketable securities (4,408) - -
Payment for purchase of Electrograph, net of
cash acquired (1,886) - -
------- --- ---
Net cash used in investing activities (8,733) (973) (440)
------ ---- ----
Cash flows from financing activities:
Net repayments of borrowings (6,490) 900 200
Payments on note payable shareholder (353) (118) -
Payments on capitalized lease obligation (98) (31) -
Payments on note payable - other (33) - -
Net proceeds from initial public offering 20,414 - -
------ ----- -----
Net cash provided by financing activities 13,440 751 200
------ ---- ---
Net increase in cash 9,275 3,940 1,330
Cash at beginning of year 5,774 1,834 504
----- ----- ---
Cash at end of year $15,049 $5,774 $1,834
====== ===== =====
Cash paid during the year for:
Interest $225 $399 $378
==== === ====
Income taxes $2,868 $1,290 $1,729
===== ===== =====
Other noncash transactions:
Capitalized lease obligation $ - $305 $ -
=== ==== =====
Purchase of stock for notes payable-shareholder $ - $471 $ -
=== === =====
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
(1) Operations and Summary of Significant Accounting Policies
(a) The Company
Manchester Equipment Company, Inc. (the Company) is a systems
integrator and reseller of computer hardware, software and networking
products, primarily for commercial customers. The Company offers its
customers single-source solutions customized to their information systems
needs by combining value-added services with hardware, software,
networking products and peripherals from leading vendors.
Sales of hardware, software and networking products comprise most of
the Company's revenues. Service revenues have not comprised a significant
part of revenues to date. The Company has entered into agreements with
certain suppliers and manufacturers which provide the Company favorable
pricing and price protection in the event the vendor reduces its prices.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions and balances are eliminated in consolidation.
(c) Cash Equivalents
The Company considers all highly liquid investments with original
maturities at the date of purchase of three months or less to be cash
equivalents.
(d) Investments
The Company classifies its marketable debt and equity securities in one
of three categories: trading, available for sale, or held to maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported
as a separate component of shareholders' equity until realized. Transfers
of securities between categories are recorded at fair value at the date of
transfer. Unrealized holding gains and losses are recognized in earnings
for transfers into trading securities.
Dividend and interest income are recognized when earned. Cost is
maintained on a specific identification basis for purposes of determining
realized gains and losses on sales of investments.
(e) Revenue Recognition
Revenue from product sales is recognized at the time of shipment to the
customer. Revenue for services is recognized when the related services are
performed. When product sales and services are bundled, revenue is
recognized upon completion of the installation. Service contract fees are
recognized as revenue ratably over the period of the applicable contract
or as the services are provided. Deferred service contract
28
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
revenue represents the unearned portion of service contract fees. The
Company generally does not develop or sell software products. However,
certain computer hardware products sold by the Company are loaded with
prepackaged software products. The net impact on the Company's financial
statements of product returns, primarily for defective products has been
insignificant.
(f) Market Development Funds
The Company receives various market development funds including
cooperative advertising funds from certain vendors, principally based on
volume purchases of products. The Company records such amounts related to
volume purchases as purchase discounts which reduce cost of revenue and
other incentives that require specific incremental action on the part of
the Company, such as training, advertising or other pre-approved market
development activities as an offset to the related costs included in
selling general and administrative expenses. Total market development
funds amounted to $521, $943 and $906 for the years ended July 31, 1997,
1996 and 1995, respectively.
(g) Inventory
Inventory, consisting of computer hardware, software and related
supplies, is valued at the lower of cost (first-in first-out) or market
value.
(h) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
using the straight-line and accelerated methods over the economic lives of
the assets, generally from five to seven years. Leasehold improvements are
amortized over the shorter of the underlying lease term or asset life.
(i) Goodwill
Goodwill related to the acquisition of Electrograph Systems, Inc.
represents the excess of cost over the fair value of net assets acquired.
Goodwill is amortized on a straight-line basis over twenty years. The
Company reviews the significant assumptions that underlie the twenty-year
amortization period on a quarterly basis and will shorten the amortization
period if considered necessary. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through
projected undiscounted future cash flows. Accumulated amortization was
approximately $19 at July 31, 1997. Amortization expense of $19 for the
year ended July 31, 1997 is included in selling general and administrative
expenses in the consolidated statement of income.
(j) Income Taxes
Deferred taxes are recognized for the future tax consequences
attributable to temporary differences between the carrying amounts of
assets and liabilities for financial statement purposes and income tax
purposes using enacted rates expected to be in effect when such amounts
are realized or settled. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date.
(k) Net Income Per Share
Net income per share is based on the weighted average number of shares
of Common Stock and dilutive common stock equivalents (stock options and
warrants) outstanding during the period. Statement of Financial Accounting
Standards No. 128, "Earnings Per Share", is required to be adopted for
interim and annual periods ending after December 15, 1997. At that time,
the Company will be required to change the
29
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
method currently used to compute earnings per share and restate all prior
periods. Basic and diluted earnings per share will replace primary and
fully diluted earnings per share. The dilutive effect of stock options and
other common stock equivalents will be excluded from the calculation of
basic earnings per share, but will be reflected in diluted earnings per
share. The implementation of SFAS No. 128 would not have had an impact on
fiscal 1997 net income per share.
(l) Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121 (Statement 121) that established accounting standards for the
impairment of long-lived assets, certain intangibles, and goodwill related
to those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. In conformity with Statement
121, it is the Company's policy to evaluate and recognize an impairment if
it is probable that the recorded amounts are in excess of anticipated
undiscounted future cash flows. If the sum of the expected cash flows,
undiscounted and without interest, is less than the carrying amount of the
assets, an impairment loss is recognized as the amount by which the
carrying amount of the asset exceeds the fair value.
(m) Accounting for Stock-Based Compensation
The Company records compensation expense for employee stock options if
the current market price of the underlying stock exceeds the exercise
price on the date of the grant. On August 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has
elected not to implement the fair value based accounting method for
employee stock options, but has elected to disclose the pro forma net
income per share for employee stock option grants made beginning in fiscal
1996 as if such method had been used to account for stock-based
compensation cost as described in SFAS No. 123.
(n) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(o) Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable,
prepaid expenses, accounts payable and accrued expenses, long-term debt
and notes payable - other are estimated to be the carrying values at July
31, 1997 due to the short maturity of such instruments. The book value of
notes payable - bank approximated fair value since those instruments carry
prime or LIBOR based interest rates that are adjusted for market rate
fluctuations.
(p) Reclassifications
Certain reclassifications were made to prior year amounts to conform
with the fiscal 1997 presentation format.
(2) Investments
The Company classified all its investments at July 31, 1997 as trading
securities. Fair value of U.S. government obligations and other securities are
based on quoted market prices. The gross unrealized holding gains and fair
values of investments by major type at July 31, 1997 were as follows:
30
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
Gross Unrealized Fair Value
Holding Gain of Investment
U.S. government obligation $ 2 $1,007
Corporate commercial instruments - 3,401
- -----
$ 2 $4,408
==== =====
At July 31, 1997 all investments had maturities of less than one year.
(3) Property and Equipment
----------------------
Property and equipment at July 31, consist of the following:
1997 1996
---- ----
Furniture and fixtures $2,096 $1,824
Machinery and equipment 3,401 1,668
Transportation equipment 281 361
Leasehold improvements 2,168 1,656
----- -----
7,946 5,509
Less accumulated depreciation and amortization 3,873 3,265
----- -----
$4,073 $2,244
===== =====
Depreciation and amortization expense amounted to $701, $473, and $395 for
the years ended July 31, 1997, 1996 and 1995, respectively.
(4) Acquisition of Electrograph Systems, Inc.
On April 25, 1997, the Company, through a newly formed wholly-owned
subsidiary, acquired substantially all of the assets and assumed certain
liabilities of Electrograph Systems, Inc., a wholly owned subsidiary of Bitwise
Designs, Inc. Electrograph is a specialized distributor of microcomputer
peripherals, primarily in the eastern United States. The purchase price and
transaction costs aggregated approximately $2,600. Included in the liabilities
assumed were notes payable-bank and notes payable-other with balances of $1,274
and $264, respectively, at July 31, 1997.
The acquisition has been accounted for as a purchase and the operating
results of Electrograph are included in the consolidated statements of income
from the date of acquisition. The acquisition resulted in goodwill of $1,543
which is being amortized on the straight-line basis over 20 years.
The following unaudited pro forma consolidated results of operations
for the years ended July 31, 1997 and 1996 assume that the Electrograph
acquisition occurred on August 1, 1995 and reflect the historical operations of
the purchased business adjusted for lower interest on investments and increased
amortization, net of applicable income taxes resulting from the acquisition:
1997 1996
---- ----
Revenues $203,368 $205,786
Net income $ 3,557 $ 2,231
Net income per share $0.46 $0.36
The pro forma results of operations are not necessarily indicative of
the actual results that would have occurred had the acquisition been made at the
beginning of the period, or of results which may occur in the future.
31
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
(5) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
July 31,
1997 1996
-------------------
Accounts payable, trade $15,783 $12,973
Accrued salaries and wages 1,630 2,552
Customer deposits 740 629
Other accrued expenses 1,130 959
----- ---
$19,283 $17,113
------- -------
The Company has entered into financing agreements for the
purchase of inventory. These agreements are secured by the related
inventory and/or accounts receivables. In each of the years in the
three-year period ended July 31, 1997, the Company has repaid all balances
outstanding under these agreements within the 30 day non-interest bearing
payment period. Accordingly, amounts outstanding under such agreements of
$5,184 and $1,450 at July 31, 1997 and 1996, respectively, are included in
accounts payable and accrued expenses. Prior to December 1996, pursuant to
certain intercreditor agreements, these financing agreements were
subordinated to the Company's line of credit agreement except as to
specific inventory purchased under these financing agreements. In August
1997, the Company entered into a new financing agreement for the purchase
of inventory. The agreement provides a maximum of $10,000 in credit for
purchases of inventory from certain specified manufacturers. The new
agreement is unsecured, allows for a 30 day non-interest bearing payment
period and requires the Company to maintain, among other things, a certain
minimum tangible net worth. As of July 31, 1997, retained earnings
available for dividends amounts to approximately $14,500.
(6) Long-Term Debt
In January 1996, the Company entered into a capitalized lease
obligation for certain computer equipment. Future minimum payments required
under such lease are as follows:
Year ending July 31,
1998 $109
1999 74
-----
Total minimum lease payments 183
Less: amounts representing interest 7
-----
Present value of minimum lease payments 176
Less: Current portion 99
---
$77
---
(7) Employee Benefit Plans
The Company maintains a qualified defined contribution plan with a
salary deferral provision, commonly referred to as a 401(k) plan. The
Company matches 50% of employee contributions up to three percent of the
employees' compensation. The Company's contribution amounted to $161, $124
and $125 for the years ended July 31, 1997, 1996 and 1995, respectively.
The Company also has a deferred compensation plan which is available to
certain eligible key employees. The plan consists of life insurance
policies purchased by the Company for the participants. Upon vesting, which
occurs at various times from three to ten years, the participant becomes
entitled to have ownership of the policy transferred to him or her at
termination of employment with the Company. As of July 31, 1997 and 1996,
the Company has recorded an asset (included with other assets) of $87 and
$183, respectively, representing the cash surrender value of policies owned
by the Company and a liability of the same amount relating to the unvested
32
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
portion of benefits due under this plan. For the years ended July 31, 1997,
1996 and 1995, the Company recorded an expense of $110, $72 and $97 in
connection with this plan.
(8) Commitments and Contingencies
Leases
The Company leases most of its executive offices and warehouse
facilities primarily from related parties (Note 11). In addition, the
Company is obligated under lease agreements for sales offices and
additional warehouse space. Aggregate rent expense under all these leases
amounted to $1,073, $1,212 and $849 for the years ended July 31, 1997, 1996
and 1995.
The following represents the Company's commitment under operating
leases for the next five years ended July 31:
1998 $1,209
1999 1,184
2000 1,169
2001 900
2002 917
Litigation
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, based on
advice from its legal counsel, the ultimate disposition of these matters
will not have a material adverse effect.
On March 28, 1997 a complaint was filed in the United States District
Court for the Eastern District of New York against the Company, its
President and Chief Executive Officer, its Executive Vice President and
Secretary, and its Chief Financial Officer. The plaintiff claims to have
purchased common shares in the Company's initial public offering and
purports to sue on his own behalf and on behalf of a class of persons who
purchased the Company's common stock either pursuant to the initial public
offering or in the period from November 26, 1996 through February 13, 1997.
The complaint asserts that the Company and the individual defendants made
false or misleading statements and omissions in connection with the initial
public offering in violation of Section 11, 12(a)(2) and 15 of the federal
Securities Act of 1933, and seeks damages on behalf of the putative class
in an unspecified amount and/or rescission, together with costs and
expenses of litigation. The Company believes that the allegations in the
complaint are entirely without merit and intends vigorously to defend this
matter.
(9) Line of Credit
The Company has unsecured lines of credit agreements with a bank that
provide for a maximum of $10,000 of borrowings and is due on demand.
Interest on borrowings is computed at the Company's option based on the
bank's prime rate (8.50% at July 31, 1997) or LIBOR plus 2%. (7.63% at July
31, 1997). At July 31, 1997 and 1996 amounts outstanding under the
agreements totaled $1,274, and $6,500, respectively. The balance
outstanding at July 31, 1997 was repaid in August 1997.
33
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
(10) Income Taxes
The provision for income taxes for the years ended July 31, 1997, 1996 and
1995 consists of the following:
1997 1996 1995
---- ---- ----
Current
Federal $1,938 $1,166 $ 997
State 602 350 302
--- --- ---
2,540 1,516 $1,299
----- ----- -----
Deferred
Federal (68) (73) (113)
State (22) (13) (26)
---- ---- ----
(90) (86) (139)
--- ---- -----
$2,450 $1,430 $1,160
====== ===== =====
The difference between the Company's effective income tax rate and the
statutory rate is as follows, for the years ended July 31, 1997, 1996 and
1995:
1997 1996 1995
---- ---- ----
Income taxes at statutory rate $2,036 $1,213 $ 960
State taxes, net of
federal benefit 383 222 182
Other 31 (5) 18
-- --- --
$2,450 $1,430 $1,160
===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset at July 31, 1997 and 1996 were as
follows:
1997 1996
---- ----
Deferred tax assets:
Allowance for doubtful accounts $410 $321
Deferred compensation 270 317
Other 139 91
--- --
Deferred tax asset $819 $729
==== ===
A valuation allowance has not been provided in connection with the
deferred tax assets since the Company believes that it is more likely than
not that such deferred tax assets will be recovered as an offset to taxes
due on future taxable income.
34
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
(11) Related Party Transactions
The Company leases its warehouse and distribution center as well as its
corporate offices and certain sales facilities from entities owned or
controlled by shareholders, officers, or directors of the Company. The
leases generally cover a period of ten years and expire at various times
from 1998 through 2005. Lease terms generally include annual increases of
five percent. Rent expense for these facilities aggregated $771, $1,022,
and $683 for the years ended July 31, 1997, 1996 and 1995, respectively.
The Company paid legal fees to a law firm in which a director of the
Company is a partner. Such fees amounted to $655, $383, and $66, including
disbursements, in the fiscal years ended July 31, 1997, 1996, and 1995
respectively.
During fiscal 1997, the Company received approximately $130 in revenue
from a company controlled by a director of the Company.
(12) Shareholders' Equity
Initial Public Offering
On December 2, 1996, the Company completed an initial public offering
(IPO) of 2,325,000 shares of its common stock at an initial public
offering price of $10 per share. Net proceeds to the Company were $20,414
after deducting the underwriting discounts and commissions and other costs
associated with the IPO. In connection with the IPO, the Company issued to
the underwriter warrants to purchase an aggregate of 250,000 shares of
common stock. The warrants expire five years from the date of issuance and
are exercisable commencing one year after issuance at a price of $12 per
share.
Redeemable Common Stock
Prior to the IPO, the Company was a party to an agreement among its
shareholders whereby each of the Company's two minority shareholders had
the right to demand that upon termination, retirement, or death, the
Company redeem his interest at differing values stated in the agreement.
The Company maintains term life insurance with a face value of $1,500 to
be used towards the purchase of the shares in the event of the death of
each shareholder. One of the minority shareholders retired in fiscal 1996
and based upon the terms of the agreement and a subsequent agreement
entered into in May 1996, payment was fixed at $4,710 for the
shareholder's interest in the Company (626,263 shares at the time of the
agreement). The shareholder had an annual option to redeem one-tenth of
his shares commencing in fiscal 1996, at an annual price of $471 to be
paid in equal quarterly installments over the following year. In
connection with such agreements, in May 1996 the Company purchased 62,626
shares of common stock from the retired minority shareholder. The purchase
price was $471, which was paid in four non-interest bearing equal
quarterly installments beginning on May 1, 1996. At July 31, 1996 notes
payable- shareholder of $353 related to this acquisition. Such shares were
subsequently retired.
The aggregate amounts payable by the Company to redeem outstanding shares
of common stock under these agreements, $4,739 at July 31, 1996, was
classified as redeemable common stock.
In September 1996, among other provisions, the shareholder agreed to
terminate his put options to sell his remaining shares to the Company upon
the effective date of the Company's IPO. In addition, the shareholders'
agreement terminated upon the effective date of the Company's IPO. As a
result of the successful completion of the IPO, the amounts which would
have been due under the agreements have been reclassified from redeemable
common stock to retained earnings.
35
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
Stock Option Plan
Under the Company's Amended and Restated 1996 Incentive and
Non-Incentive Stock Option Plan (the "Plan"), which was approved by the
Company's shareholders in October 1996, an aggregate of 1,100,000 shares of
common stock are reserved for issuance upon exercise of options thereunder.
Under the Plan, incentive stock options, as defined in section 422 of the
Internal Revenue Code of 1986, as amended, may be granted to employees and
non-incentive stock options may be granted to employees, directors and such
other persons as the Board of Directors may determine, at exercise prices
equal to at least 100% (with respect to incentive stock options) and at
least 85% (with respect to non-incentive stock options ) of the fair market
value of the Common Stock on the date of grant. In addition to selecting
the optionees, the Board of Directors will determine the number of shares
of Common Stock subject to each option, the term of each stock option up to
a maximum of ten years (five years for certain employees for incentive
stock options), the time or times when the stock option becomes
exercisable, and otherwise administer the Plan. Incentive stock options
expire three months from the date of the holder's termination of employment
with the Co. other than by reason of death or disability. Options may be
exercised with cash or common stock previously owned for in excess of six
months. During fiscal 1997, 742,350 and 60,000 options have been granted at
$10 and $5, respectively, per share. Such exercise prices were greater than
or equal to the market value on the date of grant. Vesting commences one or
two years from the date of grant and ranges from one to seven years. At
July 31, 1997, no options were exercisable and all options granted expire
ten years from the date of grant.
The Company has adopted the pro forma disclosure provision of SFAS No. 123,
"Accounting for Stock Based Compensation". Accordingly, the Company does
not record compensation cost in the financial statements for its stock
options which have an exercise price equal to or greater than the fair
value of the stock on the date of grant. The Company has recognized $108 in
deferred commission expense representing the value of stock options granted
to non employee sales representatives. Such cost is expensed over the
vesting period, amounting to $12 in fiscal 1997. Had compensation cost for
the Company's stock option grants been determined based on the fair value
at the grant date under SFAS No. 123, the Company's net income and net
income per share for the year ended July 31, 1997 would approximate the pro
forma amounts below:
Net Income:
As reported $3,537
Pro forma 3,464
Net income per share:
As reported $0.45
Pro forma $0.45
The pro forma effects on net income and net income per share for 1997 may
not be representative of the pro forma effect in future years.
The fair value of options granted was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions:
Expected dividend yield 0%
Expected stock volatility 29%
Risk free interest rate 5%
Expected option term until exercise (years) 4.27
The per share weighted average fair value of stock options granted during
fiscal 1997 was $1.05.
36
<PAGE>
Manchester Equipment Company, Inc. and Subsidiaries
Notes to Financial Statements
July 31, 1997, 1996 and 1995
(in thousands, except share and per share data)
(13) Major Customer and Vendor and Concentration of Credit Risk
The Company sells and services customers that are located primarily in
the eastern United States. One customer accounted for approximately 15%,
16% and 22% of total revenues for the years ended July 31, 1997, 1996 and
1995, respectively.
The Company's top two vendors accounted for approximately 17%, and 15%
of total purchases for the year ended July 31, 1997. The Company's top
four vendors accounted for 20%, 12%, 11% and 10% of total product
purchases for the year ended July 31, 1996. The Company's top two vendors
accounted for 22% and 16% of total product purchases for the year ended
July 31, 1995.
One customer accounted for 10% of the Company's accounts receivable at
July 31, 1997.
37
<PAGE>
ITEM 14. Exhibits, Financial Statements, Schedules, and Reports
on Form 8-K (Continued)
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits:
3.1.a(1) Certificate of Incorporation of Registrant, filed August 21, 1973.
3.1.b(1) Certificate of Amendment of Certificate of Incorporation filed
January 29, 1985.
3.1.c(1) Restated Certificate of Incorporation filed October 1, 1996.
3.2(1) Bylaws of Registrant.
4.2(1) Form of Representative's Warrants.
10.1(1) 1996 Incentive and Non-Incentive Stock Option Plan of Registrant.
10.2(1) Agreement dated September 24, 1996 between Registrant and Michael
Bivona.
10.3(1)* Compensation Agreement dated November 6, 1996 between Registrant
and. Joel G. Stemple.
10.4(1)* Agreement of Employment dated September 30, 1996 between Registrant
and Barry Steinberg
10.4.a(1)* Amendment dated November 6, 1996 to Agreement of Employment dated
September 30, 1996 between Registrant and Joel G. Stemple.
10.5.a(1) Lease dated October 1995 between Registrant and 40 Marcus Realty,
LLC - f/k/a 40 Marcus Realty Associates, as amended.
10.5.b(1) Lease dated January 1988 between Registrant and Marcus Realty,
as amended.
10.5.c(1) Lease dated June 1995 between Registrant and Facilities Management.
10.5.d(1) Lease dated July 31, 1995 between Registrant and Boatman's Equities,
LLC - f/k/a 160 Oser Avenue Associates, as amended.
10.5.e(1) Lease dated January 15, 1992 between Registrant and 352 Seventh
Avenue Associates.
10.5.f(1) Lease dated April 16, 1990 between Registrant and Regent Holding
Corporation, as successor to Crow-Childress-Donner, Limited, as
amended.
10.5.g(1) Business Lease dated December 4, 1992 between Registrant and TRA
Limited, as amended.
10.5.h Lease dated June 23, 1997 between Registrant and First Willow, LLC
10.5.i Lease dated June 30, 1997 between Registrant and Angela C. Maffeo,
Trustee Under the Will of John Capobianco.
10.6.(2) Promissory Note dated October 15, 1996 between Registrant and The
Bank of New York
10.7.a(1) Letter Agreement Regarding Inventory Financing dated December 7,
1993 between ITT Commercial Finance Corp. and Registrant.
38
<PAGE>
10.7.b(1) Agreement for Wholesale Financing dated November 11, 1993 between ITT
Commercial Finance Corp. and Registrant.
10.7.c(1) Intercreditor Agreement dated May 18, 1994 between ITT Commercial
Finance Corp. and The Bank of New York.
10.8.a(1) Letter Agreement Regarding Inventory Financing dated April 22, 1996
between AT&T Capital Corporation and Registrant.
10.8.b(1) Intercreditor Agreement dated May 18, 1994 between AT&T Commercial
Finance Corporation and The Bank of New York.
10.9(1) Reseller Agreement dated May 1, 1990 between Toshiba America
Information Systems, Inc. and Registrant.
10.10(1) Agreement for Authorized Resellers dated March 1, 1996 between
Hewlett-Packard Company and Registrant.
10.11(3) Asset Purchase Agreement among Electrograph Systems, Inc., Bitwise
Designs, Inc., Electrograph Acquisition, Inc. and Manchester
Equipment Co., Inc., April 15, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report, and none were required.
- -----------------------
* Denotes management contract or compensatory plan or arrangement required to
be filed as an Exhibit to this Annual Report on Form 10-K.
1 Filed as the same numbered Exhibit to the Company's Registration Statement
on Form S-1 (File No. 333- 13345)
and incorporated herein by reference thereto.
2 Filed as the same numbered Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended October 31, 1996 (Commission File No. 0-21695)
and incorporated herein by reference thereto.
3 Filed as the same numbered Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997 (Commission File No. 0-21695) and
incorporated herein by reference thereto.
39
<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, thereunder duly authorized.
Manchester Equipment Co., Inc.
Date: October 23, 1997 By: ss: Barry R. Steinberg
----------------------
Barry R. Steinberg
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of this Registrant and
in the capacities and on the dates indicated.
ss: Barry Steinberg Date: October 23, 1997
- --------------------
Barry R. Steinberg
President, Chief Executive Officer,
Chairman of the Board and Director
(Principal Executive Officer)
ss: Joel G. Stemple Date: October 23, 1997
- -------------------
Joel G. Stemple
Executive Vice President and Director
ss: Joseph Looney Date: October 23, 1997
- ------------------
Joseph Looney
Chief Financial Officer (Principal Accounting Officer)
ss: Joel Rothlein Date: October 23, 1997
- -----------------
Joel Rothlein
Director
ss: Julian Sandler Date: October 23, 1997
- -------------------
Julian Sandler
Director
ss: George Bagetakos Date: October 25, 1997
- ---------------------
George Bagetakos
Director
40
<PAGE>
Manchester Equipment Co., Inc.
Schedule II - Valuation and Qualifying Accounts
-----------------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
Column C-Additions
------------------
Column B- (1)- (2)- Column D- Column E-
Column A - Balance at Charged to Charged to Deductions- Balance at
Description beginning of costs and other (a) end of period
- ----------- period expenses accounts (b) ----------- -------------
------ -------- ------------
Allowance for doubtful
accounts
Year ended:
<S> <C> <C> <C> <C> <C>
July 31, 1995 $598 $161 $ 41 $718
July 31, 1996 $718 $132 $ 50 $800
July 31, 1997 $800 $339 $40 $128 $1,051
</TABLE>
(a) Write-of amounts against allowance provided.
(b) Recorded in connection with the acquisition of Electrograph Systems, Inc.
41
<PAGE>
1525500015
BES:PAL
FIRST WILLOW, LLC
OFFICE LEASE
MANCHESTER
040297
052197
060497
061697
- - - - - - - - - - - - - - - - - -
LEASE
- - - - - - - - - - - - - - - - - -
FIRST WILLOW, LLC,
Landlord,
And
MANCHESTER EQUIPMENT COMPANY, INC.,
Tenant
Premises
The Fifth (5th) Floor
At
469 Seventh Avenue
New York, New York 10018
- - - - - - - - - - - - - - - - - -
I:\DATA\WPDOCS\15255_00.015\RES_LEAL\97021622
<PAGE>
1525500015
BES:PAL
FIRST WILLOW, LLC
OFFICE LEASE
MANCHESTER
040297
052197
060497
061697
TABLE OF CONTENTS TO PRINTED PORTION
STANDARD FORM OF OFFICE LEASE
ARTICLE CAPTION PAGE
1. Rent..............................................1
2. Occupancy.........................................1
3. Tenant Alterations................................1
4. Maintenance and Repairs...........................1
5. Window Cleaning...................................1
6. Requirements of Law, Fire Insurance,
Floor Loads.......................................1
7. Subordination.....................................2
8. Property Loss, Damage Reimbursement
Indemnity.........................................2
9. Destruction, Fire and Other Casualty..............2
10. Eminent Domain....................................2
11. Assignment, Mortgage, Etc.........................2
12. Electric Current..................................2
13. Access to Premises................................2
14. Vault, Vault Space, Area..........................3
15. Occupancy.........................................3
16. Bankruptcy........................................3
17. Default...........................................3
18. Remedies of Owner and Waiver of
Redemption........................................3
19. Fees and Expenses.................................3
20. Building Alterations and Management...............3
21. No Representations by Owner.......................3
-i-
I:\DATA\WPDOCS\15255_00.015\RES_LEAL\97021622
i
<PAGE>
1525500015
BES:PAL
FIRST WILLOW, LLC
OFFICE LEASE
MANCHESTER
040297
052197
060497
061697
22. End of Term......................................4
23. Quiet Enjoyment..................................4
24. Failure to give Possession.......................4
25. No Waiver........................................4
26. Waiver of Trial by Jury..........................4
27. Inability to Perform.............................4
28. Bills and Notices................................4
29. Deleted prior to execution.......................4
30. Captions ................................4
31. Definitions......................................4
32. Adjacent Excavation-Shoring......................4
33. Rules and Regulations............................4
34. Deleted prior to execution.......................5
35. Estoppel Certificate.............................5
36. Successors and Assigns...........................5
Testimonium and Signatures................................5
Acknowledgments...........................................6
-ii-
I:\DATA\WPDOCS\15255_00.015\RES_LEAL\97021622
<PAGE>
- - - - - - - - - - - - - - - -
TABLE OF CONTENTS TO RIDER
- - - - - - - - - - - - - - - -
ARTICLE CAPTION PAGE
37. TERM; RENTAL.................................. 1
38. ADJUSTMENTS OF RENT........................... 4
39. USE........................................... 10
40. LANDLORD'S WORK............................... 10
41. CONSTRUCTION, GOVERNING LAW; CONSENTS......... 11
42. SUBORDINATION................................. 12
43. LEASE NOT BINDING UNLESS EXECUTED............. 14
44. CONFLICTS..................................... 15
45. ELECTRICITY................................... 15
46. FURTHER PROVISIONS AS TO DEFAULT.............. 17
47. HEAT AND AIR-CONDITIONING..................... 18
48. LANDLORD'S OTHER SERVICES..................... 19
49. SECURITY DEPOSIT.............................. 20
50. PARTIES BOUND................................. 23
51. BROKER........................................ 23
52. HAZARDOUS MATERIALS........................... 24
53. ARBITRATION................................... 24
54. ASSIGNMENT AND SUBLETTING..................... 25
55. INSURANCE..................................... 29
56. TENANT'S CHANGES.............................. 33
57. HOLDING OVER.................................. 36
58. CERTAIN DEFINITIONS AND CONSTRUCTION.......... 36
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<PAGE>
1525500015
BES:PAL
FIRST WILLOW, LLC
OFFICE LEASE
MANCHESTER
040297
052197
060497
061697
59. ADDENDUM TO ARTICLE 17.......................... 37
60. NOTICES......................................... 38
EXHIBIT A-FLOOR PLAN OF DEMISED PREMISES.......................... 39
EXHIBIT B-DEFINITIONS............................................. 40
EXHIBIT C-LANDLORD'S WORK......................................... 43
EXHIBIT D-CERTIFICATE OF OCCUPANCY................................ 47
I:\DATA\WPDOCS\15255_00.015\RES_LEAL\97021622
<PAGE>
1525500015
BES:PAL
FIRST WILLOW, LLC
OFFICE LEASE
MANCHESTER
040297
052197
060497
061697
AGREEMENT OF LEASE made as of this 23rd day of June 1997, between FIRST
WILLOW, LLC, a New York limited liability company, having an office at 1110
Second Avenue, New York, New York 10022, party of the first part, hereinafter
referred to as "OWNER" or "LANDLORD" and MANCHESTER EQUIPMENT COMPANY, INC., a
New York corporation having an address at 50 Marcus Boulevard, Hauppauge, New
York, 11788, party of the second party, hereinafter referred to as "TENANT".
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the fifth (5th) floor (hereinafter referred to as the "Demised Premises"
or "demised premises" or "Premises"), as shown on the floor plan annexed hereto
as Exhibit A annexed in the building known as 469 Seventh Avenue, New York, New
York 10018 (hereinafter referred to as the "Building"), for the term at an
annual rate as set forth in Article 37 hereof.
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter
provided.
Occupancy: 2. Tenant shall use and occupy demised premises for the
purposes set forth in Article 39 and for no other purpose.
TENANT ALTERATION: 3. Tenant shall make no changes in or to the demised premises
of any nature without Owner's prior written consent. Subject to the prior
written consent of Owner, and to the provisions of this article, Tenant, at
tenant's expense, may make alterations, installations, additions or improvements
which are non-structural and which do not affect utility services or plumbing
and electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter,
at Tenant's expense, by payment or filing the bond required by law. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall
upon installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner by notice to Tenant no later
than twenty days prior to the date fixed as the termination of this lease,
elects to relinquish Owner's right thereto and to have them removed by Tenant,
in which event the same shall be removed from the premises by Tenant prior to
the expiration of the lease, at Tenant's expense. Nothing in this Article shall
be construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of such from
the premises or upon removal of other installations as may be required by Owner,
Tenant shall immediately and at its expense, repair and restore the premises to
the condition existing prior to installation and repair any damage to the
demised premises or the building due to such removal. All property permitted or
required to be removed, by Tenant at the end of the term remaining in the
premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at tenant's expense. See Article 56.
Maintenance and Repairs: 4. Tenant shall, throughout the term of this lease take
good care of the demised premises and the fixtures and appurtenances therein.
Tenant shall be responsible for all damage or injury to the demised premises or
any other part of the building and the systems and equipment thereof, whether
<PAGE> requiring structural or nonstructural repairs caused by or resulting from
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
subtenants, agents, employees, invitees or licensees, or which arise out of any
work, labor, service or equipment done for or supplied to Tenant or any
subtenant or arising out of the installation, use or operation of the property
or equipment of Tenant or any subtenant. Tenant shall also repair all damage to
the building and the demised premises caused by the moving of Tenant's fixtures,
furniture and equipment. Tenant shall promptly make, at Tenant's expense, all
repairs in and to the demised premises for which Tenant is responsible, using
only the contractor for the trade or trades in question, selected from a list of
at least two contractors per trade submitted by Owner. Any other repairs in or
to the building or the facilities and systems thereof for which Tenant is
responsible shall be performed by Owner at the Tenant's expense. Owner shall
maintain in good working order and repair the exterior and the structural
portions of the building, including the structural portions of its demised
premises, and the public portions of the building interior and the building
plumbing, electrical, heating and ventilating systems (to the extent such
systems presently exist) serving the demised premises. Tenant agrees to give
prompt notice of any defective condition in the premises for which Owner may be
responsible hereunder. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or others making repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. It is specifically agreed that Tenant shall not be entitled to any
setoff or reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract. The provisions of this Article 4 shall not apply
in the case of fire or other casualty which are dealt with in Article 9 hereof.,
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the Labor Law or any other applicable law or of the Rules of
the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads: 6. Prior to the commencement
of the lease term, if Tenant is then in possession, and at all times thereafter,
Tenant, at Tenant's sole cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations of the
New York Board of Fire Underwriters, Insurance Services Office, or any similar
body which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, (including Tenant's permitted use), or, with respect to
the building if arising out of Tenant's use or manner of use of the premises or
the building (including the use permitted under the lease). Nothing herein shall
require Tenant to make structural repairs or alterations unless Tenant has, by
its manner of use of the demised premises or method of operation therein,
violated any such laws, ordinances, orders, rules, regulations or requirements
with respect thereto. Tenant may, after securing Owner to Owner's satisfaction
against all damages, interest, penalties and expenses, including, but not
limited to, reasonable attorney's fees, by cash deposit or by surety bond in an
amount and in a company satisfactory to owner, contest and appeal any such laws,
ordinances, orders, rules, regulations or requirements provided same is done
with all reasonable promptness and provided such appeal shall not subject Owner
to prosecution for a criminal offense or constitute a default under any lease or
mortgage under which Owner may be obligated, or cause the demised premises or
any part thereof to be condemned or vacated. Tenant shall not do or permit any
act or thing to be done in or to the demised premises which is contrary to law,
or which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner with
respect to the demised premises or the building of which the demised premises
form a part, or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department, Board of Fire underwriters, Fire Insurance rating Organization
or other authority having jurisdiction, and then only in such manner and such
quantity so as not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the insurance
rate for the building or any property located therein over that in effect prior
to the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses,
<PAGE> fine, penalties, or damages, which may be imposed upon Owner by reason of
tenant's failure to comply with the provisions of this article and if by reason
of such failure the fire insurance rate shall, at the beginning of this lease or
any time thereafter, be higher than it otherwise would be, then Tenant shall
reimburse Owner, as additional rent hereunder, for that portion of all fire
insurance premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant. In any action or proceeding wherein owner and
Tenant are parties, a schedule or "make-up" of rate for the building or demised
premises issued by the New York Fire Insurance exchange or other body making
fire insurance rates applicable to said premises shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rates then applicable to said premises. Tenant shall not place a load
upon any floor of the demised premises exceeding the floor load per square foot
area which it was designed to carry and which is allowed by law. Owner reserves
the right to prescribe the weight and position of all safes, business machines
and mechanical equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings sufficient in Owner's judgment, to
absorb and prevent vibration, noise and annoyance. See Article 55.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request. See Article 42.
Property Loss, Damage Reimbursement Indemnity: 8. Owner or its agents shall not
be liable for any damage to property of Tenant or of others entrusted to
employees of the building, nor for loss of or damage to any property of tenant
by theft or otherwise , nor for any injury or damage to persons or property
resulting from any clause of whatsoever nature, unless caused by or due to the
negligence of Owner, its agents, servants or employees. Owner or its agents will
not be liable for any such damage caused by other tenants or persons in, upon or
about said building or caused by operations in construction of any private,
public or quasi public work. If any time any windows of the demised premises are
temporarily closed, darkened or bricked up (or permanently closed, darkened or
bricked up, if required by law) for any reason whatsoever including, but not
limited to Owner's own acts, Owner shall not be liable for any damage Tenant may
sustain thereby and Tenant shall not be entitled to any compensation therefor
nor abatement or diminution of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations damages,
penalties, claims, costs and expenses for which owner shall not be reimbursed by
insurance, including reasonable attorneys fees, paid, suffered or incurred as a
result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any subtenant, and any agent,
contractor, employee, invitee or licensee of any subtenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction, Fire and Other Casualty: 9. (a)If the demised premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are partially
damaged or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Owner and the rent and other
items of additional rent, until such repair shall be substantially completed,
shall be apportioned from the day following the casualty according to the part
of the premises which is usable. (c) If the demised premises are totally damaged
or rendered wholly unusable by fire or other casualty, then the rent and other
items of additional rent as hereinafter expressly provided shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the premises shall have been repaired and restored by Owner
(or sooner reoccupied in part by Tenant then rent shall be apportioned as
provided in subsection (b) above), subject to Owner's right to elect not to
<PAGE> restore the same as hereinafter provided. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises are damaged in
whole or in part) if the building shall be so damaged that Owner shall decide to
demolish it or to rebuild it, then, in any such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90 days after
such fire or casualty, or 30 days after adjustment of the insurance claim for
such fire or casualty, whichever is sooner, specifying a date for the expiration
of the lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date set forth above for the
termination of this lease and Tenant shall forthwith quit, surrender and vacate
the premises without prejudice however, to Landlord's rights and remedies
against Tenant under the lease provisions in effect prior to such termination,
and any rent owing shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and moveable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for Tenant's
occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting form fire or other casualty and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery with respect to
subparagraphs (b), (d), and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/ or to any personal property, equipment, trade
fixtures, goods and merchandise located therein. The foregoing release and
waiver shall be in force only if both releasors' insurance policies contain a
clause providing that such a release or waiver shall not invalidate the
insurance. If, and to the extent , that such waiver can be obtained only by the
payment of additional premiums, then the party benefiting from the waiver shall
pay such premium within ten days after written demand or shall be deemed to have
agreed that the party obtaining insurance coverage shall be free of any further
obligations under the provisions hereof with respect to waiver of subrogation.
Tenant acknowledges that Owner will not carry insurance on Tenant's furniture
and/or furnishings or any fixtures or equipment, improvements, or appurtenances
removable by Tenant and agrees that Owner will not be obligated to repair any
damage thereto or replace the same. (f) Tenant hereby waives the provisions of
Section 227 of the Real Property Law and agrees that the provisions of this
article shall govern and control in lieu thereof.
Eminent Domain: 10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease and assigns to
Owner, Tenant's entire interest in any such award. Tenant shall have the right
to make an independent claim to the condemning authority for the value of
Tenant's moving expenses and personal property, trade fixtures and equipment,
provided Tenant is entitled pursuant to the terms of the lease to remove such
property, trade fixture and equipment at the end of the term and provided
further such claim does not reduce Owner's award.
Assignment, Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representative, successor and assigns,
expressly covenants that is shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate Tenant or the
majority partnership interest of a partnership Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such <PAGE>
assignment, underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, undertenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting. See Article 54.
Electric Current: 12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to Premises: 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times, to examine the same to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
which Owner may elect to perform. Tenant shall permit Owner to use and maintain
and replace pipes and conduits in and through the demised premises and to erect
new pipes and conduits therein provided they are concealed within the walls,
floor, or ceiling. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the term for the purpose of showing
the same to prospective tenants. if Tenant is not present to open and permit an
entry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor in any event
shall the obligations of Tenant hereunder be affected If during the last month
of the term Tenant shall have removed all or substantially all of Tenant's
property therefrom Owner may immediately enter, alter, renovate or redecorate
the demised premises without limitation or abatement of rent , or incurring
liability to Tenant for any compensation and such act shall have no effect on
this lease or Tenant's obligations hereunder.
Vault, Vault Space, Area: 14. No Vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
Occupancy: 15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be canceled by Owner by the sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
<PAGE> of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as the debtor; or (2) the making by
Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming through or under
Tenant, or by reason of any statute or order of court, shall thereafter be
entitled to possession of the premises demised but shall forthwith quit and
surrender the premises. If this lease shall be assigned in accordance with its
terms, the provisions of the Article 16 shall b e applicable only to the party
then owning Tenant's interest in this lease.
(b) it is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the demised premises
for the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default: 17. (1) (Not used).
(2) If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid; then and in any of such events
Owner may without notice, re-enter the demised premises either by force or
otherwise, and dispossess Tenant by summary proceedings or otherwise, and the
legal representative of Tenant or other occupant of demised premises and remove
their effects and hold the premises as if this lease had not been made, and
Tenant hereby waives the service of notice of intention for re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Owner may cancel and terminate such renewal or extension agreement by
written notice. See Article 59.
Remedies of Owner and Waiver of Redemption: 18. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a)
the rent shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration. (b) Owner may re-let the premises or any part or
parts thereof, either in the name of Owner or otherwise, for a term or terms,
which may at Owner's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and may grant
concessions or free rent or charge a higher rental than that in this lease,
and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of the rents
collected on account of the lease or leases of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term of this lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses a Owner may incur in connection with re-letting, such as legal
expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the
demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of Owner
to collect the deficiency for any subsequent month by a similar proceeding.
owner, in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises a Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
<PAGE> decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. owner hall in no event be liable in any way
whatsoever for failure to re-let the demised premises or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the vent of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right o invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Owner obtaining
possession of demised premises, by reason of the violation by Tenant of any of
the covenants and conditions of this lease, or otherwise.
Fees and Expenses: 19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, after
notice if required and upon expiration of any applicable grace period if any,
(except in an emergency), then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. if Owner, in connection with the
foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to reasonable attorneys' fees, in
instituting, prosecuting or defending any action or proceeding, and prevails in
any such action or proceeding then Tenant will reimburse owner for such sums so
paid or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within ten(10) days of rendition
of any bill or statement to Tenant therefor. if Tenant's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Owner as damages.
Building Alterations and Management: 20. Owner shall have the right at any time
without the same constituting an eviction and without incurring liability to
Tenant therefor to change the arrangement and/or location of public entrances,
passageways, doors, doorways , corridors, elevators, stairs, toilets or other
public parts of the building and to change the name, number or designation by
which the building may be known. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from owner or other
Tenants making any repairs in the building or any such alterations, additions
and improvements. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of such controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem necessary
for the security of the building and its occupants.
No Representations by Owner: 21. Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rent,
leases, expenses of operation or any other matter or thing affecting or related
to the premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" and acknowledges that the taking of possession
of the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the part against whom enforcement of the change,
modification, discharge or abandonment is sought. <PAGE> End of Term: 22. Upon
the expiration or other termination of the term of this lease, Tenant shall quit
and surrender to Owner the demised premises, broom clean, in good order and
condition, ordinary wear and damages which Tenant is not required to repair as
provided elsewhere in this lease excepted, and Tenant shall remove all its
property. Tenant's obligation to observe or perform this covenant shall survive
the expiration or other termination of this lease. If the last day of the term
of this Lease or any renewal thereof, falls on Sunday, this lease shall expire
at noon on the preceding Saturday unless it be a legal holiday in which case it
shall expire at noon on the preceding business day.
Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants, and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but limited
to, Article 31 hereof and to the ground leases, underlying leases and mortgages
hereinbefore mentioned.
Failure to Give Possession: 24. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant, or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently complete to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured, or for any other reason, Owner shall not be
subject to any liability for failure to give possession on said date and the
validity of the lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this lease, but the rent
payable hereunder shall be abated (provided Tenant is not responsible for
Owner's inability to obtain possession or complete construction) until after
Owner shall have given Tenant written notice that the Owner is able to deliver
possession on condition required by this lease. If permission is given to Tenant
to enter into the possession of the demises premises or to occupy premises other
than the demised premises prior to the date specified as the commencement of the
term of this lease, Tenant covenants and agrees that such possession and/or
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease except the obligation to pay the fixed annual rent set
forth in the preamble to this lease. The provisions of this article are intended
to constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
No Waiver: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent and/or additional rent with knowledge of the breach of
any covenant of this lease shall not be deemed a waiver of such breach and no
provision of this lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises, and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner and
tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matter whatsoever arising out of or in any way connected with this lease,
the relationship of Owner and Tenant, Tenant's use of or occupancy of said
<PAGE> premises, and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Owner commences any proceeding or
action for possession including a summary proceeding for possession of the
premises, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding including a counterclaim under Article 4
except for statutory mandatory counterclaims.
Inability to Perform: 27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be affected, impaired or excused
because Owner is unable to fulfill any of its obligations under this lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment, fixtures, or other materials if Owner is prevented or delayed from so
doing by reason of strike or labor troubles or any cause whatsoever including,
but limited to, government preemption or restrictions or by reason of any rule,
order or regulations of any department or subdivision thereof of any government
agency or by reason of the conditions which have been or are affected, either
directly or indirectly, by war or other emergency.
Bills and Notices: 28. See Article 60
Services Provided by Owner: 29. See Articles 47 and 48.
Captions: 30. The Captions are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope of this lease nor the intent of any provisions thereof.
Definitions: 31. The term "office", or "offices", wherever used in this lease,
shall not be construed to mean premises used as a store or stores, for the sale
or display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building and
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall b e and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays,
Sundays and all days as observed by the State or Federal Government as legal
holidays and those designated as holidays by the applicable building service
union employees service contract or by the applicable Operating Engineers
contract with respect to HVAC service. Wherever it is expressly provided in this
lease that consent shall not be unreasonably withheld such consent shall not be
unreasonably delayed.
Adjacent Excavation-Shoring: 32. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to made, Tenant shall
afford to the person causing or authorized to cause such excavation, license to
enter upon the demised premises for the purpose of doing such work as said
person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against owner, or
diminution or abatement of rent.
Rules and Regulations: 33. Tenant and tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
<PAGE> elect. In case Tenant disputes the reasonableness of any additional Rule
or Regulations hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof, Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
Security: 34. See Article 49.
Estoppel Certificate: 35. Tenant, at any time, and from time to time, upon at
least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, 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), stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists any
default by owner under this Lease, and, if so, specifying each such default.
Successors and Assigns: 36. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns. Tenant shall look
only in Owner's estate and interest in the land and building, for the
satisfaction of tenant's remedies for the collection of a judgment (or other
judicial process) against Owner in the event of any default by Owner hereunder,
and no other property or assets of such Owner (or any partner, member, officer
or director thereof, disclosed or undisclosed), shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the relationship of Owner and
Tenant hereunder, or Tenant's use and occupancy of the demised premises.
A Rider consisting of Articles 37 to 60 and Exhibits A-D is annexed hereto and
made a part hereof.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and
sealed this lease as of the day and year first above written.
LANDLORD:
FIRST WILLOW, LLC
By: Flatiron Property Corp.
a member
By: ss: Bruce McLean
---------------------
TENANT:
MANCHESTER EQUIPMENT COMPANY, INC.
By: ss: Barry Steinberg
------------------------
Tenant's Employer Identification No.
11-2312854
----------
<PAGE>
1525500015
BES:PAL
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OFFICE LEASE
MANCHESTER
040297
052197
060497
061697
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK) )
On this 26th day of June, 1997, before me personally came Bruce McLean, to
me known, and known to me to be a V.P. of FLATIRON PROPERTY CORP., a
corporation, a managing member in the firm of First Willow, LLC, and the person
described in and who executed the foregoing instrument on behalf of First
Willow, LLC in the name of FLATIRON PROPERTY CORP. and he duly acknowledged to
me that he executed the same on behalf of FLATIRON PROPERTY CORP. for and as the
act and deed of First Willow LLC.
ss: Lisa A. Ross
-----------------
Notary Public
(Notarized)
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this 20th day of June, 1997, before me personally came Barry R.
Steinberg, to me known, who, being by me duly sworn, did depose and say that he
resides in Suffolk County, State of New York; that he is the President of
MANCHESTER EQUIPMENT COMPANY, INC., the corporation described in and which
executed the foregoing instrument; as TENANT; and that he signed his name
thereto by order of the board of directors of said corporation, by like order.
ss: Joel Rothlein
-----------------
Notary Public
(Notarized)
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TABLE OF CONTENTS TO RIDER
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ARTICLE CAPTION PAGE
37. TERM; RENTAL.................................. 1
38. ADJUSTMENTS OF RENT........................... 4
39. USE........................................... 10
40. LANDLORD'S WORK............................... 10
41. CONSTRUCTION, GOVERNING LAW; CONSENTS......... 11
42. SUBORDINATION................................. 12
43. LEASE NOT BINDING UNLESS EXECUTED............. 14
44. CONFLICTS..................................... 15
45. ELECTRICITY................................... 15
46. FURTHER PROVISIONS AS TO DEFAULT.............. 17
47. HEAT AND AIR-CONDITIONING..................... 18
48. LANDLORD'S OTHER SERVICES..................... 19
49. SECURITY DEPOSIT.............................. 20
50. PARTIES BOUND................................. 23
51. BROKER........................................ 23
52. HAZARDOUS MATERIALS........................... 24
53. ARBITRATION................................... 24
54. ASSIGNMENT AND SUBLETTING..................... 25
55. INSURANCE..................................... 29
56. TENANT'S CHANGES.............................. 33
57. HOLDING OVER.................................. 36
58. CERTAIN DEFINITIONS AND CONSTRUCTION.......... 36
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59. ADDENDUM TO ARTICLE 17.......................... 37
60. NOTICES......................................... 38
EXHIBIT A-FLOOR PLAN OF DEMISED PREMISES.......................... 39
EXHIBIT B-DEFINITIONS............................................. 40
EXHIBIT C-LANDLORD'S WORK......................................... 43
EXHIBIT D-CERTIFICATE OF OCCUPANCY................................ 47
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RIDER ATTACHED LEASE
DATED AS OF JUNE 23, 1997
BY AND BETWEEN
FIRST WILLOW, LLC, AS LANDLORD
AND
MANCHESTER EQUIPMENT COMPANY, INC., AS TENANT
- - - - - - - - - - - - - - - - - - - - - - - - - - -
37. TERM; RENTAL
A. The term of this lease, for which the Demised
Premises are hereby leased, shall commence on the date on which "Landlord's
Work" (as defined in Article 40 hereof) has been substantially completed and
Landlord has given Tenant notice thereof which notice, notwithstanding anything
in this lease to the contrary, may be hand delivered to Tenant (herein referred
to as the "Commencement Date"), and shall end at noon of the last day of the
calendar month in which occurs the day preceding the tenth (10th) anniversary of
the Commencement Date, which ending date is hereinafter referred to as the
"Expiration Date", or shall end on such earlier date upon which said term may
expire or be cancelled or terminated pursuant to any of the conditions or
covenants of this lease or pursuant to law. Promptly following the Commencement
Date the parties hereto (hereinafter sometimes referred to as the "parties")
shall enter into a recordable supplementary agreement fixing the dates of the
Commencement Date and the Expiration Date and if they cannot agree thereon
within fifteen (15) days after Landlord's request therefor, such dates shall be
determined by arbitration in the manner provided in Article 53.
B. The "rents" reserved under this lease, for the
term thereof, shall be and consist of:
(i) "fixed rent" of:
(a) $292,000.00 per annum ($24,333.33
per month) from the Commencement Date through the day next preceding the fifth
(5th) anniversary of the Commencement Date, both dates inclusive; and
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(b) $321,200.00 per annum ($26,766.67 per
month) from the fifth (5th) anniversary of the Commencement Date and continuing
thereafter throughout the remainder of the term of this lease,
all of which shall be payable in equal monthly installments in advance on the
first day of each and every calendar month during the term of this lease (except
that Tenant shall pay, upon the execution and delivery of this lease by Tenant,
the sum of $27,679.17, to be applied against the first rents becoming due under
this lease), and
(ii) "additional rent" con-
sisting of all such other sums of money as shall become due from and payable by
Tenant to Landlord hereunder (for default in payment of which Landlord shall
have the same remedies as for a default in payment of fixed rent),
all to be paid to Landlord at its office, or such other place, or to such agent
and at such place, as Landlord may designate by notice to Tenant, in lawful
money of the United States of America.
C. Tenant shall pay the fixed rent and additional
rent herein reserved promptly as and when the same shall become due and payable,
without demand therefor and without any abatement, deduction or setoff
whatsoever except as expressly provided in this lease.
D. If the Commencement Date occurs on a day other
than the first day of a calendar month or the Expiration Date occurs on a day
other than the last day of a calendar month, the fixed rent for such calendar
month shall be prorated and with respect to the first month, the balance of the
first month's fixed rent theretofore paid shall be credited against the next
monthly installment of fixed rent.
E. Notwithstanding anything in this lease to the
contrary, provided Tenant is not then in default under this lease which default
continues after notice and the expiration of any applicable cure period, Tenant
shall have no obligation to pay the first five (5) full monthly installments of
the fixed rent due after the Commencement Date.
F. If, at any time during the term of this lease,
any requirement of public authority shall have the effect of limiting, for any
period of time, the amount of the rents payable by Tenant, or receivable by
Landlord, under this lease, and the maximum rents so permitted to be paid by
Tenant, or received by Landlord, hereunder shall be less than the rents herein
reserved, then:
(i) throughout the period of
limitation, Tenant shall remain liable for the maximum amount of
rents that is lawfully payable; and
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(ii) if and when the period of
limitation ends, the requirement of public authority imposing such limitation is
repealed, or such limitation is restrained or rendered unenforceable by any
order or ruling of a court of appropriate jurisdiction:
(a) to the extent that the same is not
prohibited by any requirement of public authority, Tenant shall pay to Landlord,
on demand, all amounts that would have been due from Tenant to Landlord during
the period of limitation, but that were not paid because of the requirements of
public authorities; and
(b) thereafter, Tenant shall pay to
Landlord all of the rents reserved under this lease, all of which shall be
calculated as if there had been no intervening period of limitation.
G. Tenant acknowledges that it has no rights to
any development rights, "air rights" or comparable rights appurtenant to the
Land and Building, and consents, without further consideration, to any
utilization of such rights by Landlord and agrees to promptly execute and
deliver any instruments which may be requested by Landlord, including
instruments merging zoning lots, evidencing such acknowledgment and consent. The
provisions of this Section G shall be deemed to be and shall be construed as an
express waiver by Tenant of any interest Tenant may have as a "party in
interest" (as such quoted term is defined in Section 12-10 Zoning Lot of the
Zoning Resolution of the City of New York) in the Land and Building.
H. Notwithstanding anything hereinabove or in this
lease to the contrary, in the event Landlord fails to substantially complete
Landlord's Work and notify Tenant thereof by the date that shall be six (6)
months from the date of this lease (hereinafter referred to as the "Outside
Date") for any reason other than (i) a "Tenant's Delay" (as defined in Exhibit
C, Part D hereof) or (ii) one of the occurrences set forth in Article 27, Tenant
shall be entitled to terminate this Lease by notice (hereinafter referred to as
the "Termination Notice") to Landlord sent within five (5) business days after
the Outside Date (hereinafter referred to as the "Termination Date"). In the
event Tenant sends the Termination Notice as set forth above, this lease shall
terminate and neither party shall have any further rights or obligations
hereunder and said right of termination shall be Tenant's sole remedy for
Landlord's failure to substantially complete Landlord's Work and notify Tenant
thereof by the Outside Date. In the event of such termination, Landlord will
return to Tenant the first months' rent paid to Landlord upon the execution and
delivery of this lease together with the cash security or Letter of Credit
delivered to Landlord pursuant to the provisions of Article 6. If the security
is in the form of Letter of Credit, Landlord will cooperate with Tenant, at
Tenant's expense, to have same cancelled.
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061697
38. ADJUSTMENTS OF RENT
A. Tax Escalation. For the purpose of Sections
A-F of this Article 38:
(i) "Taxes" shall mean the real
estate taxes and assessments and special assessments imposed upon the Building
and the land upon which same is located (hereinafter referred to as the "Land"
or "land") including, without limitation, any assessments for public improvement
or benefit to the Building or Land or the locality in which the Building is
situated, such as a Business Improvement District taxes and assessments. If at
any time during the term of this lease the methods of taxation prevailing at the
commencement of the term hereof shall be altered so that in lieu of or as an
addition to or as a substitute for the whole or any part of the taxes,
assessments, levies, impositions or charges now levied, assessed or imposed on
real estate and the improvements thereon, there shall be levied, assessed or
imposed (a) a tax, assessment, levy, imposition or charge wholly or partially as
capital levy or otherwise on the rents received therefrom, or (b) a tax,
assessment, levy, imposition or charge measured by or based in whole or in part
upon the Demised Premises and imposed upon Landlord, or (c) a license fee
measured by the rents payable by Tenant to Landlord, then all such taxes,
assessments, levies, impositions or charges, or the part thereof so measured or
based, shall be deemed to be included within the term "Taxes" for the purposes
hereof.
The term "Taxes" shall not include
any income, franchise, excise, profit, transfer, inheritance, capital stock or
other similar tax imposed on Landlord unless, due to a future change in the
method of taxation, an income, franchise, excise, profit, transfer, inheritance,
capital stock or other tax shall be levied against Landlord in substitution for
any tax or increase therein which would otherwise constitute "Taxes", as defined
in the first sentence of paragraph (i), in which event such income, franchise,
excise, profit, transfer, inheritance, capital stock or other tax shall be
deemed to be included in the term "Taxes" but any such income or similar tax
shall be computed as if the Building and the Land were the only property of
Landlord.
(ii) "Base Tax Year" shall mean
fiscal year July 1, 1997-June 30, 1998;
(iii) "Base Tax Rate" shall mean
the Taxes, as finally determined, for the Base Tax Year.
(iv) "Tax Year" shall mean the
fiscal year for which Taxes are levied by the governmental
authority.
(v) "Tenant's Proportionate
Share" shall mean for purposes of this lease and all calculations in connection
herewith, 6.37%, which has been computed on the basis of a fraction, the
numerator of which is the agreed rentable square
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foot area of the Demised Premises as set forth below (which rentable square foot
area is hereinafter sometimes referred to as the "Multiplication Factor") and
the denominator of which is the agreed rentable square foot area of the Building
above grade level as set forth below. The parties agree that the rentable square
foot area of the Demised Premises shall be deemed to be 14,600 square feet and
that the agreed rentable square foot area of the Building shall be deemed to be
229,079 square feet (hereinafter referred to as the "Building Area").
(vi) "Tenant's Projected Share
of Taxes" shall mean the Tax Payment (as hereinafter defined), if any, made by
Tenant for the prior Tax Year divided by twelve (12) and payable monthly by
Tenant to Landlord as additional rent.
B. If the Taxes for any Tax Year shall be more
than the Base Tax Rate, Tenant shall pay, as additional rent for such Tax Year,
an amount equal to Tenant's Proportionate Share of the amount by which the Taxes
for such Tax Year are greater than the Base Tax Rate. (The amount payable by
Tenant is hereinafter referred to as the "Tax Payment"). The Tax Payment and the
Base Tax Rate shall be appropriately prorated, if necessary, to correspond with
that portion of a Tax Year occurring within the Term of this lease. The Tax
Payment shall be payable by Tenant within ten (10) days after receipt of a
demand from Landlord therefor, which demand shall be accompanied by a copy of
the tax bill together with Landlord's computation of the Tax Payment. If the
Taxes for any Tax Year are payable to the taxing authority on an installment
basis, Landlord may serve such demands upon, and the Tax Payment for such Tax
Year shall be payable by Tenant, on a corresponding installment basis.
C. Notwithstanding the fact that the increase in
rent is measured by an increase in taxes, such increase is additional rent and
shall be paid by Tenant as provided herein regardless of the fact that Tenant
may be exempt, in whole or in part, from the payment of any taxes by reason of
Tenant's diplomatic or other tax exempt status or for any other reason
whatsoever.
D. Only Landlord shall be eligible to institute
tax reduction or other proceedings to reduce the assessed valuation of the Land
and Building. Should Landlord be successful in any such reduction proceedings
and obtain a rebate or a reduction in assessment for periods during which Tenant
has paid or is obligated to pay Tenant's Proportionate Share of increases in
Taxes then either (i) Landlord shall, in the event a rebate is obtained, return
Tenant's Proportionate Share of such rebate to Tenant after deducting Landlord's
expenses, including without limitation, attorneys' fees and disbursements in
connection with such rebate (such expenses incurred with respect to a rebate or
reduction in assessment being hereinafter referred to as "Tax Expenses"), or,
(ii) if a reduction in assessment is obtained prior to the date Tenant would be
required to pay Tenant's Proportionate Share of
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such increase in Taxes, Tenant shall pay to Landlord, upon written request,
Tenant's Proportionate Share of such Tax Expenses.
E. Commencing with the first Tax Year after
Landlord shall be entitled to receive a Tax Payment, at Landlord's election,
Tenant shall pay to Landlord, as additional rent for the then Tax Year, Tenant's
Projected Share of Taxes. Upon each date that a Tax Payment or an installment on
account thereof shall be due from Tenant pursuant to the terms of Section B
hereof, Landlord shall apply the aggregate of the installments of Tenant's
Projected Share of Taxes then on account with Landlord against the Tax Payment
or installment thereof then due from Tenant. In the event that such aggregate
amount shall be insufficient to discharge such Tax Payment or installment,
Landlord shall so notify Tenant in a demand served upon Tenant pursuant to the
terms of Section B, and the amount of Tenant's payment obligation with respect
to such Tax Payment or installment pursuant to Section B shall be equal to the
amount of the insufficiency. If, however, such aggregate amount shall be greater
than the Tax Payment or installment, Landlord shall forthwith either (i) pay the
amount of excess directly to Tenant concurrently with the notice or (ii) permit
Tenant to credit the amount of such excess against the next payment of Tenant's
Projected Share of Taxes due hereunder and, if the credit of such payment is not
sufficient to liquidate the entire amount of such excess, Landlord shall then
pay the amount of any difference to Tenant.
F. (i) Anything in this Article
38 to the contrary notwithstanding, in the event that the holder of any mortgage
or the lessor of any superior lease (as such terms are defined in Section A. of
Article 42) shall require advance payments from the Landlord on account of
Taxes, then Tenant will pay Tenant's Proportionate Share of any amounts required
to be paid in advance (but not more often than monthly) by Landlord with the
holder of the superior mortgage or the lessor of the superior lease to the
extent that such payments made by Landlord exceed the Base Tax Rate. Any
payments to be made by Tenant under this Section 38 F(i) shall be made ten (l0)
days prior to the date Landlord is required to make such payments to the holder
of the superior mortgage or the lessor of the superior lease;
(ii) Anything in Sections A
through F to the contrary notwithstanding, in no event whatsoever shall the
fixed rent be reduced below the fixed rent initially set forth in Article 37
hereof as same may be increased by provisions of this lease other than Sections
38A-F.
G. Expense Escalation. For purposes of
Sections G-L of this Article 38:
(i) "Operating Expenses" shall mean any or all expenses incurred by
Landlord in connection with the operation of the Building including all expenses
incurred as a result of Landlord's compliance with any of its obligations
hereunder and such expenses shall include: (a) salaries, wages,
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medical, surgical and general welfare benefits (including group life insurance),
pension payments and other fringe benefits of employees of Landlord engaged in
the operation and maintenance of the Building (The salaries and other benefits
aforesaid of such employees servicing the Building shall be comparable to those
of employees servicing buildings similar to the Building, located in the Borough
of Manhattan.); (b) payroll taxes, worker's compensation, uniforms and dry
cleaning for the employees referred to in subdivision (a); (c) the cost of all
charges for steam, heat, ventilation, air conditioning and water (including
sewer rental) furnished to the Building and/or used in the operation of all of
the service facilities of the Building and the cost of all charges for
electricity furnished to the public and service areas of the Building and/or
used in the operation of all of the service facilities of the Building including
any taxes on any of such utilities; (d) the cost of all charges for rent,
casualty, war risk insurance (if obtainable from the United States government)
and of liability insurance for the Building to the extent that such insurance is
required to be carried by Landlord under any superior lease or superior mortgage
or if not required under any superior lease or superior mortgage then to the
extent such insurance is carried by owners of Buildings comparable to the
Building; (e) the cost of all building and cleaning supplies for the common
areas of the Building and charges for telephone for the Building; (f) the cost
of all charges for management, security, cleaning and service contracts for the
Building (if no managing agent is employed by Landlord, there shall be included
in Operating Expenses a sum equal to 2.5% of all rents and other charges
collected from tenants or other permitted occupants of the Building); (g) the
cost of rentals of capital equipment designed to result in savings or reductions
in Operating Expenses; and (h) the cost incurred in connection with the
maintenance and repair of the Building. Operating Expenses shall not include (1)
administrative wages and salaries; (2) renting commissions; (3) franchise or
income taxes of Landlord; (4) Taxes on the Land and Building; (5) costs of
painting and decorating for any occupant's space; (6) interest and amortization
under mortgages; and (7) expenditures for capital improvements except (A) those
which under generally applied real estate practice are expensed or regarded as
deferred expenses, (B) capital improvements required by law or (C) capital
improvements that are designed to result in a saving in the amount of Operating
Expenses, in any of such cases the cost thereof shall be included in Operating
Expenses for the Operational Year in which the costs are incurred and subsequent
Operational Years, amortized on a straight line basis over the useful life
thereof as determined by generally accepted accounting principles consistently
applied (except that, with respect to a capital improvement which is of the type
specified in clause (C), such cost shall be amortized over such period of time
as Landlord reasonably estimates such savings in Operating Expenses will equal
Landlord's cost for such capital improvement), with an interest factor in any of
such cases equal to two (2%) percent above the prime rate (hereinafter referred
to as the "Base Rate") of The Chase Manhattan Bank (or Citibank, N.A. if The
Chase Manhattan Bank shall not then have an established prime rate; or the prime
rate of any major banking institution doing
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business in New York City, as selected by Landlord, if none of the
aforementioned banks shall be in existence or have an established prime rate) at
the time of Landlord's having incurred said expenditure;
(ii) "Operational Year" shall
mean each calendar year during the Term hereof.
(iii) "Base Operational Year"
shall be calendar year 1998;
(iv) "Operating Expense Base"
shall mean Operating Expenses for the Base Operational Year;
(v) "Tenant's Projected Share
of Operating Expenses" shall mean Tenant's Operating Expense Payment, if any,
for the prior Operational Year divided by twelve (12) and payable monthly by
Tenant to Landlord as additional rent.
If during all or part of the Base Operational Year or any
other Operational Year, Landlord shall not furnish any particular item(s) of
work or service (which would otherwise constitute an Operating Expense
hereunder) to office portions of the Building due to the fact that (A) such
portions are not occupied or leased, (B) such item of work or service is not
required or desired by the tenant of such portion, or (C) such tenant is itself
obtaining and providing such item of work or service, then, for the purposes of
computing Operating Expenses, the amount for such item and for such period shall
be deemed to be increased by an amount equal to the additional costs and
expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such item of work or services to
such portion of the Building or to such tenant.
H. After the expiration of the Base Operational
Year, Landlord shall furnish Tenant a statement setting forth the aggregate
amount of the Operating Expenses for the Base Operational Year. After the
expiration of each Operational Year, after the Base Operational Year, Landlord
shall furnish Tenant a statement setting forth the aggregate amount of the
Operating Expenses for such Operational Year. The statement furnished under this
Section H is hereinafter referred to as an "Operating Statement".
I. If the Operating Expenses for any Operational
Year, including the Operational Year in effect on the Commencement Date, shall
be more than the Operating Expense Base, Tenant shall pay, as additional rent
for such Operational Year, an amount equal to Tenant's Proportionate Share of
the amount by which the Operating Expenses for such Operational Year are greater
than the Operating Expense Base. (The amount payable by Tenant is hereinafter
referred to as the "Operating Expense Payment".) The Operating Expense Payment
shall be prorated, if necessary, to correspond with that portion of an
Operational Year occurring within the Term of this lease. The Operating Expense
Payment shall
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be payable by Tenant within ten (10) days after receipt of the Operating
Statement.
J. Commencing with the first Operational Year
after Landlord shall be entitled to receive an Operating Expense Payment, Tenant
shall pay to Landlord as additional rent for the then Operational Year, Tenant's
Projected Share of Operating Expenses. If the Operating Statement furnished by
Landlord to Tenant at the end of then Operational Year shall indicate that
Tenant's Projected Share of Operating Expenses exceeded the Operating Expense
Payment, Landlord shall forthwith either (i) pay the amount of excess directly
to Tenant concurrently with the notice or (ii) permit Tenant to credit the
amount of such excess against the subsequent payment of rent due hereunder; if
such Operating Statement furnished by Landlord to Tenant hereunder shall
indicate that the Operating Expense Payment exceeded Tenant's Projected Share of
Operating Expenses for the then Operational Year, Tenant shall forthwith pay the
amount of such excess to Landlord.
K. Every Operating Statement given by Landlord
pursuant to Section H shall be conclusive and binding upon Tenant unless (i)
within 30 days after the receipt of such Operating Statement Tenant shall notify
Landlord that it disputes the correctness of the Operating Statement, specifying
the particular respects in which the Operating Statement is claimed to be
incorrect, and (ii) if such dispute shall not have been settled by agreement,
shall submit the dispute to arbitration within 90 days after receipt of the
Operating Statement. Pending the determination of such dispute by agreement or
arbitration as aforesaid, Tenant shall within thirty (30) days after receipt of
such Operating Statement, pay additional rent, if due, in accordance with the
Operating Statement and such payment shall be without prejudice to Tenant's
position. If the dispute shall be determined in Tenant's favor, Landlord shall,
on demand, pay Tenant the amount of Tenant's overpayment of rents, if any,
resulting from compliance with the Operating Statement. Landlord agrees to grant
Tenant reasonable access to Landlord's books and records for the purpose of
verifying Operating Expenses incurred by Landlord and to have and make copies of
any and all bills and vouchers relating thereto and subject to reimbursement by
Tenant as herein provided.
L. Landlord's failure during the lease term to
prepare and deliver any of the tax bills, statements, notice or bills set forth
in this Article 38, or Landlord's failure to make a demand, shall not in any way
cause Landlord to forfeit or surrender its rights to collect any of the
foregoing items of additional rent which may have become due during the term of
this lease. Tenant's liability for the amounts due under this Article 38 and
Landlord's obligation to make any payments due to Tenant under this Article 38
shall survive the expiration of the Term.
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39. USE
A. Tenant shall use and occupy the demised
premises for executive and general offices, and for no other purpose.
Notwithstanding the foregoing and subject to the provisions of Sections B and C
of this Article 39, the demised premises may be used for the following
additional uses: a conference facility, sales, training facility, computer
related service and maintenance facility, showroom and demonstration room
facility.
B. If any governmental license or permit shall be
required for the proper and lawful conduct of Tenant's business in the demised
premises, or any part thereof, Tenant, at its expense, shall duly procure and
thereafter maintain such license or permit and submit the same for inspection by
Landlord. Tenant shall at all times comply with the terms and conditions of each
such license or permit.
C. Tenant shall not at any time use or occupy, or
suffer or permit anyone to use or occupy, the demised premises, or do or permit
anything to be done in the demised premises, in violation of the Certificate of
Occupancy for the demised premises or for the Building or in violation of any
superior mortgage or superior lease. A copy of the current Certificate of
Occupancy for the Building is annexed hereto as Exhibit D.
D. Landlord hereby represents to Tenant that the
existing leases for the fourth (4th) and sixth (6th) floors of the Building do
not permit such spaces to be used as a factory and Landlord agrees that during
the term of this lease, it will not permit such floors to be used as a factory.
40. LANDLORD'S WORK
A. Landlord agrees to perform, at Landlord's sole
cost and expense, the work (hereinafter referred to as "Landlord's Work") set
forth on, and in accordance with, the provisions of Exhibit C.
B. Tenant has fully inspected the demised
premises, is fully familiar with the condition thereof and (except for the
performance of the Landlord's Work) agrees to take possession of the demised
premises in their present "as-is" condition. Tenant shall perform all other
necessary or desirable work in connection with preparing the demised premises
for its initial occupancy (hereinafter referred to as "Tenant's Work") at its
sole cost and expense pursuant to the terms of Articles 3 and 56 hereof, as a
Tenant's Change (as defined in Article 56 below).
C. Except as set forth on Exhibit C, Tenant may
not perform any Tenant's Work (or any other work) until after the Commencement
Date has occurred, unless Landlord, in its sole judgment, determines that the
performance of the Tenant's Work will
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not interfere with or delay the completion of the Landlord's Work,
and so notifies Tenant.
D. Landlord's Work shall be deemed substantially
complete notwithstanding the fact that minor or insubstantial details of
construction, mechanical adjustment, or decoration remain to the performed, the
noncompletion of which does not materially interfere with the performance of
Tenant's Work or with Tenant's use of the Demised Premises after the completion
of Tenant's Work. Landlord's Work shall be performed in a workmanlike manner
and, subject to the provisions of Exhibit C, in accordance with laws and/or
requirements of governmental authorities having jurisdiction.
41. CONSTRUCTION, GOVERNING LAW; CONSENTS
A. If any of the provisions of this lease, or the
application thereof to any person or circumstances, shall, to any extent, be
invalid or unenforceable, the remainder of this lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this lease shall be valid and enforceable to the
fullest extent permitted by law.
B. This lease shall be governed in all respects
by the laws of the State of New York.
C. If Tenant shall request Landlord's consent or
approval pursuant to any of the provisions of this lease or otherwise, and
Landlord shall fail or refuse to give, or shall delay in giving, such consent or
approval, Tenant shall in no event make, or be entitled to make, any claim for
damages (nor shall Tenant assert, or be entitled to assert, any such claim by
way of defense, set-off, or counterclaim) based upon any claim or assertion by
Tenant that Landlord unreasonably withheld or delayed its consent or approval,
and Tenant hereby waives any and all rights that it may have, from whatever
source derived, to make or assert any such claim. Tenant's sole remedy for any
such failure, refusal, or delay shall be an action for a declaratory judgment,
specific performance, or injunction, or for a determination as to whether
Landlord reasonably withheld its consent pursuant to either (i) the Simplified
Procedure For Court Determination of Disputes as set forth in the CPLR ss.3031
et seq. (or any successor thereto), or (ii) arbitration under the Expedited
Procedures provisions (presently Rules 53 through 57, as same may be amended
from time to time) of the American Arbitration Association (or successor
thereto) in the City of New York (and the fees and expenses of such arbitration
shall be borne by the unsuccessful party), and, if Tenant elects either (i) or
(ii) above, the decision shall be final and conclusive on the parties. Such
remedies shall be available only in those instances where Landlord has expressly
agreed in writing not to unreasonably withhold or delay its consent or
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approval or where, as a matter of law, Landlord may not unreasonably withhold
or delay the same.
42. SUBORDINATION
A. For the purposes of this lease, the mortgages
referred to in Article 7 of this lease are herein defined as "superior
mortgages" and the leases referred to in said Article 7 are herein defined as
"superior leases." In the event of any act or omission of Landlord that would
give Tenant the right, immediately or after lapse of a period of time, to cancel
or terminate this lease, or to claim a partial or total eviction, Tenant shall
not exercise such right (i) until it has given written notice of such act or
omission to the holder of each superior mortgage and the lessor of each superior
lease whose name and address shall previously have been furnished to Tenant in
writing and (ii) unless such act or omission shall be one that is not capable of
being remedied by Landlord or such holder or lessor within a reasonable period
of time, until a reasonable period for remedying such act or omission shall have
elapsed following the giving of such notice and following the time when such
holder or lessor shall have become entitled under such superior mortgage or
superior lease, as the case may be, 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 that such holder or lessor shall give Tenant written notice of its
intention to remedy such act or omission and shall, with due diligence, commence
and continue to do so.
B. If the lessor of a superior lease or the holder
of a superior mortgage shall succeed to the rights of Landlord under this lease,
whether through possession or foreclosure action or delivery of a new lease or
deed, then, at the request of the party so succeeding to Landlord's rights
(herein sometimes referred to as the "successor landlord") and upon such
successor landlord's written agreement to accept Tenant's attornment, Tenant
shall attorn to and recognize such successor landlord as Tenant's landlord under
this lease, and shall promptly execute and deliver any instrument that such
successor landlord may reasonably request to evidence such attornment. Upon such
attornment, this lease shall continue in full force and effect as, or as if it
were, a direct lease between the successor landlord and Tenant, upon all of the
terms, conditions and covenants as are set forth in this lease and shall be
applicable after such attornment, except that the successor landlord shall not
be:
(i) liable for any previous act
or omission of Landlord (or its predecessor in interest) under this lease but
should such act or omission continue after such successor landlord shall acquire
title to the Building, successor landlord shall be liable for such act or
omission from and after the date it acquires title to the Building;
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(ii) bound by any previous
modification of this lease, not expressly provided for in this lease, or by any
previous prepayment of more than one month's fixed rent, unless such
modification or prepayment shall have been expressly approved in writing by the
lessor of the superior lease or the holder of the superior mortgage through or
by reason of which the successor landlord shall have succeeded to the rights of
Landlord under this lease;
(iii) responsible for any monies
owing by Landlord to the credit of Tenant;
(iv) subject to any credits,
offsets, claims, counterclaims, demands or defenses which Tenant
may have against Landlord (or its predecessors in interest);
(v) bound by any covenant to
undertake or complete any construction of the Demised Premises or any portion
thereof or pay for or reimburse Tenant for any costs incurred in connection with
such construction;
(vi) required to account for any
security deposit other than any security deposit actually delivered to the
successor landlord;
(vii) bound by any obligation to
make any payment to Tenant or grant or be subject to any credits (except
pursuant to Section 37E), except for services, repairs, maintenance and
restoration provided for under this lease to be performed after the date of
attornment, it being expressly understood, however, that the successor landlord
shall not be bound by an obligation to make payment to Tenant with respect to
construction performed by or on behalf of Tenant at the Demised Premises.
C. If, in connection with obtaining financing or
refinancing for the Building of which the Demised Premises form a part, or
Landlord's estate and interest therein, a lender shall request reasonable
modifications to this lease as a condition to such financing or refinancing,
Tenant will not withhold, delay or defer its consent thereto, provided that such
modifications do not increase the obligations of Tenant hereunder (except,
perhaps, to the extent that Tenant may be required to give notices of any
defaults by Landlord to such lender and/or permit the curing of such defaults by
such lender together with the granting of such additional time for such curing
as may be required for such lender to get possession of the Building or
Landlord's interest therein) or materially adversely affect the leasehold
interest hereby created. In no event shall a requirement that the consent of any
such lender be given for any modification of this lease or, subject to the
provisions of this lease for any assignment or sublease, be deemed to materially
adversely affect the leasehold interest hereby created.
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D. Notwithstanding anything to the contrary set
forth in Article 7 or this Article 42,, this lease shall be subject and
subordinate to (i) any superior mortgages now existing or made by Landlord
subsequent to the date hereof and (ii) any superior leases now existing or
entered into by Landlord subsequent to the date hereof provided that Landlord
shall obtain a Subordination, Non-Disturbance and Attornment Agreement
(hereinafter referred to as an "SNDA") for the benefit of Tenant from the holder
of such superior mortgage or from the lessor under such superior lease which
SNDA shall be in form and content then utilized by such holder or lessor, shall
not increase Tenant's obligations or reduce Tenant's rights under this lease,
and which shall contain, in substance, the provisions set forth in the
subsections (a) and (b) below:
(a) From the lessor under a superior
lease:An agreement, for the benefit of Tenant, to the effect, inter alia, that
as long as Tenant is not in default in the payment of fixed rent or additional
rent or any other term, covenant or condition of this lease and provided Tenant
attorns to such lessor under the terms and provisions of this lease, (1) its
rights as Tenant hereunder shall not be affected or terminated, (2) its
possession of the Demised Premises shall not be disturbed, (3) no action or
proceeding shall be commenced to remove or evict Tenant, and (4) this lease
shall at all times continue in full force and effect notwithstanding the
termination or expiration of the superior lease, prior to the expiration or
termination of this lease.
(b) From the holders of superior
mortgages:An agreement, for the benefit of Tenant, to the effect, inter alia,
that as long as Tenant is not in default in the payment of fixed rent or
additional rent or any other term, covenant or condition of this lease, (1) its
rights as Tenant hereunder shall not be terminated and (2) the possession of
Tenant shall not be disturbed by the mortgagee or by any proceedings on the debt
which any such superior mortgage secures or by virtue of a right or power
contained in any such superior mortgage or the bond or note secured thereby and
(3) that any sale at foreclosure will be subject to this lease.
E. Landlord represents that as of the date of
execution hereof, (i) there are no existing superior mortgages other than a
mortgage held by Credit Suisse First Boston Mortgage Capital LLC and (ii) there
are no existing superior leases.
43. LEASE NOT BINDING UNLESS EXECUTED
Submission by Landlord of this lease for execution by Tenant shall
confer no rights nor impose any obligations on either party unless and until
both Landlord and Tenant shall have executed this lease and duplicate originals
thereof shall have been delivered to the respective parties.
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44. CONFLICTS
In the event of any conflict between the provisions of this Rider and
the printed portion of this lease, the provisions of this Rider shall control.
45. ELECTRICITY
A. (i) The Building is equipped
with risers, feeders and wiring to furnish electric service to the Demised
Premises. Additionally a meter system will be furnished and installed by
Landlord, as part of Landlord's Work, to measure the amount of "Usage" (as
defined in Section B(i)) solely to the Demised Premises. Where more than one
meter measures the amount of Usage, Usage through each meter shall be computed
and billed separately in accordance with the provisions of this Article 45;
(ii) Any additional risers,
feeders or other equipment or service proper or necessary to supply Tenant's
electrical requirements, will, upon written request of Tenant, be installed by
Landlord, at the sole cost and expense of Tenant, if in Landlord's sole
judgment, the same are necessary and will not cause permanent damage or injury
to the Building or the Demised Premises or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations, repairs or
expense or interfere with or disturb other tenants or occupants.
Rigid conduit only will be allowed.
B. For purposes of Sections B and C:
(i) "Usage" shall mean Tenant's
actual usage of electricity in the Demised Premises as measured by the aforesaid
metering system for each calendar month or such other period as Landlord shall
determine during the term of this lease and shall include the quantity and peak
demand (kilowatt hours and kilowatts) and all applicable taxes, surcharges,
demand charges, energy charges, fuel adjustment charges, time of day charges and
other adjustments made from time to time by the public utility company supplying
electric current to the Building or any governmental authority having
jurisdiction;
(ii) "Landlord's Rate" shall
mean the service classification (including all applicable taxes, surcharges,
demand charges, energy charges, fuel adjustment charges, time of day charges and
other sums payable in respect thereof) pursuant to which Landlord purchases
electric current for the Building from the public utility company supplying
electric current to the Building;
(iii) "Basic Cost" shall mean
the product of (a) Usage multiplied by (b) Landlord's Rate.
(iv) "Tenant's Cost" shall mean
an amount equal to the sum of (a) the Basic Cost plus (b) ten (10%)percent
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of the Basic Cost for Landlord's overhead and expenses in connection with
submetering.
C. Landlord shall, from time to time but not more
often than monthly, furnish Tenant with an invoice indicating the period during
which the Usage was measured and the amount of Tenant's Cost payable by Tenant
to Landlord for such period. Within five (5) days after receipt of each such
invoice, Tenant shall pay the amount of Tenant's Cost set forth thereon to
Landlord as additional rent. In addition, if any tax is imposed upon Landlord by
any municipal, state or federal agency or subdivision with respect to the
purchase or sale of electrical energy supplied to Tenant hereunder, Tenant
covenants and agrees that, where permitted by law, Tenant's Proportionate Share
of such taxes shall be passed on to, included in the bill to and paid by, Tenant
to Landlord, as additional rent.
D. Landlord shall not in anywise be liable or
responsible to Tenant for any loss or damage or expense which Tenant may sustain
or incur if either the quantity or character of electric service is changed or
is no longer available or suitable for Tenant's requirements.
E. In no event shall Tenant use or install any
fixtures, equipment or machines the use of which in conjunction with other
fixtures, equipment and machines in the Demised Premises would result in an
overload of the electrical circuits servicing the Demised Premises.
F. Tenant covenants and agrees that at all times
its use of electric current shall never exceed the capacity of the then existing
feeders to the Building or the risers or wiring installation. After the original
installation thereof by Landlord, Tenant shall furnish, install and replace, as
required, all lighting tubes, lamps, bulbs and ballasts required in the Demised
Premises, at Tenant's sole cost and expense. All lighting tubes, lamps, bulbs
and ballasts so installed shall become Landlord's property upon the expiration
or sooner termination of this lease.
G. In the event the metering system installed in
the Demised Premises for the measurement of electricity consumption in the
Demised Premises or any alternative submetering system installed by Landlord at
a later date, becomes prohibited from use, then Landlord, at its expense, may
cause an independent electrical engineer chosen by Landlord or an electrical
consulting firm selected by Landlord (hereinafter referred to as the "Electrical
Consultant") to survey and determine Usage in, and Basic Cost for, the Demised
Premises from time to time, at least once per twelve (12) month period, and the
Electrical Consultant shall make such determination using criteria generally
accepted in the Metropolitan New York City area and Landlord's Rate in effect at
the time, and shall include the quantity and peak demand, for all electricity
consumed by Tenant, plus ten (l0%) percent of the Basic Cost for Landlord's
expenses and administration fees. Subject to the provisions of Section H below,
the determination
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made by the Electrical Consultant shall be binding on both Landlord and Tenant
and such amount shall be deemed Tenant's Cost.
H. Notwithstanding anything in Section G to the
contrary, Tenant shall have the right as hereinafter provided, to contest any
amounts determined by the Electrical Consultant pursuant to Section G as shall
be due to Landlord as a result of any such survey. In the event that Tenant
fails to send a written notice (hereinafter referred to as an "Objection
Notice") to Landlord within thirty (30) days after the date of the Electrical
Consultant's notice containing said Usage and Basic Cost, such notice shall
become conclusive and binding upon Tenant. If Tenant disputes any such notice by
sending an Objection Notice within the time and in the manner hereinbefore
provided, then Tenant shall, at its sole cost and expense, have the right to
engage an electrical engineer or electrical consulting firm (hereinafter
referred to as "Tenant's Consultant") who shall promptly make a survey
(hereinafter referred to as the "Disputing Survey") indicating Tenant's
electrical usage in the Demised Premises. In the event that Landlord and Tenant
are unable to agree on the amount of Usage and Basic Cost within thirty (30)
days after the date Tenant furnishes Landlord with a copy of the Disputing
Survey, then the Electrical Consultant and Tenant's Consultant shall select a
mutually acceptable electrical engineer or electrical consulting firm
(hereinafter referred to as the "Third Consultant") within ten (l0) days after
the expiration of such thirty (30) day period. The Electrical Consultant and
Tenant's Consultant shall submit the dispute to the Third Consultant and the
determination by the Third Consultant shall be conclusive and binding upon
Landlord and Tenant. During the pendency of any such dispute, Tenant shall pay
to Landlord the amount set forth in the Electrical Consultant's notice until the
dispute is finally determined in accordance with the provisions of this Section
and, in the event that such final determination is less than the amount set
forth in the Electrical Consultant's notice, Landlord shall, at Tenant's
election, refund to Tenant the amount of such excess payment or credit any such
excess against any amounts then due or becoming due to Landlord under this
lease. The cost of the Third Consultant shall be borne equally by Landlord and
Tenant.
46. FURTHER PROVISIONS AS TO DEFAULT
A. If Tenant is late in making any payment due to
Landlord from Tenant under this lease for ten (10) or more days, then interest
shall become due and owing to Landlord on such payment from the date upon which
it was due, which interest shall be computed at the following rates:
(i) for an individual or partnership tenant, computed at the maximum lawful
rate of interest;
(ii) for a corporate tenant, computed at the greater of (a) one and 25/100
(1.25%) percent per month or (b) two (2%) percent per annum over the Base
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Rate as defined in Section 38(G)(i) but in no event in excess of the maximum
lawful rate of interest chargeable to corporations in the State of New York.
B. Bills for any expenses incurred by Landlord in
connection with any performance by it for the account of Tenant, and bills for
all costs, expenses and disbursements of every kind and nature whatsoever,
including reasonable counsel fees, involved in collecting or endeavoring to
collect the fixed rent or additional rent or any part thereof or enforcing or
endeavoring to enforce any rights against Tenant, under or in connection with
this lease, or pursuant to law, including any such cost, expense and
disbursement involved in instituting and prosecuting summary proceedings, as
well as bills for any property, material, labor, or services provided,
furnished, or rendered, by Landlord to Tenant at Tenant's request, may be sent
by Landlord to Tenant monthly, or immediately, at Landlord's option, and shall
be due and payable in accordance with the terms of such bills.
47. HEAT AND AIR-CONDITIONING
A. Any use of the demised premises, or any part
thereof, or rearrangement of partitioning in a manner that interferes with
normal operation of the heat, ventilation or air-conditioning systems
(hereinafter referred to as the "systems") servicing the same, may require
changes in such systems. Such changes, so occasioned, shall be made by Tenant,
at its expense, subject to Landlord's prior written approval of such changes,
which approval may be withheld for any reason. Tenant shall not make any change,
alteration, addition or substitution to the system providing heating,
ventilating and air-conditioning without Landlord's prior written approval,
which may be withheld for any reason.
B. Landlord, at its expense, shall maintain and
operate the systems (inclusive of the package air-conditioning unit serving the
Demised Premises) and subject to energy conservation requirements of
governmental authorities, shall furnish heat and ventilating (hereinafter
collectively referred to as the "service") in the demised premises during
"regular hours" (that is between the hours of 8:00 A.M. and 6:00 P.M.) of
"business days" (which term is used herein to mean all days except Saturdays,
Sundays and days now or hereafter observed by the Federal or New York State
government as legal holidays and those now or hereafter designated by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract) as may be required for comfortable
occupancy of the demised premises. If Tenant shall require heating or
ventilating service at any other time (hereinafter referred to as "after
hours"), Landlord shall furnish such after hours service upon reasonable advance
notice from Tenant, and Tenant shall pay on demand Landlord's cost.
Air-conditioning shall be provided to the Demised Premises by means of the
packaged air-conditioning units servicing the Demised Premises which may be
operated by Tenant, at Tenant's option, at any time, seven (7) days per week,
twenty-four (24) hours per day. All
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electricity used in connection with such packaged air-conditioning units shall
be supplied in accordance with, and shall be subject to, all of the terms,
covenants and conditions in Article 45 hereof.
48. LANDLORD'S OTHER SERVICES
A. Landlord, at its expense, shall provide public
elevator service by elevators serving the floor on which the demised premises
are situated during regular hours of business days, and shall have at least one
passenger elevator operating at all other times.
B. Notwithstanding anything in this lease to the
contrary, Tenant shall, at its sole cost and expense, cause the Demised Premises
to be cleaned in a manner reasonably satisfactory to Landlord, utilizing a
cleaning contractor approved by Landlord, which approval shall not be
unreasonably withheld or delayed. Tenant shall, at its sole cost and expense,
store, receive and transport all refuse and rubbish from the Demised Premises in
compliance with all present and future laws, orders, rules and regulations of
any governmental or quasi-governmental authority having jurisdiction thereof and
shall deposit such refuse and rubbish on a daily basis in a location in the
Building designated by Landlord.
C. Landlord, at its expense, and on Tenant's
request, shall maintain the original listings on the Building directory of the
names of Tenant, Tenant's subsidiaries and the names of any of their officers
and employees, provided that the names so listed shall not take up more than six
(6) lines on the Building directory. In the event Tenant shall require
additional or substitute listings on the Building directory, Landlord shall, to
the extent space for such additional or substitute listing is available,
maintain such listings and Tenant shall pay to Landlord an amount equal to
Landlord's reasonable charge for such listings.
D. Landlord reserves the right, without any
liability to Tenant (except as otherwise expressly provided in this lease), to
stop operating any of the heating, ventilating, air conditioning, electric,
sanitary, elevator, or other building systems serving the demised premises, and
to stop the rendition of any of the other services required of Landlord under
this lease, whenever and for so long as may be necessary by reason of accidents,
emergencies, strikes, or the making of repairs or changes that Landlord is
required by this lease or by law to make or in good faith deems necessary, by
reason of difficulty in securing proper supplies of fuel, steam, water,
electricity, labor, or supplies, or by reason of any other cause beyond
Landlord's reasonable control.
E. Landlord shall furnish hot and cold water to
the Demised Premises through the presently existing facilities.
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F. Except as provided in Articles 47 and 48,
Landlord shall have no responsibility or obligation for the rendition of any
services or utilities to Tenant or to the Demised Premises.
G. Landlord agrees that the Building will be
maintained in its present condition, normal wear and tear excepted. Landlord
further agrees that it shall continue to provide the services it is responsible
to provide to Tenant pursuant to the provisions of this lease at the same level
as presently provided.
49. SECURITY DEPOSIT
A. Tenant has deposited with Landlord the sum of
$140.000.0, either in cash or by Letter of Credit as provided in Section C
hereof, as security for the faithful performance, observance and compliance with
all of the terms, covenants and conditions of this lease on Tenant's part to
perform, observe or comply with. Tenant agrees that, in the event that Tenant
defaults in respect of any of such terms, covenants or conditions of this lease
(including, without limitation, the payment of any installment of fixed rent or
any amount of additional rent), Landlord may use, apply, or retain the whole or
any part of the cash security so deposited or may notify the Issuing Bank (as
such term is defined in Section C hereof) and thereupon receive all of the
monies represented by the said Letter of Credit and use, apply, or retain the
whole or any part of such proceeds, or both, as the case may be, to the extent
required for the payment of any fixed rent, additional rent, or any other sums
as to which Tenant is in default, or for any sum that Landlord may expend or may
be required to expend by reason of any such default (including any damages or
deficiency accrued before or after summary proceedings or other re-entry by
Landlord). In the event that Landlord applies or retains any portion or all of
such cash security or proceeds of such Letter of Credit, or both, as the case
may be, the amount not so used, applied or retained shall continue to be treated
as Tenant's security deposit, and Tenant shall restore the amount so applied or
retained within five (5) days after Landlord's demand therefor, so that, subject
to the provisions of Section F, at all times, the amount deposited shall be
$140,000.00. In the event that Tenant shall fully and faithfully comply with all
of the terms, provisions, covenants and conditions of this lease, that portion,
if any, of the cash security or Letter of Credit, or both, as the case may be,
not used, applied or retained shall be returned to Tenant after the Expiration
Date and after delivery of possession of the entire demised premises to
Landlord, in accordance with, and subject to, the applicable provisions of this
lease.
B. To the extent Tenant has deposited with
Landlord a cash security, Landlord agrees to deposit same into an interest
bearing account in a bank or savings and loan association to be selected, from
time to time, by Landlord in its sole discretion. Landlord agrees, further to
hold said security in such an account for the entire term of this lease,
subject, however, to the terms of Section A above with respect to the use,
application
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or retention of such security. To the extent permitted by law, Tenant agrees
that Landlord shall be entitled to receive and retain, as an administrative
expense, a sum equal to one (1%) percent per annum upon such security, and
Landlord shall have the right to withdraw such sum from time to time as Landlord
shall determine in is sole discretion. The balance of the interest earned on
such security shall, provided Tenant is not then in default under this lease,
and to the extent that same shall not be used, applied or retained pursuant to
the terms of Section A above, be paid to Tenant upon the request of Tenant, but
not more than once during any calendar year of the term of this lease. Unless
and until such interest shall be paid to Landlord and Tenant as herein provided,
the same shall be held as a part of the security deposited by Tenant, subject
to, and in accordance with, the terms of Section A above. Landlord shall not be
required to credit any security with the interest for any period during which
Landlord does not receive interest thereon.
C. In lieu of a cash deposit, Tenant may deliver
to Landlord as such security, a clean, irrevocable, transferable (without cost
to Landlord) and unconditional Letter of Credit issued by and drawn upon any
commercial bank reasonably acceptable to Landlord (hereinafter referred to as
the "Issuing Bank") with offices for banking purposes in the City of New York
and having a net worth of not less than One Hundred Million and 00/100
($100,000,000.00) Dollars, which Letter of Credit shall have a term of not less
than one year, be in form and content satisfactory to Landlord, be for the
account of Landlord and, subject to the provisions of Section F, be in the
amount of $140,000.00. The Letter of Credit shall provide that:
(a) The Issuing Bank shall pay to
Landlord or its duly authorized representative an amount up to the face amount
of the Letter of Credit upon presentation of only the Letter of Credit and a
sight draft in the amount to be drawn;
(b) The Letter of Credit shall be deemed
to be automatically renewed, without amendment, for consecutive periods of one
year each, unless the Issuing Bank sends written notice (hereinafter referred to
as the "Non-Renewal Notice") to Landlord by certified or registered mail, return
receipt requested, not less than thirty (30) days next preceding the then
expiration date of the Letter of Credit, that it elects not to have such Letter
of Credit renewed;
(c) Landlord, after its receipt of the
Non-Renewal Notice, shall have the right, exercisable by a sight draft only, to
receive the moneys represented by the Letter of Credit (which moneys shall be
held by Landlord as a cash deposit pursuant to the terms of this Article pending
the replacement of such Letter of Credit) (and Landlord shall have such right
regardless of whether the Letter of Credit expressly gives Landlord such right);
and
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(d) In the event of a sale or the
transfer of the Land or the Building, or Landlord's interest in any of the
foregoing, or a leasing by Landlord or any of the foregoing or Landlord's
interest therein, the Letter of Credit shall be transferable by Landlord as
provided in Section D below, at no cost or expense to Landlord and Tenant shall
be notified of any such transfer.
. In the event of a sale or transfer of the land
or the Building, or the then Landlord's interest in the land or the Building, or
a leasing by the then Landlord of the land or the Building or of Landlord's
interest therein, Landlord shall have the right, at no cost or expense to
Landlord, to transfer or assign such cash security or Letter of Credit, or both,
as the case may be, to the vendee, transferee or lessee, and Landlord shall
notify Tenant, by certified mail, return receipt requested, of such sale,
transfer or lease, together with the name and address of such vendee, transferee
or lessee who shall acknowledge, in writing, receipt of such security, and
Landlord shall thereupon be released by Tenant from all liability for the return
of such cash security or Letter of Credit. In such event, Tenant agrees to look
solely to the new landlord for the return of said cash security or Letter of
Credit. It is agreed that the provisions hereof shall apply to every transfer or
assignment made of said cash security or Letter of Credit to a new Landlord.
E. Tenant covenants that it will not assign or
encumber, or attempt to assign or encumber, such cash security or Letter of
Credit, and that neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment, or attempted
encumbrance.
F. (i) Notwithstanding anything in
this Article 49 to the contrary, if, on the fifth (5th) anniversary of the
Commencement Date, Tenant is not in default under this lease, which default
continues after notice and the expiration of any applicable cure period, Tenant
may upon notice to Landlord (hereinafter referred to as the "Security Reduction
Notice") request that Landlord return to Tenant $40,000.00 of the cash security
deposited by Tenant pursuant to Section 49A or, if Tenant has provided a letter
of credit, exchange the then existing Letter of Credit for a new Letter of
Credit in the amount of $100,000.00 and otherwise meeting the requirements of
Section 49B.
(ii) Provided Tenant is not in
default under the lease, which default continues after notice and the expiration
of any applicable cure period, on the date Landlord receives the Security
Reduction Notice and on the date payment is to be made to Tenant or the existing
Letter of Credit is to be exchanged, Landlord will return to Tenant the sum of
$40,000.00 out of the cash security or exchange the then existing Letter of
Credit for the new Letter of Credit as set forth in Section 49F(i).
G. Notwithstanding anything in this Article
49 to the contrary, the security required to be deposited hereunder
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may be a combination of cash security and Letter of Credit provided that the
total amount thereof aggregates the total security to be maintained hereunder
and such components of the combined security otherwise comply with the
requirements of this Article 49.
50. PARTIES BOUND
A. If Landlord shall be an individual, joint
venture, tenancy in common, partnership, unincorporated association, or other
unincorporated aggregate of individuals and/or entities or a corporation, Tenant
shall look only to such Landlord's estate and property in the building (or the
proceeds thereof) and, where expressly so provided in this lease, to offset
against the rents payable under this lease, for the satisfaction of Tenant's
remedies 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, and no other property or assets of such Landlord or any partner,
member, officer, or director thereof, disclosed or undisclosed, shall be subject
to levy, execution, or other enforcement procedure for the satisfaction of
Tenant's remedies under or with respect to this lease, the relationship of
Landlord and Tenant hereunder, or Tenant's use or occupancy of the demised
premises.
B. If there shall be more than one person named
as tenant herein, then all such persons shall be deemed to be joint tenants in
the leasehold estate demised hereby, with joint and several liability hereunder.
C. Landlord hereby represents that it is the fee
owner of the Land and Building.
51. BROKER
A. Tenant covenants, warrants and represents that
there were no brokers or finders except Edward S. Gordon Company, Inc.
(hereinafter referred to as "Broker") instrumental in consummating this lease,
and that no conversations or negotiations were had by Tenant with any brokers or
finders except the Broker concerning the renting of the demised premises. Tenant
agrees to hold Landlord harmless against any claims for a brokerage commission
or consultation fees arising out of any conversations or negotiations had by
Tenant with any brokers or finders except for the Broker.
B. Based upon the foregoing representation,
Landlord has agreed to pay, pursuant to separate agreements, a brokerage
commission to the Broker.
C. Landlord covenants, warrants and represents
that there were no brokers or finders except the Broker instrumental in
consummating this lease, and that no conversations or negotiations were had by
Landlord with any brokers or finders except the Broker concerning the renting of
the demised premises. Landlord agrees to hold Tenant harmless against any claims
for a
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brokerage commission or consultation fees arising out of any conversations or
negotiations had by Landlord with any brokers or finders including the Broker.
52. HAZARDOUS MATERIALS
Tenant shall not cause or permit "Hazardous Materials" (as defined
below) to be used, transported, stored, released, handled, produced or installed
in, on or from the Demised Premises or the Building. The term "Hazardous
Materials" shall, for the purposes hereof, mean any flammable, explosive or
radioactive materials, hazardous wastes, hazardous and toxic substances or
related materials, asbestos or any material containing asbestos, or any other
substance or material, as now or hereafter defined as a hazardous material or a
hazardous substance by any federal, state or local law, ordinance, rule or
regulation, now or at any time hereafter in effect, including, without
limitation, the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended,
the Resource Conservation and Recovery Act, as amended, and in the regulations
adopted and publications promulgated pursuant to each of the foregoing. In the
event of a breach of the provisions of this Article, Landlord shall, in addition
to all of its rights and remedies under this lease and pursuant to law, require
Tenant to remove any or all of such Hazardous Materials from the Demised
Premises or the Building in the manner prescribed for such removal by all
requirements of law. Tenant acknowledges that Landlord has made no
representation, warranty, covenant or agreement with respect to the existence,
removal, encapsulation or other treatment or remediation of Hazardous Materials,
and that Landlord shall not in any way be liable for the existence of any
Hazardous Materials or be obligated to remove, encapsulate or otherwise treat or
remediate same. The provisions of this Article shall survive the expiration or
sooner termination of this lease.
53. ARBITRATION
A. Either party may request arbitration of any
matter in dispute with respect to which arbitration is expressly provided in
this lease as the appropriate remedy. The party requesting arbitration shall do
so by giving notice to that effect to the other party, and both parties shall
promptly thereafter jointly apply to the American Arbitration Association (or
any organization successor thereto) in the City and County of New York for the
appointment of a single arbitrator.
B. The arbitration shall be conducted in
accordance with the then prevailing rules of the American Arbitration
Association (or any organization successor thereto) in the City and County of
New York and, subject to the terms of the immediately succeeding sentence,
judgment on the award rendered by the arbitrator may entered in any court having
jurisdiction thereof. In rendering such decision and award, the arbitrator shall
not add to, subtract from, or otherwise modify the provisions of this lease.
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C. If, for any reason whatsoever, a written
decision and award of the arbitrator shall not be rendered within sixty (60)
days after the appointment of such arbitrator, then, at any time thereafter
before such decision and award shall have been rendered, either party may apply
to the Supreme Court of the State of New York or to any other court having
jurisdiction and exercising the functions similar to those now exercised by such
court, by action, proceeding, or otherwise (but not by a new arbitration
proceeding) as may be proper to determine the question in dispute consistently
with the provisions of this lease.
D. All the expenses of the arbitration shall be
borne by the parties equally.
54. ASSIGNMENT AND SUBLETTING
A. If Tenant shall, at any time or times during
the term of this lease, desire to assign this lease or sublet all or part of the
demised premises, Tenant shall give notice thereof to Landlord, which notice
shall be accompanied by: (i) a conformed or photostatic copy of the proposed
assignment or sublease, the effective or commencement date of which shall be not
less than sixty (60) nor more than ninety (90) days after the giving of such
notice; (ii) a statement setting forth, in reasonable detail, the identity of
the proposed assignee or subtenant, the nature of its business and its proposed
use of the demised premises; and (iii) current financial information with
respect to the proposed assignee or subtenant, including its most recent
financial report.
B. In the event that Tenant complies with the
provisions of Section A of this Article 54 and provided that Tenant is not in
default of any of Tenant's obligations under this lease after notice and the
expiration of any applicable grace period, Landlord's consent (which must be in
writing and in form reasonably satisfactory to Landlord) to the proposed
assignment or sublease shall not be unreasonably withheld or delayed provided
that Tenant has complied with the following conditions:
(i) in Landlord's reasonable
judgment, the proposed assignee or subtenant is engaged in such a business, and
the demised premises, or the relevant part thereof, will be used in such a
manner, that: (x) is limited to the use expressly permitted under this lease or
a similar use; and (y) such similar use will not violate any negative covenant
as to use contained in any other lease of space in the Building about which
Tenant has been informed following its request to Landlord for such information.
Landlord represents that the use of the demised Premises by Tenant for the
purposes set forth in Section 39A does not violate any negative covenant as to
use contained in any other lease for space in the Building;
(ii) the proposed assignee or
subtenant is a reputable person of good character and with sufficient financial
worth considering the responsibility involved, and Landlord has been furnished
with reasonable proof thereof;
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(iii) neither (i) the proposed
assignee or sublessee nor (ii) any person that, directly or indirectly,
controls, is controlled by, or is under common control with, the proposed
assignee or sublessee or any person who controls the proposed assignee or
sublessee, is then an occupant or tenant of any part of the building;
(iv) the proposed assignee or
sublessee is not a person with whom Landlord is then, or shall have been during
the previous six (6) month period, negotiating to lease space in the building;
(v) the proposed sublease shall
be in form reasonably satisfactory to Landlord and shall comply
with the applicable provisions of this Article;
(vi) there shall not be more
than three (3) entities (excluding entities controlled by Tenant),
including Tenant, occupying the demised premises;
(vii) the rental and other terms
and conditions of the sublease are the same as those contained in
the proposed sublease furnished to Landlord pursuant to Section A;
(viii) Tenant shall reimburse
Landlord on demand for any reasonable costs that may be incurred by Landlord in
connection with said assignment or sublease, including, without limitation, the
reasonable costs of making investigations as to the acceptability of the
proposed assignee or subtenant and reasonable legal costs incurred in connection
with the review of any term sheet, proposed assignment or sublease or any
documentation in connection therewith and in the preparation of any
documentation in connection with any request for consent, whether or not
granted;
(ix) Tenant shall not have: (a)
advertised or publicized in any way the availability of the demised premises
without prior notice to, and approval by, Landlord, which approval Landlord
agrees not to unreasonably withhold, nor shall any listing or advertisement
advertise the demised premises for subletting at a proposed rental less than the
fixed rent and additional rent at which Landlord is then offering to lease other
space in the building;
(x) the sublease shall not
allow use of the demised premises or any part thereof: (a) as a restaurant,
luncheonette, or otherwise for the preparation and/or sale of food for on or off
premises consumption; (b) as a discount store; (c) as a multiple tenancy store;
(d) by a foreign or domestic governmental agency; (e) as a betting parlor or
gambling casino; or (f) by a utility company; and
(xi) the sublease shall not
provide for an option on behalf of the subtenant thereunder to extend or renew
the term of such sublease.
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C. Each subletting pursuant to this Article 54
shall be subject to all of the covenants, agreements, terms, provisions and
conditions contained in this lease. Notwithstanding any such subletting and/or
acceptance of rent or additional rent by Landlord from any subtenant, Tenant
shall and will remain fully liable for the payment of the fixed rent and
additional rent due, and to become due, hereunder, for the performance of all of
the covenants, agreements, terms, provisions and conditions contained in this
lease on the part of Tenant to be performed and for all acts and omissions of
any licensee, subtenant, or any other person claiming under or through any
subtenant that shall be in violation of any of the obligations of this lease,
and any such violation shall be deemed to be a violation by Tenant. Tenant
further agrees that, notwithstanding any such subletting, no other and further
subletting of the demised premises by Tenant, or any person claiming through or
under Tenant (except as provided in Section K of this Article 54), shall, or
will be, made, except upon compliance with, and subject to, the provisions of
this Article. If Landlord shall decline to give its consent to any proposed
assignment or sublease, or if Landlord shall exercise any of its options under
Section B, Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all losses, liabilities, damages, costs and expenses (including
reasonable counsel fees) resulting from any claims that may be made against
Landlord by the proposed assignee or subtenant or by any brokers or other
persons claiming a commission or similar compensation in connection with the
proposed assignment or sublease.
D. With respect to each and every sublease or
subletting, it is agreed that:
(i) no subletting shall be for
a term ending later than one day prior to the expiration date of this lease;
(ii) no sublease shall be valid,
and no subtenant shall take possession of the demised premises or any part
thereof, until an executed counterpart of such sublease has been delivered to
Landlord; and
(iii) each sublease shall
provide that it is subject and subordinate to this lease and to the matters to
which this lease is or shall be subordinate, and that, in the event of
termination, re-entry, or dispossess by Landlord under this lease, Landlord may,
at its option, take over all of the right, title and interest of Tenant as
sublandlord under such sublease, and such subtenant shall, at Landlord's option,
attorn to Landlord pursuant to the then executory provisions of such sublease,
except that Landlord shall not (x) be liable for any previous act or omission of
Tenant under such sublease, (y) be subject to any offset, not expressly provided
in such sublease, that theretofore accrued to such subtenant against Tenant or
(z) be bound by any previous modification of such sublease or by any previous
prepayment of more than one month's fixed rent or any additional rent then due.
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E. Any assignment or transfer shall be made only
if, and shall not be effective until, the assignee shall execute, acknowledge
and deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee shall assume all of the obligations of this lease
on the part of Tenant to be performed or observed and whereby the assignee shall
agree that the provisions contained in Section A shall, notwithstanding such
assignment or transfer, continue to be binding upon it in respect of all future
assignments and transfers. The original named Tenant covenants that,
notwithstanding any assignment or transfer, whether or not in violation of the
provisions of this lease, and notwithstanding the acceptance of fixed rent
and/or additional rent by Landlord from an assignee, transferee, or any other
party, the original named Tenant shall remain fully liable for the payment of
the fixed rent and additional rent and for the other obligations of this lease
on the part of Tenant to be performed or observed.
F. If Landlord shall give its consent to any
assignment of this lease or to any sublease, Tenant shall, in consideration
therefor, pay to Landlord, as additional rent:
(i) in the case of an
assignment, an amount equal to 50% of all sums and other considerations paid to
Tenant by the assignee for or by reason of such assignment (including, but not
limited to, sums paid for the sale of Tenant's fixtures, leasehold improvements,
equipment (excluding any equipment intended for sale to the general public in
Tenant's business), furniture, furnishings or other personal property, less, in
the case of a sale thereof, the then net unamortized or undepreciated cost
thereof determined on the basis of Tenant's federal income tax returns) and less
the reasonable costs (hereinafter referred to as the "Assignment Expenses") paid
by Tenant for alteration costs (or contributions in lieu thereof), advertising,
brokerage or consulting fees or commissions and legal fees in connection with
such assignment; and
(ii) in the case of a sublease,
an amount equal to 50% of any rents, additional charge or other consideration
payable under the sublease to Tenant by the subtenant which is in excess of the
fixed rent and additional rent accruing during the term of the sublease in
respect of the subleased space (at the rate per square foot payable by Tenant
hereunder) pursuant to the terms hereof (including, but not limited to, sums
paid for the sale or rental of Tenant's fixtures, leasehold improvements,
equipment (excluding any equipment intended for sale to the general public in
Tenant's business), furniture or other personal property, less, in the case of
the sale thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns) and less the
reasonable costs (hereinafter referred to as the "Subletting Expenses") paid by
Tenant for alteration costs (or contributions in lieu thereof), advertising,
brokerage or consulting fees or commissions and legal fees in connection with
such subletting. The sums payable under Sections 54(F)(i) and (ii) shall be paid
to Landlord as and when
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paid by the assignee or subtenant, as the case may be, to Tenant and upon the
execution and delivery of such assignment or sublease, as the case may be,
Tenant shall provide to Landlord a statement of the Assignment Expenses or
Subletting Expenses, as the case may be, certified as correct by an officer or
principal of Tenant.
G. If Tenant is a corporation, the provisions of
Article 11 shall apply to a transfer (by one or more transfers) of a majority of
the stock of Tenant, as if such transfer of a majority of the stock of Tenant
were an assignment of this lease; but said provisions and the provisions of
Section F above shall not apply to, and Landlord's consent shall not be required
in connection with, transactions with a corporation (i) into, or with which,
Tenant is merged or consolidated, (ii) to which substantially all of Tenant's
assets are transferred; or (iii) that controls, is controlled by, or is under
common control with Tenant ("control" having the meaning set forth in Paragraph
(p) of Exhibit B), provided that, in the events of a transaction set forth in
(i) or (ii): (x) the successor to Tenant has a net worth, computed in accordance
with generally accepted accounting principles, at least equal to the greater of
(1) the net worth of Tenant immediately prior to such merger, consolidation, or
transfer or (2) the net worth of Tenant herein named on the date of this lease;
and (y) proof satisfactory to Landlord of such net worth shall have been
delivered to Landlord at least ten (l0) days prior to the effective date of any
such transaction.
H. The joint and several liability of Tenant and
any immediate or remote successor in interest to Tenant, and the due performance
of the obligations of this lease on Tenant's part to be performed or observed,
shall not be discharged, released, or impaired in any respect by any agreement
or stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this lease.
I. The listing of any name other than that of
Tenant, whether on the doors of the demised premises, on the building directory,
if any, or otherwise, shall not operate to vest any right or interest in this
lease or in the demised premises, nor shall it be deemed to be the consent of
Landlord to any assignment or transfer of this lease, to any sublease of the
demised premises, or to the use or occupancy thereof by others.
55. INSURANCE
A. Tenant shall not violate, or permit the
violation of, any condition imposed by the standard fire insurance policy then
issued for office buildings in the Borough of Manhattan, City of New York, and
shall not do, permit anything to be done, keep, or permit anything to be kept,
in the demised premises that would: (i) subject Landlord to any liability or
responsibility for personal injury, death, or property damage; (ii) increase the
fire or other casualty insurance rate on the building or the property therein
over the rate that would otherwise then be
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in effect (unless Tenant pays the resulting premium as provided in Section F of
this Article 55); or (iii) result in insurance companies of good standing
refusing to insure the building or any of such property in amounts reasonably
satisfactory to Landlord.
B. Tenant covenants to provide on or before the
Commencement Date and to keep in force during the term hereof the following
insurance coverage:
(i) A comprehensive policy of
liability insurance containing an omnibus named insured provision naming
Landlord as an additional insured protecting Landlord and Tenant against any
liability whatsoever occasioned by accident on or about the Demised Premises or
any appurtenances thereto. The limits of liability of such policy shall not be
less than Five Million ($5,000,000.00) Dollars combined single limit coverage on
a per occurrence basis, including property damage. Such policy shall contain a
contractual liability coverage endorsement with respect to Tenant's
indemnification obligations under this lease. Such insurance may be carried
under a blanket policy covering the Demised Premises and other locations of
Tenant, if any, provided such policy contains an endorsement (a) naming Landlord
as an additional insured, (b) specifically referencing the Demised Premises and
(c) guaranteeing a minimum limit available for the Demised Premises equal to the
limits of liability required under this lease.
(ii) Fire and Extended coverage
in an amount adequate to cover the cost of replacement of all personal property,
fixtures, furnishing and equipment, including Tenant's Work located in the
Demised Premises.
All such policies shall be issued by companies of recognized responsibility
licensed to do business in New York State and rated by Best's Insurance Reports
or any successor publication of comparable standing and carrying a rating of A+
VIII or better or the then equivalent of such rating, and all such policies
shall contain a provision whereby the same cannot be cancelled or modified
unless Landlord and any additional insureds are given at least thirty (30) days
prior written notice of such cancellation or modification.
Prior to the time such insurance is first required to be carried by Tenant
and thereafter, at least fifteen (15) days prior to the expiration of any such
policies, Tenant shall deliver to Landlord either duplicate originals of the
aforesaid policies or certificates evidencing such insurance together with a
certified copy of the endorsement naming Landlord as an additional insured,
together with evidence of payment for the policy. If Tenant delivers
certificates as aforesaid, Tenant, upon reasonable prior notice from Landlord,
shall make available to Landlord at the Demised Premises duplicate originals of
such policies from which Landlord may make copies thereof, at Landlord's cost.
Tenant's failure to provide and keep in force the aforementioned insurance
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shall be regarded as a material default hereunder, entitling Landlord to
exercise any or all of the remedies as provided in this lease in the event of
Tenant's default. In addition, in the event Tenant fails to provide and keep in
force the insurance required by this lease, at the times and for the durations
specified in this lease, Landlord shall have the right, but not the obligation,
at any time and from time to time, and without notice, to procure such insurance
and or pay the premiums for such insurance in which event Tenant shall repay
Landlord within five (5) days after demand by Landlord, as additional rent, all
sums so paid by Landlord together with any costs or expenses incurred by
Landlord in connection therewith without prejudice to any other rights and
remedies of Landlord under this lease.
C. Landlord and Tenant shall each endeavor to
secure an appropriate clause in, or an endorsement upon, each fire or extended
coverage policy obtained by it and covering the Building, the Demised Premises
or the personal property, fixtures and equipment located therein or thereon,
pursuant to which the respective insurance companies waive subrogation or permit
the insured, prior to any loss, to agree with a third party to waive any claim
it might have against said third party. The waiver of subrogation or permission
for waiver of any claim hereinbefore referred to shall extend to the agents of
each party and its employees and, in the case of Tenant, shall also extend to
all other persons and entities occupying or using the Demised Premises in
accordance with the terms of this lease. If and to the extent that such waiver
or permission can be obtained only upon payment of an additional charge then,
except as provided in the following two paragraphs, the party benefiting from
the waiver or permission shall pay such charge upon demand, or shall be deemed
to have agreed that the party obtaining the insurance coverage in question shall
be free of any further obligations under the provisions hereof relating to such
waiver or permission.
In the event that Landlord shall be unable at any time to
obtain one of the provisions referred to above in any of its insurance policies,
at Tenant's option Landlord shall cause Tenant to be named in such policy or
policies as one of the assureds, but if any additional premium shall be imposed
for the inclusion of Tenant as such as assured, Tenant shall pay such additional
premium upon demand. In the event that Tenant shall have been named as one of
the assureds in any of Landlord's policies in accordance with the foregoing,
Tenant shall endorse promptly to the order of Landlord, without recourse, any
check, draft or order for the payment of money representing the proceeds of any
such policy or any other payment growing out of or connected with said policy
and Tenant hereby irrevocably waives any and all rights in and to such proceeds
and payments.
In the event that Tenant shall be unable at any time
to obtain one of the provisions referred to above in any of its insurance
policies, Tenant shall cause Landlord to be named in such policy or policies as
one of the assureds, but if any additional premium shall be imposed for the
inclusion of Landlord as such an
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assured, Landlord shall pay such additional premium upon demand or Tenant shall
be excused from its obligations under this paragraph with respect to the
insurance policy or policies for which such additional premiums would be
imposed. In the event that Landlord shall have been named as one of the assureds
in any of Tenant's policies in accordance with the foregoing, Landlord shall
endorse promptly to the order of Tenant, without recourse, any check, draft or
order for the payment of money representing the proceeds of any such policy or
any other payment growing out of or connected with said policy and Landlord
hereby irrevocably waives any and all rights in and to such proceeds and
payments.
Subject to the foregoing provisions of this Section
C of Article 55, and insofar as may be permitted by the terms of the insurance
policies carried by it, each party hereby releases the other with respect to any
claim (including a claim for negligence) which it might otherwise have against
the other party for loss, damages or destruction with respect to its property by
fire or other casualty (including rental value or business interruption, as the
case may be) occurring during the term of this lease.
D. If, by reason of a failure of Tenant to comply
with the provisions of Article 6 or Section A of Article 55, the rate of fire
insurance with extended coverage on the Building or equipment or other property
of Landlord shall be higher than it otherwise would be, Tenant shall reimburse
Landlord, on demand, for that part of the premiums for fire insurance and
extended coverage paid by Landlord because of such failure on the part of
Tenant.
E. Landlord may, from time to time, require that
the amount of the insurance to be provided and maintained by Tenant under
Section B of Article 55 hereof be increased so that the amount thereof
adequately protects Landlord's interest but in no event in excess of the amount
that would be required by other tenants conducting similar business in similar
sized space in first-class office buildings in the borough of Manhattan.
F. If any dispute shall arise between Landlord and
Tenant with respect to the incurrence or amount of any additional insurance
premium referred to in Section C of Article 55, the dispute shall be determined
by arbitration.
G. A schedule or make up of rates for the Building
or the Demised Premises, as the case may be, issued by the New York Fire
Insurance Rating Organization or other similar body making rates for fire
insurance and extended coverage for the premises concerned, shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rate with extended coverage then applicable to such premises.
H. Each policy evidencing the liability insurance
to be carried by Tenant under this lease shall contain a clause that such policy
and the coverage evidenced thereby shall be
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primary with respect to any policies carried by Landlord, and that any coverage
carried by Landlord shall be excess insurance.
(I) It is acknowledged that solely for purposes of
insurance required to be procured by Tenant under this lease, that Landlord and
Tenant each have insurable interests in and to betterments and improvements,
including Landlord's Work as defined in Exhibit C. Moreover, Landlord has agreed
and undertaken to perform the improvements referred to in Exhibit C as
Landlord's Work at Landlord's expense and Landlord's costs will, in effect, be
recouped through the rents to be paid by Tenant hereunder. As such, Tenant's
interest in the betterments and improvements shall be a leasehold interest only
and shall be insurable as such, and Landlord's interests in the betterments and
improvements shall be a fee interest and insurable as such. Landlord and Tenant
agree to cooperate with each other in adjusting any claim made by the other
under any policy of insurance providing insurance for betterments and
improvements including, but not limited to, acknowledging the interest of the
other and providing access to the Demised Premises for claims adjusting
purposes. In addition, Tenant shall retain an insurable leasehold interest in
any additional betterments an improvements directly purchased by Tenant and not
provided as part of Landlord's Work. Notwithstanding anything herein to the
contrary, nothing herein shall be construed to give Tenant the right to any
abatement, setoff, or other reduction in rent or additional rent, of any kind
whatsoever, as a result of any change, modification, destruction, damage,
deterioration, wear and tear or obsolescence of such betterments and
improvements.
56. TENANT'S CHANGES
A. (a) Tenant may, from time to time during
the term of this lease and at its sole expense, make such alterations,
additions, installations, substitutions, improvements and decorations
(hereinafter collectively referred to as "changes" and, as applied to changes
provided for in this Article 56, "Tenant's Changes" in and to the demised
premises (excluding structural changes and changes that affect any of the
Building's systems or services, for which Landlord's prior written approval
shall be required in all instances, which approval may be withheld by Landlord
in its sole and absolute discretion), as Tenant may reasonably consider
necessary for the conduct of its business therein, on the following conditions:
(i) the outside appearance or
strength of the Building, or of any of its structural parts, shall
not be affected;
(ii) no part of the Building
outside of the demised premises shall be physically affected;
i) the proper functioning
of any of the mechanical, electrical, sanitary and other
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service systems of the Building shall not be adversely affected, and the usage
of such systems by Tenant shall not be increased;
(iv) in performing the work
involved in making such changes, Tenant shall observe, and be bound by, all of
the conditions and covenants contained in this Article 56;
(v) before proceeding with any
change (except for decorations that do not affect the mechanical, electrical,
sanitary and/or other service systems), Tenant shall submit to Landlord, for
Landlord's approval, not to be unreasonably withheld or delayed, plans and
specifications for the work to be done and the name of the contractor or major
sub-contractors performing such work. Landlord may, as a condition of its
consent, require Tenant to make revisions in and to the plans and specifications
and to post a bond or other security reasonably satisfactory to Landlord to
insure the completion of such change; and
(vi) Tenant shall not make any
change, alteration, addition or substitution to the air-conditioning system
without Landlord's prior written approval, which may be withheld for any reason.
B. Tenant shall, at its expense, obtain all
necessary governmental permits and certificates for the commencement and
prosecution of Tenant's Changes, and, upon completion, for final approval
thereof, and shall cause Tenant's Changes to be performed in compliance
therewith, as well as with all applicable laws and requirements of public
authorities and all applicable requirements of insurance bodies, in a good and
workmanlike manner, using new materials and equipment of a quality and class at
least equal to the original installations in the Building. Tenant's Changes
shall be performed in such a manner as not to unreasonably interfere with or
delay, and (unless Tenant shall indemnify Landlord therefor to the latter's
reasonable satisfaction) as not to impose any additional expense upon Landlord
in, the maintenance or operation of the Building. Throughout the performance of
Tenant's Changes, Tenant shall, at its expense, carry, or cause to be carried by
Tenant's contractor, worker's compensation insurance in statutory limits and
general liability insurance for any occurrence in or about the Building as set
forth in Article 55 hereof. All such insurance policies shall name Landlord and
its agents as parties insured, be in such limits as Landlord may reasonably
prescribe and be placed with insurers reasonably satisfactory to Landlord.
Tenant shall furnish Landlord with satisfactory evidence that such insurance is
in effect at or before the commencement of Tenant's Changes and, on request, at
reasonable intervals thereafter during the continuance of Tenant's Changes. If
any of Tenant's Changes shall involve the removal of any fixtures, equipment, or
other property in the demised premises, such fixtures, equipment, or other
property shall be promptly replaced, at Tenant's expense, with new fixtures,
equipment, or other property (as the case may be) of like utility and at least
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equal value unless Landlord shall otherwise expressly consent in writing, and
Tenant shall, upon Landlord's request, store and preserve, at Tenant's sole cost
and expense, any such fixtures, equipment, or property so removed and shall
return same to Landlord upon the expiration or sooner termination of this lease.
All Tenant's Changes shall be performed by contractors approved by Landlord,
which approval shall not be unreasonably withheld or delayed. Landlord will upon
request of Tenant furnish to Tenant a list of approved contractors containing
not less than four (4) approved contractors.
C. Tenant shall, at its expense and with diligence
and dispatch, procure the cancellation or discharge of all notices of violation
arising from, or otherwise connected with, Tenant's Changes that shall be issued
by the Department of Buildings or any other public or quasi-public authority
having or asserting jurisdiction. Tenant shall defend, indemnify and save
Landlord harmless from and against any and all mechanic's and other liens filed
in connection with Tenant's Changes, including the liens of any security
interest in, conditional sales of, or chattel mortgages upon, any materials,
fixtures, or articles so installed in and constituting part of the demised
premises, and against all costs, expense and liabilities incurred in connection
with any such lien, security interest, conditional sale, or chattel mortgage or
any action or proceeding brought thereon. Tenant, at its expense, shall procure
the satisfaction or discharge of all such liens within fifteen (15) days after
Landlord makes written demand therefor. However, nothing herein contained shall
prevent Tenant from contesting, in good faith and at its own expense, any such
notice of violation, provided that Tenant shall comply with the provisions of
Article 6 hereof.
D. Tenant agrees that the exercise of its rights
pursuant to the provisions of this Article 56 shall not be done in a manner that
would: (i) create any work stoppage, picketing, labor disruption, or dispute;
(ii) violate Landlord's union contracts affecting the land and/or Building; or
(iii) interfere with the business of Landlord or any Tenant or occupant of the
Building. In the event of the occurrence of any condition described above
arising from Tenant's exercise of any of its rights pursuant to the provisions
of this Article 56, Tenant shall, immediately upon notice from Landlord, cease
the manner of exercise of such right giving rise to such condition. In the event
that Tenant fails to cease such manner of exercise of its rights as aforesaid,
Landlord, in addition to any rights available to it under this lease and
pursuant to law, shall have the right to injunction without notice. With respect
to Tenant's Changes, Tenant shall make all arrangements for, and pay all
expenses incurred in connection with, use of the freight elevators servicing the
demised premises which use shall be on an after hours basis. Tenant shall be
charged for use of the freight elevators for after hours use of the freight
elevator at the then standard Building charge therefor which presently is $75.00
per hour (with a minimum of four (4) hours if requested on other than business
days or for a period commencing after 6:00 p.m. on business days) which amount
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shall be increased as Landlord's actual out-of-pocket costs for such after hours
freight elevator service increase. All amounts due from Tenant hereunder shall
be paid as additional rent within fifteen (15) days from receipt of bills
therefor.
E. Notwithstanding anything in Article 3 to the
contrary, Landlord will not unreasonably withhold its consent to (a)
alterations, installations, additions or improvements to the interior of the
Demised Premises by Tenant which are non-structural and which do not affect any
of the Building systems or plumbing or electrical lines.
57. HOLDING OVER
Tenant acknowledges that possession of the demised premises must be
surrendered to Landlord at the expiration or sooner termination of the term of
this lease. Tenant agrees to indemnify and save Landlord harmless against all
liabilities, costs, suits, demands, charges, and expenses of any kind or nature,
including attorneys' fees and disbursements, resulting from a delay by Tenant in
so surrendering the demised premises, including, without limitation, any claims
made by any succeeding tenant founded on such delay. The parties recognize and
agree that the damage to Landlord resulting from any failure by Tenant to timely
surrender possession of the demised premises as aforesaid will be extremely
substantial, will exceed the amount of fixed rent and additional rent
theretofore payable hereunder and will be impossible of accurate measurement.
Tenant, therefore, agrees that if possession of the demised premises is not
surrendered to Landlord within twenty-four (24) hours after the date of the
expiration or sooner termination of the term of this lease, then Tenant shall
pay to Landlord, as liquidated damages, a sum equal to two (2) times the per
diem fixed rent and additional rent which was payable during the calendar month
preceding the calendar month in which the term ended for each day Tenant holds
over and fails to deliver possession of the demised premises. Nothing herein
contained shall be deemed to permit Tenant to retain possession of the demised
premises after the expiration or sooner termination of the term of this lease.
Landlord, by availing itself of the rights and privileges granted by this
provision and the acceptance of the liquidated damages, shall not be deemed to
have waived any of its rights and privileges granted in other provisions of this
lease, and the rights granted in this Article shall be considered in any event
as in addition to and not in exclusion of such other rights and privileges. The
aforesaid provisions of this Article shall survive the expiration or sooner
termination of the term of this lease.
58. CERTAIN DEFINITIONS AND CONSTRUCTION
A. For the purposes of this lease and all
agreements supplemental to this lease, unless the context otherwise requires the
definitions set forth in Exhibit B annexed hereto shall be utilized.
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B. The various terms which are italicized and
defined in other Articles of this lease or are defined in Exhibits annexed
hereto, shall have the meanings specified in such other Articles and such
Exhibits for all purposes of this lease and all agreements supplemental thereto,
unless the context shall otherwise require.
59. ADDENDUM TO ARTICLE 17
The following is added to the Lease as Section 17.1:
"This lease and the term and estate hereby granted are
subject to the limitation that:
(a) whenever Tenant shall default in the
payment of any installment of fixed rent, or in the payment of any additional
rent or any other charge payable by Tenant to Landlord, on any day upon which
the same ought to be paid, and such default shall continue for ten (10) days
after Landlord shall have given Tenant a notice in accordance with Article 60
specifying such default; or
(b) whenever Tenant shall do or permit
anything to be done, whether by action or inaction, contrary to any of Tenant's
obligations hereunder, and if such situation shall continue and shall not be
remedied by Tenant within thirty (30) days after Landlord shall have given to
Tenant a notice in accordance with Article 60 specifying the same, or, in the
case of a happening or default which cannot with due diligence be cured within a
period of thirty (30) days and the continuance of which for the period required
for cure will not subject Landlord to the risk of criminal liability or
termination of any superior lease or foreclosure of any superior mortgage, if
Tenant shall not, (i) within said thirty (30) day period advise Landlord of
Tenant's intention to duly institute all steps necessary to remedy such
situation, (ii) duly institute within said thirty (30) day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
same and (iii) complete such remedy within such time after the date of the
giving of said notice of Landlord as shall reasonably be necessary; or
(c) whenever any event shall occur or any
contingency shall arise whereby this lease or the estate hereby granted or the
unexpired balance of the term hereof would, by operation of law or otherwise,
devolve upon or pass to any person, firm or corporation other than Tenant,
except as expressly permitted by Articles 11 and 54; or
(d) whenever Tenant shall abandon the
Demised Premises (unless as a result of a casualty),
then in any of said cases set forth in the foregoing Subsections (a), (b), (c)
and (d), Landlord may give to Tenant a notice of intention to end the term of
this lease at the expiration of five (5) days from the date of the service of
such notice of intention,
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and upon the expiration of said five (5) days this lease and the term and estate
hereby granted, whether or not the term shall theretofore have commenced, shall
terminate with the same effect as if that day were the Expiration Date, but
Tenant shall remain liable for damages as provided in Article 18."
60. NOTICES
A. Except for rent bills and emergency repair
notices (which may be hand-delivered or sent via facsimile machine and shall be
deemed given upon receipt) any notice, statement, demand or other communication
required or permitted to be given, rendered or made by either party to the
other, pursuant to this lease or pursuant to any applicable law or requirement
of public authority, shall be in writing (whether or not so stated elsewhere in
this lease) and shall be deemed to have been properly given, rendered or made,
if sent by registered or certified mail, return receipt requested, addressed to
the other party at the address hereinabove set forth (except that after the
Commencement Date, Tenant's address, unless Tenant shall give notice to the
contrary, shall be the Building), or sent via nationally recognized overnight
courier providing for receipted delivery and shall be deemed to have been given,
rendered or made (a) if so mailed, on the day so mailed, unless mailed outside
of the State of New York, in which case it shall be deemed to have been given,
rendered or made on the expiration of the normal period of time for delivery of
mail from the post-office of origin to the post-office of destination and (b) if
sent via nationally recognized overnight courier, on the date of receipt. Either
party may, by notice as aforesaid, designate a different address or addresses
for notices, statements, demands or other communications intended for it.
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- - - - - - - - - - - - - - - - - - - - - - -
EXHIBIT A
FLOOR PLAN OF DEMISED PREMISES
- - - - - - - - - - - - - - - - - - - - - - -
Follows Immediately
(Floor plan attached)
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- - - - - - - - - - - - - - - - - - - - - - -
EXHIBIT B
DEFINITIONS
- - - - - - - - - - - - - - - - - - - - - - -
(a) The term "mortgage" shall include an
indenture of mortgage and deed of trust to a trustee to secure an issue of
bonds, and the term "mortgagee" shall include such a trustee.
(b) The terms "include", "including" and
"such as" shall each be construed as if followed by the phrase "without being
limited to".
(c) The term "obligations of this lease",
and words of like import, shall mean the covenants to pay rent and additional
rent under this lease and all of the other covenants and conditions contained in
this lease. Any provision in this lease that one party or the other or both
shall do or not do or shall cause or permit or not cause or permit a particular
act, condition, or circumstance shall be deemed to mean that such party so
covenants or both parties so covenant, as the case may be.
(d) The term "Tenant's obligations
hereunder", and words of like import, and the term Landlord's obligations
hereunder, and words of like import, shall mean the obligations of this lease
which are to be performed or observed by Tenant, or by Landlord, as the case may
be. Reference to performance of either party's obligations under this lease
shall be construed as "performance and observance".
(e) Reference to Tenant being or not
being "in default hereunder", or words of like import, shall mean that Tenant is
in default in the performance of one or more of Tenant's obligations hereunder,
or that Tenant is not in default in the performance of any of Tenant's
obligations hereunder, or that a condition of the character described in Section
25.01 has occurred and continues or has not occurred or does not continue, as
the case may be.
(f) References to Landlord as having "no liability to Tenant" or "being
without liability to Tenant", shall mean that Tenant is not entitled to
terminate this lease, or to claim actual or constructive eviction, partial or
total, or to receive any abatement or diminution of rent, or to be relieved in
any manner of any of its other obligations hereunder, or to be compensated for
loss or injury suffered or to enforce any other kind of liability whatsoever
against Landlord under or with respect to this lease or with respect to Tenant's
use or occupancy of the Demised Premises.
(g) The term laws and/or requirements of public authorities and words of
like import shall mean laws and
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ordinances of any or all of the Federal, state, city, county and borough
governments and rules, regulations, orders and/or directives of any or all
departments, subdivisions, bureaus, agencies or offices thereof, or of any other
governmental, public or quasi-public authorities, having jurisdiction in the
premises, and/or the direction of any public officer pursuant to law.
(h) The term "requirements of insurance"
bodies and words of like import shall mean rules, regulations, orders and other
requirements of the New York Board of Fire Underwriters and/or the New York Fire
Insurance Rating Organization and/or any other similar body performing the same
or similar functions and having jurisdiction or cognizance of the Building
and/or the Demised Premises.
(i) The term "repair" shall be deemed to
include restoration and replacement as may be necessary to achieve and/or
maintain good working order and condition.
(j) Reference to "termination of this
lease" includes expiration or earlier termination of the term of this lease or
cancellation of this lease pursuant to any of the provisions of this lease or to
law. Upon a termination of this lease, the term and estate granted by this lease
shall end at noon of the date of termination as if such date were the date of
expiration of the term of this lease and neither party shall have any further
obligation or liability to the other after such termination (i) except as shall
be expressly provided for in this lease, or (ii) except for such obligation as
by its nature or under the circumstances can only be, or by the provisions of
this lease, may be, performed after such termination, and, in any event, unless
expressly otherwise provided in this lease, any liability for a payment which
shall have accrued to or with respect to any period ending at the time of
termination shall survive the termination of this lease.
(k) The term "in full force and effect"
when herein used in reference to this lease as a condition to the existence or
exercise of a right on the part of Tenant shall be construed in each instance as
including the further condition that at the time in question no default on the
part of Tenant exists, and no event has occurred which has continued to exist
for such period of time (after the notice, if any, required by this lease), as
would entitle Landlord to terminate this lease or to dispossess Tenant.
(l) The term "Tenant" shall mean Tenant
herein named or any assignee or other successor in interest (immediate or
remote) of Tenant herein named, while such Tenant or such assignee or other
successor in interest, as the case may be, is in possession of the Demised
Premises as owner of the Tenant's estate and interest granted by this lease and
also, if Tenant is not an individual or a corporation, all of the persons, firms
and corporations then comprising Tenant.
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(m) Words and phrases used in the
singular shall be deemed to include the plural and vice versa, and nouns and
pronouns used in any particular gender shall be deemed to include any other
gender.
(n) The rule of "ejusdem generis" shall not
be applicable to limit a general statement following or referable to an
enumeration of specific matters to matters similar to the matters specifically
mentioned.
(o) All references in this lease to
numbered Articles, numbered Sections and lettered Exhibits are references to
Articles and Sections of this lease, and Exhibits annexed to (and thereby made
part of) this lease, as the case may be, unless expressly otherwise designated
in the context.
(p) The terms "control" shall mean (i)
ownership of more than fifty (50%) percent of all the voting stock of a
non-publically traded corporation or more than fifty (50%) percent of all the
legal and equitable interest in any other non-publically traded entity and (ii)
with respect to a publically traded corporation or entity, the possession of the
power to direct or cause the direction of the management and policies of such
corporation or entity through the ownership of voting securities or interests or
by contract or otherwise.
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- - - - - - - - - - - - - - - - - - - - - - -
EXHIBIT C
LANDLORD'S WORK
- - - - - - - - - - - - - - - - - - - - - - -
PART A: 1. Tenant has submitted to Landlord and Landlord hereby approves the
detailed architectural working drawings and specifications for Landlord's Work
sealed by Tenant's licensed architect, and the electrical, mechanical, plumbing,
sprinkler and engineering plans based upon such detailed architectural working
drawings and specifications set forth in Part E hereof(such drawings,
specifications and plans are hereinafter collectively referred to as the "Work
Plans").
2. The Work Plans shall comply with and conform to the plans
of the Building filed with the Department of Buildings of the City of New York,
and with all rules, regulations and/or other requirements of any governmental
department having jurisdiction over the preparation of the Demised Premises.
Landlord shall file all necessary architectural plans, together with any
mechanical plans and specifications, in such form (building notice, alteration,
or other form) as may be necessary, with the appropriate governmental agencies.
Any changes required by any governmental department affecting the completion of
the Demised Premises shall be described in detail to Tenant (prior to their
implementation) and provided (i) Tenant agrees in writing to their
implementation (which agreement shall not be unreasonably withheld or delayed),
or (ii) such governmental department requires such changes be implemented in a
particular manner designated by such governmental department, Landlord shall
notify Tenant thereof and the same shall be complied with by Landlord in the
completion of the Demised Premises and shall not be deemed to be a violation of
the Work Plans or any provisions of this Exhibit C. In the event Tenant does not
agree to the implementation of any such change (which agreement shall not be
unreasonably withheld or delayed) where such governmental department has not
required that such change be implemented in a particular manner designated by
such governmental department, Landlord and Tenant shall cooperate in revising
the Work Plans in a manner acceptable to both parties and the applicable
governmental agency. The granting by Landlord of its approval to the Work Plans
shall in no manner constitute or be deemed to constitute a judgment or
acknowledgment by Landlord as to their legality or compliance with governmental,
quasi-governmental or other requirements.
3. Tenant shall have the right to make changes from time to
time in the Work Plans subsequent to the approval thereof by submitting to
Landlord revised plans and specifications (herein referred to as the
"Revisions"). All Revisions shall be subject to Landlord's prior written
approval, which shall not be unreasonably withheld or delayed. In the event any
Revisions increase the cost of the Landlord's Work above the cost of performing
same in
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accordance with the approved Work Plans, provided Landlord gave written notice
of the estimated amount of such increase to Tenant prior to implementing such
Revisions and Tenant gave written approval of such amount to Landlord within
four (4) business days of receipt of such notice, or failed to respond within
such period, Tenant shall be deemed to have approved such amount and such
increase shall be paid by Tenant. If Tenant disapproves the estimated cost of
any Revision within four (4) days of receipt of such estimated cost from
Landlord, Landlord shall have no obligation to perform such Revision.
Additionally, in the event any Revisions delay the substantial completion of
Landlord's Work, (provided Landlord notified Tenant in writing prior to the
implementation of such Revisions as to the estimated delay to be caused thereby)
Landlord's Work shall be deemed substantially completed as the date it would
otherwise have been completed but for such Revisions.
4. All amounts payable by Tenant pursuant to this Exhibit C
shall be paid by Tenant within ten (10) business days after the submission to
Tenant of statements, bills or invoices and reasonable back-up materials with
respect thereto. Such statements, bills or invoices shall be conclusive and
binding on Tenant unless Tenant shall notify Landlord within such ten (10)
business day period that it disputes the correctness thereof, specifying the
particular respects in which the statement, bill or invoice is claimed to be
incorrect. Pending the resolution of such dispute by agreement between the
parties or otherwise, Tenant shall pay all amounts due in accordance with the
statement, bill or invoice, but such payment shall be without prejudice to
Tenant's right to dispute same. If the dispute shall be resolved in Tenant's
favor, Landlord shall, within ten (10) business days, pay Tenant the amount of
the overpayment, if any, resulting from Tenant's compliance with such statement,
bill or invoice.
PART B: 1. Landlord shall provide the materials and install and complete same
and prepare the Demised Premises for Tenant's occupancy (hereinafter referred to
as "Landlord's Work") in accordance with the approved Work Plans at Landlord's
sole cost and expense except as set forth in Part A, Paragraph 3 above. Tenant
shall be entitled to the benefit of any warranties and guaranties given to
Landlord in connection with Landlord's Work. Notwithstanding anything herein to
the contrary, as part of Landlord's Work, Landlord shall, to the extent
required, make all repairs to the air-conditioning system servicing the Demised
Premises so that same is in good working order on the Commencement Date.
PART C: Tenant's Performance of Items of Tenant's Work:
- ------- -----------------------------------------------
1. Landlord shall permit Tenant and its agents to enter upon
the Demised Premises prior to the Commencement Date so that Tenant or its agents
or architect may examine Landlord's Work and may perform Tenant's Work (as
defined in Article 40) utilizing its own contractors, (to be first approved in
writing by Landlord which approval shall not be unreasonably withheld or
delayed) and in
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accordance with plans and specifications as approved in writing by Landlord
(which approval shall not be unreasonably withheld or delayed). The approved
contractors performing Tenant's Work may perform Tenant's Work at the same time
that Landlord's contractors are working in the Demised Premises, provided,
however, that (a) Landlord's Work shall have reached a point at which, in
Landlord's reasonable judgment, the performance of Tenant's Work will not delay
or hamper Landlord in the completion of the same and (b) Tenant and its
contractors shall work in harmony and shall not interfere with Landlord or
Landlord's contractors. Landlord may, at any time, deny access to the Demised
Premises to Tenant and/or to any of its contractors in the event that Landlord
shall, in its reasonable discretion, determine that the performance or manner of
performance of Tenant's Work interferes with, delays, hampers, or prevents
Landlord from proceeding with the completion of Landlord's Work at the earliest
possible time. In connection with the foregoing sentence, within twenty-four
(24) hours after Landlord's direction (which need not be given in writing and
may be given by Landlord or its agents or contractors to Tenant or its agents or
contractors), Tenant shall, and cause its contractors to, withdraw from the
Building and the Demised Premises and cease all work being performed by it or on
its behalf by any person, firm, or corporation (other than Landlord). Tenant
shall pay to Landlord, as additional rent, within ten (10) days after submission
to Tenant of a statement therefor, an amount equal to all costs incurred by
Landlord in connection with such early entry by Tenant.
2. In the event that Tenant or its contractor shall be
permitted to enter upon the Demised Premises prior to the Commencement Date
pursuant to the terms of paragraph 1 above, such entry shall be deemed to be
upon all of the terms, provisions and conditions of the Lease, except as to the
covenant to pay fixed rent and additional rent. In connection therewith, Tenant
and/or its contractors shall provide to Landlord, and shall maintain at all
times during the performance of any Tenant's Work, Builder's Risk, worker's
compensation, public liability and property damage insurance policies, all of
which shall contain limits, be with companies and be in form as required
pursuant to Article 55 of the Lease. Certificates of the same shall be furnished
to Landlord before Tenant or its contractors commence to perform Tenant's Work.
Landlord shall not be liable in any way for any injury, loss or damage that may
occur to any of Tenant's or Tenant's contractors' decorations, fixtures,
installations, supplies, materials, or equipment prior to the Commencement Date
unless due to the negligence or wilful misconduct of Landlord or its agents or
contractors (it being understood and agreed that Landlord has no obligation to
secure same or take any action with respect thereto). Except as set forth in the
preceding sentence, any such entry by Tenant and/or its contractors being at
their sole risk.
PART D: Delays Caused By Tenant; Additional Expenses:
- ------- ---------------------------------------------
Tenant has been advised of the importance to Landlord of completing
Landlord's Work in an expeditious manner and of the financial loss to Landlord
that would result from a delay in such
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completion. If Tenant, or persons within Tenant's control, cause an actual delay
in the progress or completion of Landlord's Work by (i) submitting one or more
Revisions to Landlord (provided Landlord gives Tenant notice as to the delay
such Revisions would cause pursuant to Part A Paragraph 5 above); or (ii)
otherwise interfering with, or delaying, Landlord's completion of Landlord's
Work (any such delay set forth in (i) or (ii) above being herein referred to as
a "Tenant's Delay"), then the date of substantial completion of Landlord's Work
shall be deemed to be the date upon which Landlord's Work would have been
substantially completed but for Tenant's Delay.
PART E: Work Plans:
- ------- -----------
Follows immediately.
(Site plans and project plans attached)
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- - - - - - - - - - - - - - - - - - - - - - -
EXHIBIT D
CERTIFICATE OF OCCUPANCY
- - - - - - - - - - - - - - - - - - - - - - -
(Follows immediately)
(Certificate attached)
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BOS2: 63298_2.28256.3
LEASE
BETWEEN
ANGELA C. MAFFEO, TRUSTEE
UNDER THE WILL OF
JOHN CAPOBIANCO,
as Landlord
AND
MANCHESTER EQUIPMENT CO., INC.,
as Tenant
Dated: as of June 30, 1997
<PAGE>
-i-
LEASE INDEX
Page
SCHEDULE..................................................................1
1. DEMISE AND TERM........................................................1
2. RENT...................................................................1
3. USE....................................................................1
4. CONDITION OF PREMISES..................................................1
5. BUILDING SERVICES......................................................1
6. RULES AND REGULATIONS..................................................1
7. CERTAIN RIGHTS RESERVED TO LANDLORD....................................1
8. MAINTENANCE AND REPAIRS................................................1
9. ALTERATIONS.............................................................1
10. INSURANCE..............................................................1
11. WAIVER AND INDEMNITY...................................................1
12. FIRE AND CASUALTY......................................................1
13. CONDEMNATION...........................................................1
14. ASSIGNMENT AND SUBLETTING..............................................1
15. SURRENDER..............................................................1
16. DEFAULTS AND REMEDIES..................................................1
17. HOLDING OVER...........................................................1
18. SECURITY DEPOSIT.......................................................1
19. [INTENTIONALLY OMITTED]................................................1
20. ESTOPPEL CERTIFICATES..................................................1
21. SUBORDINATION..........................................................1
22. QUIET ENJOYMENT........................................................1
23. BROKER.................................................................1
24. NOTICES................................................................1
25. DIRECTORY; SIGNS.......................................................1
26. PARKING................................................................1
27. MISCELLANEOUS..........................................................1
EXHIBIT "A" - FLOOR PLAN...................................................1
EXHIBIT "A-1" - LEGAL DESCRIPTION OF LAND..................................1
EXHIBIT "B" - RULES AND REGULATIONS........................................1
EXHIBIT "C" - TENANT IMPROVEMENT WORK......................................1
<PAGE>
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LEASE
THIS LEASE (this "Lease") is made as of the ______ day of June, 1997 by
and between Angela C. Maffeo, Trustee under the Will of John Capobianco, having
an address at 801 Three Islands Boulevard, No. 206, Hallendale, Florida 33009
("Landlord"), and Manchester Equipment Co., Inc., a New York corporation having
an address at 161 Highland Avenue, Needham, Massachusetts 02194 ("Tenant"), for
space in the building known as or located at 25-27 Christina Street, Newton,
Massachusetts (such building, together with the land (the "Land") upon which it
is situated, being herein referred to as the "Building"). The Land is more
particularly described in Exhibit "A-1" attached hereto and incorporated herein
by this reference. The following schedule (the "Schedule") sets forth certain
basic terms of this Lease:
SCHEDULE
1. Premises: A portion of the first floor of the Building consisting of
approximately 3,008 rentable square feet of floor area as shown cross-hatched on
the floor plan (the "Floor Plan") attached hereto as Exhibit "A" and
incorporated herein by this reference.
2. Annual Minimum Rent: $48,128.00 per year for the first Lease Year
(as defined below); $48,128.00 per year for the second Lease Year; $48,128.00
per year for the third Lease Year; $51,136.00 per year for the fourth Lease
Year; and $51,136.00 per year for the fifth Lease Year.
3. Monthly Minimum Rent: $4,010.67 per month for each month during the
first Lease Year; $4,010.67 per month for each month during the second Lease
Year; $4,010.67 per month for each month during the third Lease Year; $4,261.33
per month for each month during the fourth Lease Year; and $4,261.33 per month
for each month during the fifth Lease Year.
4. Tenant's Operating Expenses Proportionate Share: Eleven and 38/100
percent (11.38%).
5. Tenant's Taxes Proportionate Share: Five and 69/100 percent (5.69%).
6. Base Expense Year: Calendar Year 1996 (i.e., January 1, 1996 -
December 31, 1996).
7. Base Tax Year:Fiscal Year 1997 (i.e., July 1, 1996 - June 30, 1997).
8. Security Deposit: $8,522.66.
9. Brokers: Rose Associates, Inc., Casler & Company and Nealon Company.
10. Commencement Date: The earlier of (i) the date on which Tenant,
pursuant to permission therefor duly given by Landlord, commences use of the
Premises or any portion thereof, or (ii) the Substantial Completion Date (as
defined in Exhibit "C" attached hereto and incorporated herein by this
reference).
11. Expiration Date: The day prior to the fifth anniversary of the
Commencement Date.
12. Notice Address of Landlord: Angela C. Maffeo, Trustee
under the Will of John Capobianco
801 Three Islands Boulevard, No. 206
Hallendale, Florida 33009
with a copy in like manner to:
Rose Associates, Inc.
One Financial Center
Boston, Massachusetts 02111
Attention: Philip Rogers
13. Notice Address of Tenant:
Manchester Equipment Co., Inc.
161 Highland Avenue
Needham, Massachusetts 02194
Attention: Steven Reibstein
with a copy in like manner to:
David Roth, Esquire
Kressel Rothtein & Roth
684 Broadway
Massapequa, New York 11758
with a copy in like manner to:
Manchester Equipment Co., Inc.
50 Marcus Boulevard
Hauppauge, New York 11788
Attention: Joseph Looney
1. DEMISE AND TERM. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the premises (the "Premises") described in Item 1 of the
Schedule and shown on the Floor Plan, subject to the covenants and conditions
set forth in this Lease, for a term (the "Term") commencing on the date (the
"Commencement Date") described in Item 10 of the Schedule and expiring on the
date (the "Expiration Date") described in Item 11 of the Schedule, unless
terminated earlier as otherwise provided in this Lease. Upon the determination
of the Commencement Date, Landlord and Tenant shall memorialize the Commencement
Date and the Expiration Date in a written instrument.
2. RENT.
(a) Definitions. For purposes of this Lease, the following terms shall
have the following meanings:
(i) "Base Expense Year" shall mean the year set forth in Item 6 of the
Schedule.
(ii) "Base Tax Year" shall mean the year set forth in Item 7 of the
Schedule.
(iii) "Base Expenses" shall mean the amount of Expenses (as defined
below) for the Base Expense Year.
(iv) "Base Taxes" shall mean the amount of Taxes (as defined below)
for the Base Tax Year.
(v) "Expenses" shall mean all expenses, costs and disbursements (other
than Taxes) paid or incurred by Landlord in connection with the ownership,
management, maintenance, operation, replacement and repair of the Building.
Expenses shall not include: (a) costs of tenant alterations; (b) costs of
capital improvements (except for costs of any capital improvements made or
installed for the purpose of reducing Expenses or made or installed pursuant to
governmental requirement or insurance requirement, which costs shall be
amortized by Landlord in accordance with sound accounting and management
principles); (c) interest and principal payments on mortgages (except interest
on the cost of any capital improvements for which amortization may be included
in the definition of Expenses) or any rental payments on any ground leases
(except for rental payments which constitute reimbursement for Taxes and
Expenses); (d) advertising expenses and leasing commissions; (e) any cost or
expenditure for which Landlord is reimbursed, whether by insurance proceeds or
otherwise, except through Adjustment Rent (as defined below); (f) the cost of
any kind of service furnished to any other tenant in the Building which Landlord
does not generally make available to all tenants in the Building; and (g) legal
expenses of negotiating leases. Expenses shall be determined on a cash or
accrual basis, as Landlord may elect.
(vi) "Lease Year" shall mean a one (1) year period commencing on the
Commencement Date or any anniversary thereof and expiring at midnight on the day
prior to the next anniversary thereof.
(vii) "Rent" shall mean Minimum Rent (as defined below), Adjustment
Rent and any other sums or charges due by Tenant hereunder.
(viii) "Taxes" shall mean all taxes, assessments and fees levied upon
the Building, the property of Landlord located therein or the rents collected
therefrom, by any governmental entity based upon the ownership, leasing, renting
or operation of the Building, including all costs and expenses of protesting any
such taxes, assessments or fees. Taxes shall not include any net income, capital
stock, succession, transfer, franchise, gift, estate or inheritance taxes;
provided, however, if at any time during the Term, a tax or excise on income is
levied or assessed by any governmental entity, in lieu of or as a substitute
for, in whole or in part, real estate taxes or other ad valorem taxes, such tax
shall constitute and be included in Taxes. For the purposes of determining Taxes
for any given year, the amount to be included for such year (a) from special
assessments payable in installments shall be the amount of the installments (and
any interest) due and payable during such year, and (b) from all other Taxes
shall at Landlord's election either be the amount accrued, assessed or otherwise
imposed for such year or the amount due and payable in such year.
(ix) "Tenant's Operating Expenses Proportionate Share" shall mean the
percentage set forth in Item 4 of the Schedule.
(x) Tenant's Taxes Proportionate Share" shall mean the percentage set
forth in Item 5 of the Schedule.
(b) Components of Rent. Tenant agrees to pay the following amounts to
Landlord at the office of the Building or at such other place as Landlord
designates:
(i) Minimum rent ("Minimum Rent") to be paid in monthly installments
in the amount set forth in Item 3 of the Schedule in advance on or before the
first day of each month of the Term, except that Tenant shall pay the first
month's Minimum Rent upon execution of this Lease.
(ii) Adjustment rent ("Adjustment Rent") in an amount equal to
Tenant's Proportionate Share of (a) the increase in Expenses for any calendar
year over the Base Expenses and (b) the increase in Taxes for any calendar year
over the Base Taxes. Prior to each calendar year, Landlord shall estimate the
amount of Adjustment Rent due for such year, and Tenant shall pay Landlord
one-twelfth of such estimate on the first day of each month during such year.
Such estimate may be revised by Landlord whenever it obtains information
relevant to making such estimate more accurate. After the end of each calendar
year, Landlord shall deliver to Tenant a report setting forth the actual
Expenses and Taxes for such calendar year and a statement of the amount of
Adjustment Rent that Tenant has paid and is payable for such year. Within thirty
(30) days after receipt of such report and statement, Tenant shall pay to
Landlord the amount of Adjustment Rent due for such calendar year minus any
payments of Adjustment Rent made by Tenant for such year. If Tenant's estimated
payments of Adjustment Rent exceed the amount due Landlord for such calendar
year, Landlord shall apply such excess as a credit against Tenant's other
obligations under this Lease or promptly refund such excess to Tenant if the
Term has already expired, provided Tenant is not then in default hereunder, in
either case without interest to Tenant.
(c) Payment of Rent. The following provisions shall govern the payment
of Rent: (i) if this Lease commences or ends on a day other than the first day
or last day of a calendar year, respectively, the Rent for the year in which
this Lease so begins or ends shall be prorated and the monthly installments
shall be adjusted accordingly; (ii) all Rent shall be paid to Landlord without
offset or deduction, and the covenant to pay Rent shall be independent of every
other covenant in this Lease; (iii) if during all or any portion of any year the
Building is not fully rented and occupied, Landlord may elect to make an
appropriate adjustment of Expenses for such year to determine the Expenses that
would have been paid or incurred by Landlord had the Building been fully rented
and occupied for the entire year and the amount so determined shall be deemed to
have been the Expenses Taxes for such year; (iv) any sum due from Tenant to
Landlord which is not paid within ten (10) days after the due date for such
payment shall bear interest from the date due until the date paid at the annual
rate of eighteen percent (18%) per annum, but in no event higher than the
maximum rate permitted by law (the "Default Rate"); and, in addition, Tenant
shall pay Landlord a late charge for any Rent payment which is not paid within
ten (10) days after its due date equal to five percent (5%) of such payment; (v)
if changes are made to this Lease or the Building changing the number of square
feet contained in the Premises or in the Building, Landlord shall make an
appropriate adjustment to Tenant's Proportionate Share; (vi) Tenant shall have
the right to inspect Landlord's accounting records relative to Expenses and
Taxes during normal business hours at any time within thirty (30) days following
the furnishing to Tenant of the annual statement of Adjustment Rent; and, unless
Tenant shall take written exception to any item in any such statement within
such thirty (30) day period, such statement shall be considered as final and
accepted by Tenant; (vii) in the event of the termination of this Lease prior to
the determination of any Adjustment Rent, Tenant's agreement to pay any such
sums and Landlord's obligation to refund any such sums (provided Tenant is not
in default hereunder) shall survive the termination of this Lease; (viii) no
adjustment to the Rent by virtue of the operation of the rent adjustment
provisions in this Lease shall result in the payment by Tenant in any year of
less than the Minimum Rent shown on the Schedule; (ix) Landlord may at any time
change the fiscal year of the Building; (x) each amount owed to Landlord under
this Lease for which the date of payment is not expressly fixed shall be due on
the same date as the Rent listed on the statement showing such amount is due;
(xi) if Landlord fails to give Tenant an estimate of Adjustment Rent prior to
the beginning of any calendar year, Tenant shall continue to pay Adjustment Rent
at the rate for the previous calendar year until Landlord delivers such
estimate; and (xii) if, after Tenant shall have made any payment of Adjustment
Rent to Landlord pursuant to Section 2(b), Landlord shall receive a refund of
any portion of Taxes paid by Tenant with respect to any tax period during the
Term of this Lease as a result of abatement of such Taxes by legal proceedings,
settlement or otherwise, Landlord shall credit to Tenant Tenant's Proportionate
Share of such refund (less the proportional pro rata reasonable expenses,
including reasonable attorneys' fees and appraisers' fees incurred by Landlord
in connection with obtaining such refund), as it relates to Taxes paid by Tenant
to Landlord with respect to any such period for which a refund is obtained.
3. USE. Tenant agrees that it shall occupy and use the Premises only as
business offices and for no other purposes. Tenant shall comply with all
federal, state and municipal laws, ordinances and regulations and all covenants,
conditions and restrictions of record applicable to Tenant's use or occupancy of
the Premises. Without limiting the foregoing, Tenant shall not cause, nor
permit, any hazardous or toxic substances to be brought upon, produced, stored,
used, discharged or disposed of in, on or about the Premises without the prior
written consent of Landlord and then only in compliance with all applicable
environmental laws.
4. CONDITION OF PREMISES. Tenant's taking possession of the Premises
shall be conclusive evidence that the Premises were in good order and
satisfactory condition when Tenant took possession. No agreement of Landlord to
alter, remodel, decorate, clean or improve the Premises or the Building (or to
provide Tenant with any credit or allowance for the same), and no representation
regarding the condition of the Premises or the Building or the suitability of
the Premises for Tenant's proposed use thereof, have been made by or on behalf
of Landlord or relied upon by Tenant, except as provided in Exhibit "C" attached
hereto and incorporated herein by this reference.
5. BUILDING SERVICES.
(a) Basic Services. Landlord shall furnish the following services: (i)
heating and air conditioning to provide a temperature condition required, in
Landlord's reasonable judgment, for comfortable occupancy of the Premises under
normal business operations, daily from 8:00 A.M. to 6:00 P.M. (Saturday from
8:00 A.M. to 12:00 P.M.), Sundays and holidays excepted; (ii) water for
drinking, and, subject to Landlord's approval, water at Tenant's expense for any
private restrooms and office kitchen requested by Tenant; (iii) men's and
women's restrooms at locations designated by Landlord and in common with other
tenants of the Building; (iv) daily janitorial service in the Premises and
common areas of the Building, weekends and holidays excepted; and (v) electrical
current other than for special lighting, equipment that requires more than 110
volts or other equipment whose electrical energy consumption exceeds normal
office usage.
(b) Telephones. Tenant shall arrange for telephone service directly
with one (1) or more of the public telephone companies servicing the Building
and shall be solely responsible for paying for such telephone service. If
Landlord acquires ownership of the telephone cables in the Building at any time,
Landlord shall permit Tenant to connect to such cables on such terms and
conditions as Landlord may prescribe. In no event does Landlord make any
representation or warranty with respect to telephone service in the Building,
and Landlord shall have no liability with respect thereto.
(c) Additional Services. Landlord shall not be obligated to furnish any
services other than those stated above. If Landlord elects to furnish services
requested by Tenant in addition to those stated above (including services at
times other than those stated above), Tenant shall pay Landlord's then
prevailing charges for such additional services. If Tenant shall fail to make
any such payment, Landlord may, without notice to Tenant and in addition to all
other remedies available to Landlord, discontinue any such additional services.
No discontinuance of any such additional service shall result in any liability
of Landlord to Tenant or be considered as an eviction or a disturbance of
Tenant's use of the Premises. In addition, if Tenant's concentration of
personnel or equipment adversely affects the temperature or humidity in the
Premises or the Building, Landlord may install supplementary air conditioning
units in the Premises; and Tenant shall pay for the cost of installation and
maintenance thereof.
(d) Failure or Delay in Furnishing Services. Tenant agrees that
Landlord shall not be liable for damages for failure or delay in furnishing any
service stated above if such failure or delay is caused, in whole or in part, by
any one or more of the events stated in Section 27(j) below, nor shall any such
failure or delay be considered to be an eviction or disturbance of Tenant's use
of the Premises, or relieve Tenant from its obligation to pay any Rent when due,
or from any other obligations of Tenant under this Lease.
6. RULES AND REGULATIONS. Tenant shall observe and comply and shall
cause its subtenants, assignees, invitees, employees, contractors and agents to
observe and comply, with the rules and regulations listed on Exhibit "B"
attached hereto and incorporated herein by this reference and with such
reasonable modifications and additions thereto as Landlord may make from time to
time. Landlord shall not be liable for failure of any person to obey such rules
and regulations. Landlord shall not be obligated to enforce such rules and
regulations against any person, and the failure of Landlord to enforce any such
rules and regulations shall not constitute a waiver thereof or relieve Tenant
from compliance therewith.
7. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the following
rights, each of which Landlord may exercise without notice to Tenant and without
liability to Tenant, and the exercise of any such rights shall not be deemed to
constitute an eviction or disturbance of Tenant's use or possession of the
Premises and shall not give rise to any claim for set-off or abatement of rent
or any other claim: (a) to change the name or street address of the Building or
the suite number of the Premises; (b) to install, affix and maintain any and all
signs on the exterior or interior of the Building; (c) to make repairs,
decorations, alterations, additions, or improvements, whether structural or
otherwise, in and about the Building, and for such purposes to enter upon the
Premises, temporarily close doors, corridors and other areas in the Building and
interrupt or temporarily suspend services or use of common areas, and Tenant
agrees to pay Landlord for overtime and similar expenses incurred if such work
is done other than during ordinary business hours at Tenant's request; (d) to
retain at all times, and to use in appropriate instances, keys to all doors
within and into the Premises; (e) to grant to any person or to reserve unto
itself the exclusive right to conduct any business or render any service in the
Building; (f) to show or inspect the Premises at reasonable times and, if
vacated or abandoned, to prepare the Premises for reoccupancy; (g) to install,
use and maintain in and through the Premises, pipes, conduits, wires and ducts
serving the Building, provided that such installation, use and maintenance does
not unreasonably interfere with Tenant's use of the Premises; and (h) to take
any other action which Landlord deems reasonable in connection with the
operation, maintenance or preservation of the Building.
8. MAINTENANCE AND REPAIRS. Tenant, at its expense, shall maintain and
keep the Premises in good order and repair at all times during the Term. In
addition, Tenant shall reimburse Landlord for the cost of any repairs to the
Building necessitated by the acts or omissions of Tenant, its subtenants,
assignees, invitees, employees, contractors and agents, to the extent Landlord
is not reimbursed for such costs under its insurance policies. Subject to the
preceding sentence, Landlord shall perform any maintenance or make any repairs
to the Building as Landlord shall desire or deem necessary for the safety,
operation or preservation of the Building, or as Landlord may be required or
requested to do by any governmental authority or by the order or decree of any
court or by any other proper authority.
Landlord, throughout the Term, shall keep and maintain or cause to be
kept and maintained in good order and repair the structural components of the
Building (including, without limitation, the roof and the roof membranes, the
exterior walls and the windows), all common areas of the Building, and all
Building systems (excluding only those non-standard portions of the Building
systems which are (a) located within the Premises and (b) service only the
Premises, which systems shall be maintained by Tenant in good order and repair
at all times during the Term).
9. ALTERATIONS.
(a) Requirements. Tenant shall not make any replacement, alteration,
improvement or addition to or removal from the Premises (collectively an
"alteration") without the prior written consent of Landlord, which consent shall
not be unreasonably withheld. In the event Tenant proposes to make any
alteration, Tenant shall, prior to commencing such alteration, submit to
Landlord for prior written approval: (i) detailed plans and specifications; (ii)
sworn statements, including the names, addresses and copies of contracts for all
contractors; (iii) all necessary permits evidencing compliance with all
applicable governmental rules, regulations and requirements; (iv) certificates
of insurance in form and amounts required by Landlord, naming Landlord and any
other parties designated by Landlord as additional insureds; and (v) all other
documents and information as Landlord may reasonably request in connection with
such alteration. Tenant agrees to pay Landlord's reasonable charges for review
of all such items and supervision of any alteration. Neither approval of the
plans and specifications nor supervision of the alteration by Landlord shall
constitute a representation or warranty by Landlord as to the accuracy,
adequacy, sufficiency or propriety of such plans and specifications or the
quality of workmanship or the compliance of such alteration with applicable law.
Tenant shall pay the entire cost of the alteration and, if requested by
Landlord, shall deposit with Landlord prior to the commencement of the
alteration, security for the payment and completion of the alteration in form
and amount required by Landlord. Each alteration shall be performed in a good
and workmanlike manner, in accordance with the plans and specifications approved
by Landlord, and shall meet or exceed the standards for construction and quality
of materials established by Landlord for the Building. In addition, each
alteration shall be performed in compliance with all applicable governmental and
insurance company laws, regulations and requirements. Each alteration shall be
performed by union contractors if required by Landlord and in harmony with
Landlord's employees, contractors and other tenants. Each alteration, whether
temporary or permanent in character, made by Landlord or Tenant in or upon the
Premises (excepting only Tenant's furniture, equipment and trade fixtures) shall
become Landlord's property and shall remain upon the Premises at the expiration
or termination of this Lease without compensation to Tenant; provided, however,
that Landlord shall have the right to require Tenant to remove such alteration
at Tenant's sole cost and expense in accordance with the provisions of Section
15 of this Lease.
(b) Liens. Upon completion of any alteration, Tenant shall promptly
furnish Landlord with sworn owner's and contractors statements and full and
final waivers of lien covering all labor and materials included in such
alteration. Tenant shall not permit any mechanic's lien to be filed against the
Building, or any part thereof, arising out of any alteration performed, or
alleged to have been performed, by or on behalf of Tenant. If any such lien is
filed, Tenant shall within ten (10) days thereafter have such lien released of
record or deliver to Landlord a bond in form, amount, and issued by a surety
satisfactory to Landlord, indemnifying Landlord against all costs and
liabilities resulting from such lien and the foreclosure or attempted
foreclosure thereof. If Tenant fails to have such lien so released or to deliver
such bond to Landlord, Landlord, without investigating the validity of such
lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon
demand for the amount so paid by Landlord, including Landlord's expenses and
attorneys' fees.
10. INSURANCE. Tenant, at its expense, shall maintain at all times
during the Term the following insurance policies: (a) fire insurance, including
extended coverage, vandalism, malicious mischief, sprinkler leakage and water
damage coverage and demolition and debris removal, insuring the full replacement
cost of all improvements, alterations or additions to the Premises made at
Tenant's expense, and all other property owned or used by Tenant and located in
the Premises; (b) Commercial General Liability insurance, contractual liability
insurance and property damage insurance with respect to the Building and the
Premises, with limits to be set by Landlord from time to time but in any event
not less than $3,000,000.00 combined single limit for personal injury, sickness
or death or for damage to or destruction of property for any one occurrence; and
(c) insurance against such other risks and in such other amounts as Landlord may
from time to time reasonably require. The form of all such policies and
deductibles thereunder shall be subject to Landlord's reasonable prior approval.
All such policies shall be issued by insurers acceptable to Landlord and
licensed to do business in the State in which the Premises are located and shall
contain a waiver of any rights of subrogation thereunder. In addition, the
policies shall name Landlord and any other parties designated by Landlord as
additional insureds, shall require at least thirty (30) days' prior written
notice to Landlord of termination or modification and shall be primary and not
contributory. Tenant shall, at least ten (10) days prior to the Commencement
Date, and within ten (10) days prior to the expiration of each such policy,
deliver to Landlord certificates evidencing the foregoing insurance or renewal
thereof, as the case may be.
11. WAIVER AND INDEMNITY.
(a) Waiver. Tenant releases Landlord, its property manager and their
respective agents and employees from, and waives all claims for, damage or
injury to person or property and loss of business sustained by Tenant and
resulting from the Building or the Premises or any part thereof or any equipment
therein becoming in disrepair, or resulting from any accident in or about the
Building. This paragraph shall apply particularly, but not exclusively, to
flooding, damage caused by Building equipment and apparatus, water, snow, frost,
steam, excessive heat or cold, broken glass, sewage, gas, odors, excessive noise
or vibration or the bursting or leaking of pipes, plumbing fixtures or sprinkler
devices. Without limiting the generality of the foregoing, Tenant waives all
claims and rights of recovery against Landlord, its property manager and their
respective agents and employees for any loss or damage to any property of
Tenant, which loss or damage is insured against, or required to be insured
against, by Tenant pursuant to Section 10 above, whether or not such loss or
damage is due to the fault or negligence of Landlord, its property manager or
their respective agents or employees, and regardless of the amount of insurance
proceeds collected or collectible under any insurance policies in effect.
(b) Indemnity. Tenant agrees to indemnify, defend and hold harmless
Landlord, its property manager and their respective agents and employees, from
and against any and all claims, demands, actions, liabilities, damages, costs
and expenses (including attorneys' fees), for injuries to any persons and damage
to or theft or misappropriation or loss of property occurring in or about the
Building and arising from the use and occupancy of the Premises or from any
activity, work, or thing done, permitted or suffered by Tenant in or about the
Premises (including, without limitation, any alteration by Tenant) or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed under this Lease or due to any
other act or omission of Tenant, its subtenants, assignees, invitees, employees,
contractors and agents. Without limiting the foregoing, Tenant shall indemnify,
defend and hold Landlord harmless from any claims, liabilities, damages, costs
and expenses arising out of the use or storage of hazardous or toxic materials
in the Building by Tenant. If any such proceeding is filed against Landlord or
any such indemnified party, Tenant agrees to defend Landlord or such party in
such proceeding at Tenant's sole cost by legal counsel reasonably satisfactory
to Landlord, if requested by Landlord.
12. FIRE AND CASUALTY. If all or a substantial part of the Premises or
the Building is rendered untenantable by reason of fire or other casualty,
Landlord may, at its option, either restore the Premises and the Building, or
terminate this Lease effective as of the date of such fire or other casualty.
Landlord agrees to give Tenant written notice within sixty (60) days after the
occurrence of any such fire or other casualty designating whether Landlord
elects to so restore or terminate this Lease. If Landlord elects to terminate
this Lease, Rent shall be paid through and apportioned as of the date of such
fire or other casualty. If Landlord elects to restore, Landlord's obligation to
restore the Premises shall be limited to restoring those improvements in the
Premises existing as of the date of such fire or other casualty which were made
at Landlord's expense and shall exclude any furniture, equipment, fixtures,
additions, alterations or improvements in or to the Premises which were made at
Tenant's expense. If Landlord elects to restore, Rent shall abate for that part
of the Premises which is untenantable on a per diem basis from the date of such
fire or other casualty until Landlord has substantially completed its repair and
restoration work, provided that Tenant does not occupy such part of the Premises
during said period.
13. CONDEMNATION. If the Premises or the Building is rendered
untenantable by reason of a condemnation (or by a deed given in lieu thereof),
then either party may terminate this Lease by giving written notice of
termination to the other party within thirty (30) days after such condemnation,
in which event this Lease shall terminate effective as of the date of such
condemnation. If this Lease so terminates, Rent shall be paid through and
apportioned as of the date of such condemnation. If such condemnation does not
render the Premises or the Building untenantable, this Lease shall continue in
effect and Landlord shall promptly restore the portion not condemned to the
extent reasonably possible to the condition existing prior to the condemnation.
In such event, however, Landlord shall not be required to expend an amount in
excess of the proceeds received by Landlord from the condemning authority.
Landlord reserves all rights to compensation for any condemnation. Tenant hereby
assigns to Landlord any right Tenant may have to such compensation, and Tenant
shall make no claim against Landlord or the condemning authority for
compensation for termination of Tenant's leasehold interest under this Lease or
interference with Tenant's business.
14. ASSIGNMENT AND SUBLETTING.
(a) Landlord's Consent. Tenant shall not, without the prior written
consent of Landlord: (i) assign, convey, mortgage or otherwise transfer this
Lease or any interest hereunder, or sublease the Premises, or any part thereof,
whether voluntarily or by operation of law; or (ii) permit the use of the
Premises by any person other than Tenant and its employees or any subsidiary of
Tenant and its employees. Any such transfer, sublease or use described in the
preceding sentence (a "Transfer") occurring without the prior written consent of
Landlord shall be void and of no effect. Landlord's consent to any Transfer
shall not constitute a waiver of Landlord's right to withhold its consent to any
future Transfer. Landlord's consent to any Transfer or acceptance of rent from
any party other than Tenant shall not release Tenant from any covenant or
obligation under this Lease. Landlord may require as a condition to its consent
to any assignment of this Lease that the assignee execute an instrument in which
such assignee assumes the obligations of Tenant hereunder. For the purposes of
this paragraph, the transfer (whether direct or indirect) of all or a majority
of the capital stock in a corporate Tenant (other than the shares of the capital
stock of a corporate Tenant whose stock is publicly traded) or the merger,
consolidation or reorganization of such Tenant and the transfer of all or any
general partnership interest in any partnership Tenant shall be considered a
Transfer. As used herein, the phrase "any subsidiary of Tenant" shall mean any
corporation or partnership that is wholly owned by Tenant.
(b) Standards for Consent. If Tenant desires the consent of Landlord to
a Transfer, Tenant shall submit to Landlord, at least sixty (60) days prior to
the proposed effective date of the Transfer, a written notice which includes
such information as Landlord may require about the proposed Transfer and the
transferee. If Landlord does not terminate this Lease, in whole or in part,
pursuant to Section 14.C below, Landlord shall not unreasonably withhold its
consent to any assignment or sublease. Landlord shall not be deemed to have
unreasonably withheld its consent if, in the judgment of Landlord: (i) the
transferee is of a character or engaged in a business which is not in keeping
with the standards or criteria used by Landlord in leasing the Building; (ii)
the financial condition of the transferee is such that it may not be able to
perform its obligations in connection with this Lease; (iii) the purpose for
which the transferee intends to use the Premises or portion thereof is in
violation of the terms of this Lease or the lease of any other tenant in the
Building; (iv) the transferee is a tenant of the Building; or (v) any other
bases which Landlord reasonably deems appropriate. If Landlord wrongfully
withholds its consent to any Transfer, Tenant's sole and exclusive remedy
therefor, shall be to seek specific performance of Landlord's obligation to
consent to such Transfer. If Landlord consents to any Transfer, Tenant shall pay
to Landlord all rent and other consideration received by Tenant in excess of the
Rent paid by Tenant hereunder for the portion of the Premises so transferred.
Such rent shall be paid as and when received by Tenant. In addition, Tenant
shall pay to Landlord any reasonable attorneys' fees and expenses incurred by
Landlord in connection with any proposed Transfer, whether or not Landlord
consents to such Transfer.
(c) Recapture. Landlord shall have the right to terminate this Lease as
to that portion of the Premises covered by a Transfer, except for a Transfer to
an Affiliate or to a Successor Entity, for which Landlord shall have no such
right to terminate. Landlord may exercise such right to terminate by giving
notice to Tenant at any time within thirty (30) days after the date on which
Tenant has furnished to Landlord all of the items required under Section 14.B
above. If Landlord exercises such right to terminate, Landlord shall be entitled
to recover possession of, and Tenant shall surrender such portion of, the
Premises (with appropriate demising partitions erected at the expense of Tenant)
on the later of (i) the effective date of the proposed Transfer, or (ii) sixty
(60) days after the date of Landlord's notice of termination. In the event
Landlord exercises such right to terminate, Landlord shall have the right to
enter into a lease with the proposed transferee without incurring any liability
to Tenant on account thereof. As used herein, the term "Affiliate shall mean any
entity which controls, is controlled by or is under common control with Tenant
and the phrase "Successor Entity" shall mean any entity which purchases all or
substantially all of the assets of Tenant or any entity which succeeds to
Tenant's business by merger, consolidation or other form of corporate
reorganization.
15. SURRENDER. Upon the expiration or earlier termination of the Term
or Tenant's right to possession of the Premises, Tenant shall return the
Premises to Landlord in good order and condition, ordinary wear and damage by
fire or other casualty excepted. If Landlord requires Tenant to remove any
alterations pursuant to Section 9, then such removal shall be done in a good and
workmanlike manner; and upon such removal Tenant shall restore the Premises to
its condition prior to the installation of such alterations. If Tenant does not
remove such alterations after request to do so by Landlord, Landlord may remove
the same and restore the Premises; and Tenant shall pay the cost of such removal
and restoration to Landlord upon demand. Tenant shall also remove its furniture,
equipment, trade fixtures and all other items of personal property from the
Premises prior to the termination of the Term or Tenant's right to possession of
the Premises. If Tenant does not remove such items, Tenant shall be conclusively
presumed to have conveyed the same to Landlord without further payment or credit
by Landlord to Tenant; or at Landlord's sole option such items shall be deemed
abandoned, in which event Landlord may cause such items to be removed and
disposed of at Tenant's expense, without notice to Tenant and without obligation
to compensate Tenant.
16. DEFAULTS AND REMEDIES.
(a) Default. The occurrence of any of the following shall constitute a
default (a "Default") by Tenant under this Lease: (i) Tenant fails to pay any
Rent when due and such failure is not cured within five (5) business days after
notice from Landlord; (ii) Tenant fails to perform any other provision of this
Lease and such failure is not cured within thirty (30) days (or immediately if
the failure involves a hazardous condition) after notice from Landlord; (iii)
the leasehold interest of Tenant is levied upon or attached under process of
law; (iv) Tenant or any guarantor of this Lease dissolves; (v) any voluntary or
involuntary proceedings are filed by or against Tenant or any guarantor of this
Lease under any bankruptcy, insolvency or similar laws and, in the case of any
involuntary proceedings, are not dismissed within thirty (30) days after filing.
(b) Right of Re-Entry. Upon the occurrence of a Default, Landlord may
elect to terminate this Lease, or, without terminating this Lease, terminate
Tenant's right to possession of the Premises, in either case by written notice
thereof to Tenant. Upon any such termination, Tenant shall immediately surrender
and vacate the Premises and deliver possession thereof to Landlord. Tenant
grants to Landlord the right, without notice to Tenant, to enter and repossess
the Premises and to expel Tenant and any others who may be occupying the
Premises and to remove any and all property therefrom, without being deemed in
any manner guilty of trespass and without relinquishing Landlord's rights to
Rent or any other right given to Landlord hereunder or by operation of law.
(c) Reletting. If Landlord terminates Tenant's right to possession of
the Premises without terminating this Lease, Landlord may relet the Premises or
any part thereof. In such case, Landlord shall use reasonable efforts to relet
the Premises on such terms as Landlord shall reasonably deem appropriate;
provided, however, Landlord may first lease Landlord's other available space and
shall not be required to accept any tenant offered by Tenant or to observe any
instructions given by Tenant about such reletting. Tenant shall reimburse
Landlord for the costs and expenses of reletting the Premises including, but not
limited to, all brokerage, advertising, legal, alteration and other expenses
incurred to secure a new tenant for the Premises. In addition, if the
consideration collected by Landlord upon any such reletting, after payment of
the expenses of reletting the Premises which have not been reimbursed by Tenant,
is insufficient to pay monthly the full amount of the Rent, Tenant shall pay to
Landlord the amount of each monthly deficiency as it becomes due. If such
consideration is greater than the amount necessary to pay the full amount of the
Rent, the full amount of such excess shall be retained by Landlord and shall in
no event be payable to Tenant.
(d) Termination of Lease. If Landlord terminates this Lease pursuant to
Section 16.B above, Landlord may recover from Tenant and Tenant shall pay to
Landlord, on demand, as and for liquidated and final damages, an accelerated
lump sum amount equal to the amount by which Landlord's estimate of the
aggregate amount of Rent owing from the date of such termination through the
Expiration Date plus Landlord's reasonable estimate of the aggregate expenses of
reletting the Premises, exceeds Landlord's reasonable estimate of the fair
rental value of the Premises for the same period (after deducting from such fair
rental value the time needed to relet the Premises and the amount of concessions
which would normally be given to a new tenant), both discounted to present value
at the rate of five percent (5%) per annum.
(e) Other Remedies. Landlord may but shall not be obligated to perform
any obligation of Tenant under this Lease; and, if Landlord so elects, all costs
and expenses paid by Landlord in performing such obligation, together with
interest at the Default Rate, shall be reimbursed by Tenant to Landlord on
demand. Any and all remedies set forth in this Lease: (i) shall be in addition
to any and all other remedies Landlord may have at law or in equity, (ii) shall
be cumulative, and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future.
(f) Bankruptcy. If Tenant becomes bankrupt, the bankruptcy trustee
shall not have the right to assume or assign this Lease unless the trustee
complies with all requirements of the United States Bankruptcy Code; and
Landlord expressly reserves all of its rights, claims, and remedies thereunder.
(g) Waiver of Trial by Jury. Landlord and Tenant waive trial by jury in
the event of any action, proceeding or counterclaim brought by either Landlord
or Tenant against the other in connection with this Lease.
17. HOLDING OVER. If Tenant retains possession of the Premises after
the expiration or earlier termination of the Term or Tenant's right to
possession of the Premises, Tenant shall pay Rent during such holding over at
double the rate in effect immediately preceding such holding over computed on a
monthly basis for each month or partial month that Tenant remains in possession.
Tenant shall also pay, indemnify and defend Landlord from and against all claims
and damages, consequential as well as direct, sustained by reason of Tenant's
holding over. The provisions of this Section do not waive Landlord's right of
re-entry or right to regain possession by actions at law or in equity or any
other rights hereunder, and any receipt of payment by Landlord shall not be
deemed a consent by Landlord to Tenant's remaining in possession or be construed
as creating or renewing any lease or right of tenancy between Landlord and
Tenant.
18. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall
deposit the security deposit set forth in Item 8 of the Schedule (the "Security
Deposit") with Landlord as security for the performance of Tenant's obligations
under this Lease. Landlord may use all or any part of the Security Deposit (i)
for the payment of any Rent not paid when due if such failure to pay is not
cured within five (5) business days after notice from Landlord, or (ii) for the
payment of any amount which Landlord may pay or become obligated to pay by
reason of a Default, or (iii) to compensate Landlord for any loss or damage
which Landlord may suffer by reason of a Default, or (iv) to compensate Landlord
for any loss or damage which Landlord may suffer or cost or expense Landlord may
incur by reason of Tenant's failure to perform its obligations under Section 15
of this Lease upon the expiration or earlier termination of the Term of this
Lease. If any portion of the Security Deposit is used, Tenant shall within five
(5) business days after written demand therefor deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep the Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. In no event shall the Security Deposit be considered an advanced
payment of Rent, and in no event shall Tenant be entitled to use the Security
Deposit for the payment of Rent. If no default by Tenant exists hereunder, the
Security Deposit or any balance thereof shall be returned to Tenant within
thirty (30) days after the expiration of the Term and vacation of the Premises
by Tenant. Landlord shall have the right to transfer the Security Deposit to any
purchaser of the Building. Upon such transfer of the Security Deposit, Tenant
shall look solely to such purchaser for return of the Security Deposit; and
Landlord shall be relieved of any liability with respect to the Security
Deposit.
19. [INTENTIONALLY OMITTED].
20. ESTOPPEL CERTIFICATES. Tenant agrees that, from time to time upon
not less than ten (10) days' prior request by Landlord, Tenant shall execute and
deliver to Landlord a written certificate certifying: (i) that this Lease is
unmodified and in full force and effect (or if there have been modifications, a
description of such modifications and that this Lease as modified is in full
force and effect); (ii) the dates to which Rent has been paid; (iii) that Tenant
is in possession of the Premises, if that is the case; (iv) that Landlord is not
in default under this Lease, or, if Tenant believes Landlord is in default, the
nature thereof in detail; (v) that Tenant has no off-sets or defenses to the
performance of its obligations under this Lease (or if Tenant believes there are
any off-sets or defenses, a full and complete explanation thereof); and (vi)
such additional matters as may be requested by Landlord, it being agreed that
such certificate may be relied upon by any prospective purchaser, mortgagee or
other person having or acquiring an interest in the Building. If Tenant fails to
execute and deliver any such certificate within ten (10) days after request,
Tenant shall be deemed to have irrevocably appointed Landlord as Tenant's
attorney-in-fact to execute and deliver such certificate in Tenant's name.
21. SUBORDINATION. This Lease is and shall be expressly subject and
subordinate at all times to (a) any present or future ground, underlying or
operating lease of the Building, and all amendments, renewals and modifications
to any such lease, and (b) the lien of any present or future mortgage or deed of
trust encumbering fee title to the Building and/or the leasehold estate under
any such lease. If any such mortgage or deed of trust be foreclosed, or if any
such lease be terminated, upon request of the mortgagee, beneficiary or lessor,
as the case may be, Tenant will attorn to the purchaser at the foreclosure sale
or to the lessor under such lease, as the case may be. The foregoing provisions
are declared to be self-operative and no further instruments shall be required
to effect such subordination and/or attornment; provided, however, that Tenant
agrees upon request by any such mortgagee, beneficiary, lessor or purchaser at
foreclosure, as the case may be, to execute such subordination and/or attornment
instruments as may be required by such person to confirm such subordination
and/or attornment on the form customarily used by such party. Notwithstanding
the foregoing to the contrary, any such mortgagee, beneficiary or lessor may
elect to give the rights and interests of Tenant under this Lease (excluding
rights in and to insurance proceeds and condemnation awards) priority over the
lien of its mortgage or deed of trust or the estate of its lease, as the case
may be. In the event of such election and upon the mortgagee, beneficiary or
lessor notifying Tenant of such election, the rights and interests of Tenant
shall be deemed superior to and to have priority over the lien of said mortgage
or deed of trust or the estate of such lease, as the case may be, whether this
Lease is dated prior to or subsequent to the date of such mortgage, deed of
trust or lease. In such event, Tenant shall execute and deliver whatever
instruments may be required by such mortgagee, beneficiary or lessor to confirm
such superiority on the form customarily used by such party. If Tenant fails to
execute any instrument required to be executed by Tenant under this Section 21
within ten (10) days after request, Tenant irrevocably appoints Landlord as its
attorney-in-fact, in Tenant's name, to execute such instrument.
22. QUIET ENJOYMENT. As long as no Default exists, Tenant shall
peacefully and quietly have and enjoy the Premises for the Term, free from
interference by Landlord, subject, however, to the provisions of this Lease. The
loss or reduction of Tenant's light, air or view will not be deemed a
disturbance of Tenant's occupancy of the Premises nor will it affect Tenant's
obligations under this Lease or create any liability of Landlord to Tenant.
23. BROKER. Tenant represents to Landlord that Tenant has dealt only
with the brokers set forth in Item 9 of the Schedule (the "Brokers") in
connection with this Lease and that, insofar as Tenant knows, no other broker
negotiated this Lease or is entitled to any commission in connection herewith.
Tenant agrees to indemnify, defend and hold Landlord, its property manager and
their respective employees harmless from and against any claims for a fee or
commission made by any broker, other than the Brokers, claiming to have acted by
or on behalf of Tenant in connection with this Lease.
24. NOTICES. All notices and demands to be given by one party to the
other party under this Lease shall be given in writing, mailed or delivered to
Landlord or Tenant, as the case may be, at the address or addresses set forth
above or at such other address as either party may hereafter designate. Notices
shall be delivered by hand or by United States certified or registered mail,
postage prepaid, return receipt requested, or by a nationally recognized
overnight air courier service. Notices shall be considered to have been given
upon the earlier to occur of actual receipt or two (2) business days after
posting in the United States mail.
25. DIRECTORY; SIGNS. Landlord will place Tenant's name on the Building
standard directory. Except for signs which are located wholly within the
interior of the Premises and which are not visible from the exterior of the
Premises, and except for signs on office doors, no sign shall be placed,
erected, maintained or painted by Tenant at any place upon the Premises or the
Building.
26. PARKING. Tenant shall have the right to use, in common with others
entitled thereto, the parking area associated with the Building, subject to such
terms, conditions and regulations as are from time to time applicable to users
of such parking area. Notwithstanding any of the foregoing to the contrary,
Tenant may not use any parking spaces in such parking area which have been
designated for exclusive use by other Building tenants. Tenant's right to use
the parking spaces in such parking area shall be on an unassigned, non-reserved
basis.
27. MISCELLANEOUS.
(a) Successors and Assigns. Subject to Section 14 of this Lease, each
provision of this Lease shall extend to, bind and inure to the benefit of
Landlord and Tenant and their respective legal representatives, successors and
assigns; and all references herein to Landlord and Tenant shall be deemed to
include all such parties.
(b) Entire Agreement. This Lease, and the riders and exhibits, if any,
attached hereto which are hereby made a part of this Lease, represent the
complete agreement between Landlord and Tenant; and Landlord has made no
representations or warranties except as expressly set forth in this Lease. No
modification or amendment of or waiver under this Lease shall be binding upon
Landlord or Tenant unless in writing signed by Landlord and Tenant.
(c) Time of Essence. Time is of the essence of this Lease and each and
all of its provisions.
(d) Execution and Delivery. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of space or
an option for lease, and it is not effective until execution and delivery by
both Landlord and Tenant. Execution and delivery of this Lease by Tenant to
Landlord shall constitute an irrevocable offer by Tenant to lease the Premises
on the terms and conditions set forth herein, which offer may not be revoked for
fifteen (15) days after such delivery.
(e) Severability. The invalidity or unenforceability of any provision
of this Lease shall not affect or impair any other provisions.
(f) Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State in which the Premises are located.
(g) Attorneys' Fees. Tenant shall pay to Landlord all costs and
expenses, including reasonable attorneys fees, incurred by Landlord in enforcing
this Lease or incurred by Landlord as a result of any litigation to which
Landlord becomes a party as a result of this Lease.
(h) Delay in Possession. In no event shall Landlord be liable to Tenant
if Landlord is unable to deliver possession of the Premises to Tenant on the
Commencement Date for causes outside Landlord's reasonable control. If Landlord
is unable to deliver possession of the Premises to Tenant by the Commencement
Date, the Commencement Date shall be deferred until Landlord can deliver
possession to Tenant, and the Expiration Date shall be deferred for an equal
number of days.
(i) Joint and Several Liability. If Tenant is comprised of more than
one party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.
(j) Force Majeure. Landlord shall not be in default hereunder and
Tenant shall not be excused from performing any of its obligations hereunder if
Landlord is prevented from performing any of its obligations hereunder due to
any accident, breakage, strike, shortage of materials, acts of God or other
causes beyond Landlord's reasonable control.
(k) [Intentionally Omitted]
(l) Captions. The headings and titles in this Lease are for convenience
only and shall have no effect upon the construction or interpretation of this
Lease.
(m) No Waiver. No receipt of money by Landlord from Tenant after
termination of this Lease or after the service of any notice or after the
commencing of any suit or after final judgment for possession of the Premises
shall renew, reinstate, continue or extend the Term or affect any such notice or
suit. No waiver of any default of Tenant shall be implied from any omission by
Landlord to take any action on account of such default if such default persists
or be repeated, and no express waiver shall affect any default other than the
default specified in the express waiver and then only for the time and to the
extent therein stated.
(n) No Recording. Tenant shall not record this Lease in any official
records. Landlord and Tenant shall, upon request of either, execute and deliver
a notice of this Lease in such recordable form as may be permitted by applicable
law.
(o) Definition of Landlord; Landlord's Liability. The term "Landlord"
is used herein to include the Landlord named above as well as its successors and
assigns, each of whom shall have the same rights, remedies, powers, authorities
and privileges as it would have had if it originally signed this Lease as
Landlord. Any such person, whether or not named herein, shall have no liability
hereunder after it ceases to hold title to the Premises except for obligations
which may have theretofore accrued. Neither Landlord, nor any trustee,
beneficiary, principal, employee or partner of Landlord, nor any owner of the
Building, whether disclosed or undisclosed, shall have any personal liability
with respect to any of the provisions of this Lease or the Premises, and neither
Landlord, nor any trustee, beneficiary, principal, employee or partner of
Landlord shall have any personal liability to Tenant for any liability of or
claim against Landlord under this Lease beyond the equity of Landlord in the
Building nor shall any recourse be had to any other property or assets of
Landlord.
(p) No Presumption Against Preparer; Freely Negotiated. Landlord and
Tenant hereby understand, agree and acknowledge that (i) this Lease has been
freely negotiated by both parties hereto and (ii) that, in any controversy,
dispute or contest with regard to the meaning, interpretation, validity or
enforceability of this Lease or any of the terms and provisions hereof, there
shall be no inference, presumption or conclusion drawn whatsoever against either
party hereto by virtue of that party (or its professional advisers) having
drafted this Lease or any portion thereof.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as a
sealed instrument as of the day and year first above written.
LANDLORD:
ss: Angela C. Maffeo
--------------------
Angela C. Maffeo, Trustee under the Wil
of John Capobianco and not individually
TENANT:
MANCHESTER EQUIPMENT CO., INC.,
a New York corporation
By:_ss: Barry Steinberg
-----------------
Barry Steinberg
President
<PAGE>
EXHIBIT "A"
FLOOR PLAN
(Floor plan attached)
<PAGE>
EXHIBIT "A-1"
LEGAL DESCRIPTION OF LAND
A certain parcel of land together with the buildings thereon situated in that
part of Newton, Massachusetts, called Newton Upper Falls and being shown as Lot
B on a plan entitled "Plan of Land in Newton, Mass.", prepared by Henry F.
Bryant and Son, Inc., dated May 29, 1962 duly recorded with the Middlesex South
District Registry of Deeds and bounded and described as follows:
NORTHEASTERLY by Christina Street by five lines, one
hundred and 88/100 (100.88) feet, one
hundred eighty-two and 58/100 (182.58)
feet, two hundred ninety and 57/100
(290.57) feet, one hundred forty and
20/100 (140.20) feet, and sixty-seven and
95/100 (67.95) feet, respectively;
NORTHWESTERLY by Lot A on said plan, two hundred and
sixty-four (264) feet;
-------------
SOUTHERLY by the thread of the Charles River, eight
--------- hundred forty-three (843) feet
more or less; and
EASTERLY by land of Patrick and Eileen Mulhern, as
indicated on said plan, by three lines,
sixty and 82/100 (60.82) feet,
eighty-eight and 20/100 (88.20) feet and
seven and 3/10 (7.3) feet, respectively.
<PAGE>
EXHIBIT "B"
RULES AND REGULATIONS
1. Tenant shall not make any room-to-room canvas to solicit business
from other tenants in the Building and shall not exhibit, sell or offer to sell,
use, rent or exchange any item or services in or from the Premises unless
ordinarily included within Tenant's use of the Premises as specified in the
Lease.
2. Tenant shall not make any use of the Premises which may be dangerous
to person or property or which shall increase the cost of insurance or require
additional insurance coverage.
3. Tenant shall not paint, display, inscribe or affix any sign,
picture, advertisement, notice, lettering or direction or install any lights on
any part of the outside or inside of the Building, other than the Premises, and
then not on any part of the inside of the Premises which can be seen from
outside the Premises, except as approved by Landlord in writing.
4. Tenant shall not use the name of the Building in advertising or
other publicity, except as the address of its business, and, without Landlord's
prior written approval, which approval shall not be unreasonably withheld, shall
not use pictures of the Building in advertising or publicity.
5. Tenant shall not obstruct or place objects on or in sidewalks,
entrances, passages, courts, corridors, vestibules, halls, elevators and
stairways in and about the Building. Tenant shall not place objects against
glass partitions or doors or windows or adjacent to any open common space which
would be unsightly from the Building corridors or from the exterior of the
Building.
6. Bicycles shall not be permitted in the Building other than in
locations designated by Landlord.
7. Tenant shall not allow any animals, other than seeing eye dogs, in
the Premises or the Building.
8. Tenant shall not disturb other tenants or make excessive noises,
cause disturbances, create excessive vibrations, odors or noxious fumes or use
or operate any electrical or electronic devices or other devices that emit
excessive sound waves or are dangerous to other tenants of the Building or that
would interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or elsewhere,
and shall not place or install any projections, antennae, aerials or similar
devices outside of the Building or the Premises.
9. Tenant shall not waste electricity or water and shall cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and air conditioning, and shall refrain from attempting to adjust any
controls except for the thermostats within the Premises. Tenant shall keep all
doors to the Premises closed.
10. Unless Tenant installs new doors to the Premises, Landlord shall
furnish two (2) sets of keys for all doors to the Premises at the commencement
of the Term. Tenant shall furnish Landlord with duplicate keys for any new or
additional locks on doors installed by Tenant. When the Lease is terminated,
Tenant shall deliver all keys to Landlord and will provide to Landlord the means
of opening any safes, cabinets or vaults left in the Premises.
11. Except as otherwise provided in the Lease, Tenant shall not install
in the Premises or Building any signal, communication, alarm or other utility or
service system or equipment without the prior written consent of Landlord, which
consent shall not be unreasonably withheld.
12. Tenant shall not use any draperies or other window coverings
instead of or in addition to the Building standard window coverings designated
and approved by Landlord for exclusive use throughout the Building.
13. Landlord may require that all persons who enter or leave the
Building identify themselves to watchmen, by registration or otherwise.
Landlord, however, shall have no responsibility or liability for any theft,
robbery or other crime in the Building. Tenant shall assume full responsibility
for protecting the Premises, including keeping all doors to the Premises locked
after the close of business.
14. Tenant shall not overload floors; and Tenant shall obtain
Landlord's prior written approval as to size, maximum weight, routing and
location of business machines, safes, and heavy objects. Tenant shall not
install or operate machinery or any mechanical devices of a nature not directly
related to Tenant's ordinary use of the Premises.
15. In no event shall Tenant bring into the Building inflammables such
as gasoline, kerosene, naphtha and benzene, or explosives or firearms or any
other articles of an intrinsically dangerous nature.
16. Furniture, equipment and other large articles may be brought into
the Building only at the time and in the manner designated by Landlord. Tenant
shall furnish Landlord with a list of furniture, equipment and other large
articles which are to be removed from the Building, and Landlord may require
permits before allowing anything to be moved in or out of the Building.
Movements of Tenant's property into or out of the Building and within the
Building are entirely at the risk and responsibility of Tenant.
17. No person or contractor, unless approved in advance by Landlord
(which appraisal shall not be unreasonably withheld), shall be employed to do
janitorial work, interior window washing, cleaning, decorating or similar
services in the Premises.
18. Tenant shall not use the Premises for lodging, cooking (except for
microwave reheating and coffee makers) or manufacturing or selling any alcoholic
beverages or for any illegal purposes.
19. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
20. Tenant shall cooperate and participate in all reasonable security
programs affecting the Building.
21. Tenant shall not loiter, eat, drink, sit or lie in the lobby or
other public areas in the Building. Tenant shall not go onto the roof of the
Building or any other non-public areas of the Building (except the Premises),
and Landlord reserves all rights to control the public and non-public areas of
the Building. In no event shall Tenant have access to any electrical, telephone,
plumbing or other mechanical closets without Landlord's prior written consent.
22. Tenant shall not use the freight or passenger elevators, loading
docks or receiving areas of the Building except in accordance with regulations
for their use established by Landlord.
23. Tenant shall not dispose of any foreign substances in the toilets,
urinals, sinks or other washroom facilities, nor shall Tenant permit such items
to be used other than for their intended purposes; and Tenant shall be liable
for all damage as a result of a violation of this rule.
24. If Tenant designates non-smoking areas in the Premises, Tenant
shall also designate sufficient smoking areas in the Premises for its employees,
and in no event shall Tenant allow its employees to use the public areas of the
Building as smoking areas.
<PAGE>
EXHIBIT "C"
TENANT IMPROVEMENT WORK
1. On or before June 13, 1997, Tenant shall provide to Landlord for its
approval final working drawings ("final working drawings" shall mean the plans
prepared by David Saltzman, dated 6/9/97, subject to the agreed to revisions
evidenced by the diagram annexed hereto.) prepared by David Saltzman (the
"Architect") of all improvements that Tenant proposes to have installed in the
Premises; such working drawings shall include the partition layout, ceiling
plan, electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building, and
detailed plans and specifications for the construction of the improvements
called for in this Exhibit "C", in accordance with all applicable governmental
laws, codes, rules and regulations. Landlord shall reasonably approve or
disapprove such working drawings within ten (10) days after their receipt by
Landlord. If Landlord disapproves such working drawings, Landlord shall specify
the reasons for such disapproval in reasonable particularity, and Tenant shall
cause the Architect to make conforming revisions thereto and resubmit such
working drawings to Landlord for re-review in accordance with the same procedure
set forth above, except that Landlord must complete its review and notify Tenant
of its approval or disapproval of such revised working drawings within seven (7)
days after their receipt by Landlord. Landlord and Tenant shall initial the
working drawings after the same have been finally approved by Landlord.
Landlord's approval of Tenant's working drawings shall not be unreasonably
withheld, provided that (a) they comply with all applicable governmental laws,
codes, rules and regulations, and (b) such working drawings are sufficiently
detailed to allow construction of the improvements specified therein in a good
and workmanlike manner. As used herein, the phrase "Tenant's Plans" shall mean
the final working drawings approved by Landlord pursuant to this Paragraph 1, as
amended from time to time by any changes thereto approved by Landlord, and the
phrase "Landlord's Work" shall mean the work specified in Tenant's Plans. All
changes in Tenant's Plans must receive the prior written approval of Landlord.
The total cost of preparation of Tenant's Plans shall be paid by Landlord within
thirty (30) days after receipt by Landlord of a detailed itemization of such
costs.
2. Promptly after Landlord's approval of Tenant's Plans, Landlord shall
in good faith solicit bids for the performance of Landlord's Work. Based upon
such bids, Landlord and Tenant shall select a contractor to construct Landlord's
Work. Promptly after the selection of such contractor, Landlord shall cause such
contractor to commence construction of Landlord's Work and to diligently
prosecute to completion the construction of Landlord's Work so as to prepare the
Premises for Tenant's occupancy on or prior to August 15, 1997, but Tenant shall
have no claim against Landlord for failure so to complete Landlord's Work by
such date, nor shall such failure affect the validity of this Lease. Landlord's
Work shall be performed in a good and workmanlike manner.
3. The "Substantial Completion Date" shall be the first business day as
of which Landlord's Work has been completed except for minor items of work (and,
if applicable, adjustment of equipment and fixtures) which do not materially
interfere with Tenant's use of the Premises for the purposes set forth in
Section 3 of the Lease and can be completed after occupancy has been taken
without causing undue interference with Tenant's use of the Premises (i.e.,
so-called "punch-list" items). Landlord shall complete as conditions permit all
"punch-list" items, and Tenant shall afford Landlord access to the Premises for
such purposes.
4. Except to the extent to which Tenant shall have given Landlord
notice not later than three (3) months from the Commencement Date of respects in
which Landlord has not performed Landlord's Work, Tenant shall have no claim
that Landlord has failed to perform any of Landlord's Work.
5. The total cost of construction of Landlord's Work shall be paid by
Landlord. Upon final completion of Landlord's Work, Landlord shall certify to
Tenant the total cost of construction of Landlord's Work and the total cost of
preparation of Tenant's Plans (such total cost of construction and preparation
being hereinafter referred to as the "Total Cost"). Landlord shall provide to
Tenant an allowance in the amount of $39,300.00 (the "Allowance") for the
construction of Landlord's Work, for the preparation of Tenant's Plans, and for
the preparation of the preliminary plan that was prepared by or on behalf of
Landlord with respect to the initial improvements to the Premises. If the Total
Cost exceeds the Allowance, Tenant shall reimburse Landlord for the amount of
such excess within ten (10) days after receipt by Tenant of the certification
referred to in the second sentence of this Paragraph 5, and such excess shall be
deemed to be additional Rent under this Lease.
6. Tenant shall pay to Landlord a construction management fee in the
amount of the lesser of (i) $3,000.00 and (ii) five percent (5%) of the total
cost of construction of Landlord's Work. Such construction management fee shall
be due and payable within thirty (30) days after the Substantial Completion Date
and shall be deemed to be additional Rent under the Lease.
7. With the prior consent of Landlord, Tenant may enter the Premises
prior to the Substantial Completion Date to undertake such work as Tenant may
choose to perform (subject to the provisions of Section 9 of this Lease) in
order to prepare the Premises for Tenant's occupancy. Such entry shall be at the
sole risk of Tenant. In no event shall Tenant use any contractor if Landlord
reasonably determines that such contractor will cause a labor dispute at the
Building, or otherwise materially interfere with any construction work being
performed by or on behalf of Landlord in or around the Building. Without
limiting the generality of the foregoing, Tenant shall comply with all
reasonable instructions issued by Landlord's contractors relative to the moving
of Tenant's equipment and other property into the Premises and shall pay any
actual fees or costs incurred by Landlord in connection therewith. If
noncompliance by Tenant with any instructions issued by Landlord's contractors
results in a work stoppage or other job action by any employees of such
contractors or subcontractors thereof performing work at the Building, Tenant
and its contractors shall cease performance of such work.
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<S> <C>
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<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
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<SECURITIES> 4,408
<RECEIVABLES> 22,524
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<INVENTORY> 10,127
<CURRENT-ASSETS> 51,745
<PP&E> 7,946
<DEPRECIATION> 3,873
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0
0
<COMMON> 85
<OTHER-SE> 36,792
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<SALES> 187,801
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<CGS> 161,186
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<OTHER-EXPENSES> 21,023
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</TABLE>
