SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 1998
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) Identification Number)
160 Oser Avenue
Hauppauge, New York 11788
(Address of registrant's principal executive offices)
(516) 435-1199
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
There were 8,545,000 outstanding shares of COMMON STOCK at February 27,
1998.
<PAGE>
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Balance Sheets
January 31, 1998 (unaudited) and July 31, 1997 3
Condensed Consolidated Statements of Income
Three months and six months ended
January 31, 1998 and 1997 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six months ended January 31, 1998 and 1997 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports 16
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands except share amounts)
<TABLE>
<CAPTION>
January 31,
1998 July 31, 1997
---- -------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 10,412 $ 15,049
Investments - 4,408
Accounts receivable, net 26,271 21,473
Inventory 7,549 10,127
Deferred income taxes 440 440
Prepaid expenses and other current assets 993 248
--- ---
Total current assets 45,665 51,745
Property and equipment, net 5,328 4,073
Goodwill, net 4,438 1,524
Deferred income taxes 379 379
Other assets 737 487
--- ---
$56,547 $58,208
======= =======
Liabilities:
Current maturities under capital lease obligations $ 142 $ 99
Notes payable - bank - 1,274
Notes payable - other 66 264
Accounts payable and accrued expenses 17,708 19,283
Deferred service revenue 540 247
--- ---
Total current liabilities 18,456 21,167
Capital lease obligations, less current maturities 27 77
Deferred compensation payable 87 87
-- --
Total liabilities 18,570 21,331
------ ------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 25,000,000 shares
authorized, 8,545,000 and 8,525,000 issued
and outstanding 85 85
Additional paid-in capital 20,510 20,403
Retained earnings 17,382 16,389
------ ------
Total shareholders' equity 37,977 36,877
------ ------
------ ------
$56,547 $58,208
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except share and per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three months ended January 31, Six months ended January 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Products $48,308 $44,046 $94,416 $94,636
Services 1,064 638 2,012 1,035
----- --- ------- -----
49,372 44,684 96,428 95,671
------ ------ ------ ------
Cost of revenue
Products 41,665 38,112 81,266 81,649
Services 803 271 1,466 542
--- --- ----- ---
42,468 38,383 82,732 82,191
------ ------ ------ ------
Gross profit 6,904 6,301 13,696 13,480
Selling, general and
administrative expenses 6,705 5,105 12,404 10,293
----- ----- ------ ------
Income from operations 199 1,196 1,292 3,187
Interest expense (23) (71) (33) (191)
Interest income 203 122 404 127
Other income - 23 - 23
--- -- --- ---
Income before income taxes 379 1,270 1,663 3,146
Provision for income taxes 148 521 670 1,296
---- --- --- -----
Net income $ 231 $749 $ 993 $1,850
====== ==== ===== ======
Net Income per share
Basic $0.03 $ 0.10 $0.12 $0.26
===== ======= ===== =====
Diluted $0.03 $ 0.10 $0.12 $0.26
===== ======= ===== =====
Weighted average
shares outstanding 8,531,304 7,867,935 8,528,152 7,033,968
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the six months ended January 31,
1998 1997
(Unaudited)
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 993 $1,850
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 550 285
Allowance for doubtful accounts 192 185
Stock compensation expense 27 -
Change in assets and liabilities net of
the effects of the purchase of Coastal:
Increase in accounts receivable (4,522) (2,140)
Decrease (increase) in inventory 3,500 (1,762)
Increase in prepaid expenses and
other current assets (715) (87)
(Increase) decrease in other assets (90) 209
Decrease in accounts payable and
accrued expenses (2,647) (2,706)
Decrease in deferred service contract revenue (22) (3)
Decrease in income taxes payable - (295)
Increase in deferred compensation payable - 85
---- -----
Net cash used in operating activities (2,734) (4,379)
------ ------
Cash flows from investing activities:
Capital expenditures (1,648) (342)
Proceeds from sale of assets - 54
Proceeds from sale of investments 4,408 -
Payment for the purchase of Coastal,
net of cash acquired (2,921) -
------ ---
Net cash used in investing activities (161) (288)
---- ----
Cash flows from financing activities:
Net repayments of borrowings (1,274) (6,500)
Payments on notes payable-shareholder - (235)
Payments on capital lease obligations (53) (40)
Net proceeds from initial public offering - 20,414
Payments on notes payable - other ( 415) -
--- -----
Net cash (used in) provided by
financing activities (1,742) 13,639
------ ------
Net increase (decrease) in cash and cash equivalents (4,637) 8,972
Cash and cash equivalents at beginning of period 15,049 5,774
------ -----
Cash and cash equivalents at end of period $10,412 $14,746
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Manchester Equipment Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Operations and Basis of Presentation
Manchester Equipment Co., 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 the
majority of the Company's revenue. 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.
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments (consisting of
only normal and recurring accruals) necessary to present fairly the
financial position of the Company as of January 31, 1998 and the results
of operations for the three months and six months ended January 31, 1998
and 1997 and cash flows for the six months ended January 31, 1998 and
1997. Although the Company believes that the disclosures herein are
adequate to make the information not misleading, these financial
statements should be read in conjunction with the audited financial
statements and the notes thereto for the year ended July 31, 1997,
included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
2. Net Income Per Share
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("EPS") which the Company adopted
in the second quarter of fiscal 1998. It replaces the presentation of
primary EPS with the presentation of basic EPS and replaces fully diluted
EPS with diluted EPS. It also requires a dual presentation of basic and
diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerators
and denominators of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Net income per share of common stock for the three and six month
periods ended January 31, 1998 have been calculated according to the
guidelines of Statement No. 128 and prior periods' EPS data have been
restated to conform with Statement No. 128.
Basic net income per share has been computed by dividing net income by
the weighted average number of common shares outstanding. Diluted net
income per share has been computed by dividing net income by the weighted
average number of common shares outstanding, plus the assumed exercise of
dilutive stock options and warrants, less the number of treasury shares
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<PAGE>
assumed to be purchased from the proceeds of such exercises using the
average market price of the Company's common stock during each respective
period. For the periods presented, stock options and warrants have been
excluded from the calculation of diluted net income per share since the
result would be antidilutive.
3. Initial Public Offering
On December 2, 1996, the Company completed an initial public offering
(the "Offering") 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
approximately $20.4 million, after deducting the underwriting discounts
and commissions and other costs associated with the Offering.
4. Acquisitions
Coastal Office Products Inc.:
On January 2, 1998, the Company acquired all of the outstanding shares
of Coastal Office Products, Inc. ("Coastal"), a Maryland corporation and a
reseller and provider of microcomputer services and peripherals to
companies in the greater Baltimore, Maryland area. The acquisition, which
has been accounted for as a purchase, consisted of a cash payment of $3.1
million plus potential future contingent payments. The cash payment was
made from the Company's cash balances. The amounts of the contingent
payments will be determined based upon achieving certain agreed upon
increases in revenues and pretax income over calendar 1997 amounts.
Contingent payments, if any, would be paid in cash (or, under certain
conditions, in Company common stock) on March 15, 1999 and March 15, 2000.
Operating results of Coastal are included in the Condensed
Consolidated Statements of Income from the date of acquisition. The
acquisition resulted in goodwill of $2,965,000 which is being amortized on
the straight-line basis over 20 years.
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 $2.6 million.
The acquisition has been accounted for as a purchase and the operating
results of Electrograph are included in the Condensed Consolidated
Statements of Income from the date of acquisition. The acquisition resulted
in goodwill of $1,543,000 which is being amortized on the straight-line
basis over 20 years.
The following unaudited pro forma consolidated results of operations
for the three and six months ended January 31, 1998 and 1997 assume that
7
<PAGE>
the Coastal and Electrograph acquisitions occurred on August 1, 1996 and
reflect the historical operations of the purchased businesses adjusted for
lower interest on invested funds, contractually revised officer
compensation and rent and increased amortization, net of applicable income
taxes resulting from the acquisitions:
Three months ended Six months ended
January 31, January 31,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands) (in thousands)
Revenues $50,802 $51,884 $100,003 $110,071
Net income 242 809 1,019 2,007
Net income per share $0.03 $0.10 $0.12 $0.28
The pro forma results of operations are not necessarily indicative of
the actual results that would have occurred had the acquisitions been made
at the beginning of the period, or of results which may occur in the
future.
5. Legal Proceedings
On January 12, 1998, the Company announced that it had reached an
agreement in principle settling the Shareholder Securities Class Action
("Lawsuit") filed against the Company and certain of its officers in March
1997. The proposed settlement, which is subject to court approval, would
result in the distribution of $1,350,000 minus approved attorney's fees
and related expenses, to purchasers of the Company's common stock in the
Company's initial public offering, and during the period of November 26,
1996 to February 13, 1997. The entire $1,350,000 cash settlement is to be
paid by the Company's insurance carrier.
The settlement will include a release of all claims that were asserted
or that could have been asserted in the Lawsuit against the Company and its
officers and directors. The Company agreed to the settlement solely to
avoid the expense, burdens and uncertainties of further litigation and
continues to deny that it has any liability on account of the matters
asserted in the litigation or that the Plaintiffs' claims have merit.
8
<PAGE>
ITEM 2 - 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 condensed consolidated financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and with the Company's
Annual Report or Form 10-K. This discussion and analysis contains certain
forward-looking statements within the meaning of the Securities Act of
1933, as amended, and Section 21E of the Securities 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,
those set forth in the Company's Annual Report on Form 10-K for the year
ended July 31, 1997, and those set forth in the Company's other filings
from time to time with the Securities and Exchange Commission.
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. The Company'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
to 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
9
<PAGE>
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 8% and 12%
(or $7,698,000, and $11,480,000, respectively) of the Company's revenues
for the six months ended January 31, 1998 and 1997, respectively,
substantially all of which revenues were derived from the sale of hardware
products. This customer accounted for 15% of revenues for the fiscal year
ended July 31, 1997. 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 the Company's ability to sell 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 the 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 January 31, 1998 and 1997,
inventories represented 13% and 17%, respectively, of total assets. For
the six months ended January 31, 1998 and 1997, annualized inventory
turnover was 22 and 15 times, respectively. Inventory turned 17 times in
the fiscal year ended July 31, 1997. 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 0.2% of total revenues in each of the six month periods ended
January 31, 1998 and 1997. For the fiscal year ended July 31, 1997, bad
debt expense represented 0.2% of total revenues.
The Company's quarterly revenues 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
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features, the introduction of new services by the Company and its
competitors, changes in the level of the Company's operating expenses, the
timely availability of product supply, 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 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. Recently, the
computer industry has experienced rapid declines in average selling prices
of personal computers. In some instances, the Company has been able to
offset these price declines with increases in units shipped. There can be
no assurance that average selling prices will not continue to decline or
that the Company will be able to offset declines in average selling prices
with increases in units shipped.
The Company's Chief Executive Officer has entered into an employment
agreement with the Company under which he receives annual compensation of
$550,000, exclusive of fringe benefits, through the end of fiscal 1998. In
addition, the Company's Executive Vice President has agreed to receive
annual base compensation, exclusive of fringe benefits, of $450,000 through
the end of fiscal 1998. These officers agreed not to, and did not, receive
any bonuses for fiscal 1997 and further agreed 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 warehouse facilities and offices from entities that are owned or
controlled by the Company's majority shareholder. Each of the leases with
related parties was 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.
11
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated,
information derived from the Company's Condensed Consolidated Statements
of Income expressed as a percentage of related revenue or total revenue.
<TABLE>
<CAPTION>
Percentage of Revenue
Three Months Ended Six Months Ended
January 31, January 31,
1998 1997 1998 1997
---- ----- ---- ----
<S> <C> <C> <C> <C>
Product Sales 97.8% 98.6% 97.9% 98.9%
Services 2.2 1.4 2.1 1.1
--- --- --- ---
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of Product Sales 86.2 86.5 86.1 86.3
Cost of Services 75.5 42.5 72.9 52.4
---- ---- ---- ----
Cost of revenue 86.0 85.9 85.8 85.9
----- ----- ---- ----
Product Gross Profit 13.8 13.5 13.9 13.7
Services Gross Profits 24.5 57.5 27.1 47.6
---- ---- ---- ----
Gross Profit 14.0 14.1 14.2 14.1
---- ---- ---- ----
Selling, general and
administrative expenses 13.6 11.4 12.9 10.8
----- ---- ---- ----
Income from operations 0.4 2.7 1.3 3.3
Interest and other income, net 0.4 0.1 0.4 .0
---- --- --- ----
Income before income taxes 0.8 2.8 1.7 3.3
Provision for income taxes 0.3 1.1 0.7 1.4
----- ---- --- ---
Net income 0.5% 1.7% 1.0% 1.9%
====== ===== === ===
</TABLE>
Three Months Ended January 31, 1998 Compared to Three Months Ended October
31, 1997
Revenue. The Company's revenue increased $4.7 million or 10.5% from
$44.7 million for the three months ended January 31, 1997 to $49.4 million
for the three months ended January 31, 1998. Product revenue increased by
$4.3 million (9.7%) due primarily to revenue generated from the Company's
new wholly-owned subsidiaries, Electrograph Systems, Inc. ("Electrograph"),
which was acquired on April 25, 1997, and Coastal, which was acquired on
January 2, 1998, as well as increases in the numbers of personal computers
shipped. These increases were partially offset by lower shipments to the
Company's major customer and lower per unit prices for personal computers.
Service revenue increased $426,000 (67%) as a result of the Company's
continued emphasis on providing value-added services.
Gross Profit. Cost of revenue includes the direct costs of products
sold, freight and the personnel costs associated with providing technical
services, 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 $603,000 or 9.6% from
$6.3 million for the second quarter of fiscal 1997 to $6.9 million for the
most recent fiscal quarter. Gross profits from the sale of products
increased by $709,000 while gross profit from the sale of services
declined by $106,000. The changes in gross profits from the sale of
products primarily results from the changes in revenue discussed above.
The decline in gross profit from service offerings is due to increases in
salaries and personnel involved in providing technical services. The
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Company continues to add technical and engineering personnel as a means of
growing service related business. As a percentage of revenue, gross profit
decreased to 14.0% in fiscal 1998 as compared to 14.1% in fiscal 1997.
Competitive pressures, changes in types of products or services sold and
product availability result in fluctuation in gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1,600,000 or 31.3% from $5.1 million in
the second quarter of fiscal 1997 to $6.7 million in the second quarter of
fiscal 1998. This increase is principally a result of additional personnel
and higher salaries related to the Company's increased emphasis on
providing value-added services as well as additional operating costs
associated with the Company's new subsidiaries, Electrograph and Coastal,
which were acquired on April 25, 1997 and January 2, 1998, respectively,
and higher depreciation and amortization, training, and legal costs
partially offset by lower advertising expenses.
Interest Income. Interest income increased from $122,000 in fiscal
1997 to $203,000 in fiscal 1998 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 income tax rate remained
relatively constant at approximately 40% of income before income taxes.
Six Months Ended January 31, 1998 Compared To Six Months Ended January 31,
1997
Revenue. The Company's revenue increased by $757,000 (0.8%) from $95.7
million for the first six months of fiscal 1997 to $96.4 million for the
first six months of fiscal 1998. The increase is due to revenue from newly
acquired subsidiaries partially offset by lower shipments to the Company's
major customer and lower per unit prices for personal computers. Revenue
from service offerings increased by 94% over service revenue for the prior
year fiscal period while product revenue declined by 0.2% from fiscal 1997
amounts.
Gross Profit. Gross profit increased $216,000 (1.6%) from $13.5
million for the first six months of fiscal 1997 to $13.7 million for the
most recent six month period. Margins on product sales improved to 13.9%
versus 13.7% due to better product mix while margins on service offerings
declined from 47.6% to 27.1% primarily due to higher salaries and
additions to personnel in the technical services area.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $2.1 million (20.5%) from $10.3
million in fiscal 1997 to $12.4 in fiscal 1998. This increase is primarily
due to increases in the personnel infrastructure as the Company continues
to build its sales and service organization and increase its emphasis on
providing value added services. Furthermore, selling, general and
administrative expenses increased due to the addition of the two new
subsidiaries that were not a part of the Company in the comparable period
a year ago, as well as higher depreciation, training and legal expenses
partially offset by lower advertising costs.
Interest Income. Interest income increased due to earnings on
investments made with the proceeds from the Company's initial public
offering.
Provisions For Income Taxes. The effective income tax rate remained
relatively constant at approximately 40% of income before income taxes.
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Liquidity and Capital Resources
Historically, 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 six months ended January 31, 1998, cash used in operating
activities was $2.7 million consisting primarily of an increase in accounts
receivable and a decrease in accounts payable and accrued expenses,
partially offset by net income and a decrease in inventory. 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 three months ended January 31, 1998 the Company used
approximately $1.6 million for capital expenditures, $1.7 million to repay
indebtedness and $2.9 million (net of cash acquired) to acquire Coastal and
generated $4.4 million from the sale of investments. On December 2, 1996,
the Company completed an initial public offering (the "Offering") 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 and a subsidiary have available lines of credit with a
financial institution in the aggregate amount of $10.0 million. No amounts
are currently outstanding under these lines.
The Company believes that its current balances in cash and cash
equivalents and investments, 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. The aggregate remaining commitment for these projects is
approximately $750,000, 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.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On January 12, 1998, the Company announced that it had reached an
agreement in principle settling the Shareholder Securities Class Action
("Lawsuit") filed against the Company and certain of its officers in March
1997. The proposed settlement, which is subject to court approval, would
result in the distribution of $1,350,000 minus approved attorney's fees
and related expenses, to purchasers of the Company's common stock in the
Company's initial public offering, and during the period of November 26,
1996 to February 13, 1997. The entire $1,350,000 cash settlement is to be
paid by the Company's insurance carrier.
The settlement will include a release of all claims that were
asserted or that could have been asserted in the Lawsuit against
Manchester Equipment and its officers and directors. The Company has
agreed to the settlement solely to avoid the expense, burdens and
uncertainties of further litigation and continues to deny that it has any
liability on account of the matters asserted in the litigation or that the
Plaintiffs' claims have merit.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
In connection with employment agreements entered into with the two
former shareholders of Coastal, on January 2, 1998 the Company issued to
each such shareholder 10,000 shares of its common stock. Such shares are
unregistered, were issued under Section 4(2) of the Securities Act of 1933,
as amended, and are restricted in that they vest ratably over a three year
period commencing on the date of issuance, with all unvested shares being
forfeited and canceled if the individual's employment is voluntarily
terminated or terminated for cause (as defined in the employment
agreement). The individuals acquired the shares for investment and the
stock certificates representing the shares were duly legended.
Item 4. Submission of Matters to a Vote of Security Holders
On January 14, 1998 the Company held its Annual Meeting of
Shareholders to (1) elect five Directors to serve until the 1999 Annual
Meeting of Shareholders; and (2) ratify the reappointment of KPMG Peat
Marwick LLP as independent auditors of the Company for the year ending
July 31, 1998.
The results of the voting for the election of Directors were as
follows:
<TABLE>
<CAPTION>
Broker
Nominee For Withheld Abstain Non-votes
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Barry R. Steinberg 7,780,145 225,400 0 0
Joel G. Stemple 7,780,145 225,400 0 0
Joel Rothlein 7,781,145 224,400 0 0
George Bagetakos 7,781,145 224,400 0 0
Julian Sandler 7,781,145 224,400 0 0
</TABLE>
15
<PAGE>
Accordingly, each of the five nominees received a plurality of the
total votes that were cast.
The results of the voting on the ratification of the appointment of
KPMG Peat Marwick LLP as the Company's independent auditors were as
follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
7,973,645 6,400 25,500 0
</TABLE>
Accordingly, the number of shares voted for the ratification of the
appointment of KPMG Peat Marwick constituted a majority of the shares
present in person or represented by proxy.
Item 6. Exhibits and Reports
(a) Exhibits
----------------
Exhibit No. Description
----------- -----------
10.5.j Lease dated October 1, 1997 between Registrant and
Spanish River Executive Plaza, Ltd. a/k/a Century
Financial Plaza
10.5.k Lease dated January 2, 1998 between Coastal Office
Products, Inc. and BC & HC Properties, LLC
10.12 Definitive Purchase Agreement and Indemnity Agreement
between Registrant and Coastal Office Products, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
---------------------------
None
16
<PAGE>
MANCHESTER EQUIPMENT CO., INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANCHESTER EQUIPMENT CO., INC.
(Registrant)
DATE: March 12, 1998 s/s Barry Steinberg
-------------------
Barry Steinberg
President and Chief Executive Officer
DATE: March 12, 1998 s/s Joseph Looney
-----------------
Joseph Looney
Chief Financial Officer
17
SPANISH RIVER EXECUTIVE PLAZA, LTD.
a/k/a Century Financial Plaza
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (this "Lease") is made and entered into on the
1st day of October, 1997 (the "Effective Date"), by and between Spanish River
Executive Plaza, Ltd. a/k/a Century Financial Plaza, a Florida Limited
Partnership ("Landlord") and Manchester Equipment Company, Inc., as ("Tenant").
W I T N E S S E T H:
1. DEFINITIONS. Landlord and Tenant hereby agree that the words and phrases
herein shall have the following meanings:
a) "Base Rental" shall mean the sum of $93,279.96 per annum payable
$7,773.33 monthly and as adjusted pursuant to Paragraph 5 hereof together with
all applicable Florida sales tax.
b) "Building Standard" shall mean the type of materials Landlord
designates from time to time to be the minimum quality to be used as the
Leasehold Improvements as defined herein.
c) "Building" or "Buildings" shall mean all office buildings now or
hereafter located upon the real property described in Exhibit "A" attached
hereto and made a part hereof (the "Property"). Reference to the "Property" in
this Lease shall be deemed to include the Building unless expressly provided
otherwise. The Building presently consist of one structure containing 37,002
rentable square feet. The Property has an address of 185 N.W. Spanish River
Boulevard, Boca Raton, Florida 33431 and is known as Spanish River Executive
Plaza a/k/a Century Financial Plaza.
d) "Commencement Date" shall mean December 1, 1997.
e) "Common Areas" shall mean those areas of the Building devoted to
corridors, elevator foyers and elevator cabs, restrooms, mechanical rooms,
janitorial closets, electrical and telephone closets, vending areas and other
similar facilities provided for the common use or benefit of tenants generally
and/or the public, and Landlord shall have the right, at any time, to change
the size and location of the Common Areas.
f) "Existing Improvements" means the improvements in the Premises on
the Effective Date.
g) "Exterior Common Areas" shall mean the portions of the Property not
located within the Building and which are provided and maintained for the common
use and benefit of Landlord and tenants of the Building and their respective
employees, invitees and licensees, including, without limitation, all
unassigned, ground level, uncovered parking areas, and all streets, sidewalks
and landscaped areas.
h) "Hazardous Materials" shall mean any substance defined in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "toxic substances", "contaminants", or "pollutants" under applicable
federal, state, or local laws, ordinances, codes, or regulations now or
hereafter in effect.
i) "Leasehold Improvements" shall mean those improvements, if any,
which Landlord has agreed to complete as set forth in paragraph 53 below.
j) "Lease Term" shall mean a term commencing on the Commencement Date
(December 1, 1997) and continuing until November 30, 2002 (the "Termination
Date").
k) "Lease Year" shall mean the 12 month period starting on the first
day of the first full month following the Commencement Date and thereafter,
each successive 12 month period.
SpanishRiver.Manchester.September 22, 1997.ajm
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l) "Normal Business Hours" shall mean 8:00 a.m. to 6:00 p.m., Monday
through Friday, excluding legal holidays and from 9:00 a.m. to 1:00 p.m. on
Saturdays.
m) "Premises" shall mean Suite 270, 260, 259, 255, 254, 257A and 257B,
but shall be known only as "Suite 270" hereafter of the Building as outlined on
the floor plan attached to this Lease as Exhibit "B" and made a part hereof.
n) "Rentable Floor Area" shall mean 5,830 rentable square feet of floor
area which includes the interior useable area of the Premises, as herein
defined, and a prorata portion of the Common Areas. The ratio of the total
Common Areas relative to the Rentable Floor Area shall not vary after the
effective date if Landlord changes the size of the Common Areas.
o) "Security Deposit" shall mean the sum of $8,239.73 which has been
paid to Landlord by Tenant concurrent with the execution of this Lease by Tenant
(See paragraph 38 below) and which Security Deposit amount shall be in addition
to and independent of the Rent Deposit as referenced in Subparagraph 5(d) below.
p) "Service Areas" shall mean those areas within the exterior walls of
the Building used for elevator mechanical rooms, building stairs, fire towers,
elevator shafts, flues, vents, stacks, pipe shafts and vertical ducts (but shall
not include any such areas designated for the exclusive use or benefit of the
Tenant). Landlord shall have the right, at any time and from time to time, to
change the size or location of the Service Areas.
q) "Substantial Completion" shall be defined as set forth in paragraph
53 below.
r) "Total Rentable Area" shall mean 37,002 square feet which includes
the total floor area within the exterior walls of the Building less the Service
Areas.
2. LEASE GRANT. Subject to and upon the terms, provisions and conditions herein
set forth, and each in consideration of the covenants of the other hereunder,
Landlord leases to Tenant and Tenant leases from Landlord the Premises.
3. LEASE TERM.
a) This Lease shall continue in force during the Lease Term until
terminated or extended as provided herein.
4. USE.
a) The Premises shall be used and occupied by Tenant solely for the
purpose of executive and general offices including, but not limited to, a
conference facility, sales, training facility, computer related service and
maintenance facility, showroom and demonstration room facility, and all lawful
purposes thereto. Tenant agrees not to use or permit the use of the Premises for
any purpose which is illegal, or which, in Landlord's reasonable opinion,
creates a nuisance or which would increase the cost of insurance coverage with
respect to the Property.
b) Tenant represents and warrants that Tenant will keep the Premises
free from contamination by Hazardous Materials and that the Premises and the
activities to be conducted thereon will not pose any hazard to human health or
violate any applicable current federal, state, or local laws, ordinances, rules,
codes, or regulations perTaining to Hazardous Materials or industrial hygiene or
environmental conditions (collectively referred to herein as "Environmental
Laws"). Tenant at its sole cost and expense shall conform to all existing and
any future changes in the Environmental Laws, whether foreseen or unforeseen,
and will take all direct and indirect actions required in order to keep its
Premises or any activities conducted therein free from any violation of any
current or future applicable Environmental Laws. Tenant agrees to indemnify,
defend and hold Landlord (and Landlord's partners, affiliates, directors,
officers, shareholders, employees, mortgagees, heirs successors and assigns, as
applicable) harmless from and against any and all claims, losses, damages
(including, without limitation, unforeseeable consequential and incidental
damages), fines or penalties resulting from the violation of any Environmental
SpanishRiver.Manchester.September 22, 1997.ajm
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<PAGE>
Laws applicable to the Building and/or the Premises which have been caused by or
necessitated by the acts of Tenant and/or its agents. All sums paid and costs
incurred by Landlord with respect to the foregoing matters shall be payable by
Tenant to Landlord as additional rent due on demand.
c) Landlord hereby represents and warrants to Tenant that to the best
of Landlord's knowledge as of the date of this Lease, no hazardous material has
been leaked, spilled, discharged or incorporated into the Premises. Landlord
shall notify Tenant immediately if Landlord should discover any hazardous
materials or violations of any laws or regulations regarding hazardous
materials. Landlord will, at Landlord's sole expense, take all action necessary
to remove or abate any hazardous materials should they be found on or in the
Premises.
5. RENTAL.
a) Tenant covenants and agrees to pay during the Lease Term, to
Landlord, without any counterclaim, set off or deduction whatsoever, the Base
Rental as set forth in Section 1(a) of the Lease and this Section 5 of the Lease
and all such other sums of money as shall become due hereunder (all of which are
sometimes herein collectively called "Rent"). The Base Rental payable during
each calendar year or portion thereof during the Lease Term, shall be due and
payable in 12 equal installments on the first day of each calendar month during
the Lease Term and any extensions or renewals thereof, and Tenant hereby agrees
to pay such Base Rental and any adjustments thereto to Landlord at Land- lord's
address provided herein (or such other address as may be designated by Landlord
in writing from time to time). The Tenant hereby waives any and all right to
offset or charge any amount owed to Tenant by Landlord against the Rent,
Operating Expenses, Operating ExpeNse reimbursements, or any other monies due
the Landlord by Tenant under this Lease.
b) It is also further agreed that the Landlord may collect a "Late
Charge" equal to five percent (5%) of any monthly payment which is not paid
within ten (10) days of the due date thereof, to cover the extra expense
involved in handling delinquent payments, provided that collection of said Late
Charge shall not be deemed a waiver by the Landlord of any of its other rights
under this Lease. All installments of Rent not paid when due and payable at the
end of any grace period provided herein, shall bear interest from that date
^until paid, at eighteen percent (18%) per annum, but no more than the maximum
rate allowed under the laws of the State of Florida. Such interest and late
charges shall constitute additional rent under this Lease and shall be due and
payable on demand, but no later than the next date for any Rent due hereunder.
c) Tenant shall pay all sales and use taxes levied or assessed against
all payments of Rent due under this Lease simultaneously with each payment
required hereunder on the date required hereunder without further notice,
provided, however, that Landlord will provide Tenant with prior notice of any
change in the sales and use taxes that are so assessed. Until such further
notice, the Florida State sales tax applicable to all payments of Rent due
hereunder shall be deemed to be six percent (6%).
d) Upon Tenant's execution of this Lease, Tenant shall deposit with
Landlord the amount of $8,239.73 which shall be applied to the Base Rental
($7773.33), and sales tax ($466.40) for the first month of the Lease Term^
("Rent Deposit"), which Rent Deposit amount shall be in addition to and
independent of the Security Deposit as referenced in Paragraph 1(q) above.
e) Tenant shall pay the monthly installments of the Base Rental through
the end of the first Lease Year as set forth in paragraph 1(a) above (initially
$7773.33 per month plus sales tax), for the first three (3) years of the Initial
Lease Term and thereafter the Base Rental shall be increased according to the
following schedule:
SpanishRiver.Manchester.September 22, 1997.ajm
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Page 3 (Tenant) (Landlord)
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Base Rental Calculations
- --------------------------------------------------------------------------------
Lease Tenant's Base Rental Base Rental
Year Dates SF Rate PSF Annually Monthly
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 12/1/97-11/30/98 5,830 $16.00 $93,279.96 $7,773.33
- --------------------------------------------------------------------------------
2 12/1/98-11/30/99 5,830 $16.00 $93,279.96 $7,773.33
- --------------------------------------------------------------------------------
3 12/1/99-11/30-00 5,830 $16.00 $93,279.96 $7,773.33
- --------------------------------------------------------------------------------
4 12/1/00-11/30/01 5,830 $16.64 $97,011.24 $8,084.27
- --------------------------------------------------------------------------------
5 12/1/01-11/30/02 5,830 $17.31 $100,917.36 $8,409.78
================================================================================
</TABLE>
6. OFFSET: The Tenant hereby waives any and all right to offset or charge any
amount owed to Tenant by Landlord against the Base Rental or Tenant's Prorata
Share of Operating Expenses, or any other monies due the Landlord by Tenant
under this Lease. Tenant shall nevertheless be able to pursue its own separate
cause of action for any alleged breach pursuant to this Lease by Landlord.
7. PAYMENT OF OPERATING EXPENSES.
Notwithstanding anything to the contrary contained herein, Tenant shall
not be obligated to reimburse Landlord for Tenant's Prorata Share of Operating
Expenses during the initial Lease Term, expiring August 31, 2002, except for
Tenant's limited reimbursement for real estate taxes and insurance costs as set
forth in Paragraph 7(c),
(f) and (g) below.
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<PAGE>
c) "Tenant's Prorata Share" of the Operating Expenses shall be equal to
a fraction the numerator of which is the Rentable Floor Area and the denominator
of which is the Total Rentable Area (37,002 square feet). Accordingly, Tenant's
Prorata Share of the Operating Expenses for purposes of this Lease is deemed to
be 15.76%.
f) Tenant's obligation to pay its Prorata Share of the Operating
Expenses shall survive the termination of this Lease. Similarly, Landlord's
obligation to refund any overpayment of Tenant's Prorata Share of Expenses shall
survive termination of this Lease.
g) LIMITED EXPENSE REIMBURSEMENT DURING INITIAL LEASE TERM ONLY. To the
extent that real estate taxes and insurance costs during the Initial Lease Term
increase by more than 4% per annum over the amount for such items for the
calendar year 1997 (Base Year), Tenant shall pay its Prorata Share of any
increase (over and above a 4% increase) as of April 15, 1998 and each succeeding
April 15th thereafter for the preceding calendar year's Operating Expense
Reimbursement and prorated for any partial lease year.
8. SERVICES TO BE FURNISHED BY LANDLORD. Subject to Paragraph 7 of this Lease,
Landlord agrees to use commercially reasonable efforts to furnish Tenant the
following services:
a) Water at those existing points of supply provided for the general or
common use of Tenant and other tenants in the Building.
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Page 6 (Tenant) (Landlord)
<PAGE>
b) Central heat and air conditioning to the Building, Service Areas,
Common Areas, and the Premises during Normal Business Hours provided Tenant
shall bear the cost of any electric consumption relating to the air conditioning
systems within Tenant's Premises and provided further that such services may be
interrupted or moderated (with shorter service hours or different temperature
settings) by any policies or regulations of any utility or governmental agency.
Tenant has certain air conditioning equipment within its Premises which Tenant
may access at its choice and Landlord represents that the utility systems,
including heating and air conditioning systems and equipment will be in working
order at the time Tenant takes occupancy.
Notwithstanding anything to the contrary as may be set forth herein,
Landlord shall replace the compressors or condensers for any HVAC equipment
within or serving Tenant's Premises provided Tenant pays for all monthly
maintenance and repairs of the HVAC, including normal replacements of fan belts
and motors, plus a monthly maintenance and filter changing contract with an
entity approved by Landlord, which approval shall not be unreasonably withheld.
Landlord shall, nevertheless, maintain, replace and repair any of the
central air conditioning distribution lines for cooled water which might service
the equipment within Tenant's Premises. Landlord shall also maintain, replace
and repair the air conditioning systems for the Common Areas.
c) Routine maintenance and electric lighting service for all Common
Areas and Service Areas of the Building in the manner and to the extent deemed
by Landlord to be standard and/or reasonable.
d) Janitorial service to the Premises and all Common Areas, Mondays
through Fridays, exclusive of normal business holidays.
e) Facilities to provide all electrical current as Landlord, in its
sole discretion, determines is necessary for normal office use within the
Premises and for use and operation of the Common Areas (interior and exterior)
with Tenant being responsible for the actual electric consumption within the
Premises.
f) All florescent bulb replacement in the Premises and florescent and
incandescent bulb replacement in the Common Areas and Service Areas; however,
Tenant shall pay for the replacement of any "high hat" lights or any other
special or customized lighting fixture not equivalent to Landlord's standard
Tenant finish improvements.
g) Control of access to the Building during other than Normal Business
Hours shall be provided in such form as Landlord deems appropriate; however,
Tenant shall be able to access its Premises twenty-four (24) hours per day,
seven (7) days per week utilizing the security access codes or controls which
Landlord shall supply to Tenant. No prior approval of Landlord shall be required
of Tenant in order to access Tenant's Premises. Landlord, however, shall have no
liability to Tenant, its employees, agents, invitees or licensees for bodily
injury, death, or for damages to or loss of property suffered or incurred by any
party whomsoever, caused by or arising from theft or burglary or entry of
unauthorized persons onto the Property and neither shall Landlord be required to
insure against any such losses except if caused by the Landlord's gross
negligence or gross negligence of the Landlord's employees. Tenant shall
cooperate fully to maintain security in the Building and on the Property and
shall follow all regulations promulgated by Landlord.
h) Elevator service to each floor of the Premises, provided that Tenant
shall be limited in its use of such elevators for the purpose of moving its
property in and out of the Building which moving activities shall be done:
(i) Only during other than Normal Business Hours or such other hours as
Landlord may approve in writing;
(ii) Only after first obtaining Landlord's consent to such use, which
request shall be submitted in writing to Landlord no less than five
(5) days in advance of each desired move (which consent shall not be
unreasonably withheld);
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<PAGE>
(iii) Only after arranging with Landlord to obtain security and/or other
supervisory staff of Landlord to be present during such move; and
(iv) Only after Landlord advises Tenant in writing of what physical
protections Landlord might require Tenant to provide or install in
order to protect the Building or its components as a condition
precedent to such move. Tenant shall pay Landlord promptly for all
costs associated with Tenant's moving including the operation of the
elevator (for moving purposes), the cost of any operator, supervisory
or security personnel and all other costs required herein. Tenant
shall also promptly reimburse Landlord's cost to repair any damage to
the elevator or the elevator cab(s), the Common Areas, floors, walls,
or other components of the Building resulting from Tenant's moving
activities.
The failure by Landlord to any extent to furnish the defined services
noted above, in whole or in part, or the interruption or termination of any such
services, or the failure of any equipment or machinery used in the provision of
such services to cease to function properly shall not render Landlord liable in
any respect nor be construed as an eviction (constructive or otherwise) of
Tenant, nor cause an eviction of Tenant, nor cause an offset or abatement of
Rent, nor relieve Tenant from the obligation to fulfill any covenant or
agreement hereof. Notwithstanding the foregoing, if any of the foregoing defined
services is interrupted or terminated for more than seven (7) consecutive
business days, Tenant shall have the right to abate rent for up to thirty (30)
days after which Tenant shall have the right to terminate this Lease upon giving
prior written notice to Landlord provided such services have not been reinstated
in the meantime.
9. IMPROVEMENTS TO THE PREMISES.
a) Tenant shall be deemed to have accepted the Premises, Building and
Property in their "as is" condition as of the date this Lease is executed by
Tenant, provided however, the Landlord represents that the utility systems,
including heating and air conditioning systems and equipment will be in working
order at the time Tenant takes occupancy.
b) Tenant shall not make any installation(s) or improvement(s) to the
Premises except at Tenant's sole cost and expense and only after having obtained
Landlord's prior written approval; however, Landlord's approval of the Plans
referred to in Paragraph 53 shall constitute Landlord's approval. By taking
possession of the Premises, Tenant acknowledges that Tenant shall be deemed to
have accepted the Premises, in the "as is" condition as of the date Tenant takes
such possession except for the work to be performed by Landlord according to
Paragraph 53(b) below.
c) Landlord grants Tenant the right to install its own internal
security system. Tenant will pay for all costs for such installation and
maintenance and will be responsible for any costs incurred by Landlord or any
other tenant as a result of such installation. Under no circumstances will
Tenant allow penetrations to be made in any exterior doors to Tenant's Premises
for such installation.
10. MAINTENANCE AND REPAIR OF BUILDING BY LANDLORD. Except for those specific
responsibilities of Tenant as provided herein, Landlord shall repair and
maintain in good repair and serviceable condition the roof, foundations,
exterior walls and windows of the Building, underground utility and sewer pipes
outside the exterior walls of the Building (unless covered or made inaccessible
by Tenant's use of the Premises), the Exterior Common Areas, the Common Areas
(including the first floor lobby area), and the heating, air conditioning,
lighting, electrical, ventilation, plumbing, and storm drainage equipment
servicing the Building whether located inside or outside the exterior walls of
the Building except for such heating and air conditioning^ services within the
Premises which Tenant is specifically responsible, provided however, the
Landlord represents that the utility systems, including heating and air
conditioning systems and equipment will be in working order at the time Tenant
takes occupancy. Except as otherwise expressly provided herein, Landlord shall
not be required to make any repairs to the Premises.
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Page 8 (Tenant) (Landlord)
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11. CARE OF THE PREMISES BY TENANT. Tenant shall, at its sole expense, keep the
Premises in good repair during the Lease Term, including without limitation, the
doors (both sides and door locks and hardware), interior Building windows and
interior walls within the Premises. Tenant shall not commit or allow any waste
to be committed on any portion of the Premises or the Property, and at the
termination of this Lease, Tenant shall deliver up the Premises to Landlord
broom clean and in the same good condition as exists at the Commencement Date,
ordinary wear and tear and damage by fire and other casualty excepted.
12. REPAIRS AND ALTERATIONS BY TENANT.
a) Tenant covenants and agrees with Landlord, at Tenant's sole expense,
to repair any damage done to the Premises or any part thereof, including
necessary replacement within five (5) days after written notification to Tenant,
where such damage is caused by Tenant or Tenant's agents, employees, invitees,
visitors, licensees or permitted assigns. All such work or repairs by Tenant
shall be in compliance with all applicable laws; provided, however, if Tenant
fails to make such repairs or replacements promptly, Landlord may, at its
option, make such repairs or replacements, and Tenant shall pay the cost thereof
to the Landlord within fifteen (15) days after Landlord's written demand
therefore, as additional rent. In such event, Tenant hereby grants Landlord
reasonable access to Tenant's Premises for the foregoing purposes. Tenant agrees
with Landlord not to make or allow to be made any improvements or alterations to
the Premises, install any vending machines on the Premises, or place signs on
the Premises which are visible from outside the Premises or in the corridors,
without first obtaining the prior written consent of Landlord which consent
shall not be unreasonably withheld. Any and all permanent alterations or
additions to the Premises made by Tenant shall become the property of Landlord
upon installation by Tenant. Upon termination, Landlord may, nonetheless,
require Tenant to remove any and all fixtures, equipment and other improvements
so installed on the Premises. In the event that Landlord so elects, and Tenant
fails to remove such improvements, Landlord may remove such improvements at
Tenant's sole expense, and Tenant shall promptly pay Landlord the cost of
restoring the Premises to the same condition they were in prior to the
installation thereof ordinary wear and tear excepted.
b) In the event any damage to the Building or the Property is due in
whole or in part to the action or inaction of Tenant, or Tenant's agents,
employees, invitees, visitors, licensees, or permitted sublessees or assigns,
the necessary repair, including replacement, may be made by Landlord, at
Tenant's sole cost and expense which shall be due to Landlord as Additional Rent
payable within fifteen (15) days after Landlord's written demand, in the event
Tenant fails to repair.
13. GRAPHICS. Landlord shall provide and install, at Landlord's sole expense,
all letters or numerals on doors entering the Premises or on a wall near
Tenant's main entry door. All such letters and numerals shall be in the standard
graphics as approved by Landlord for the Building, and no other sign, graphics
or other displays which are visible outside the Premises shall be permitted
without Landlord's prior written consent which consent shall not be unreasonably
withheld. A directory in the lobby designed and maintained by the Landlord shall
contain the name of all tenants within the Building. The foregoing
notwithstanding, Landlord agrees to put three (3) company names for Tenant on
the lobby directory and to install Tenant's name on the ground level exterior
sign marquee facing Spanish River Boulevard.
14. USE OF ELECTRICAL SERVICES BY TENANT.
a) Tenant's use of electrical services furnished to the Premises by
Landlord shall not exceed, either in voltage, rated capacity, or overall load
that which Landlord in its reasonable discretion determines, from time to time,
is necessary for normal office use including normal desk-top office equipment,
including computers and computer related equipment, and normal copying
equipment. In the event Tenant shall request that it be allowed to consume
electrical services in excess of that so determined by Landlord to be necessary,
Landlord may refuse to consent to such usage or may consent upon such conditions
as Landlord elects including the requirement that upgraded supply facilities,
panels, and/or sub-meters be installed at Tenant's expense.
b) Air conditioning and heat shall not be supplied to the Common Areas
of the Building other than during Normal Business Hours; however, Tenant may
utilize
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air conditioning and heating equipment within its Premises, twenty-four (24)
hours a day, seven (7) days a week, recognizing that Tenant is responsible for
100% of the electrical costs associated with the use of such air conditioning
and heating equipment, as per separate meter. No separate overtime charges will
be due for Tenant's use of the aforementioned air conditioning and heat as long
as Tenant pays for the electric consumption required.
15. PARKING.
a) No permanent or part time employee, agent, or subcontractor of
Tenant or any person who has a work station within Tenant's Premises shall be
permitted to park in any parking space designated as "Visitor" or in any space
designated (by letter identification on such parking space) for use by another
tenant ("Other Tenant") as such Other Tenant spaces may be designated from time
to time by Landlord. The Visitor Parking Spaces or other tenant spaces as
designated from time to time by Landlord shall not be occupied by any person who
conducts part-time or full-time work on or about Tenant's Premises and shall be
reserved for customers (not employees) of tenants within the Building.
b) Landlord shall have the right, after reasonable notice to Tenant and
in Landlord's sole and reasonable discretion, to change the location of any
designated or undesignated parking spaces whether for visitors, other tenants,
handicapped or otherwise.
c) During the Lease Term, Tenant shall have the right to use the
undesignated parking spaces in the parking areas located on the Property at no
cost to Tenant, such undesignated parking spaces and all driveways and walkways
located on the Property to be used by Tenant on a non-exclusive basis with
Landlord and other tenants of the Building, their employees, guests and
invitees. Landlord shall have the right, in Landlord's sole and reasonable
discretion, to establish rules and regulations for use of the driveways,
walkways, parking spaces and areas and to designate the right to the exclusive
use of particular parking spaces to other tenants in the Building or Visitors.
Landlord shall also have the right to establish or modify the methods used to
control traffic and parking on the Property, including, without limitation, the
installation of traffic control devices or the hiring of parking attendants.
d) Tenant, its employees and customers and all other tenants and
occupants of the Building shall have access to the parking area through common
driveways. The parking areas shall be available at no cost or expense to Tenant
and the use thereof shall be deemed non-exclusive and shall be available to all
tenants and their employees, licensees, and guests, other than the reserved
spaces as may be selected and located in Landlord's sole discretion and except
for the designated visitor parking spaces as may be selected and located in
Landlord's sole discretion. Landlord may, at any time, during the term of the
Lease, by notice to Tenant, designate for Tenant's use, other reasonable parking
spaces on the land, provided the total number of parking spaces is not reduced,
and said parking area is within reasonable walking distance of the Premises. No
commercial or recreational vehicles shall be parked in the parking areas except
those vehicles parked on a temporary basis while delivering, repairing or
servicing the Building and/or its tenants. Landlord shall be responsible for all
maintenance of the parking area.
e) Landlord shall not be liable for any damage to or any theft of any
vehicle, or any contents therefrom, while in or about the parking areas located
on the Property.
f) Landlord reserves the right to enforce these restrictions or
designations by towing violators or other enforcement actions as Landlord deems
necessary and reasonable.
g) Notwithstanding anything to the contrary as may be set forth in this
Lease, Tenant shall be entitled to five (5) assigned parking spaces at locations
as selected by Landlord. Such assigned spaces may be re-assigned and/or
relocated by Landlord in Landlord's sole discretion and any such re-assignment
shall have the Tenant's name on each such parking block stop. In addition,
Tenant shall have the right to twenty-five (25) unassigned parking spaces, which
shall be shared with other tenants of the Building.
h) Each employee of Tenant who is requested to park in an assigned
space at the Building shall first provide Landlord with the name, vehicle make
and license number of each such person and only those persons so pre-registered
with Landlord shall be permitted
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to park in the parking spaces specifically designated and assigned to Tenant as
provided herein. If any such employee or designee does not park in such space as
designated for its use and parks somewhere else in the parking structure or
elsewhere on the Property, Landlord may tow such automobile of any employee or
party violating these restrictions whether or not the Tenant is financially
complying with its parking charge payments to Landlord.
i) MAXIMUM NUMBER OF EMPLOYEES. Notwithstanding anything to the
contrary as may be set forth in this Lease, Tenant hereby represents to Landlord
that it shall not employ on a full time basis more than thirty-five (35) persons
who shall conduct business on or about the Premises of Tenant as defined herein
or who may, at any one time, be expected to utilize more than thirty-five (35)
parking spaces on the Property. As required in this Paragraph 15, these
employees may be required to register their names and automobiles with Landlord.
j) MEETINGS OR TRAINING SESSIONS. Tenant will be allowed to conduct
meetings or training sessions within the Premises during Normal Business Hours,
provided Tenant will not utilize more than forty (40) parking spaces at any one
time for its guest, invitees or employees.
16. LAWS AND REGULATIONS. Tenant agrees to comply with all applicable laws,
ordinances, rules and regulations of any governmental entity, agency or
authority having jurisdiction of the Premises or Tenant's use thereof.
17. BUILDING RULES AND REGULATIONS. Tenant will comply with the rules and
regulations of the Building adopted and modified by Landlord from time to time
and will cause all of its agents, employees, invitees and visitors to do so.
Landlord shall provide Tenant with notice of all such rules and regulations and
any modifications thereto. The Rules and Regulations currently in effect are
attached hereto as Exhibit "D".
In addition to the Rules and Regulations attached as Exhibit "D",
Tenant shall comply with the following:
Landlord has designated the Building and all areas within the Building
to be non-smoking areas and neither nor its invitees, customers or
employees shall be permitted to smoke within the Building or the
Premises.
No birds, dogs, cats or other animals of any kind shall be brought into
or kept about the Building or the Premises, with the exception of
animals trained to assist handicapped persons.
18. ENTRY BY LANDLORD. Tenant agrees to permit Landlord or its agents or
representatives to enter into and upon any part of the Premises at all
reasonable hours and with advance notice (and in emergencies at all times) to
inspect the condition, occupancy or use thereof, to show the Premises to
prospective purchasers, mortgagees, tenants or insurers, and to clean or make
repairs, alterations or additions thereto, and Tenant shall not be entitled to
any abatement or reduction of Rent by reason thereof; provided, however, that
Tenant's business is not reasonably interrupted by any of the foregoing
activities.
19. ASSIGNMENT AND SUBLETTING.
a) Tenant shall not assign, sublease, transfer, pledge, encumber or
otherwise convey this Lease, the Premises or any portion thereof or interest
therein (a "Transfer"), as the case may be, either voluntarily or by operation
of law, without Landlord's prior written consent, which consent shall not be
unreasonably withheld. If Tenant is either a corporation or a partnership, any
sale, transfer, pledge, encumbrance or other conveyance of any stock or
partnership interests therein shall comprise a Transfer. A partial assignment of
Tenant's leasehold interest shall comprise a Transfer. Any attempted assignment
or Transfer by Tenant in violation of the terms and covenants of this paragraph
shall be void.
b) In the event Landlord consents to any assignment of this Lease or
any sublease of all or any part of the Premises, Tenant shall pay to Landlord,
on a monthly basis, an amount equal to all rent and other consideration paid
under said assignment or sublease
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during each month in excess of the Base Rental for said month and Tenant shall
remain liable for the full and faithful performance of all the covenants and
conditions of this Lease.
20. MECHANIC'S LIENS. Tenant will not permit any mechanic's lien or liens to be
placed upon the Premises or any portion of the Property, and nothing in this
Lease shall be deemed or construed in any way as constituting the consent or
request of Landlord, express or implied, by inference or otherwise, to any
person for the performance of any labor or the furnishing of any materials to
the Premises or any part of the Property, or as giving Tenant any right, power
or authority to contract for or permit the rendering of any services or the
furnishing or any materials that would or might give rise to any mechanic's or
other liens against the Premises or any part of the Property. This provision
shall comprise notice to all parties that Landlord's interest in the Property,
including the Premises, are and shall not be subject to liens or liability to
secure or satisfy claims of any party contracting or otherwise dealing with
Tenant or Tenant's agents or contractors. In the event any such lien is claimed
against the Premises or any part of the Property, then Tenant shall discharge
same or transfer such lien to security other than the Premises and the Property,
as soon as possible, but no later than ten (10) days after notice thereof. In
the event that Tenant fails to discharge or otherwise remove any such liens,
then, in addition to any other right or remedy of Landlord, Landlord may, but
shall not be obligated to, discharge the same. Any amount paid by Landlord
pursuant to this Paragraph shall be reimbursed by Tenant to Landlord promptly
after Landlord's demand therefore as additional Rent, but no later than thirty
(30) days thereafter.
21. PROPERTY INSURANCE.
a) Subject to Tenant's compliance with Paragraph 7 of this Lease,
Landlord shall maintain fire and extended coverage insurance (broad form) on the
Building in an amount as Landlord shall deem appropriate and payments for losses
thereunder shall be made solely to Landlord or Landlord's mortgagee(s), as their
interests shall appear.
b) Tenant shall maintain, at its sole expense, in an amount equal to
full replacement cost, fire and extended coverage insurance on all of its
improvements and personal property, including removable trade fixtures, located
at the Premises and such additional amounts as are required to meet Tenant's
obligations pursuant to Paragraph 25 hereof. Upon the execution of this Lease,
upon policy renewals and upon Landlord's request from time to time, Tenant shall
provide Landlord with current certificates of insurance evidencing Tenant's
compliance with the terms of this Paragraph 21 and Paragraph 22 hereof. Tenant
shall, simultaneously with the execution of this Lease, obtain and deliver to
Landlord the written agreement or endorsement of Tenant's insurers to notify
Landlord by certified mail, return receipt requested, at least 30 days prior to
the cancellation, expiration or modification of any insurance coverage required
of Tenant herein.
22. LIABILITY INSURANCE. Tenant, at its sole expense, shall maintain a policy or
policies of comprehensive general liability insurance with respect to its
activities in the Building and on the Property, with the premiums thereon fully
paid on or before the due date therefore, issued by and binding upon an
insurance company approved by Landlord. Such insurance shall afford minimum
protection of not less than $1,000,000.00 combined single limit for bodily
injury and property damage, and Landlord shall be named as an insured thereon.
23. ASSUMPTION OF RISKS. Landlord shall not be liable to Tenant or Tenant's
customers, licensees, invitees, agents, guests or employees for any loss of
life, injury, loss or damages to its, his or their persons or property created
by any cause whatsoever, including, but not limited to:
(i) Acts or omissions of Landlord, its employees, agents or
independent contractors unless such acts or omissions are
grossly negligent or willful;
(ii) The acts or omission of any other tenant in the Building;
(iii) Construction defects, water, rain, sleet, fire, storms,
negligence and accidents, breakage, stoppage or leaks of
gas, water heating or sewer pipes, boilers, wiring or
plumbing; or
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(iv) Any other defects (latent or patent) in or about the
Premises. Tenant expressly assumes all liability for or on
account of any such loss of life, injury, loss or damage,
and shall at all times, indemnify, defend and save Landlord
harmless from and against all claims, causes of action,
liability, damage or expense, including, without limitation,
attorneys' fees and costs suffered or incurred by Landlord
by reason of any loss of life, injury, loss or damage to
persons or property arising out of, related to or connected
with the occupancy, use, repair or maintenance of the
Premises or any other portion thereof by Tenant, its
employees, agents, customers, invitees, licensees, or
contractors or due in whole or in part to the acts or
omissions of Tenant, its employees, agents, customers,
invitees, licensees, or contractors.
24. WAIVER OF SUBROGATION RIGHTS. Anything in this Lease to the contrary
notwithstanding, Tenant and Landlord hereby waive any and all rights of
recovery, claim, action, or cause of action, against the other, its agents,
officers or employees, for any loss or damage that may occur to the Premises,
the Building or the Property, or any improvements thereto, or any personal
property of Tenant or Landlord therein, by reason of fire, the elements or any
other causes which are insured against under the terms of the fire and extended
coverage insurance policies which either party is required to carry as required
herein, regardless of cause or origin, including the negligence of either party,
its agents, officers or employees; provided that such waiver by Tenant or
Landlord does not limit in any way the other party's right to recovery under
such insurance policies. Tenant shall obtain an endorsement to all of its
insurance policies which provides that the waivers set forth in this Paragraph
24 shall not limit Tenant's right to recover under such policies, and upon the
execution hereof Tenant shall deliver a copy of such endorsement to Landlord.
25. CASUALTY DAMAGE.
a) If the Premises or any part thereof shall be damaged by fire or
other casualty and all or any portion of the Building shall be so damaged that
substantial reconstruction of the Building, shall in Landlord's sole opinion, be
required (whether or not the Premises shall have been damaged by such casualty),
or if the Premises shall by reason of such occurrence be rendered substantially
untenantable, or if the holder of any mortgage on the Property should require
that the insurance proceeds payable as a result of a casualty be applied to the
payment of the mortgage debt, or if a casualty should occur during the last two
(2) years of the Lease Term or during any renewal period, or if insurance
proceeds actually received or expected to be received by the either Landlord or
Tenant (excluding amounts paid to the holders of mortgages upon the Property)
are insufficient for full repair of the casualty, or if the casualty is not
covered by Landlord's insurance, Landlord may, at its option, terminate this
Lease by notifying Tenant in writing of such termination within ninety (90) days
after the date of such damage.
b) If any of the events set forth in subparagraph (a) above take place
or occur and if Landlord does not elect to terminate this Lease, Landlord's
obligation to restore shall be limited to the restoration of the Leasehold
Improvements provided that Tenant makes available to Landlord all of Tenant's
insurance proceeds for the purposes of accomplishing this restoration to be
undertaken by Landlord, but specifically excluding any insurance proceeds that
are intended to reimburse Tenant for loss of its equipment, desks, personal
property and leasehold improvements installed by the Tenant not attached to, but
located within, the Premises.
c) Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from such damage
or the repair thereof. If the Premises or any other portion of the Building
shall be damaged by fire or other casualty resulting from the fault or
negligence of Tenant or any of Tenant's agents, employees, or invitees, the Rent
hereunder shall not be diminished during the repair of such damage, and Tenant
shall be liable to Landlord for the entire cost of the repair and restoration of
the Building caused thereby; otherwise, Landlord shall allow Tenant a prorata
abatement of Rent during the time and to the extent the Premises are unfit for
occupancy as a result thereof.
26. CONDEMNATION. If more than twenty percent (20%) of the Property shall be
taken for any public or quasi-public use, by right of eminent domain or
otherwise, or if
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more than twenty percent (20%) shall be sold in lieu of condemnation, then this
Lease shall terminate as of the date when physical possession of the Property is
taken. If less than twenty percent (20%) of the whole of the Property is thus
taken or sold (whether or not the Premises are affected thereby), then Landlord
may, at its option, terminate this Lease by giving written notice thereof to
Tenant, in which event this Lease shall terminate as of the date when physical
possession of such portion of the Property is taken. If this Lease is not
terminated after any such taking or sale of the Property and the Premises are
directly affected by such taking, the Base Rental payable hereunder shall be
reduced in the same proportion that the Floor Area of the Premises so taken or
conveyed bears to such Floor Area immediately prior to such taking or
conveyance, and Landlord shall restore the Building and the remaining Premises
to substantially their former condition. All amounts awarded upon a taking of
any part or all of the Property shall belong to Landlord, and Tenant shall not
be entitled to and expressly waives all claims to any such compensation.
27. DAMAGES FROM CERTAIN CAUSES. Landlord shall not be liable to Tenant for any
delays in performance of Landlord's duties hereunder or for any loss or damage
to any property or person occasioned by theft, fire, act of God, public enemy,
injunction, riot, strike, insurrection, war, court order, requisition, order of
governmental body or authority or any other cause beyond the control of
Landlord. Landlord shall not be liable to the Tenant for any damage or delay or
inconvenience which may arise in connection with the repair or alteration of any
part of the Property resulting from the foregoing or other causes. However,
should Tenant's Premises become unusable due to certain causes, the rent shall
be abated during the period Tenant is not able to occupy the Premises.
28. EVENTS OF DEFAULT/REMEDIES.
a) The following events shall be deemed to be events of default by
Tenant under this Lease:
(i) Tenant shall fail to pay any Rent or any other sums of money
due hereunder and such failure shall continue for a period
of ten (10) days after the date such Rent or other sums is
due (with no notice being required of Landlord); hereinafter
referred to as a "Monetary Default:;
(ii) Tenant shall fail to comply with any other Non-Monetary
provision of this Lease or any other agreement between
Landlord and Tenant, if applicable, after Landlord has
provided thirty (30) days prior written notice of such
Non-Monetary Default and Tenant has failed to cure such
Non-Monetary Default within said thirty (30) days provided;
however, if such default cannot be cured within thirty (30)
days and if Tenant is diligently attempting to cure such
Default, Landlord shall grant such additional reasonable
time as may be necessary to cure such Non-Monetary Default,
but in no event shall Landlord grant more than ninety (90)
days to cure a Non-Monetary default;
(iii)The leasehold hereunder demised shall be taken on execution
or other process of law in any action against Tenant;
(iv) Tenant shall fail to promptly move into, take possession of
and operate its business on the Premises when the Premises
are ready for occupancy or shall cease to do business in or
vacate or abandon any substantial portion of the Premises
for more than ten (10) consecutive days;
(v) Tenant shall become insolvent or unable to pay its debts as
they become due, Tenant files a petition in bankruptcy or
for reorganization under the bankruptcy laws or an
admission, answer or other responsive pleading consenting
to, or requesting the relief afforded by the bankruptcy
laws;
(vi) Tenant makes an assignment for the benefit of creditors,
within the meaning of the bankruptcy laws or Tenant consents
to the appointment of a receiver or custodian for all or a
substantial part of its property; or
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(vii)The filing against Tenant of a petition in bankruptcy or for
reorganization under the bankruptcy laws, the adjudication
of Tenant as a bankrupt, the entry of a court order
appointing a receiver, custodian or trustee for all or a
substantial part of its property without its consent or the
assuming of custody or sequestration by a court of competent
jurisdiction of all or substantially all of Tenant's
property, and within thirty (30) days thereafter such filing
is not dismissed, or such court order is not vacated or such
assumption or sequestration is not released, or if the
Tenant does not bond off the risk to Landlord to Landlord's
reasonable satisfaction, which shall not be unreasonably
denied; or
(viii) The adjudication of Tenant as a bankruptor; or
(ix) Tenant shall attempt to assign, transfer, sublet all or any
part of its interests in the Premises or in this Lease
without Landlord's prior written consent subject to the
provisions of Section 19 above.
b) Upon the occurrence of any event or events of default or other
breach of this Lease by Tenant, whether enumerated in this Paragraph or not,
Landlord shall have the option to pursue any one or more of the following
remedies:
(i) Landlord shall have the right, at its election, to cancel
and terminate this Lease and dispossess Tenant by summary
proceedings or other lawful means;
(ii) Landlord shall have the right to declare all amounts and
rents due under this Lease for the remainder of the existing
term (and any applicable extension or renewal thereof) to be
immediately due and payable, and thereupon all rents and
other charges due hereunder to the end of the initial term
and any renewal term, if applicable, shall be accelerated;
however, Landlord shall credit Tenant for any re-renting
income for the Premises, after deducting Landlord's costs
necessary to obtain such alternate source of rent.
(iii) Landlord may elect to enter and repossess the Premises and
relet the Premises for Tenant's account, holding Tenant
liable in damages for all expenses incurred in any such
reletting and for any difference between the amount of rent
received from such reletting and the rent due and payable
under the term of this Lease; and
(iv) Landlord may enter upon the Premises and do whatever Tenant
is obligated to do under this Lease (and Tenant agrees to
reimburse Land- lord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's
obligations under this Lease and Tenant further agrees that
Landlord shall not be liable for any damages resulting to
the Tenant from such action). All such remedies of Land-
lord shall be cumulative and not exclusive, and in addition,
Landlord may pursue any other remedies that may be permitted
by law or in equity. Forbearance by Landlord to enforce one
or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a
waiver of such default or remedy.
c) This Paragraph 28 shall be enforceable to the maximum extent
permissible by applicable law, and the unenforceability of any portion hereof
shall not thereby render unenforceable any other portion.
d) Landlord shall not be in default hereunder unless Landlord has not
begun to cure any failure of its obligations hereunder within thirty (30) days
after the receipt by Landlord of written notice from Tenant of the alleged
failure to perform and does not continue
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to pursue the cure thereof. Except as otherwise specifically provided in this
Lease, in no event shall Tenant have the right to terminate or rescind this
Lease or to offset the Rent amount due Landlord as a result of Landlord's
default as to any covenant or agreement contained in this Lease or as a result
of the breach of any promise or inducement hereof, whether in this Lease or
elsewhere. Tenant hereby waives such remedies of termination and rescission and
hereby agrees that Tenant's remedies for default hereunder and for breach of any
promise or inducement by Landlord shall be limited to a suit for damages and/or
injunction. Tenant hereby covenants that, prior to the exercise of any such
remedies, it will give the mortgagees on the Property written notice and a
reasonable period of time in which to cure any alleged default. Notwithstanding
anything to the contrary contained herein, nothing shall prevent Tenant from
maintaining or asserting any of the foregoing remedies (or any other remedy) in
a proceeding instituted by either party to enforce that party's rights under
this Lease. Tenant is only prevented from unilaterally withholding rent without
filing its own cause of action versus Landlord.
e) TENANT HEREBY WAIVES ANY RIGHT IT OR ITS SUCCESSORS OR ASSIGNS MAY
HAVE TO A JURY TRIAL IN ANY LITIGATION BETWEEN LANDLORD AND TENANT ARISING OUT
OF OR RELATING TO THIS LEASE. TENANT ACKNOWLEDGES THAT THIS PROVISION WAS A
MATERIAL INDUCEMENT TO LANDLORD ENTERING INTO THIS LEASE.
29. TENANT'S PROPERTY TAXES AND ASSESSMENTS. Tenant shall be liable for all
taxes levied or assessed against the personal property, furniture fixtures and
equipment placed by or used by Tenant in the Premises or as presently exists
within the Premises. If any such taxes for which Tenant is liable are levied or
assessed against Landlord or the Property or if the assessed value of the
Property is increased by inclusion of the personal property, furniture, fixtures
and equipment now located within the Premises or to be placed by Tenant in the
Premises or used within the Premises by Tenant, Tenant shall promptly pay to
Landlord upon demand that part of such taxes for which Tenant is liable
hereunder.
30. PEACEFUL ENJOYMENT. Tenant shall, and may peacefully have, hold and enjoy
the Premises against all persons claiming by, through or under Landlord, subject
to the other terms hereof, provided that Tenant pays the Rent and other sums to
be paid by Tenant hereunder and performs all of Tenant's covenants and
agreements herein contained.
31. RELOCATION. Omitted.
32. HOLDING OVER. In the event Tenant continues to occupy the Premises after the
termination of this Lease (as it may be extended by written agreement of the
Landlord and Tenant), Tenant covenants and agrees, throughout the entire
holdover period, to pay monthly rent equal to twice the Base Rental for the last
full month immediately preceding the termination of this Lease. No possession by
Tenant after the expiration of the terms of this Lease shall be construed to
extend the term of this Lease. Throughout any holdover period Tenant shall by
deemed a tenant-at-sufferance.
33. SUBORDINATION TO MORTGAGE.
a) This Lease is and shall be subject and subordinate to any ground
lease, mortgage, deed of trust or other lien created by Landlord, whether
presently existing or hereafter arising upon all or any portion of the Property
and to any renewals, refinancing and extensions thereof. Landlord is hereby
irrevocably vested with full power and authority to subordinate this Lease to
any ground lease, mortgage, deed of trust or other lien now existing or
hereafter placed upon all or any portion of the Property, and Tenant agrees upon
demand to execute such further instruments subordinating this Lease or attorning
to the holder of such ground lease, mortgage, deed of trust or other lien as
Landlord may request.^ Landlord will use its best efforts to obtain a
subordination and non-disturbance agreement from Landlord and its lender which
shall be in the form attached as Exhibit "H".
b) Tenant agrees that it shall from time to time within fifteen (15)
days after request by Landlord execute and deliver to such persons as Landlord
shall request a statement in recordable form certifying that:
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(i) This Lease is unmodified and in full force and effect or
stating any modifications thereto;
(ii) Stating the dates of which rent and other charges payable
under this Lease have been paid;
(iii)Stating that Landlord is not in default hereunder (or if
Tenant alleges a default stating the nature of such alleged
default); and
(iv) Further stating such other matters as Landlord or its
mortgagee(s) shall reasonably require. Tenant shall, in the
event of the sale or assignment of Landlord's interest in
all or any portion of the Property or in the event of any
proceedings brought for the foreclosure of, or in the event
of the exercise of the power of sale under, or transfer in
lieu of foreclosure of any mortgage, or other lien made by
Landlord covering the Premises, attorn to the purchaser and
recognize such purchaser as Landlord under this Lease and
Tenant agrees that such purchaser shall not be liable for
any prior act, omission or default by Landlord or subject to
any offset or defenses Tenant may have against Landlord.
34. LANDLORD'S LIEN. Omitted.
35. ATTORNEY'S FEES. The parties hereto agree that the prevailing party shall be
entitled to recover from the non-prevailing party all reasonable attorneys' fees
and costs incurred in litigation between the parties hereto arising out of or
related to this Lease. The term attorneys' fees and costs as used in this Lease
shall mean such costs at all levels from pretrial through final appeal.
36. NO IMPLIED WAIVER. The failure of Landlord to insist at any time upon the
strict performance of any covenant or to exercise any right or remedy in this
Lease shall not be construed as a waiver thereof for the future. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly installment of
rent due under this Lease shall be deemed to be other than on account of the
earliest rent due hereunder, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
provided in this Lease or at law or equity.
37. LIMITATION OF LIABILITY. The liability of Landlord for any default by
Landlord under this Lease shall be limited to the interest of Landlord in the
Property. Tenant agrees to look solely to such interest for the satisfaction
thereof and neither Landlord nor any of its partners shall be personally liable
for any obligations hereunder.
38. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord without
liability for interest and as security for the performance by Tenant of Tenant's
covenants and obligations under this Lease, it being expressly understood that
the Security Deposit shall not be considered an advance payment of rental, nor a
"Rent Deposit" as defined in Subparagraph 5(d), nor should the Security Deposit
be considered a measure of Landlord's damages in case of default by Tenant.
Landlord may, from time to time, without prejudice to any other remedy, apply
the Security Deposit to arrearage of rent or to the cost of performing any other
covenant or obligation of Tenant hereunder. Following any such application of
the Security Deposit, Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount. If
Tenant is not in default at the termination of this Lease, the balance of the
Security Deposit remaining after any such application(s) shall be returned by
Landlord to Tenant. If Landlord transfers its interest in the Premises during
the term of this Lease, Landlord may assign the Security Deposit to the
transferee and thereafter Landlord shall have no further liability for the
return of such Security Deposit.
39. NOTICE. Any notice or demand given pursuant to this Lease must be in writing
and be given or be served by depositing the same in the United States mail,
postpaid and certified and addressed to the party to be notified, with return
receipt requested, or by delivering the same in person or by commercial
overnight courier service to such party to
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be notified at the address stated in this Lease or such other address of which
notice has been given to the other party in accordance with the terms of this
Paragraph 39. Notice deposited in the mail in the manner hereinabove described
shall be effective from and after the expiration of three (3) days after it is
so deposited. Notwithstanding any provision of this Lease to the contrary
however, Landlord may always give Tenant notice by addressing or delivering same
to the Premises. Until further notice, the addresses for the parties shall be as
follows:
As to Landlord: SPANISH RIVER EXECUTIVE PLAZA, LIMITED
c/o Mackey/Krumm Ventures,Inc., General Partner
1601 Forum Place, Suite 805
West Palm Beach, FL 33401
Attn: Walter J. Mackey, Jr.
With copies to: SPANISH RIVER EXECUTIVE PLAZA, LIMITED
c/o Mackey/Krumm Ventures Management Office
4800 North Federal Highway, Suite 100-C
Boca Raton, FL 33431
As to Tenant: Manchester Equipment Co.
Spanish River Executive Plaza
185 N.W. Spanish River Blvd.
Suite 270
Boca Raton, FL 33431
With copies to: ------------------------------------
------------------------------------
------------------------------------
40. SEVERABILITY. If any term or provision 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 term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
41. RECORDATION. Tenant agrees not to record this Lease or any memorandum
hereof, but Landlord may record this Lease or a memorandum thereof, at its sole
election, and Tenant agrees to execute such memorandum upon request by Landlord.
42. GOVERNING LAW. This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed and enforced in accordance with the laws
of the State of Florida.
43. TIME OF PERFORMANCE. Except as expressly otherwise herein provided, with
respect to all required acts of Tenant, time is of the essence of this Lease.
44. FORCE MAJEURE. Whenever a time period is herein prescribed for Landlord or
Tenant to take action, neither Landlord nor Tenant shall be liable or
responsible for, and there shall be excluded from the computation of such period
of time, any delays due to strikes, riots, acts of God, shortages of labor or
materials, war, governmental laws, regulations or restrictions, financing, or
any other cause whatsoever beyond the control of either Landlord or Tenant.
45. TRANSFERS BY LANDLORD. Landlord shall have the right to transfer and assign,
in whole or in part, all its rights and obligations hereunder and in the
Premises, and, in such event and upon such transfer, Landlord shall be released
from any further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such obligations.
However, Landlord shall remain liable
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for any adjudicated judgment in favor of Tenant provided that Tenant has
commenced, and served Landlord with written notice thereof, an action prior to
such transfer.
46. BROKERS. Landlord and Tenant represent and warrant to each other that
neither of them has employed, engaged, or consulted with any broker in
connection herewith except for Gimelstob Realty Better Homes and Gardens
("Broker"). Landlord and Tenant hereby agree to indemnify and to hold each other
harmless against any loss, expense or liability with respect to any claims for
commissions or brokerage fees arising out of any breach of the foregoing
representation and warranty. Broker shall be paid by Blasland, Bouck & Lee, Inc.
for any commission due on the lease term through December 31, 1999; Broker's
commission due after December 31, 1999 shall be paid by Landlord. Such
commissions shall be paid by both parties upon Commencement of the Lease.
47. EFFECT OF DELIVERY OF THIS LEASE. Landlord has delivered a copy of this
Lease to Tenant for Tenant's review only, and the delivery hereof does not
constitute an offer to Tenant until or unless it has been fully executed by both
Tenant and Landlord.
48. CAPTIONS. The paragraph captions used herein are for convenience and
reference only.
49. JOINT AND SEVERAL LIABILITY OF TENANT. If there is more than one person
comprising Tenant, the obligations imposed upon Tenant hereunder shall be joint
and several. If there is a guarantor or guarantors of Tenant's obligations
hereunder, Landlord need not first proceed against Tenant before proceeding
against any such guarantor, nor shall any such guarantor be released from its
guaranty for any reason whatsoever, including, without limitation, any amendment
to this Lease, any waiver of any provision hereof or the failure to give such
guarantor any notice hereunder.
50. ENTIRE AGREEMENT. This Lease constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. There are no terms,
understandings, representations or warranties, express or implied, other than
those set forth herein. All prior communications, negotiations, representations,
agreements and understanding, whether oral or written, between the parties
hereto are merged herein.
51. AMENDMENTS. This Lease may not be modified or amended, except by an
instrument in writing and signed by both parties hereto.
52. BINDING EFFECT. This Lease shall be binding upon and inure to the benefit of
Landlord, its successors and assigns, and Tenant, its heirs, personal
representatives, successors and, to the extent assignment is permitted under the
provisions hereof, Tenant's assigns.
53. LEASEHOLD IMPROVEMENTS AND ACCEPTANCE OF PREMISES.
a) SUBSTANTIAL COMPLETION. Omitted.
b) "AS IS" CONDITION OF PREMISES. Notwithstanding anything to the
contrary as may be set forth herein, Landlord and Tenant agree that Tenant is
accepting the Premises in their current "as is" condition, less reasonable wear
and tear, provided however, that Landlord represents the utility systems,
including heating and air conditioning systems and equipment be in working order
at the time Tenant takes occupancy, as of December 1, 1997, (other than removal
of existing tenant's equipment and fixtures and Landlord's obligation to paint
the Premises and clean the carpeting), and that any other tenant finish work,
improvements, or equipment as may be needed by Tenant for its specified use of
the Premises shall be paid for exclusively by Tenant and shall be installed by
Tenant only after having received Landlord's prior written approval for such
improvements, which shall not be unreasonably withheld, provided Tenant:
(i) provides a copy of the plans for such other tenant finish
work to Landlord;
(ii) pays for all costs of such other tenant finish work; and
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(iii) indemnifies Landlord for any liability in connection with
such other tenant finish work.
c) For purposes of this Lease, the Premises are already deemed to be
Substantially Complete as of the date Tenant executes this Lease with no permit
needed from the City of Boca Raton.
d) Tenant shall be solely responsible for satisfying all governmental
regulations having jurisdiction over Tenant's use of the Premises or Tenant's
operations in the Building. No exhaust system, electrical hook-up, or electric
and/or gas appliances shall be installed by Tenant without Landlord's prior
approval which approval shall not constitute compliance by Tenant with any
governmental approval as may be required herein of Tenant.
e) LEASEHOLD IMPROVEMENTS. Except for those portions of the Premises
which Tenant is accepting in their "as is" condition, those improvements which
shall be the responsibility of Landlord to complete are referred to as
"Landlord's Additional Work" and are listed separately below and unless so
identified, Landlord shall not be obligated to complete any other work or make
any improvements to the Premises. Landlord's Additional Work shall include:
(i) Re-painting the Premises throughout (painted surfaces
only) with Tenant's choice from Building Standard
Selections.
(ii) Landlord shall clean the carpets within the Premises and in
the event such cleaning is not successful pursuant to
commercial standards, Landlord will give Tenant a Seven
Hundred and No/100 Dollar ($700.00) allowance for the
purposes of installing new carpeting from Landlord's
Building Standard selections.
f) TENANT ACCEPTANCE. Tenant and its agents have been provided with
full opportunity to inspect the condition and construction quality of the
Premises prior to executing this Lease and have thereby been deemed to have
accepted all such existing conditions as of the date Tenant executes this Lease
unless any such conditions are to be changed or modified according to the
definition of Landlord's Additional Work provided in this paragraph 53.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts on the day and year first above written.
WITNESSES: TENANT:
MANCHESTER EQUIPMENT COMPANY,
INC.
_____________________________ By:/s/ Barry Steinberg
---------------------
Barry Steinberg
_____________________________ President
WITNESSES: LANDLORD:
SPANISH RIVER EXECUTIVE PLAZA,
LTD., a Florida Limited Partnership
_____________________________ By:_/s/ Walter J. Mackey, Jr.
-----------------------------
Walter J. Mackey, Jr., President
_____________________________ MACKEY/KRUMM VENTURES, INC.,
General Partner
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EXHIBITS ATTACHED:
"A" Real Property Description
"B" Floor Plan of Premises
"C" Work Letter - Omitted.
"D" Rules and Regulations
"E" Floor Plan of Premises and Offered Premises - Omitted.
"F" Broker Disclosure Statement - Omitted
"G" Radon Gas Disclosure
"H" Form of Subordination and Non-Disturbance
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LEASE AGREEMENT
THIS LEASE is made as of the 2nd day of January, 1998, between BC & HC
Properties, LLC having an address at 3832 Falls Road, Baltimore, Maryland 21211
("Landlord"), and Coastal Office Products, Inc. ("Tenant").
ARTICLE 1
DEMISE OF PREMISES
Section 1.01. Demise of Premises.
Landlord, for and in consideration of the payment of the rent and
performance of the covenants and agreements hereinafter mentioned, hereby leases
to Tenant and Tenant hereby leases from Landlord the premises consisting of (i)
the parcels of land known as 3830, 3832, 3834 and 3838 Falls Road, Baltimore,
Maryland 21211, which are more particularly described in attached Schedule "A";
(ii) all improvements constructed upon such parcels; and (iii) all easements,
rights, and appurtenances relating to such parcels (hereinafter collectively
called the "Premises"), for the term of five (5) years beginning on the 1st day
of January, 1998 (the "Commencement Date"), and ending on the 31st day of
December, 2002 (hereinafter called the "Original Term"). Section 1.02. Extension
Term. Provided that there has not been an event of and provided that Tenant
gives written notice exercising the option within one hundred and eighty (180)
days before the then current term expires, Tenant shall have the option to
extend this Lease for a period of two (2) years (the period of extension is
hereinafter called an "Extension Term" and the Original Term together with any
Extension Term(s) is hereinafter called the "Term").
RENT
Section 2.01. Annual Rent.
(a) The Annual Rent for the Original Term shall be ONE HUNDRED THIRTY
THOUSAND DOLLARS ($130,000.00), payable in equal monthly installments, of TEN
THOUSAND EIGHT HUNDRED AND THIRTY-THREE DOLLARS and THIRTY-THREE CENTS
($10,833.33). The rent payable under the provisions of this Article 2.01 is
hereinafter called "Annual Rent."
(b) The Annual Rent for the Extension Term shall continue to be ONE HUNDRED
THIRTY THOUSAND DOLLARS ($130,000.00), payable in equal monthly installments, of
TEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE DOLLARS and THIRTY-THREE CENTS
($10,833.33). Section 2.02. No Set-Off. Subject only to that certain "Indemnity
Agreement" in favor of Manchester and Coastal executed contemporaneously
herewith, Tenant covenants, without any previous demand therefor and without
deduction, set-off, recoupment, or counter claim, to pay the Annual Rent to
Landlord on the first (1st) day of each calender month during the Term. If the
Term commences on a day other than the first (1st) day of a calender month, the
Annual Rent for the period from the Commencement Date to the first (1st) day of
the first (1st) full calender month of the Term shall be prorated
proportionately and shall be payable on the Commencement Date, provided further,
however, that in the event that Landlord shall transfer the premises, then in
that event Tenant shall have the right of set off as to obligations of the
Landlord expressly set forth herein.
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Section 2.03. Additional Rent.
Whenever under the terms of this Lease any sum of money is required to be
paid by Tenant in addition to the Annual Rent herein reserved, whether or not
such sum is designated as "Additional Rent" or provision is made for the
collection of such sum as "Additional Rent," such sum shall, nevertheless, be
deemed to be "Additional Rent," and shall be collectible as rent.
Section 2.04. Late Payment of Rent.
In the event that any monthly or other installment of Annual Rent,
Additional Rent, or any other monetary sum due Landlord is past due by more than
fifteen (15) days, Tenant shall pay to Landlord as Additional Rent a late charge
equal to five percent (5%) of the unpaid Annual Rent, Additional Rent or other
sum to compensate Landlord for its additional expenses associated with late
payment.
Section 2.05. Payment.
All rent payable and all statements deliverable by Tenant to Landlord under
this Lease shall be paid and delivered to Landlord at 3832 Falls Road,
Baltimore, Maryland 21211, or to such other person, firm or entity and/or at
such other address as Landlord shall designate by written notice. ARTICLE 3
TAXES AND INSURANCE Section 3.01. Taxes. (a) Tenant shall, at its sole expense,
pay all real estate taxes, and ad valorem taxes, whether general or special,
ordinary or extraordinary, and all water rents, sewer charges, special benefit
assessments, including without limitation, front foot benefit charges and all
other governmental impositions or charges of every kind and nature whatsoever,
including without limitation a tax or capital levy on rents, whether or not
wholly or partially in lieu of an increase in taxes or other charges mentioned
herein, imposed, levied, assessed or charged upon the Premises ("Taxes") by any
governmental unit having taxing powers (the "Taxing Authority"). Within ten (10)
days after the Commencement Date pursuant to Landlord's bill to Tenant, Tenant
shall pay Landlord Taxes for the partial tax year beginning on the Commencement
Date and ending on the last day of the last month of the then current tax year.
Thereafter, within thirty (30) days after receipt by Landlord of a tax bill
during the Term, Landlord shall deliver to Tenant a bill for Taxes accompanied
by the tax bill from the Taxing Authority. Tenant shall pay Landlord in a lump
sum within thirty (30) days after receipt of Landlord's bill. Taxes for the
partial tax year at the end of the Term, if any, shall be adjusted by Landlord,
if not previously done within sixty (60) days after the end of the Term, at
which time Landlord shall refund to Tenant any overpayment of Taxes.
(b) Any Taxes which are being contested by Landlord shall nevertheless be
included for purposes of the computation of the liability of Tenant for Taxes;
provided, however, that in the event the Taxes are reduced as a result of
Landlord's protest, Landlord agrees to reimburse Tenant an amount equal to the
reduction in Taxes, less reasonable expenses incurred by Landlord in obtaining
the reduction in Taxes. Landlord shall have no obligation to contest, object or
litigate the levying or imposition of any Taxes and may settle, compromise,
consent to, waive or otherwise determine in its discretion any Taxes without the
consent or approval of Tenant.
Section 3.02. Insurance Costs.
(a) Landlord will keep in force with companies licensed to do business in
the state where the Premises is located and which have a rating of [B+] or
better from Best's Key
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Rating Guide and Supplemental Service, Property, Casualty (or comparable
insurance rating service), at Landlord's initial expense at all times during the
Term of this Lease and during such other times as Tenant occupies the Premises
or any part thereof:
(i) Commercial general liability insurance written on an occurrence basis
with respect to the Building, the Common Areas, and the Property with minimum
combined single limits of One Million and 00/100 ($1,000,000.00) Dollars per
occurrence and in the aggregate. Such liability insurance shall, in addition,
extend through contractual liability insurance, to any liability of Landlord
arising out of the indemnities provided herein and shall be subject to the
waiver of subrogation specified therein. Such liability insurance shall also
include broad form endorsement coverage including personal injury coverage.
(ii) All risk casualty insurance with replacement cost endorsement and
without deductible in excess of One Thousand and 00/100 ($1,000.00) Dollars
covering the Premises, the Building, and the Property, including all leasehold
improvements, in an amount equal to the full replacement value thereof,
exclusive of the land. The coverage shall include boiler and machinery coverage,
where applicable. All proceeds of insurance shall be used to restore the
Premises, the Building, and the Property to the condition in which they were
prior to the occurrence of the loss.
(b) On or before the date of this Lease, landlord will deposit with Tenant
copies of policies of insurance required by the provisions of this Section or
certificates thereof satisfactory in form and substance to Tenant, together with
satisfactory evidence of the payment of the required premium or premiums
thereof. Failure to deposit such policies shall not relieve Landlord of its
obligations to obtain and keep in force insurance coverage required by this
Lease.
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The insurance required hereby may be maintained by means of a policy or policies
of blanket insurance so long as the provisions of this lease are fully satisfied
and the required amounts are specifically allocated to the Premises.
(c) All policies of insurance required to be carried by Landlord by this
Section hereof shall provide that the policy shall not be subject to
cancellation, termination or change except after thirty (30) days prior written
notice to Tenant, and all such policies shall name Tenant as an additional
insured as its interest may appear.
(d) If Landlord shall not comply with its covenants made in this Section,
Tenant may (but shall not be obligated to) cause insurance as aforesaid too be
issued, and in such event Landlord agrees to reimburse Tenant for the premium
for such insurance to the extent, if any, that the policy insures more than the
demised premises, promptly upon Tenant's demand, and if Landlord does not do so
Tenant may subtract such amount from the next installment(s) of rent due
hereunder. (e) If for any reason Landlord fails to provide and keep in force any
or all of the insurance policies set forth in this Section, then in such event
Landlord shall indemnify and hold Tenant harmless against any and all claims,
actions, damages, liability and expense (including, but not limited to,
attorney's fees) which would have been covered by such insurance. Tenant
acknowledges receipt of a copy of Policy BPP1776945, effective 8/7/97 through
8/7/98, which Policy is in compliance with these conditions. (f) Tenant shall,
at its sole expense, pay the Insurance Cost (as hereinafter defined). "Insurance
Cost" shall mean actual, direct expenses paid by Landlord to obtain and maintain
Landlord's public liability, fire, casualty, loss of rental value, and extended
coverage
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property damage insurances, maintained to insure Landlord with respect to the
Premises, including all improvements thereon, and such other insurance as
Landlord shall reasonably deem appropriate, all coverages to be in such amounts
as Landlord shall reasonably deem appropriate, provided that the amounts of such
coverage as set forth by Section 3.02 (a). (g) Unless paid by Tenant prior to
the execution of this Lease, within ten (10) days after the Commencement Date
pursuant to Landlord's bill to Tenant, Tenant shall pay Landlord the Insurance
Costs for the partial annual insurance billing period beginning on the
Commencement Date and ending on the last day of the last month of the then
current billing period. For each succeeding insurance billing period during the
Term, Landlord shall deliver to Tenant a bill for the Insurance Cost accompanied
by the bill from the insurance company. Tenant shall pay Landlord in a lump sum
within thirty (30) days after receipt of Landlord's bill. In the event Tenant
fails to pay in a timely manner any amount for the Insurance Cost as required
under this Section, Landlord shall have the right, but not the obligation, to
pay the Insurance Cost. Any amount so paid by Landlord shall be deemed to be
owing by Tenant to Landlord and due and payable within five (5) days after
demand. Upon Tenant's written demand, Landlord shall provide Tenant with an
itemized schedule evidencing the Insurance Cost together with copies of
insurance certificates and evidence of payment. Insurance Costs for the partial
annual insurance period at the end of the Term, if any, shall be adjusted by
Landlord, if not previously done within sixty (60) days after the end of the
Term, at which time Landlord shall refund to Tenant any overpayment of Insurance
Costs.
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ARTICLE 4
UTILITIES
Section 4.01. Use of Utilities.
Tenant covenants and agrees that at all times its use of water, gas,
electricity and telephone services, and other utilities located on or serving
the Premises shall never exceed the capacity of the mains, feeders, ducts and
conduits bringing the same to the premises; provided, however, that Tenant may
increase the capacity of the mains, feeders, ducts and conduits if Tenant pays
for and performs all necessary work therefor, subject to Landlord's prior
written approval, which shall not be unreasonably withheld. Section 4.02.
Payment for Utilities. Tenant shall make arrangements with each utility and
public body to provide, in Tenant's name, gas, electricity, water, sewer,
telephone, heat, air conditioning and other utilities necessary for Tenant's use
of the Premises. Tenant shall pay directly to the entity furnishing utility
service the cost of all service connection fees and the cost of all utilities
consumed throughout the Term. In the event Tenant fails to pay in a timely
manner any sum required under this Section, Landlord shall have the right, but
not the obligation, to pay any such sum. Any sum so paid by Landlord shall be
deemed to be owing by Tenant to Landlord and due and payable within five (5)
days after demand. Tenant's obligation for the payments of costs incurred for
utilities which serve the Premises prior to the termination of this Lease shall
survive the termination of this Lease.
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Section 4.03. Interruption of Utilities.
Landlord shall not be liable to Tenant for damages because of any
interruptions in utility services, and Tenant shall not be entitled to claim a
constructive eviction because of such an interruption. If utility services are
interrupted, Landlord shall proceed with reasonable diligence to restore service
to the extent that it is within Landlord's control and obligations under this
Lease. ARTICLE 5 USE AND COMPLIANCE WITH LAWS Section 5.01. Permitted Use.
Tenant shall not use or permit the Premises, or any part thereof, to be used for
any purposes other than business or professional offices. Furthermore, no use of
the Premises shall be made or permitted to be made that shall result in: (i) a
waste of the Premises or any part thereof; (ii) a public or private nuisance; or
(iii) an improper, unlawful, or objectionable use, as reasonably determined by
Landlord. Except as otherwise provided herein, Tenant shall comply at its own
expense with all restrictive covenants and governmental regulations and statutes
affecting the Premises either now or in the future, throughout the Term. Except
as otherwise provided herein, Tenant shall be responsible for obtaining and
maintaining all licenses and permits respecting Tenant's use and occupancy of
the premises, and shall pay all minor privilege charges, occupancy permit fees,
license fees or other charges or taxes which are imposed on or with respect to
the Premises or the use and occupancy of the Premises. Section 5.02. Compliance
with Laws.
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Except as provided for herein, Tenant, at Tenant's expense, shall comply
with all laws, ordinances, and regulations of federal, state, and local
authorities, including but not limited to the Americans with Disabilities Act of
1990 and Section 5 of the Maryland State Human Relations Commission Act, as they
relate to the Premises and Tenant's use of the Premises, and with any recorded
covenants, conditions, and restrictions, regardless of when they become
effective, including, without limitation, all applicable federal, state, and
local laws, ordinances, or regulations pertaining to air and water quality,
Hazardous Material, waste disposal, air emissions, and other environmental
matters, all zoning and other land use matters, utility availability, and with
any direction of any public officer or officers, pursuant to law, which shall
impose any duty upon Landlord or Tenant with respect to the use or occupation of
the Premises. Section 5.03. Landlord's Compliance with Laws. (a) If any
alterations are required to be made to the Premises or the leasehold
improvements due to Legal Requirements because the same were in violation of any
Legal Requirements existing on the Commencement Date, or if, as a result of
Landlord undertaking any alterations, repairs, maintenance or other activities
in the Premises, alterations are required to be made to the Premises due to
Legal Requirements, then Landlord shall make such alterations at its sole cost
and expense; and Landlord shall take all reasonable steps to minimize disruption
to Tenant while making such alterations. Subject to Landlord's obligations set
forth above in the previous sentence, if any alterations are required to be made
to the Premises due to a change in Legal Requirements occurring on or after the
commencement Date (and not in connection with alterations, repairs, maintenance
or other activities on the Premises undertaken by Landlord), then Landlord shall
make such alterations as aforesaid, provided that the cost of such alterations
shall
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be amortized over their useful life and Tenant shall only be responsible for the
payment of a portion of such replacement cost. The Tenant's portion shall equal
a fraction of the total replacement cost, the numerator of which shall be the
number of years (including fractional parts of years) remaining in the Term and
the denominator of which shall equal to the amortization term. Landlord shall
pay the remainder of such costs. Tenant's share shall be paid to Landlord in
consecutive and equal monthly installments over the remainder of the lease Term.
If, as a result of Tenant undertaking any alterations, repairs, maintenance to
other activities in or to the Premises, alterations are required to be made to
the Premises due to Legal Requirements, then Tenant shall make such alterations
at Tenant's sole cost and expense. (b) Within ten (10) days after receipt, each
party shall advise the other, in writing, and provide the other with a copy of
(as applicable), any notices alleging violation of Legal Requirements relating
to any portion of the Premises or of the Premises; any claims made or threatened
in writing regarding noncompliance with Legal Requirements and relating to any
portion of the Premises or of the Premises; or any governmental or regulatory
actions or investigations instituted or threatened regarding noncompliance with
the ADA and relating to any portion of the Premises or the Premises. (c) As used
in this Section, "Legal Requirements" means environmental, air quality,
wetlands, shoreline, flood plan, zoning, planning, subdivision, building,
health, labor, discrimination, fire, traffic, safety and other governmental or
regulatory rules, laws, ordinances, statutes, codes and requirements (including
any administrative, judicial or similar interpretations or rulings or
legislative clarifications that may be made after any point in time but which
relate to any of the same as they exist at such point in time), including,
without limitation, the Fair Housing
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Act of 1968 (as amended) and the Americans with Disabilities Act of 1990 and the
Accessability Guidelines promulgated with respect thereto ("ADA").
Section 5.04. Effect on Insurance.
Tenant will not do, omit to do, or suffer to be done or keep or suffer to
be kept anything in, upon, or about the Premises which will violate the
provisions of Landlord's policies insuring the Premises against loss or damage
by fire or other hazards (including, but not limited to, public liability),
which will adversely affect Landlord's fire or liability insurance premium
rating or which will prevent Landlord from procuring such policies in companies
acceptable to Landlord. If anything done, omitted to be done, or suffered to be
done by Tenant, or kept or suffered by Tenant to be kept in, upon or about the
Premises shall cause the premium rate of fire or other insurance on the Premises
in companies acceptable to Landlord to be increased beyond the established rate
from time to time fixed by the appropriate underwriters with regard to the use
of the Premises for the purposes permitted under this Lease or for the use or
uses being made thereof, Tenant will pay the amount of such increase as
Additional Rent upon Landlord's demand and will thereafter pay the amount of
such increase, as the same may vary from time to time, with respect to every
premium relating to coverage of the Premises during a period falling within the
Term of this Lease until such increase is eliminated. In addition, if
applicable, Landlord may at its option rectify the condition existing on the
Premises which is causing or is a contributing cause of the increased premium
rate in the event that the Tenant should fail to do so, and Landlord may charge
the cost of such action to Tenant as Additional Rent, payable on demand, which
shall accrue from the date that Landlord became obligated for the costs of such
action. In determining whether increased premiums are the result of Tenant's use
of the Premises, a schedule, issued by
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the organization setting the insurance rate on the Premises, showing the various
components of such rate, shall be conclusive evidence of the several items and
charges that make up the fire insurance premium on the Premises.
Section 5.05 Environmental Conditions.
(a) Definitions. "Toxic or Hazardous Substances" shall be interpreted
broadly to include, but not be limited to, any material or substance that is
defined or classified under federal, state or local laws as: (a) a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601(14), Section 311 of the
Federal Water Pollution Control Act, 33 U.S.C. Section 1321, as now or
thereafter amended; (b) a "hazardous waste" pursuant to Section 1004 or Section
3001 of the Resource Conservation and Recovery Act, 42 U.S.C. Section 6903, 42
U.S.C. Section 6921, as now or hereafter amended; (c) a toxic pollutant under
Section 307(1)(a) of the Federal Water Pollution Contract Act, 33 U.S.C. Section
1317(1)(a); (d) a "hazardous air pollutant" under Section 112 of the Clean Air
Act, 42 U.S.C. Section 7412, as now or hereafter amended; (e) a "hazardous
material" under the Hazardous Material Transportation Act, 49 U.S.C. Section
1802(2), as now or hereafter amended; (f) toxic or hazardous pursuant to
regulations promulgated now or hereafter under the aforementioned laws; or (g)
presenting a risk to human health or the environment under other applicable
federal, state or local laws, ordinances or regulations, as now or as may be
passed or promulgated in the future. "Toxic or Hazardous Substances" shall also
mean any substance that after release into the environment and upon exposure,
ingestion, inhalation or assimilation, either directly from the environment or
directly by ingestion through food chains, will or may reasonably be anticipated
to cause death, disease, behavior abnormalities,
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cancer or genetic abnormalities. "Toxic or Hazardous Substances" specifically
includes, but is not limited to, asbestos, polychorinated biphenyls (PCBs),
petroleum and petroleum based derivatives and urea formaldehyde. "Appropriate
Authorities" means all federal, state or county governments, or the departments,
commissions, boards and officers thereof having jurisdiction over the
administration and enforcement of Environmental Laws, and such public or other
officials as are required to approve particular permits, licenses, consents,
waivers or other approvals needed in connection with the use, storage or
disposal of Hazardous Substances. "Environmental Laws" means each of the
foregoing statutes and ordinances as the same shall be amended from time to
time, and any similar or successor laws, federal, state or local, or any rules
or regulations promulgated thereunder.
(b) Representations and Warranties. (i) Neither Landlord nor, to the best
knowledge of Landlord, any of Landlord's previous tenants or occupants is in
violation or subject to any existing, pending or threatened investigation by any
governmental authority under any applicable federal, state or local law,
regulation or ordinance pertaining to air and water qualify, the handling,
transportation, storage treatment, usage or disposal of Toxic or Hazardous
Substances, air emissions, other environmental matters and all zoning and other
land use matters; (ii) Any handling, transportation, storage, treatment or use
of Toxic or Hazardous Substances that has occurred on the Premises to date has
been in compliance with all applicable federal, state and local laws,
regulations and ordinances; (iii) No leak, spill, release, discharge, emission
or disposal of Toxic or Hazardous Substances has occurred on the Premises to
date and the soil, groundwater, and soil vapor on or under the premises is free
of Toxic or Hazardous Substances as of the date the term of this Lease
commences.
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(c) Landlord's Indemnity. Landlord agrees to indemnify, defend (with
counsel reasonably satisfactory to Tenant) and hold Tenant and its officers,
employees, contractors and agents harmless from any claims, judgments, damages,
penalties, fines, expenses, liabilities or losses arising during or after the
Lease Term out of or in any way relating to the presence, release or disposal of
Toxic or Hazardous Substances on or from the Premises, or to a breach of the
environmental warranties made by Landlord above, unless the Toxic or Hazardous
Substances are present as a result of the acts or omissions of Tenant, its
officers, employees, contractors or agents occurring within the term of this
Lease or any extension thereof. Such indemnity shall include, without
limitation, costs incurred in connection with:
(a) Toxic or Hazardous Substances present or suspected to be present in the
soil, groundwater, or soil vapor on or under the Premises before Tenant
occupies the Premises or the Lease Term commences; or
(b) Toxic or Hazardous Substances that migrate, flow, percolate, diffuse or in
any way move onto or under the Premises, during Tenant's occupancy of the
Premises after the Lease Term commences; or
(c) Toxic or Hazardous Substances present on or under the Premises as a result
of any discharge, dumping, spilling (accidental or otherwise) onto the
Premises during Tenant's occupancy of the Premises or after the Lease Term
commences by any person, corporation, partnership, or entity other than
Tenant, its officers, employees, contractors or agents.
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(c) The indemnification provided by this section shall also specifically cover,
without limitation, costs incurred in connection with any investigation of
site conditions or any cleanup, remedial, removal or restoration work
required by any federal, state or local governmental agency or political
subdivision or other third party because of the presence or suspected
presence of Toxic or Hazardous Substances in the soil, groundwater or soil
vapor on or under the Premises, unless the Toxic or Hazardous Substances
are present as a result of the actions of Tenant, its officers, employees,
contractors or agents. Such costs may include, but not be limited to,
diminution in the value of the Premises, damages for the loss or
restriction on use of rentable or useable space or of any amenity of the
Premises, sums paid in settlements of claims, attorneys fees, consultants
fees and expert fees. The foregoing environmental indemnity shall survive
the expiration or termination of this Lease and/or any transfer of all or
any portion of the Premises, or of any interest in this Lease. It shall be
governed by the laws of the State of Maryland.
(d) Tenant's Indemnity. Tenant shall (i) not cause or permit any Toxic or
Hazardous Substances hereinafter "Hazardous Substances" to be brought upon,
kept or used in or about the Premises by Tenant, its agents, employees,
contractors or invitees, without the prior written consent of Landlord
(which Landlord shall not unreasonably withhold as long as Tenant
demonstrates to Landlord's reasonable satisfaction that such Hazardous
Substances is necessary or useful to Tenant's business and will be used,
kept and stored in a manner that complies with all Environmental Laws
regulating any such Hazardous Substances so brought upon or used or kept in
or about the Premises). If Tenant breaches the obligations stated in the
preceding sentence, or
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if the presence of Hazardous Substances on the Premises caused or
permitted by Tenant results in contamination of the Premises or if
contamination of the Premises by Hazardous Substances otherwise occurs
for which Tenant is legally liable to Landlord for damage resulting
therefrom, then Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (including, without limitation,
diminution in value of the Premises generally, damages for the loss or
restriction on use of rentable or usable space or of any amenity of
the premises generally, damages arising from any adverse impact on
marketing of space in the premises, and sums paid in settlement of
claims, attorneys' fees, consultant fees and expert fees) which arise
during or after the Term as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation,
costs incurred in connection with any investigation of site conditions
or any cleanup, remedial, removal or restoration work required by any
federal, state or local government agency or political subdivision
because of Hazardous Substances present in the soil or ground water on
or under the Premises. Without limiting the foregoing, if the presence
of any Hazardous Substances on the Premises caused or permitted by
Tenant results in any contamination of the Premises, then Tenant shall
promptly take all actions at its sole expense as are necessary to
return the Premises to the condition existing prior to the
introduction of any such Hazardous Substances to the Premises;
provided that Landlord's approval of such actions shall first be
obtained, which approval shall not be unreasonably withheld so long as
such actions would not potentially have any material adverse long-term
effect on the Premises.
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ARTICLE 6
MAINTENANCE AND REPAIRS
Section 6.01. Obligations to Maintain and Repair.
(a) Tenant acknowledges that it has received the Premises in good order and
condition with the exception of leaking windows along the southern wall of 3830.
Tenant shall at all times at its own expense keep and maintain the entire
Premises (including, but not limited to, plumbing, heating, electrical,
sprinkler, heating, and air conditioning systems thereon) in good order and
repair, and in a neat, safe, clean, and orderly condition.
(b) Tenant shall make, at its sole expense and with reasonable promptness,
all necessary non-structural, foreseen and unforeseen, and ordinary and
extraordinary repairs of any nature whatsoever to the Premises. Tenant shall be
obligated to make all structural and non- structural repairs to any damage
caused by any waste, misuse, or neglect of the Premises, its apparatus or
appurtenances by Tenant, its agents, servants, or employees; provided, however,
that Landlord shall make repairs required as a result of a covered casualty
under Landlord's insurance with respect to the Premises. All repairs undertaken
by Tenant shall be completed to Landlord's reasonable satisfaction.
(c) Except as provided in Section 6.01 (b), Landlord shall make all
structural repairs to the premises. Except as otherwise provided herein,
Landlord shall not be required to maintain, keep, or repair the Premises or any
part thereof. Tenant shall be charged with the protection of its own property,
and in no event shall Landlord be liable for any damage to Tenant's property by
reason of fire, other casualty, the elements, leakage of water, steam, or the
acts or neglect of any other person.
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Section 6.02. Return of Premises.
Tenant shall, at the expiration of the Term or at the sooner termination
thereof by forfeiture or otherwise, deliver up the Premises in the same good
order and condition as it was at the beginning of the tenancy, except (i)
reasonable wear and tear, (ii) to the extent the Premises is not required to be
repaired and/or maintained by Tenant, and (iii) damage by fire or other casualty
to the extent there is actually paid to Landlord, to repair any damage to the
Premises, sufficient net proceeds from the policies of any insurance which
Tenant is obligated to provide and maintain.
ARTICLE 7
TENANT'S ALTERATIONS AND SIGNS
Section 7.01. Alterations.
(a) Tenant covenants that it will not make any material alterations,
additions, improvements or changes of any kind to the Premises, without first
securing Landlord's written consent, which will not be unreasonably withheld.
Prior to obtaining Landlord's consent, Tenant shall be required to submit to
Landlord written plans for any alteration, addition, improvement or change of
any kind to the Premises. Landlord's consent may be conditioned upon, among
other things, satisfactory proof that Tenant, at its sole expense, is carrying
or causing to be carried such insurance, in such amounts as Landlord deems
reasonably necessary to protect Landlord's interest in the Premises form any act
or omission of Tenant's contractors or subcontractors. Any alterations,
additions, improvements or changes as Landlord shall permit in writing shall be
made by Tenant at Tenant's sole expense. The approval of plans by Landlord shall
not constitute any assumption of responsibility by Landlord for their accuracy
or sufficiency.
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(b) Any structural or non-structural alterations, additions, improvements
or changes by Tenant which are permitted hereunder or hereafter approved by
Landlord shall be the property of Tenant until expiration of the Term, at which
time they shall become the property of Landlord and remain on the Premises at
the expiration of the Term; provided, however, that Landlord's approval of any
alteration, addition, improvement or change may be conditioned upon, among other
things, the restoration of the Premises to its original condition existing as of
the Commencement Date, in which event Tenant shall comply with such requirement
prior to the expiration of the Term .
Section 7.02. Signs.
Tenant covenants that it will not, without Landlord's prior written
consent, which shall not be unreasonably withheld, place or permit any sign,
light, awning, decoration, placard, billboard, advertising matter, pole, or
other thing of any kind, whether permanent or temporary, on the exterior of
Premises. In the event such consent is given, Tenant agrees to pay any minor
privilege or other tax . In the event of a violation of this Section, Landlord
may take action as it deems necessary to abate the violation. Tenant further
covenants that it will not paint or make any change in or on the outside of the
Premises without the permission of Landlord in writing.
ARTICLE 8
MECHANICS' AND OTHER LIENS
Section 8.01. Mechanics' Liens.
(a) If an action to establish and/or enforce any mechanics' or other lien
against any part of the Premises is filed by reason of any labor, material or
service furnished or alleged to have been furnished to Tenant or for any change,
alteration or repair to the Premises made by Tenant, Tenant shall cause the
requested or established lien to be released of record by payment, bond or
otherwise allowed by law, at Tenant's expense, within thirty (30) days after the
filing of the complaint; and Tenant shall, at its expense, defend any proceeding
for the enforcement of any lien, discharge any judgment thereon, and save
Landlord harmless from all losses and expenses resulting therefrom, including
counsel fees and other expenses incurred by Landlord if it elects to defend or
participate in the defense of such proceeding.
(b) Landlord shall not be liable for any labor or materials furnished or to
be furnished to Tenant upon credit, and no mechanics' or other lien for labor or
materials shall attach to or affect the reversionary or other estate or interest
of Landlord in and to the Premises or the Building.
Section 8.02. Other Liens.
Tenant shall not permit the Premise to be subject to any statutory lien by
reason of any act or omission on the part of Tenant, or any of his approved
concessionaires, licensees or subtenants or their respective agents, servants,
employees or contractors; and in the event that any lien attaches to the
Premises, Tenant shall discharge the same by payment, bond or otherwise as
allowed by law, at its own expense, within thirty (30) days after Tenant's
creditor or alleged creditor initiates the action.
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ARTICLE 9
INDEMNIFICATION BY TENANT
Section 9.01. Indemnification by Tenant.
(a) Tenant shall indemnify and save Landlord harmless from and against any
and all liabilities, claims, actions, damages, penalties or judgments, including
any litigation expenses and reasonable attorneys' fees, arising from injury to
person or property sustained by anyone in or about the Premises, resulting from
any acts or omissions of Tenant, or of Tenant's officers, directors,
shareholders, agents, employees, contractors or subtenants. Tenant, at its sole
expense, shall defend any and all suits or actions (just or unjust) which may be
brought against Landlord, or in which Landlord may be impleaded with others
based upon allegations of any claim or claims arising from any act or omission
of Tenant or of Tenant's officers, directors, shareholders, agents, employees,
contractors or subtenants. Tenant's obligation to indemnify Landlord under this
Section shall apply to claims arising out of any act or omission of Bruce C.
Clasing and Harold B. Clasing (the "Clasings") only to the extent that any such
act or omission occurs during the course or in the scope of the Clasings
employment by Tenant. Tenant's indemnification obligation shall survive the
termination of this Lease.
(b) Landlord shall not be responsible or liable for any damage or injury to
any persons, at any time in or about the Premises, including damage or injury to
Tenant or to any of Tenant's officers, agents, employees, contractors, invitees
or subtenants unless caused by the act or omission of Landlord or of Landlord's
officers, directors, shareholders, agents, employees, or contractors as the case
may be.
ARTICLE 10
TENANT'S INSURANCE
Section 10.01. Public Liability Insurance.
Tenant shall provide, at its sole expense, and keep in force during the
Term for the benefit of Landlord and Tenant as insured parties, and the
Landlord's mortgagee, as their respective interests may appear, commercial
general liability insurance, written on an occurrence basis with respect to the
Premises and the business operated by Tenant and any subtenants,
concessionaires, or licensees of Tenant, in the amount of at least One Million
and 00/100 Dollars ($1,000,000.00) for each occurrence and Two Million and
00/100 Dollars ($2,000,000.00) in the aggregate and umbrella coverage with
limits of Fourteen Million and 00/100 Dollars ($14,000,000.00) per occurrence
and Fourteen Million and 00/100 Dollars ($14,000,000.00) in the aggregate. The
limits shall be increased periodically over the Term as Landlord may from time
to time reasonably require on the basis that prudent owners of comparable
properties are requiring increased coverage.
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Section 10.02. Plate Glass Insurance.
Throughout the Term, Landlord may with Tenant's consent and at Landlord's
initial expense, maintain plate glass insurance for the full insurance cure of
all of the plate glass in the Premises, and Tenant shall reimburse the Landlord
for such coverage; PROVIDED, HOWEVER,. if Tenant withholds consent, Tenant shall
be obligated for replacement of plate glass at Tenant's sole expense. Section
10.03. Workers Compensation Insurance. During the Term, Tenant, at its sole
expense, shall provide and keep in force workers' and statutory employers'
compensation insurance, in form and in amounts required by law. Section 10.04.
General Provisions of Insurance Coverage. All required insurance shall be issued
by an insurance company or companies of recognized financial standing licensed
to do business in Maryland and acceptable to Landlord. At the beginning of the
Term and thereafter not less than thirty (30) days prior to the expiration of
any policy period, Tenant shall deliver to Landlord certificates evidencing the
insurance required by this Article, together with copies of the policies, and
proof that the premiums have been paid. The insurance may not be canceled or
amended without thirty (30) days' prior written notice given to Landlord and at
Landlord's request, to any mortgagee of the Premises.
Section 10.05. Blanket Insurance Coverage.
Any insurance required to be provided by Tenant under this Lease may be
provided by blanket insurance covering the Premises, provided such blanket
insurance complies with all of the other requirements of this Lease with respect
to the particular insurance involved.
Section 10.06. Failure to Maintain Insurance.
Tenant's failure to procure and maintain any insurance required by this
Lease, and to pay the premiums and renewal premiums as they become due and
payable, and to deliver all required certificates of insurance and renewals
thereof and copies of policies to Landlord within the time provided in this
Lease, shall constitute an Event of Default by Tenant. In the event Tenant fails
to procure and maintain any insurance required under this Article, Landlord
shall have the right, but not the obligation, to procure and maintain such
insurance. Any sum paid by Landlord to procure or maintain insurance required of
Tenant by this Article shall be deemed to be owing by Tenant to Landlord and due
and payable within five (5) days after demand.
Section 10.07. Waiver of Subrogation.
Landlord and Tenant hereby waive the right to claim liability (by way of
subrogation or otherwise) against the other party for any loss or damage to the
extent of any insurance proceeds actually received plus the amount of any
deductible under any such insurance policy. Landlord and Tenant shall each
obtain a clause in each insurance policy required by this Lease stating that
this waiver is given prior to an occurrence giving rise to a loss and will not
invalidate the policy.
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Section 10.08. Insurance on Tenant's Property and Improvements.
(a) During the Term, Tenant, at its sole expense, shall maintain in full
force and effect, in a reputable company or companies licensed to do business in
Maryland, and insurance policy or policies providing protection against any
peril included within the classification of "fire and extended coverage,"
covering all Tenant's trade fixtures, merchandise and other property in or about
the Premises, and all alterations, additions, improvements made by or on behalf
of Tenant for the full replacement cost. Such policy or policies of insurance
shall be in form satisfactory to Landlord and shall name Landlord as a loss
payee.
ARTICLE 11
SUBLETTING OR ASSIGNMENT
Section 11.01. Restrictions on Subletting and Assignment.
(a) Except as otherwise provided by this Section 11.01, Tenant covenants
that it will not sublet or assign the Premises, or any part thereof, by
operation of law or otherwise, or permit the same to be used by any person or
entity other than Tenant or employees of Tenant without the prior written
consent of Landlord, which consent may be withheld in the reasonable discretion
of Landlord. Any lawful levy or sale on execution or other legal process, and
also any assignment or sale in bankruptcy, or insolvency, or under any
compulsory procedure, or the appointment of a receiver by a state or federal
court, shall be deemed an assignment within the meaning of this Lease. In the
event that Landlord does consent to any such subletting, assignment, or use,
Tenant hereunder shall remain liable for the performance of all the covenants
and conditions of this Lease. Consent by Landlord to any subletting, assignment,
or use shall apply to only the specific request and shall be required for any
further subletting, assignment, or use.
Section 11.02. Transfer of Corporate Shares.
If Tenant is a corporation and if at any time during the Term of this Lease
any part or all of the corporate shares of Tenant, or of a parent corporation of
which the Tenant is a direct or indirect subsidiary, shall be transferred by
sale, assignment, bequest, inheritance, operation of law, or other disposition
so as to result in a change in the present effective voting control of Tenant or
of such parent corporation by the person or persons owning or controlling a
majority of the shares of Tenant or of such parent corporation on the date of
this Lease, Tenant shall promptly notify Landlord in writing of such change, and
such change in voting control shall constitute an Assignment of this Lease for
all purposes of this Section; provided, however, that this provision shall not
apply to the transfer of corporate shares of a parent corporation which is
publicly traded on a recognized public stock exchange or in the over-the-counter
market.
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Section 11.03. Use by Related Entities.
Tenant is a wholly owned subsidiary of Manchester Equipment Co., Inc.
("Manchester"). Tenant may permit any part of the Premises to be occupied or
used by any other controlled subsidiary of Manchester without Landlord's prior
written consent, and without such use or occupancy being deemed a subletting,
assignment, or use that would otherwise require Landlord's prior written
consent; provided, however, that Tenant shall remain liable for the performance
of all the covenants and conditions of this Lease, and any use or occupancy
permitted under this Section 11.03 shall not interfere with Tenant's successful
operations or cause Tenant to incur any rent expense in excess of the Annual
Rent and Additional Rent payable under this Lease.
Section 11.03. Acceptance of Rent from Transferee.
The acceptance by Landlord of the payment of rent following any assignment
or other transfer prohibited by this Article 11 shall not be deemed to be a
consent by Landlord to any such assignment or other transfer nor shall the same
be deemed a waiver of any right or remedy of Landlord hereunder.
ARTICLE 12
QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT
AND ESTOPPEL CERTIFICATE
Section 12.01. Quiet Enjoyment.
Landlord warrants that Tenant shall have the peaceable and quiet enjoyment
of the Premises free from any eviction or interference by Landlord if Tenant
pays the Annual Rent and Additional Rent provided for herein, and otherwise
fully performs the terms, covenants and conditions imposed by this Lease.
Section 12.02. Subordination.
(a) The holder of any mortgage or deed of trust now existing or hereafter
placed upon the Premises shall have the right to elect, at any time, whether
this Lease shall be subordinate to the operation and effect of such mortgage or
deed of trust or superior thereto, without the necessity for execution by Tenant
of any instrument other than this Lease, and such election shall be binding upon
Tenant. If, however, the holder of the mortgage or deed of trust desires to
confirm that effect of this provision, then upon request Tenant shall execute an
attornment or subordination agreement in form satisfactory to such holder.
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(b) Within thirty (30) days following the date of this Agreement, Landlord
shall undertake, and shall use commercially reasonable efforts (exclusive of the
payment of any monetary consideration) to obtain, from all mortgagees or
beneficiaries under any mortgages or deeds of trust encumbering the premises,
one or more agreements of non-disturbance in favor of the Tenant, such that, if
any proceedings are brought for the foreclosure of any portion of the Premises
are a part, or if the power of sale under a mortgage or deed of trust is
exercised, then Tenant's rights under this Lease shall not be disturbed and
shall remain in full force and effect for the Term so long as Tenant performs
and observes all of the terms, covenants and conditions of this Lease to be
performed or observed by it and provided that Tenant agrees to attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
Landlord under this Lease. Landlord shall have no obligation to negotiate the
form of any agreement of non- disturbance if Tenant and any mortgagee or deed of
trust beneficiary disagree with respect to the form or content of a proposed
agreement of non-disturbance. As regards any and all mortgages or deeds of trust
encumbering the premises and created subsequent to the date of this Lease,
Landlord shall use commercially reasonable efforts to obtain from the mortgagees
or beneficiaries with respect thereto, one or more agreements of subordination,
attornment and non-disturbance in favor of the Tenant such that, if any
proceedings are brought for the foreclosure of any portion of the Premises are a
part, or if the power of sale under a mortgage or deed of trust is exercised,
then Tenant's rights under this Lease shall not be disturbed and shall remain in
full force and effect for the Term so long as Tenant performs and observes all
of the terms, covenants and conditions of this Lease to be performed or observed
by it and provided that Tenant agrees to attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease.
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(c) If through the use of commercially reasonable efforts Landlord is
unable to secure agreements of non-disturbance as provided for herein, then
Landlord shall exercise Landlord's right, if any, under any such existing deed
of trust encumbering the property and will use commercially reasonable efforts
to secure the right by modification to any such existing deed of trust as well
as any future such deed of trust, that any notice of default to be given under
such deed(s) of trust be given by duplicate notice to Landlord addressed to
Tenant and Landlord further agrees that Tenant shall be held harmless from any
defaults by Landlord in any such deed of trust and agrees that Tenant shall have
the right to cure defaults as to Landlord's payment obligations under any
indebtedness secured by virtue of such deeds of trust upon which Tenant shall
have the right to be repaid by Landlord.
Section 12.03. Attornment and Estoppel Certificates.
(a) Within ten (10) days after a written request from time to time made by
Landlord or Tenant, but not in excess of three (3) times in any calender year,
Landlord or Tenant shall deliver to the other a signed and acknowledged
statement in writing setting forth: (i) that this Lease is unmodified, in full
force and effect, no knowledge of existing defaults of Landlord and free of
defenses against enforceability (or if there have been modifications or
defaults, or if Tenant claims defenses against the enforceability hereof, then
stating the modifications, defaults and/or defenses); (ii) the dates to which
all rent has been paid, and the amount of any advance rents paid; (iii) the
commencement and expiration dates of the Original Term; (iv) whether Tenant has
given written notice exercising its rights, if any, to renew this Lease, and if
so, the Extension Term so elected; (v) that Tenant had no outstanding claims
against Landlord (or, if there are any claims, then stating the nature and
amount of such claims); and (iv) that status of any other obligation of either
party under or with respect to this Lease, it being intended that any such
statement may be relied upon by any purchaser or mortgagee of Landlord's
interest in the Premises, or any prospective purchaser or mortgagee.
(b) When requested by Landlord, Tenant shall promptly execute an agreement
in the form reasonably required by Landlord with any purchaser of Landlord's
interest in the premises for the purpose of attorning to said purchaser as its
Landlord, provided that such purchaser executes such agreement for the purpose
of recognizing this Lease.
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ARTICLE 13
LANDLORD'S ENTRY ON PREMISES
Section 13.01. Landlord's Entry on Premises.
Tenant agrees that Landlord and its representatives may enter to the
Premises to inspect the Premises, to enforce the provisions of this Lease, to
make repairs required of it hereunder, and to rectify defaults of the Tenant.
Landlord may bring upon the Premises all things necessary to perform any work
done in the Premises pursuant to this Section 13.01. If the nature of a required
repair requires immediate action by Landlord, then Tenant shall admit Landlord
to the Premises immediately. Any other admission of the Landlord to the Premises
shall be during Tenant's business hours, or if at other times, at the
convenience of Tenant. Nothing herein contained shall be construed to impose
upon Landlord any obligation or responsibility whatsoever for the care,
maintenance or repair of the Premises, except as otherwise specifically provided
in this Lease.
ARTICLE 14
FIRE OR OTHER CASUALTY
Section 14.01. Fire or Other Casualty.
In the event the Premises is damaged by fire, storm, the elements, act of
God, unavoidable accident and/or the public enemy, but not to such an extent as
to render the same untenantable, then Landlord shall restore the Premises as
speedily as possible, and there shall be no abatement of Annual Rent. If the
Premises is injured or damaged by any of the aforesaid causes only to such an
extent as to render it partially un-tenantable, Landlord shall restore such
portion of the Premises so injured or damaged as speedily as possible, Annual
Rent to abate proportionately on such part of the Premises as may have been
rendered wholly un-tenantable until such time as such part shall be fit for
occupancy, and after which time the full amount of Annual Rent reserved in this
Lease shall be payable. If the Premises is injured or damaged by any of the
aforesaid causes to such an extent as to render the same wholly un-tenantable,
then this Lease shall thereupon become null and void, and any liability of
Tenant shall terminate upon payment of all Annual Rent, Additional Rent and any
other sums due and payable to the date of such happening.
ARTICLE 15
CONDEMNATION
Section 15.01. Effect of Condemnation.
If the whole or any part of the Premises shall be taken under the power of
eminent domain, or shall be sold by Landlord under threat of condemnation
proceedings, then this Lease shall terminate as to the part so taken or sold on
the day when Tenant is required to yield possession thereof, and Landlord shall
make such repairs and alterations as may be necessary in order to restore the
part not taken or sold to useful condition, and the Annual Rent hereinbefore
specified shall be reduced proportionately as to the portion of the Premises so
taken or sold. If the amount of the Premises so taken or sold is such as to
impair substantially the usefulness of the Premises for the purposes for which
the same is hereby leased, then Tenant shall have the option to terminate this
Lease as of the date when Tenant is required to yield possession.
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Section 15.02. Condemnation Awards.
In any and all events of condemnation, all compensation awarded or paid for
any such taking or sale of the fee and the leasehold, or any part thereof, shall
belong to and be the property of Landlord, except for such sum as shall be
awarded to Tenant for relocation of its business or on account of the taking of
fixtures installed by Tenant, which shall become the property of Tenant provided
such sum is by separate award and does not reduce the amount to which Landlord
is entitled hereunder.
Section 15.03. Notice of Condemnation.
Landlord shall notify Tenant within ten (10) days of receipt of notice of
condemnation.
ARTICLE 16
DEFAULT OF TENANT
Section 16.01. Events of Default.
The following occurrences shall be Events of Default:
(a) the failure of Tenant to make any payment of Annual Rent or Additional
Rent payable by Tenant within ten (10) days after the same shall be
due and payable, which failure shall remain uncured after five (5)
days written notice,
(b) the appointment of a receiver or trustee for Tenant in any court,
which appointment is not vacated in thirty (30) days, or
(c) the adjudication of Tenant as bankrupt or insolvent, or
(d) the assignment by Tenant for the benefit of creditors, or
(e) the failure by Tenant to perform or comply with any of the other
terms, covenants, or conditions of this Lease, which violation shall
remain uncured after thirty (30) days written notice.
Section 16.02. Notice of Termination.
Upon the occurrence of an Event of Default, Landlord may, at its option,
terminate this Lease in writing, in which case Tenant shall continue to be
liable to Landlord as hereinafter provided.
Section 16.03. Landlord's Right to Re-Enter Premises.
Upon the occurrence of an Event of Default, or at any time thereafter, in
addition to and without prejudice to any other rights and remedies Landlord
shall have at law or equity, shall have the right to re-enter the Premises,
recover possession thereof, and dispossess any or all occupants of the Premises
in the manner prescribed by the statute relating to summary proceedings, or
similar statutes, but Tenant shall remain liable to Landlord as hereinafter
provided.
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Section 16.04. Landlord's Remedies.
(a) In case of any Event of Default, re-entry, expiration and/or
dispossession by summary proceedings, whether or not this Lease shall have been
terminated:
(i) All delinquent Annual Rent and Additional Rent shall become
payable and shall be paid up to the time of such re-entry, termination
and/or dispossession;
(ii) Landlord shall have the right, but not the obligation, to re-let
the Premises or any part thereof for the account of Tenant, either in the
name of the Landlord or as agent for Tenant, for a term or terms which may,
at the Landlord's option, be less than or exceed the period which would
have otherwise constituted the balance of the Term and to grant concessions
for rent, costs, brokerage fees and attorneys' fees;
(iii) Tenant shall reimburse Landlord for any expenses that Landlord
actually incurs in connection with recovering possession of the Premises
and any re-letting thereof such as court costs, attorneys' fees, brokerage
fees, the costs of advertising and the costs of any alterations or repairs
required for re-letting.
(iv) Tenant, or the legal representatives of Tenant, at Landlord's
option, shall pay Landlord, either (a) on a monthly basis, the difference
between the Annual Rent and Additional Rent reserved hereunder and the
rent, if any, received by Landlord pursuant to any re- letting, or (b) in a
lump sum, liquidated damages in an amount equal to the sum of the Annual
Rent that would have become due during the remainder of the Term plus an
estimate of the Additional Rent that would have become due during the
remainder of the Term. The parties agree that option (b) will constitute
agreed liquidated damages and not a penalty, because Landlord's actual
charges may be too difficult to ascertain with certainty.
(b) Landlord may distrain, by any legal means, for any overdue installment
of Annual Rent or Additional Rent.
(c) No re-letting by Landlord, whether it be for a longer or shorter period
than remains in the Term, shall operate as a surrender or termination of this
Lease or as a waiver or postponement of any right of Landlord against Tenant
without a specific written declaration to such effect by Landlord.
(d) Any and all remedies available to Landlord for the enforcement of the
provisions of this Lease are cumulative and not exclusive, and Landlord shall be
entitled to pursue either the rights enumerated in this Lease or remedies
authorized by law, or both. Tenant shall be liable for any costs or expenses
incurred by Landlord in enforcing any terms of this Lease, or in pursuing any
legal action for the enforcement of Landlord's rights, including court costs and
reasonable attorney's fees, in amounts to be affixed by court.
(e) Both Landlord and Tenant shall each use commercially reasonable efforts
to mitigate any damages resulting from a default of the other party under this
Lease.
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ARTICLE 17
TERMINATION BY TENANT
Section 17.01. Options to Terminate.
(a) If during the first three (3) years of the Term, either Bruce C.
Clasing and Harold Clasing (the "Clasings") voluntarily leave the employment of
Tenant, or any entity succeeding, related to or controlled by Tenant, or if
either of the Clasings are terminated from such employment for "cause," as
defined in each of their employment agreements, which are hereby incorporated by
reference, then Tenant shall have the option to terminate the Lease upon thirty
(30) days written notice to Landlord. Upon exercise of this option to terminate,
Tenant shall pay to Landlord all Annual Rent and Additional Rent due and payable
to Landlord through the termination date of the Lease.
(b) Commencing with the expiration of the third year of the initial term,
Tenant shall have the right to terminate this Lease at any time both of the
Clasings are not employed by Tenant, or any entity succeeding, related to or
controlled by Tenant, if such employment is terminated for "cause" as defined in
each of their "Employment Agreements" or by voluntary retirement. Upon exercise
of this option to terminate, Tenant shall pay to Landlord all Annual Rent and
Additional Rent due and payable to Landlord through the termination date of the
Lease. Tenant may exercise this option upon thirty (30) days written notice to
Landlord.
ARTICLE 18
MISCELLANEOUS
Section 18.01. Successors and Assigns.
This Lease and the covenants, terms and conditions herein contained shall
inure to the benefit of and be binding upon Landlord, its successors and
assigns, and shall be binding upon and inure to the benefit of Tenant and its
permitted successors and assigns.
Section 18.02. Holding Over.
If Tenant shall not immediately surrender possession of the Premises at the
termination of this Lease, Tenant shall become a tenant from month to month upon
all of the terms, covenants, and conditions of this Lease, provided Annual Rent
shall be paid to and accepted by Landlord, in advance, at double the rate of
Annual Rent payable hereunder just prior to the termination of this Lease; but
unless and until Landlord shall accept such Annual Rent from Tenant, Landlord
shall continue to be entitled to retake possession of the Premises without any
prior notice whatsoever to Tenant.
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Section 18.03. Waiver.
Any waiver of any covenant or condition of this Lease shall extend to the
particular case only, and only in the manner specified, and shall not be
construed as applying to or in any way waiving any further or other rights
hereunder. The exercise of any of the options aforesaid shall not be construed
as a waiver of Landlord's right to recover actual damages for any breach in an
action at law, or to restrain any breach or threatened breach in equity or
otherwise. Acceptance of rent with knowledge of default shall not be a waiver of
that default, and acceptance of partial payment shall not be deemed acceptance
of the full amount owed nor prejudice Landlord's right to recover the balance
owed or to pursue any remedy available to it. Section 18.04. Notices. Any Notice
required or permitted by this Lease to be given by either party to the other may
be either personally delivered or sent by facsimile or certified mail, properly
addressed and prepaid, to the addresses of the parties herein given, unless
another address shall have been substituted for such address by Notice in
writing. Notices shall be deemed given the first business day following the date
of so depositing or the date of personal delivery or the date of faxing,
provided that any Notice sent by facsimile shall be promptly sent by first class
mail as well.
A copy of all notices to Tenant shall be provided to:
David I. Roth, Esq.
Kressel, Rothlein & Roth, Esqs.
684 Broadway
Massapequa, N.Y. 11758
Mr. Barry R. Steinberg, President
Manchester Equipment
160 Oser Avenue
Hauppauge, N.Y. 11788
A copy of all notices to Landlord shall be provided to:
Bruce C. Clasing
Harold B. Clasing
3832 Falls Road
Baltimore, MD 21211
Frank L. Kollman, Esq.
Kollman & Sheehan, PA
20 South Charles Street
Baltimore, MD 21201
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Section 18.05. Captions.
The headings and captions used in this Lease are for the convenience of
parties only and are not a part of this Lease.
Section 18.06. Broker.
(a) Landlord represents and warrants that it has not employed, directly or
indirectly, expressly or impliedly, any brokers or finders in connection with
the leasing of the Premises. Landlord agrees to indemnify and hold Tenant
harmless from and against any and all claims of any person, firm or corporation
claiming any brokerage commission, finder's fee or similar compensation
(including, without limitation, the cost of reasonable attorneys' fees)
resulting from a breach by Landlord of this representation and warranty.
(b) Tenant represents and warrants that it has not employed, directly or
indirectly, expressly or impliedly, any brokers or finders in connection with
the leasing of the Premises. Tenant agrees to indemnify and hold Landlord
harmless from and against any and all claims of any person, firm or corporation
claiming any brokerage commission, finder's fee or similar compensation
(including, without limitation, the cost of reasonable attorneys' fees)
resulting from a breach by Tenant of this representation and warranty.
Section 18.07. Obligations Surviving Termination.
If this Lease is terminated for any reason other than default of Tenant or
Landlord, all liabilities of the parties shall be adjusted as of the effective
date of termination. Any termination of this Lease by reason of default of
Tenant shall not affect any obligation or liability of Tenant which accrued
prior to the effective date of termination. All such obligations and liabilities
of the defaulting party shall survive such termination.
Section 18.08. Landlord's Liability.
If Tenant obtains a money judgment against Landlord or its successors or
assigns under any provisions of, or with respect to, this Lease, or on account
of any matter, condition or circumstance arising out of the relationship of the
parties under this Lease, Tenant's occupancy of the Premises, or Landlord's
ownership of the Premises, Tenant shall be entitled to have execution upon such
judgment only upon Landlord's estate in the Premises and not out of any other
assets of Landlord, any of its members, or its successors or assigns; and
Landlord shall be entitled to have any such judgment so qualified as to
constitute a lien only on Landlord's estate, subject to any liens antedating
such judgment; provided, however, that this sentence shall be inapplicable to
the extent that the judgment against Landlord is covered by insurance, or to the
extent Tenant may be entitled to be indemnified pursuant to this or any separate
agreement.
Section 18.09. Governing Law and Jurisdiction.
This Lease shall be governed and controlled by the law of the State of
Maryland. Tenant hereby waives any objection to the venue of any action filed by
Landlord against Tenant in any state or federal court of Maryland, and waives
any claim for the transfer of any such action to any other court.
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Section 18.10. No Trial by Jury.
Landlord and Tenant hereby waive trial by jury in any action or proceeding
or counterclaim brought by either party against the other party on any and every
matter, directly or indirectly arising out of or with respect to this Lease.
Section 18.11. Use of Plurals and Gender.
The use of the singular herein shall include the plural and vice versa, and
the use of any gender shall include all genders.
Section 18.12. Severability.
If any term or provision, or any portion thereof, of this Lease, shall to
any extent, be invalid or unenforceable, the remainder of the Lease shall not be
deemed invalidity or unenforceable.
Section 18.13. Entire Agreement.
This Lease and the attached exhibits, if any, contain the final agreement
of the parties. Landlord shall not have any obligations not expressly set forth
in this Lease; and neither party shall be bound by prior promises or
representations not expressly set forth in this Lease.
Section 18.14. Abutting Premises.
Landlord acknowledges that Landlord is the owner of certain real property
contiguous to the demised premises, to wit: premises known as 3840 Falls Road,
Baltimore, Md., "the contiguous premises." Landlord undertakes and agrees to
maintain such premises so as not to suffer or permit any use thereon which
interferes with the Tenant's right to use the demised premises. Landlord agrees,
at Landlord's expense, to maintain comprehensive liability insurance coverage in
the amounts as required herein for the demised premises insuring Landlord for
liability arising from or out of ownership, and/or use of the contiguous
premises. Landlord shall be solely responsible for all costs and expenses with
respect to the contiguous premises and agrees to hold Tenant harmless from any
tax, assessment or other such imposition, insurance expense, maintenance
expense, repair expense, violation of any Legal Requirement as set forth in
Section 5.03 or existence of hazardous substance as set forth in Section 5.05.
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Landlord agrees that in the event any alterations to or demolition of the
improvements or the contiguous premises is to be undertaken during the term of
this Lease, Landlord will give notice to Tenant in writing of not less than
thirty (30) days and that such alterations or demolition work will be performed
in such a way as to minimize disruption to Tenant.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed as of the date first above written.
ATTEST/WITNESS: BC & HC PROPERTIES, LLC
By: (SEAL)
ATTEST/WITNESS: COASTAL OFFICE PRODUCTS, INC.
By: (SEAL)
E:\agreements\Business\Lease\coastal-with-bc&hcprop.manchester.wpd
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DEFINITIVE PURCHASE AGREEMENT
AGREEMENT, made this 2nd day of January 1998, by and between
MANCHESTER EQUIPMENT CO., INC., a Corporation organized and existing under and
by virtue of the laws of the State of New York, with a principal place of
business at 160 Oser Avenue, Hauppauge, New York 11788 (hereinafter referred to
as the "Purchaser or Manchester"), BRUCE C. CLASING, an individual residing at
1508 Ivy Hill Road, Cockeysville, Maryland 21030, and HAROLD B. CLASING, an
individual residing at 20508 York Road, Parkton, Maryland 21120, (hereinafter
referred to as the "Seller" or "Sellers" and/or "Shareholder", or
"Shareholders"), COASTAL OFFICE PRODUCTS, INC., a Corporation organized and
existing under the laws of the State of Maryland, with a principal place of
business at 3832 Falls Road, Baltimore, Maryland 21211 (hereinafter referred to
as the "Company").
W I T N E S S E T H:
WHEREAS, the Company is the owner and operator of a computer sales,
service and repair business conducted at 3832 Falls Road, Baltimore, Maryland
21211 and the Seller and/or shareholder are the sole stockholders, directors,
and chief executive officers in the Company, and as such they represent that
they hold such capital stock without charge or lien against it, and
WHEREAS, the Sellers and/or Shareholders have made certain
representations and warranties as to the "Company Assets" and "Company
Liabilities" as more particularly defined in the within Agreement or Schedules
annexed thereto, and
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WHEREAS, the Purchaser desires to purchase one hundred (100%) percent
of the right, title and interest of the Seller Shareholder in the capital stock
of the Company.
NOW, THEREFORE, in consideration of the sum of One ($1.00)
Dollar and other good and valuable consideration, receipt of which is hereby
acknowledged, and the mutual agreements hereinafter set forth, the parties
hereto agree as follows:
Definitions: The following terms shall have the meaning hereby assigned in
this Agreement as well as any other Agreement which is collateral hereto:
"Assets" means all right, title, and interest in and to all of the
assets of Coastal or the Company as set forth on Exhibit "A", including all of
its (a) real property, leaseholds and sub-lease holds therein, improvements,
fixtures, and fittings thereon, and easements, rights-of-way, and other
appurtenants thereto (such as appurtenant rights in and to public streets), (b)
tangible personal property (such as machinery, equipment, Inventory), (c)
intellectual property, goodwill associated therewith, the trade name including
"Coastal Office Products, Inc.", licenses and sub-licenses granted and obtained
with respect thereto, and rights thereunder, remedies against infringements
thereof, and rights to protection of interests therein under the laws of all
jurisdictions, (d) leases, sub-leases, and rights thereunder, (e) agreements,
contracts, indentures, mortgages, instruments, security interests, guaranties,
other similar arrangements, and rights thereunder, (f) accounts, notes, and
other receivables, (g) securities, if any, (h) claims, deposits, prepayments,
refunds, causes of action, choses in action, rights of recovery, rights of set
off, and rights of recoupment (including any such item relating to the payment
of Taxes), (i) franchises, approvals, permits, licenses, registrations,
certificates, variances, and similar rights obtained from governments and
governmental agencies, (j) books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, advertising and promotional materials, studies,
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reports, and other printed or written materials, (k) any cash, including a
certain money market deposit account having a present principal value of Three
Hundred Seventy-eight Thousand, One hundred ninety-one and 34/100 ($378,230.45)
Dollars, (l) the corporate charter, qualifications to conduct business as a
foreign corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identifications numbers, seals, minute books,
stock transfer books, blank stock certificates,, and other documents relating to
the organization, maintenance, and existence of the Company as a corporation;
(m) any of the rights of the Company under this Agreement.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
charges, complaints, claims, judgments, orders, decrees, rulings, damages,
penalties, fines, costs, obligations, liens, losses, expenses, and fees,
including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Sec. 1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
"Cash" means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Closing Date Financial Statements.
"Closing" has the meaning set forth in Paragraph "THIRD" below.
"Closing Date" has the meaning set forth in Paragraph "THIRD" below.
"Closing Date Financial Statements" means the financial statements of the
Company to be prepared by the Company at its cost reflecting the financial
condition of the Company as of the day prior to the Closing Date, prepared in
accordance with GAAP and in accordance with the Company's
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previous financial statements and to be delivered to the Parties within ninety
(90) days of the Closing Date and accepted by the Parties in writing. In the
event of a dispute regarding the Closing Date Financial Statements which cannot
be resolved by the Parties within fifteen (15) days of delivery of the Closing
Date Financial Statements, the Closing Date Financial Statements shall be
reviewed by the Jericho, New York office of KPMG Peat Marwick, which costs of
review shall be split equally by the Sellers and the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any confidential business information
concerning the businesses and affairs of the Company that is not already
generally available to the public.
"Contingent Payments" has the meaning set forth on Paragraph "SECOND" (B)
below.
"Controlled Group of Corporations" has the meaning set forth in Code Sec.
1563.
"Employee Benefit Plan" means the Coastal Office Products, Inc. Profit
Sharing Plan and the Comprehensive Standard Health Benefit Plan, Preferred
Provider Plan for Coastal Office Products, Inc. administered by Blue Cross and
Blue Shield of Maryland, Inc.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2)
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of
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pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in the Indemnity Agreements
annexed hereto.
"Indemnifying Party" has the meaning set forth in the Indemnity Agreements
annexed hereto.
"Intellectual Property" means (a) all inventions, (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
re-issuance, continuations, continuations-in-part, revisions, extensions, and
re-examinations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings,
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specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Inventory" means all goods in process and finished goods, manufactured
and purchased parts and supplies and other items deemed inventory in accordance
with GAAP in the operation of the Company's business.
"Knowledge" means actual knowledge after reasonable investigation.
"Liabilities" means (a) all Liabilities of Coastal or the Company as
recorded on the November 30, 1997 balance sheet, and as adjusted for the passage
of time through the Closing Date in accordance with past custom and practice and
in the ordinary course of business of the Company and to be recorded on the
Closing Date Financial Statements, and subject to the representations and
warranties of Seller and the Company herein, (b) all obligations of the Company
under the agreements, contracts, leases, licenses, and other arrangements
referred to in the definition of Assets either (i) to furnish goods, services,
and other non-Cash benefits to another party after the Closing of (ii) to pay
for goods, services, and other non-Cash benefits that another party will furnish
to it after the Closing, (c) any Liability of the Company for unpaid Taxes for
the Company's fiscal year ending December 31, 1997, and for periods prior to the
Closing which were not due and payable prior to Closing, (d) any Liability or
obligation under any insurance policy, health or medical or life insurance plan
of the Company in effect as of the Closing Date, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such indemnification is
pursuant to any statute, charter documents, bylaw, agreement, or otherwise, any
Liability of the Company for costs and expenses incurred in connection with the
Agreement and the transactions contemplated hereby, any Liability
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or obligation of the Company under this Agreement, any Liability or obligation
of the Company, the Employee Benefit Plan, any Liability resulting from any
breach of contract, breach of warranty, tort infringement or violation of law.
"Liability" means any liability (whether known or unknown, whether asserted
or un-asserted, whether absolute or contingent, whether accrued or un-accrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Manchester Options" means the options to acquire shares of Manchester
delivered to Sellers in accordance with the employment agreements substantially
in the form annexed hereto.
"Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Non Contingent Price" has the meaning set forth in Paragraph "SECOND" (A)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency), excluded therefrom is the transaction contemplated by the within
Agreement.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Pre-Tax Profit" shall be that meaning as set forth in and by the
"Employment Agreement" Paragraph "SEVENTH", which is annexed hereto as an
Exhibit hereof.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"Purchase Price" has the meaning set forth in Paragraph "SECOND" below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
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"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, material men's and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax or any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any Schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Paragraph "EIGHTH" (d)
below.
FIRST: SALE OF STOCK- The Sellers agree to sell, transfer and assign one
hundred (100%) percent of the issued outstanding capital stock of the Company;
to wit: One Thousand (1,000) shares, pursuant to the terms and conditions
hereinafter set forth.
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SECOND: PURCHASE PRICE- The Purchaser agrees to buy all of the issued and
outstanding shares of the capital stock of Seller constituting one hundred
(100%) percent of all the issued and outstanding stock in the Company, for a
price of $4,661,524.60 subject to the conditions for "Contingent Payments" in
favor of the Sellers or Purchaser respectively in accordance with the following
terms and conditions except as modified by Paragraph "NINTH" of that certain
"Employment Agreement" which is an Exhibit hereto:
A) NON-CONTINGENT PAYMENTS:
1) $3,061,563.70 in cash payable by wire transfer, pursuant to Seller's
written instructions effected on January 5, 1998.
B) CONTINGENT PAYMENTS:
1) $800,000.00 in cash due and payable in a lump sum on or
before March 15, 1999, contingent upon the Company achieving FYE98 projections
of $10 Million gross in revenues and $1.3 Million in pre-tax profits ("the FYE
98 projections").
2) $800,000.00 in cash due and payable in a lump sum on or
before March 15, 2000, contingent upon the Company achieving FYE99 projections
of $11.7 Million in gross revenues and $1.5 Million in pre-tax profits ("the FYE
99 projections").
3) The contingent payments due and payable on March 15, 1999
and March 15, 2000 will be subject to the following conditions:
a) i. The contingent payment for fiscal year 1998 will be made in full if
the gross revenue and pretax profit for fiscal year 1998 meet or exceed the FYE
98 projections.
ii. The contingent payment for fiscal year 1999 will be made in full
if the gross revenue and pretax profit for fiscal year 1999 meet
or exceed the FYE 99 projections.
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b) i. The contingent payment for fiscal year 1998 will be reduced by
forty (40%) percent in the event gross revenue or pretax profit for the fiscal
year 1998 is between ninety (90%) percent and ninety-nine and 9/10 (99.9%)
percent of the FYE 98 projections.
ii. The contingent payment for fiscal year 1999 will be reduced
by forty (40%) percent in the event gross revenue or pretax profit for the
fiscal year 1999 is between ninety (90%) percent and ninety-nine and 9/10
(99.9%) percent of the FYE 99 projections.
c) i. The contingent payment for fiscal year 1998 will be reduced
by sixty (60%) percent in the event gross revenue or pretax profit for the
fiscal year 1998 is between eighty-five (85%) percent and eighty-nine and 9/10
(89.9%) percent of the FYE 98 projections.
ii. The contingent payment for fiscal year 1999 will be reduced
by sixty (60%) percent in the event gross revenue or pretax profit for the
fiscal year 1999 is between eighty-five (85%) percent and eighty-nine and 9/10
(89.9%) percent of the FYE 99 projections.
d) i. No contingent payment for fiscal year 1998 will be made in
the event gross revenue or pretax profit for the fiscal year 1998 is less than
eighty-five (85%) percent of the FYE 98 projections.
ii. No contingent payment for fiscal year 1999 will be made in
the event gross revenue or pretax profit for the fiscal year 1999 is less than
eighty-five (85%) percent of the FYE 99 projections.
e) i. An additional cash payment of $250,000.00 will be due and
payable on March 15, 1999 for fiscal year 1998, in the event that gross revenue
and pretax profits for fiscal year 1998 exceeds the FYE 98 projections by ten
(10%) percent or more.
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ii. An additional cash payment of $250,000.00 will be due on
March 15, 2000 for fiscal year 1999, in the event gross revenue and pretax
profits for fiscal year 1999 exceeds the FYE 99 projections by ten (10%) percent
or more.
C) Purchaser may, at Purchaser's sole option substitute an equivalent
amount of Manchester registered stock for the contingent cash payments due on
March 15, 1999 and March 15, 2000, provided that the price of Manchester stock
is at least Five and 00/100 ($5.00) Dollars, per share on the date the
contingent payment is due. Any stock substituted for the contingent cash
payments will be restricted in the respect that it will not be able to be
redeemed until six (6) months after the date of issue. The date of issue of any
stock substituted for a contingent cash payment will be the date on which the
pertinent contingent cash payment was due.
D) The Company shall cause a statement showing a detailed calculation
of Gross Revenue and Pre-Tax Profit to be delivered to Sellers not later than
(i) March 15, 1999, in case of fiscal year 1998, (ii) March 15, 2000, in case of
fiscal year 1999, and (iii) March 15, 2001, in case of fiscal year 2000 (the
"Performance Statement"). Concurrent with the delivery of the Performance
Statement, the Treasurer shall certify to Seller that the Performance Statement
was calculated in accordance with the provisions of the within Agreement.
Seller shall have reasonable access to all personnel of the
Company and shall have the right to review all books, accounting records and
other materials of the Company relevant to the preparation of the 1998, 1999 and
2000 Performance Statements. In addition, the Company shall use reasonable
efforts to cause Seller to have reasonable access to all materials and personnel
of the Company involved in the preparation of such Performance Statements and to
be permitted to review the Treasurer's work papers regarding same.
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In the event the Seller disagrees in any respect with the 1998
or 1999 Performance Statement, the Seller shall deliver to the Company, within
fifteen (15) days after the delivery by the Treasurer of such Performance
Statement to the Seller, a written notice specifying the matters to which it
objects. The Company and the Seller thereafter endeavor in good faith to resolve
any disagreement or dispute concerning the Performance Statement. In the event
the parties are able to resolve any such disagreement or dispute, they shall
promptly execute a document which sets forth the resolution of the disagreement
or dispute.
In the event the Company and the Sellers are unable to resolve
a disagreement or dispute concerning a Performance Statement within ten (10)
business days, the disagreement or dispute shall be submitted to a nationally
recognized firm of independent accountants (who shall not be the Purchaser's
duly appointed Auditors to be chosen by the Company and the Sellers; provided,
that if the parties are unable to agree on such accountants within fourteen (14)
days of the end of the ten (10) business day period, then the parties will,
within seven (7) days of the end of the fourteen (14) day period, jointly
request that the President of the American Arbitration Association select an
accountant with a nationally recognized accounting firm who shall not be the
Purchaser's duly appointed Auditors. Upon delivery of a written statement
setting forth the accountant's determination regarding the disagreement or
dispute, and the effect of such conclusion on the Performance Statement, such
determination shall be final and binding upon the Company and the Seller without
any further right of appeal.
The accountant selected to resolve a disagreement or dispute
concerning a Performance Statement shall have reasonable access to all personnel
of the Company and shall have the right to review all books, accounting records
and other materials pertaining to the relevant Performance Statement that the
accountant shall request.
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Fees and expenses of the accountant selected to resolve any
disagreement or dispute concerning a Performance Statement (a) shall be paid by
the Seller if, notwithstanding any modifications made to the Performance
Statement by the accountant, the Seller is not entitled to receive any greater
amount than he would have received if such disagreement or dispute had not been
submitted to the accountant, and (b) shall be paid by the Company, if as a
result of modifications made to the Performance Statement by the accountant, the
Seller is entitled to a greater amount than he would have received if the
disagreement or dispute had not been submitted to the accountant.
All sums due the Seller, after the resolution of any
disagreement or dispute concerning a Performance Statement, shall be paid to the
Seller within five (5) days of the date following which the Performance
Statement is deemed final and shall bear interest from and after the original
date due, as provided elsewhere in the within Agreement, until the date paid in
full at a rate which is equal to the prime rate announced by The Bank of New
York. THIRD: Closing - The Closing shall take place at the offices of Kressel,
Rothlein & Roth, Esqs., 684 Broadway, Massapequa, New York 11758, Attorneys for
the Purchaser, on or about January 2, 1998 with an effective date of January 1,
1998.
A) At the Closing, the Seller shall deliver to the Purchaser:
1. Certificate -
A certificate or certification dated the Closing date, signed by the
Secretary of the Company setting forth:
(a) The authorized, outstanding and unissued capital stock of the Company;
(b) The names and addresses of the holders (of record and beneficially) of
such authorized and outstanding stock, and the number of shares owned by each;
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(c) The names and addresses of all directors and officers of the Company;
and
(d) The names of the officers authorized to execute and deliver the
documents and related instruments deliverable hereunder.
2. Stock Certificates-
Certificates for the Seller's stock, duly endorsed and with all necessary
documentary transfer tax stamps affixed and canceled. The Company shall
thereupon issue new certificates representing shares to be delivered to
Purchaser.
3. Corporate Records-
The complete and correct corporate minute books, Certificate of
Incorporation, By-Laws, stock certificates and stock transfer records of the
Company, and a current Certificate of Good Standing issued by the State of
Incorporation, with an accompanying certification from the secretary of the
Company attesting to said records being correct.
4. Resignations-
The written resignations of the Sellers as officers of the Company,
effective upon consummation of the Closing.
5. Contracts-
Originals of any and all written Contracts entered into by the Company,
which are presently in effect. For purposes of this provision the term
"Contracts" shall include any and all agreements between the company and any
other person or entity involving a consideration paid or to be paid by either
such party in excess of $10,000.00 in value.
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6. Creditors-
A Schedule of all accounts payable by the Company as of the date of Closing
which have accrued or been amended subsequent to the within agreement.
7. Indemnifications-
At Closing Seller will deliver indemnifications in the form set forth
annexed hereto.
8. Schedule of Assets and Liabilities-
A Schedule of any and all assets and liabilities as of the date of Closing.
9. General Releases-
a) The Selling shareholders shall deliver releases to the Company in the
form annexed.
b) The Release from the Broker in the form annexed.
10. A lease from BC and HC Properties, LLC to the Company in the form annexed.
B) At the Closing the Purchaser shall deliver the following:
1) An Indemnity Agreement in the form annexed.
2) Copy of a letter of direction to the Purchaser's transfer
agent as to grant of restricted shares as required under the Employment
Agreements referred to in Paragraph "FOURTH".
3) Certificate of Resolution of the Board of Directors
authorizing the within transaction.
4) An "Incentive Stock Option Agreement" as required under the
"Employment Agreement" referred to in Paragraph "FOURTH".
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C) On or before January 5, 1998:
1) Appropriate wire transfers totaling Three Million Sixty-one
Thousand Five Hundred Sixty-three and 70/100 ($3,061,563.70) Dollars as per
Paragraph "SECOND" A) 1).
FOURTH: EMPLOYMENT AGREEMENT- Each of the selling
Shareholders and Coastal, simultaneously with the Closing, shall enter into an
Employment Agreement in the forms annexed hereto.
FIFTH: BOOKS AND RECORDS- All of the books and records,
including but not limited to journals and work sheets, tax returns, bank
statements, accountant's records, daily diaries, contracts and other materials
used for the operation of the Company shall remain intact at the Company, and
shall not be removed from the Company offices without the permission of the
Purchaser, except to the extent that same were delivered at Closing.
SIXTH: SELLERS AGREEMENT TO PAY BROKER - Each of the Parties hereto
represents and warrants that it has not employed any broker or finder in
connection with this Agreement, or the transaction contemplated hereby, other
than D.B. Riley & Associates, Inc. and agrees to indemnify the other Party and
hold it harmless from any and all liabilities (including, but not limited to,
reasonable Attorneys fees and disbursements and Court costs paid or incurred in
connection with any such liabilities) for brokerage commissions or finder's fees
in connection with this Agreement asserted by any other party based upon
arrangements or agreements made or claimed to have been made by or in behalf of
such indemnifying party.
SEVENTH: A. Pre-Closing Obligations-
Parties hereby acknowledge and agree that the following has occurred
prior to or contemporaneous with the Closing:
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1.1 Seller, Shareholder and Company has afforded to the Attorneys and other
authorized representatives, free and full access during regular business hours,
to the books, records, personnel and properties of the Company.
1.2 Purchaser has had the right to make copies of the general
ledger, general journal, cash receipts and disbursements books, purchase book,
accounts receivable and accounts payable records, payroll records, canceled
checks, bank statements and copies of all city, state and federal tax returns
filed by the Company.
1.3 The Company's business was conducted only in the ordinary course.
1.4 The Company has maintained in force its insurance policies
currently in effect as of the date hereof, except to the extent that they may be
replaced with equivalent policies at lower rates approved by the Seller. If in
the Purchaser's opinion, additional coverage is reasonably necessary to keep
adequately insured all properties of the Company, Seller shall cause the
Company, at the written request of the Purchaser, and at the Company's expense,
to obtain such additional insurance from financially sound and reputable
insurers for a period ending no sooner than the close of business on the Closing
date.
1.5 Without the prior written consent of the Purchaser, no change has been
made in the Certificate of Incorporation or By-Laws of the Company.
1.6 No Change has been made in the Company's authorized, issued
and outstanding capital stock, and no options, warrants, rights or calls have
been granted with respect to any shares of such capital stock.
1.7 No dividend or other distribution or payment has been declared or made
in respect of any shares of the Company's stock.
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1.8 No contract, commitment, or other business transaction has been entered
into or terminated by the Company without Purchaser's prior written approval,
except such as are in the ordinary course of business.
1.9 Except as expressly provided herein, the Company has not (i) mortgaged,
pledged or subjected to lien or any other encumbrance any of its assets,
tangible or intangible; (ii) sold or transferred any fixed assets; (iii)
canceled any debts or claims except in each case in the ordinary course of
business, or (iv) sold, assigned or transferred any patents, trademarks, trade
names, copyrights, licenses or other intangible assets.
1.10 The Company has not increased compensation to be paid or become
payable to any officer, director, employee or agent (except regular or periodic
increases), nor enter into any purchase or sales Contract except in the regular
course of business, or made any material change in sales, marketing, pricing or
distribution policies.
1.11 The Company has maintained its business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers, and
employees.
B) Post-Closing Covenants-
The Parties agree as follows with respect to the period following the
Closing:
(a) General: In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other Party
reasonably may request, all at the sole cost and expense of the
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requesting Party (unless the requesting Party is entitled to indemnification
therefore pursuant to the Indemnity Agreement annexed hereto.
(b) Litigation Support: In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or between any other agreement
collateral hereto, (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing Date involving the business of the
Company as conducted prior to the Closing Date, the other Party will cooperate
with the contesting or defending Party and its counsel in the contest or
defense, make available its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under an indemnity agreement annexed hereto.
EIGHTH: Representations and Warranties- Sellers and Company hereby
covenant, represent and warrant to the Purchaser that the statements contained
in this Paragraph "EIGHTH" are true and correct , both as of the date hereof and
as of the Closing date,( as though made then and as though the Closing Date were
substituted for the date of this Agreement) as follows:
1. Corporate Matters
(a) Valid Corporate Existence- The Company is a Corporation duly
organized and validly existing and in good standing under the laws of the
State of Maryland.
(b) Authority- The Company has all requisite corporate power and
authority to own its assets and properties, and to carry on its business as
now conducted. Sellers have the power and authority to enter into this
Agreement, and to carry out the transactions
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contemplated hereby, including, without limitation, the authority to transfer
the Company's stock as herein provided.
(c) Capitalization; Stockholders of the Company- The Company has the number
of shares of authorized, issued and outstanding shares of capital stock as set
forth below:
1500 authorized,
1000 issued.
Sellers are the owners beneficially and of record of one hundred (100%)
percent of all issued and outstanding capital stock of the Company. There are no
outstanding options, Contracts, calls, demands, commitments, stock restriction
agreements or encumbrances of any character relating to its capital stock in
said Company, and no securities of the Company outstanding which by their terms
are convertible into capital stock. With the exception of a suit against the
Company by "Offit & Kurman, PA" (Case Number 03-C-97-010683), that there are no
actions, litigations, judgments or executions now in force or pending against
the Sellers or the Company, nor have any petitions in bankruptcy or arrangements
been filed by or against the Sellers or the Company. That the sale of said stock
does not render the Seller insolvent. That the schedules of assets and
liabilities are true and complete representations of the liabilities and assets
of the Company.
(d) Subsidiaries- The Company does not own any capital stock or any other
interest in any other business entity, whether incorporated or unincorporated.
(e) Enforceability- This Agreement constitutes a binding and enforceable
agreement of both parties.
(f) Actions, Claims, etc.- With the exception of a suit against the Company
by "Offit & Kurman, PA" (Case Number 03-C-97-010683), there are no claims,
suits,
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proceedings or investigations, governmental or private, pending or, so far as is
known to Seller, threatened, nor any order, injunction or decree outstanding,
against or relating to the Company or its property, assets or business. Seller
does not know or have any reasonable grounds to know of any basis for any such
claims, actions, suits, proceedings, investigations or orders, injunctions or
decrees; and Seller is not knowingly in violation of any applicable law,
regulation or ordinance and is not knowingly or otherwise in violation of any
order, injunction or decree, or any other requirement of any governmental body
or Court, relating to its property or business.
(g) Collective Bargaining- Except as set forth in and by the Schedule of
Employment Agreements annexed, the Company has no employment, union
or collective bargaining agreements.
(h) Miscellaneous- The Company has not (i) issued, delivered or agreed to
issue or deliver any stock, bonds or other corporate securities (whether
authorized and unissued or held in the treasury), or granted or agreed to grant
any options, warrants or other rights calling for the issue thereof; (ii)
borrowed or agreed to borrow any funds or incurred, or become subject to, any
obligation or liability (absolute or contingent) except obligations and
liabilities (other than tort liabilities) incurred in the ordinary course of
business; (iii) paid any obligation or liability (absolute or contingent) other
than current liabilities incurred in the ordinary course of business; (iv)
declared or made, or agreed to declare or make any payment of dividends or
distributions of any assets of any kind whatsoever to its stockholders, or
purchased, or agreed to purchase, any of the Company common stock; (v) except in
the ordinary course of business and as contemplated by this Agreement, sold or
transferred, or agreed to sell or transfer, any of its assets, property or
rights or canceled, or agreed to cancel, any debts or claims; (vi) except in the
ordinary course of business, entered or agreed to enter into any agreement or
arrangement granting any preferential rights to
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purchase any of the assets, property or rights of the Company or requiring the
consent of any party to the transfer and assignment of any such assets, property
or rights; (vii) suffered any losses or waived any rights of value which in the
aggregate are extraordinary or material considering the business of the Company
taken as a whole; (viii) except in the ordinary course of business, made or
permitted any amendment or termination of any Contract, agreement or license to
which it is a party if such amendment or termination is material considering the
business of the Company taken as a whole; (ix) except in accordance with its
normal and usual practice and except for the obligation to Helene Hines
designated as and for a "consulting fee" in and by a certain Settlement
Agreement made May 14, 1997 between one Helene Hines and the Sellers and the
Company, made any accrual or arrangement for or payment of bonuses or special
compensation of any kind or any severance or termination pay to any present or
former officer of employee; and (x) except in accordance with its normal and
usual practice, increased the salary of any officer or employee.
(i) Title to Assets- Except to the extent inventory may be subject to
security interests of Deutsche Financial Corp. and/or Apple Computer, Inc., and
except to the extent that a security interest is noted upon any Certificate of
Title to a vehicle owned by the Company, the Company has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
them, located on their premises, or shown on the most recent financial
statements or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the most recent balance sheet. Without limiting
the generality of the foregoing, the Company has good and marketable title to
all of the Assets, free and clear of any Security Interest or restriction on
transfer.
(j) Financial Statements- Attached hereto as Exhibit "A" are the unaudited
balance sheets and statements of income and cash flow as of and for the period
from
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January 1, 1997 to November 30, 1997 , collectively, the "1997 Financial
Statements". The 1997 Financial Statements (including the Notes thereto, if any)
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial condition
of the Company as of such dates and the results of operations of the Company for
such periods, are correct and complete, and are consistent with the books and
records of the Company (which books and records are correct and complete);
PROVIDED, HOWEVER, that the 1997 Financial Statements are subject to normal
year-end adjustments (which will not be material individually or in the
aggregate).
(k) Events Subsequent to November 30, 1997 Financial Statements- Since the
November 30, 1997 Financial Statements, there has not been any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of the Company. Without limiting the generality of the
foregoing, since that date:
(i) The Company has not sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) The Company has not entered into any agreement, contract,
lease, or license (or series of related agreements,
contracts, leases, and licenses) or other than in the
Ordinary Course of Business;
(iii) No party has accelerated, terminated, modified, or canceled
any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses)
involving more than $10,000.00 to which the Company is a
party or is bound;
(iv) Other than increases in credit extensions under existing
agreements with Apple Computer, Inc. and Deutsche Financial
Services Corp. which the Company
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may have incurred in the usual course of business, the
Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) The Company has not made any capital expenditure (or series
of related capital expenditures) either involving more than
$2,500.00, or other than in the Ordinary Course of Business;
(vi) The Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease
obligation either involving more than $10,000.00 singly or
$50,000.00, in the aggregate;
(vii) Except as otherwise agreed to by the Purchaser, the Company
has not delayed or postponed the payment of accounts payable
and other Liabilities other than in the Ordinary Course of
Business;
(viii) The Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights,
and claims) other than in the Ordinary Course of Business;
(ix) The Company has not granted any license or sub-license of
any rights under or with respect to any Intellectual
Property;
(x) Except for the stock held by the Sellers, the Company has
not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
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(xi) The Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock;
(xii)The Company has not experienced any material damage,
destruction, or loss (whether or not covered by insurance)
to its property;
(xiii) The Company has not made any loan to, or entered into any
other transaction with, any of the directors, officers, and
employees of the Company other than in the Ordinary Course
of Business;
(xiv)The Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or
modified the terms of any existing employment contract or
collective bargaining agreement;
(xv) The Company has not granted any increase in the base
compensation of any of its directors, officers, and other
than in the Ordinary Course of Business;
(xvi) The Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance,
or other plan, contract, or commitment for the benefit of
any of the directors, officers, and employees of the Company
or taken any such action with respect to the existing
Employee Benefit Plan;
(xvii) The Company has not made any other change in employment
terms for any of its directors, officers, and employees
other than in the Ordinary Course of Business; (xviii) The
Company has not made or pledged to make any charitable or
other capital contribution other than in the Ordinary Course
of Business;
(xix The Company has not paid any amount to any third party with
respect to any Liability or obligation other than in the
Ordinary Course of Business;
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(xx) There has not been any other material occurrence, event, incident,
action, failure to act, or transaction other than in the Ordinary
Course of Business involving the Company.
(l) Undisclosed Liabilities- The Company does not have any Liability (and,
to its and/or the Sellers' knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), except for
(i) Liabilities set forth on the face of the November 30, 1997 Financial
Statements (rather than in any notes thereto) (ii) Liabilities which have arisen
after the November 30, 1997 Financial Statement in the Ordinary Course of
Business (to the best of Seller's knowledge, none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law); and
(iii) that certain liability to Helene Hines designated as a consulting fee in
and by a Settlement Agreement between Helene Hines, the Company and the Sellers
dated May 14, 1997, which obligation currently does not exceed $216,666.70.
(m) Legal Compliance- To its knowledge the Company has materially complied
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or, to its and/or the Sellers' knowledge,
commenced against any of them alleging any failure so to comply except where
failure to comply would not have any material adverse effect upon the Company or
its business.
(n) Tax Matters-
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(i) The Company has filed all Tax Returns that it was required to file
prior to the Closing Date. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any Tax Return)
have been paid. The Company currently is not the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There are no Security
Interests affecting any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax;
(ii) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party;
(iii) Neither the Company nor any director nor officer (or employee
responsible for Tax matters) expects any authority to assess any additional
Taxes with respect to the Company for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of the Company
either (A) claimed or raised by any authority in writing or (B) as to which any
directors and officers (and employees responsible for Tax matters) of the
Company;
(iv) The Company has not waived any statute of limitations in as to
liabilities or Taxes of any nature or agreed to any extension of time with
respect to any liabilities or Tax assessments or deficiencies;
(v) The Company has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations. The Company has not been a United States real property
holding corporation within the meaning of Code Sec. 897(c)(2) during the
applicable period specified in Code
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Sec. 987 (c)(1)(A)(ii). The Company has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return or (B) has any Liability for the
Taxes of any Person under any provision of federal, state, local, or foreign
law), as a transferee or successor by contract, or otherwise.
(o) Real Property- The Company does not own any real property. The Sellers
are presently the sole members of BC and HC Properties, LLC. That BC and HC
Properties, LLC is the owner in fee of the premises to be demised to the Company
pursuant to the lease annexed. That upon execution of the Lease by BC and HC
Properties, LLC as Landlord and the Company as Tenant, such Lease will establish
a valid leasehold interest as represented and described therein.
(p) Intellectual Property-
(i) The Company owns or has the right to use pursuant to
license, sub-licenses, agreement, or permission all Intellectual Property
necessary for the operation of its businesses as presently conducted. Each item
of Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company subsequent
to the Closing hereunder;
(ii) To the best of the Seller's knowledge, the Company has
not interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and neither the
Company nor its directors and officers (any employees with responsibility for
Intellectual Property matters) has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party), to the knowledge of the Sellers and the knowledge of the Company and its
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directors and officers (any employees with responsibility for Intellectual
Property matters), no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of the Company.
(q) Tangible Assets- The Company owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of their
businesses as presently conducted. To the Seller's knowledge, each such tangible
asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
(r) Inventory- The inventory of the Company consists of manufactured and
purchased parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured, and none of
which is slow-moving, obsolete, damaged, or defective.
(s) Contracts- The Schedule of Contracts as annexed hereto, lists all
contracts and other agreements to which the Company is a party, including but
not limited to:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any person providing for lease
payments;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw material, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of
services;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any
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capitalized lease obligation, or under which it has imposed a Security
Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or non-competition;
(vi) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other material plan or
arrangement for the benefit of the current or former directors,
officers, and employees;
(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a full- time,
part-time, consulting, or other basis;
(ix) any agreement under which it has advanced or loaned any amount to any
of the directors, officers, and employees other than in the Ordinary
Course of Business;
(x) any agreement under which the consequences of a default or termination
could have an effect on the business, financial condition, operations,
results of operations, or future prospects of the Company; or
(xi) any other agreement.
The Company has delivered to Manchester a correct and complete copy of
each written agreement listed in Schedule of Contracts (as amended to date).
With respect to each such agreement; (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby subject
to the right of any third party to consent to such assignment; (C) to its
knowledge, no party is in breach or default; and no event has occurred which
with notice or lapse of time would constitute a breach or
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<PAGE>
default, or permit termination, modification, or acceleration, under the
agreement; and (D) to its knowledge, no party has repudiated any provision of
the Agreement.
(t) Notes and Accounts Receivable- All notes and accounts receivable
of the Company are reflected properly on the Company's books and records, are
valid receivables subject to no set offs or counterclaims, are current or
collectible, and will be collected in accordance with their terms at their
recorded amounts, as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Company.
(u) Powers of Attorney- There are no outstanding Powers of Attorney
executed on behalf of the Company.
(v) Insurance- The Schedule of Insurance Agreements annexed sets
forth each insurance policy (including policies providing life (key man policies
on Sellers lives), property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Company is currently a
party, a named insured, or otherwise the beneficiary of coverage:
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the Company is
not in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (C) no party to the policy
has repudiated any provision thereof.
(w) Product Warranty- Each product manufactured, sold, leased, or delivered
by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company to the best
of Seller's knowledge, has no liability (and there is no basis for any present
or future action, suit, proceeding, hearing, investigation, charge,
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<PAGE>
complaint, claim, or demand against any of them giving rise to any liability)
for replacement or repair thereof or other damages in connection therewith as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice. No product manufactured, sold, leased, or delivered by
the Company is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease.
(x) Product Liability- To the best of Seller's knowledge, the Company
has no liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use by it.
(y) Employees- To the best of the Seller's Knowledge no executive, key
employee, or group of employees of the Company has any plans to terminate
employment. The Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices, or other collective bargaining disputes.
(z) Employee Benefits-
(i) Each such Employee Benefit Plan (and each related trust, insurance
contract, or fund) complies in form and in operation in all respects with
the applicable requirements of ERISA, the Code, and other applicable laws.
(ii) To the best of Seller's knowledge, each such Employee Benefit
Plan which is an Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under Code Sec. 401(a).
(iii) The Company has delivered to the Purchaser correct and complete
copies of the plan documents and summary plan descriptions.
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<PAGE>
(iv) The Company does not currently maintain, has never maintained, and has
no liability with respect to any Multi-employer Plan.
(v) The Schedule of Employee Benefit Plans annexed hereto sets forth all
fringe benefits such as pension, profit sharing, medical, health or life
insurance plans provided by the Company to its employees. The Company has
delivered a copy of all such plans to Manchester prior to Closing.
(aa) Guaranties- The Company is not a guarantor or otherwise is liable for
any liability or obligation (including indebtedness) of any other person.
(bb) Environment, Health, and Safety- To the Seller's knowledge, the
Company has complied with all Environmental, Health, and Safety Laws, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply. Without limiting the generality of the preceding sentence,
the Company has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are required
under, and has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, Schedules, and timetables
which are contained in, all Environmental, Health, and Safety Laws.
(cc) Disclosure- The representations and warranties contained in this
Paragraph "EIGHTH", do not contain any untrue statement of a material fact or
omit to state any material fact.
NINTH: REPRESENTATIONS AND WARRANTIES OF MANCHESTER-
1. Manchester represents and warrants to The Company and the Sellers that
the statements contained in Paragraph "NINTH", are correct and complete as of
the date of this
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Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Paragraph "NINTH").
(a) Organization of Manchester: Manchester is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of the
State of New York.
(b) Authorization of Transaction: Manchester has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and all collateral Agreements and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of Manchester, enforceable in accordance with its terms and conditions.
(c) Non-contravention: Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Manchester is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Manchester is a party or by which it is bound or to which any of its respective
assets is subject. Manchester needs not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
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<PAGE>
TENTH: CONDITIONS TO OBLIGATIONS TO CLOSE-
A. Conditions to Obligation of Manchester- The obligation of
Purchaser to consummate the transactions to be performed by each of them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) The representations and warranties of the Sellers and the Company set
forth in Paragraph "EIGHTH" above, shall be true and correct in all material
respects at and as of the Closing Date;
(ii) The Company and the Sellers shall have performed and complied with
all of its covenants hereunder in all material respects through the Closing;
(iii) No action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of Purchaser to operate the
businesses of the Company conducted prior to the Closing, or (D) affect
adversely its right to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(iv) Manchester shall have received from counsel to the Company and the
shareholders an opinion in form and substance as annexed hereto, addressed to
Manchester and dated as of the Closing Date; and
B. Conditions to Obligation of the Shareholders- The
obligation of the Shareholders to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
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<PAGE>
(i) The representations and warranties set forth in Paragraph "NINTH"
above, shall be true and correct in all material respects at and as of the
Closing Date;
(ii) Each of Manchester and the Company shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing;
(iii) No action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation or any of the transactions contemplated by the Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment order, decree, ruling,
or charge shall be in effect);
(iv) The Shareholders shall have received from counsel to Manchester an
opinion in form and substance as annexed hereto;
(v) All actions to be taken by Manchester in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Shareholders.
ELEVENTH: TERMINATION- Intentionally Deleted
TWELFTH: MISCELLANEOUS PROVISIONS-
(a) Scope of Agreement - The Parties do not intend to confer any benefit
hereunder on any person, firm or corporation, other than the Sellers and the
Purchasers. Without limiting the generality of the foregoing, each of the
parties may, by written notice to the other and without consent of any other
person, firm or corporation (i) extend the time for performance of any of the
obligations or other acts of the other Party; (ii) waive any inaccuracies in the
representations
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<PAGE>
and warranties of the other party contained in this Agreement; (iii) waive
compliance with any of the covenants of the other party contained in this
Agreement; or (iv) waive performance of any of the obligations under this
Agreement by the other party.
(b) Binding Agreement - This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
(c) Exhibits - All Exhibits, Schedules and Appendices annexed hereto and
the documents and instruments delivered simultaneously herewith and at the
Closing are expressly made a part of this Agreement as fully as though
completely set forth herein, and all references to this Agreement herein or in
any of such writings, shall be deemed to refer to and include all such writings.
(d) Entire Agreement, etc. - This Agreement constitutes the entire
understanding between the parties pertaining to the subject matter hereof. No
interpretation, change, termination or waiver of any of the provisions hereof
shall be binding upon either party unless in writing. No waiver by either party
of any provision of or default under this Agreement shall affect the right of
such party thereafter to enforce said provision or any other provision hereof,
or to exercise any right or remedy in the event of any other default, whether or
not similar. The invalidity of any provision hereof shall not affect the
validity of any other such provision.
(e) Further Instruments - On and after the Closing date, upon the request
of either party, the other party shall do all such further acts, and shall
execute, acknowledge and deliver all such further instruments and documents, as
may reasonably be necessary, desirable or appropriate to carry out the
transactions contemplated by this Agreement, all of such documents to be
reasonably satisfactory to such other Party's Counsel in form and content.
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<PAGE>
(f) Survival of Representations, etc. - Except as may otherwise be agreed
to, the parties agree that all of the representations, warranties, covenants,
agreements and undertakings contained in this Agreement shall survive Closing.
(g) Applicable Law - This Agreement and all the agreements annexed hereto
as exhibits shall be governed by and construed in accordance with the laws of
the State of New York.
(h) Venue - The venue of any action commenced by any party to this
agreement or any agreement annexed hereto as an exhibit shall be in the Supreme
Court of the State of New York a court with subject matter jurisdiction in the
County of Suffolk, State of New York. For purposes hereof, this agreement and
all agreements annexed hereto shall be deemed to have been entered into within
the County of Suffolk, State of New York.
(i) Paragraph Headings - Paragraph headings have been inserted herein for
convenience only, and do not form a part of the Agreement.
(j) Counterparts - This Agreement may be executed in any number of separate
counterparts, each of which shall be deemed to be an original and which together
shall constitute one and the same instrument.
(k) Notices - Any payment, notices, request, instructions, consent or other
documents to be given hereunder shall be in writing and delivered personally or
sent by certified or registered mail, postage prepaid as follows:
If to the Purchaser, addressed to:
Manchester Equipment Co., Inc.
160 Oser Avenue
Hauppauge, New York 11788
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<PAGE>
with a copy thereof addressed to:
David I. Roth, Esq.
Kressel, Rothlein & Roth, Esqs.
684 Broadway
Massapequa, New York 11758
If to the Sellers, addressed to:
Bruce and Harold Clasing
3832 Falls Road
Baltimore, Maryland 21211
with a copy thereof addressed to:
Frank Kollman, Esq.
Kollman and Sheehan, P.A.
Sun Life Building
20 South Charles Street
Baltimore, Maryland 21201-3223
Att: Clifford B. Geiger
Either party may change the persons and addresses to which any payment,
notice, request, instruction, consent or other document is to be sent to it by
giving written notice of any such change to the other party in the manner
provided for herein for giving notice. Any payment, notice, request,
instruction, consent or other document mailed hereunder shall be deemed to have
been received when mailed.
(l) Prior Agreements - The parties agree that all prior agreements between
the parties, whether oral or written, are herewith made null and void and of no
effect, legal or equitable.
(m) Press Releases and Public Announcements - No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by
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<PAGE>
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use
reasonable best efforts to advise the other party prior to making the
disclosure).
(n) Amendments and Waivers - No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Purchaser, the Sellers and the Company: No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(o) Severability - Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term of provision in any other
situation or in any other jurisdiction.
(p) Expenses - Each Party will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(q) Construction - The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
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<PAGE>
Schedules annexed to this Agreement shall be deemed adequate to disclose an
exception to a representation or warranty made herein unless such Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance.
(r) Specific Performance - Each of the Parties acknowledges and agrees that
the other Party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any Court of the
United States or any State hereof having jurisdiction over the Parties and the
matter (subject to the provisions set forth in Paragraph "TWELFTH" (s) below),
in addition to any other remedy to which it may be entitled, at law or in
equity.
(s) Submission to Jurisdiction - Each of the Parties submits to the
jurisdiction of the Supreme Court of the State of New York situated within the
County of Suffolk in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such Court provided that service of process is
effected in accordance with the rules of such court. Each Party also agrees not
to bring any action or proceeding arising out of or relating to this Agreement
in any other Court provided, however, that any dispute related to the
determination of gross revenues and/or pretax profits be determined in
accordance with the provisions of Paragraph "SECOND" C) herein. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any
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<PAGE>
other Party with respect thereto. Each Party agrees that a final Judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the Judgment or in any other manner provided by law or in equity.
IN WITNESS WHEREOF, the Company and the Purchasers have
executed this Agreement by its authorized officers and the Sellers have caused
their individual signatures to be affixed hereto on the day and year first above
written. In the Presence Of:
Bruce C. Clasing
Harold B. Clasing
Manchester Equipment Co., Inc.
By:
Barry R. Steinberg, CEO
Coastal Office Products, Inc.
By:
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