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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-62021
HOME INTERIORS & GIFTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-0981828
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4055 VALLEY VIEW LANE
DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (972) 386-1000
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The common stock of the registrant is not publicly registered or traded
and, therefore, no market value, whether held by affiliates or non-affiliates,
can readily be ascertained.
As of March 13, 2000, 15,240,218 shares of the Company's common stock, par
value $0.10 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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PART I
ITEM 1. BUSINESS.
GENERAL
Founded in 1957, Home Interiors & Gifts, Inc., a Dallas based Texas
corporation (the "Company"), believes it is the largest direct seller of home
decorative accessories in the United States, as measured by sales. The Company's
products include framed artwork and mirrors, candles and candle holders,
plaques, figurines, planters, artificial floral displays, wall shelves and
sconces (the "Products"). The Company sells the Products to non-employee,
independent contractor sales representatives ("Displayers") who resell the
Products using the "party-plan" method to conduct in-home gatherings or shows
("Shows") for potential customers. The Company believes that in-home Shows
provide a comfortable environment where the unique benefits and attributes of
the Company's Products can be demonstrated in a more effective manner than in
the typical retail setting. As of December 31, 1999, the Company sold its
Products to approximately 68,300 active Displayers located in the United States;
the Company is also represented in Mexico and Puerto Rico.
The Company purchases Products from a select number of independent
suppliers and from its subsidiaries. Approximately 27% of the dollar volume of
Products purchased by the Company in 1999 were purchased from, and manufactured
by, the Company's subsidiaries. The Company's subsidiaries sell substantially
all of their products to the Company. The following is a brief description of
the Company's subsidiaries, each of which is wholly-owned, except as indicated:
- Dallas Woodcraft, Inc. ("DWC"), which manufactures framed artwork and
mirrors using custom-designed equipment.
- GIA, Inc. ("GIA") and Homco, Inc. ("Homco"), which manufacture various
types of molded plastic products using custom-designed equipment. On
February 1, 2000, the Company announced that it had consolidated its two
separate injection molding facilities into a single facility at GIA in
Grand Island, Nebraska.
- Laredo Candle Company L.L.P. ("Laredo Candle"), which is owned 60% by the
Company, recently was established and began manufacturing candles in late
1999.
- Subsidiaries of the Company in Mexico and Puerto Rico provide sales
support services to the international Displayers.
Since its inception, the Company has sold a coordinated line of Products to
Displayers, a group of independent and self-confident women who operate their
own businesses by purchasing the Products from the Company and reselling them to
customers. The Company continues to stress the importance and dignity of women,
a philosophy adopted by its founder, Mary Crowley. This philosophy remains
deeply imbedded in the Company's training, recruiting, motivation and selling
strategies. The Company believes that this philosophy has contributed to its
ability to attract and to retain loyal Displayers and to distinguish its
products in the marketplace. The Company also believes that by providing
Displayers with the appropriate support and encouragement, Displayers can
achieve personally satisfying and financially rewarding careers through
enhancing the home environments of their customers.
PRODUCTS
Product Line. The Company's product line consists of approximately 1,000
items. The best selling Products include framed artwork and mirrors, candles and
candle holders, plaques, figurines, sconces and artificial floral displays. Most
of the Products are designed for display and sale in coordinated decorative
groupings, which encourages customers to purchase several accessories to achieve
a "complete" look. In general, the Products fit within design categories favored
by Displayers and their customers, such as Americana, Romancing the Home,
Timeless Traditions and New Horizons. The Company has expanded its Product
offerings in 2000 to provide a broader assortment, which offers consumers a
comprehensive and coordinated system for decorating and which appeals to larger
segments of the population, particularly a
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younger consumer base. The Company has expanded its styles to include
Contemporary and Ethnic Products. The Company also offers a limited selection of
seasonal Products for holiday decorating.
Prices. Products are targeted to individuals who are interested in
decorating their homes, but have a limited budget. Products primarily are sold
throughout the continental United States at suggested retail prices generally
below $100 per item, with most Products ranging in price from $7 to $30 per
item. Although Displayers may sell the Products at any price, the Company
believes that most Displayers charge the Company's suggested retail prices. The
Company believes that the suggested retail prices for the Products are lower
than the prices of products of similar quality and design available from other
sources, thereby offering the Displayers' customers excellent value. In
addition, unlike many other direct sales organizations, which the Company
believes charge their field agents shipping costs, the Company delivers its
Products to the Displayers free of shipping charges if minimum order sizes are
met.
Product Design and Introduction Process. Because the Company believes that
it is important to its success to develop and to introduce new Products that
anticipate and reflect changing consumer preferences, the Company's merchandise
department regularly coordinates new Product introductions. Members of the
merchandise department attend furniture and home-furnishings trade markets,
frequently meet with Displayers and suppliers, and assemble information from
retail stores and retail research sources to determine consumer buying trends.
This market research enables the Company's marketing professionals to analyze
the marketability of existing Products and to identify and design new Products.
Products are frequently evaluated to determine whether they should be modified
or removed from the product line. The Company annually tests proposed or
prototype items with selected Displayers. The tests include a determination of
whether the proposed suggested retail prices are attractive. Based on that
review, the Company historically has replaced approximately one third of its
Products annually with new items.
SALES METHODS AND ORGANIZATION
Displayers. The Company's marketing and sales strategy is focused on
motivating Displayers to take orders from customers, to purchase the Products
from the Company and to resell them to their customers. Because the Company does
not use mail-order catalogs, retail outlets or other methods of distribution, it
is entirely dependent on Displayers to purchase and sell the Products. No
Displayer is an employee of the Company, and, as an independent contractor, each
Displayer is responsible for operating their own business. Displayers generally
work on a part-time basis.
Displayers can profit from the difference between the purchase price of the
Products paid by them to the Company and the sales price charged by them to
their customers, which, for Displayers who are not Directors, is their principal
source of income from the Company. If Displayers sell the Products at the
Company's suggested retail prices, they generally can realize a 45% gross
profit. Displayers can also earn money and prizes based on the dollar amount of
Products they, and the Displayers they have recruited, purchase from the
Company. In addition, Displayers can benefit from periodic discounts and
incentives offered by the Company. See "Training and Sales Support."
Generally, Displayers pay for Products ordered from the Company at the time
the order is placed, although the Company typically provides each Displayer with
an unsecured line of credit of up to $4,000. The Company periodically modifies
each Displayer's credit limit based on sales volumes. In late 1999, the Company
implemented an internet order entry system ("Home Online") to simplify the
ordering process for its Displayers and also began to accept credit card
payments on Internet orders.
Displayers are contractually prohibited from marketing any goods other than
the Products at Shows at which the Company's Products will be sold. In addition,
Displayers who become qualified trainers ("Trainers") or Directors are
prohibited from working for, or selling the products of, any other direct
selling company whose products or services directly compete with the Company's.
Shows. The principal sales method used by Displayers is the "party plan,"
in which Displayers conduct Shows in the homes of individuals who, by
arrangement with the Displayers, serve as hostesses for the Shows ("Hostesses").
Each Show is attended by guests who have been invited by the Hostess for that
Show. At a
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Show, which typically lasts several hours, a Displayer will display
representative groups of Products and color brochures showing the Company's new
products and/or entire product line. Initially, the Displayer demonstrates the
Products, but most of the Show time is devoted to discussing each guest's
decorating interests or needs and to taking orders for Products. Typically,
Products are paid for at the time they are ordered and are delivered to the
Hostess by the Displayer within two weeks after the Show. The Company believes
that Shows create group enthusiasm for the Products, enable Displayers to
increase sales, offer the opportunity for Displayers to develop new customers
and provide Displayers the opportunity to recruit new Hostesses and Displayers.
Hostesses. Hostesses are critical to a Displayer's success. A Hostess is
responsible for inviting guests, or prospective customers, to a Show and later
for distributing the purchased Products to each customer. Historically, to
reward the Hostess for the Hostess' efforts, the Displayer purchased redeemable
coupons ("Hostess merits") from the Company and provided the Hostess with
Hostess merits commensurate with sales generated at the Show and with the number
of guests at the Show who agreed to become a Hostess for a future Show.
Hostesses then would redeem Hostess merits for Products from a limited
assortment, which were available exclusively to Hostesses.
Beginning in March 2000, the Company implemented a new Hostess Program
which simplifies the sales process for Displayers and Hostesses. Under the new
Hostess Program, the Company no longer sells Hostess merits. Instead, Hostesses
who meet certain sales thresholds receive Products in an amount equal to 20% of
the sales generated at the Show. The new Hostess Program enables Hostesses to
select merchandise from the entire Product Line, rather than from a limited
number of exclusive Hostess Products as was offered under the previous Hostess
Program. The Company believes that, in addition to simplifying the sales
process, the new Hostess Program will also benefit Displayers and Hostesses by
increasing the Product selection for customers. Products previously available
only to Hostesses are now available to all customers.
Product Brochures. In addition to sales generated at Shows, Displayers also
receive orders generated from Product brochures. Displayers generally mail
Product brochures to Hostesses or distribute the brochures at Shows and other
events. The Company produces both quarterly brochures containing the Company's
complete product line and supplemental monthly brochures containing the newest
and most popular Products. All brochures have a place for the Displayer to
insert personal contact information since Products cannot be purchased by
customers directly from the Company.
TRAINING AND SALES SUPPORT
Field Organization. The Company's training and sales support for Displayers
is designed to promote contact between less experienced Displayers and more
experienced or more active Displayers. The Company groups Displayers into
"Units" for training and motivational purposes. In the United States, the number
of Displayers in a Unit ranges from 26 to 190, with an average of approximately
87 Displayers per Unit. Approximately 850 Units are headed by either a "Branch
Director" or a "Unit Director" and each Unit is grouped with other Units to
constitute a "Branch." The number of Units in a Branch ranges from 4 to 23, with
an average of approximately 9 Units per Branch. As of December 31, 1999, there
were approximately 100 Branches in the United States, each of which was headed
by a Branch Director. In addition, Branches are grouped into "Districts," and 12
District Directors travel throughout the United States, Mexico and Puerto Rico
motivating, training and inspiring Branch Directors. All Directors are
independent contractors and are not employees of the Company.
Recruiting and Training. It is vital to the Company's success to
consistently recruit new Displayers since the average annual turnover of
Displayers over the last three years approximated 42%. Accordingly, the Company
provides Displayers with both additional financial rewards and the possibility
of promotions to different Director categories based upon their ability to
recruit productive Displayers. The Company's ability to recruit, train,
motivate, and retain Displayers depends upon, among other things:
- the managerial capabilities and personal charisma of the Company's senior
management;
- the Displayers' ability to earn acceptable profits;
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- the Company's ability to provide adequate and timely recruiting and
training incentives to existing Displayers;
- the introduction of new Products and marketing concepts;
- the effectiveness of the Company's new Hostess Program;
- the effectiveness of the Company's commission and incentive programs and
discounts; and
- general economic conditions.
As part of their marketing and sales activities, Displayers seek to
identify and to recruit new Displayers, typically women who previously have
attended Shows. Once a candidate is identified, a qualified person in the
recruiting Displayer's Unit typically interviews the candidate to explain the
opportunities, time commitment, start-up costs, training and other activities a
Displayer can expect to experience.
The Company revised its recruiting and training criteria in early 1999.
Among other things, the Company increased opportunities for new Displayers by
reducing initial purchase requirements and time commitments and by lowering
certain other barriers to entry. Though any Displayer can recruit an individual
to become a Displayer, only Displayers who are Trainers may train a recruit and
earn commissions on the Product sales of recruits that they have trained. To
become a Trainer, a Displayer must have demonstrated previous recruiting
success, been recommended by the Displayer's Branch Director and attended
training classes at the Company's headquarters. The Company has certified
approximately 2,500 of its Displayers as Trainers. In 1999, Trainers earned
commissions totaling $3.5 million. When the recruiting and sales volume of a
Trainer and her recruits reach certain levels, the Trainer may be permitted to
form a new Unit and become a Unit Director.
The Company believes that training is a critical component of a Displayer's
success. The Company emphasizes sales of the Products and typically requires all
recruits to participate in an intensive sales-education program. The Company
encourages Displayers to recruit new Displayers who will sell Products to
customers rather than merely purchasing items for personal consumption. In
contrast, the Company believes that many other direct selling companies
encourage recruiting of new sales people irrespective of the future sales
potential of the new recruits. The training program primarily includes
instruction by a Trainer and observing several Shows conducted by experienced
Displayers. Video tapes, audio tapes and a corresponding workbook describe the
Company, the process of contacting Hostesses and booking Shows, conducting Shows
and managing a home-based business. New Displayers also receive detailed
instructions from their Trainer about the Products, fundamental elements of home
decorating and methods for conducting successful Shows.
Continuing Training and Motivation. The Company believes that
Company-sponsored continuing training and motivation of Displayers is critical
to Displayer morale and, therefore, to the Company's sales. The Company hosts a
three-day annual seminar for all Displayers. At that seminar, the Company
provides motivational speakers, Product displays, entertainment and meals, and
conducts ceremonies to recognize the Displayer's achievements. The Company also
sponsors one-day or two-day "rallies" every August, at locations across the
United States, to introduce the Company's fall Product line, including its
seasonal Christmas merchandise.
Every two weeks, the Company mails each Displayer a newsletter that
announces new incentive programs or discounts, discusses selling techniques,
motivational strategies and Product status and recognizes successful Displayers.
Unit Directors typically hold weekly sales meetings for the Displayers in their
Unit, and Branch Directors hold quarterly meetings for their Unit Directors and
Displayers to discuss selling techniques, motivational strategies, Product
introductions and sales recognition.
Incentive Programs. In addition to the gross profit Displayers can earn
through the purchase and resale of the Products, the Company provides incentives
to Displayers by rewarding top-performing Displayers with cash, vacation trips,
gifts and other prizes. The incentive rewards, which vary annually, are based on
the volume of Products purchased from the Company by a Displayer. The Company
also provides a variety of
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discount programs in connection with Product purchases and rewards Displayers
who recruit other productive Displayers.
Remuneration. Directors can earn commissions at varying rates based on the
volume of Product purchases of the Displayers they service and are eligible for
performance bonuses. Branch and Unit Directors earned commissions, including
performance bonuses, amounting to $43.9 million in 1999. District Directors also
receive a monthly amount for each Unit they service plus an annual payment based
on the percentage of their District's annual increase in Product purchases.
District Directors earned $4.4 million in 1999. In addition, District Directors,
Branch Directors, and certain Unit Directors are reimbursed for certain travel
and other expenses. Reimbursed expenses totaled $6.3 million in 1999, including
one-time expenses of approximately $1.0 million, resulting from the
discontinuance of an expense reimbursement program for certain Unit Directors.
Beginning in January 2000, the Company implemented a reduced-expense
reimbursement program for Branch Directors.
PRODUCT SUPPLY AND MANUFACTURING
Approximately 27% of the dollar volume of Products purchased by the Company
in 1999 were purchased from, and manufactured by, the Company's subsidiaries.
The Company manufactures framed artwork and mirrors, plaques, and various types
of molded plastic products through the use of custom-designed equipment. To
date, the Company has been able to secure an adequate supply of raw materials
for its manufacturing operations from numerous sources, and the Company does not
expect any material interruptions in the supply of raw materials it uses to
manufacture Products.
Products not manufactured by the Company are purchased from numerous
foreign and domestic suppliers. During 1999, the Company increased its number of
overseas suppliers in conjunction with the expansion of its Product line,
particularly its Ethnic Products. The Company is either the largest or the only
customer of many of its suppliers, and many of its Products are manufactured
exclusively for the Company. Many of the Company's supplier relationships have
existed for more than 20 years, and the Company has experienced little supplier
turnover in the recent years. However, because the Company generally does not
enter into supply agreements with its suppliers, these relationships generally
may be terminated at any time by either party. The Company believes that its
relationships with its suppliers are good. The Company has not had any material
interruptions in the supply of Products it purchases from suppliers. Other than
Miracle Candle Company and H.T. Ardinger & Son Company, which supplied the
Company with 14% and 12%, respectively, of its Products in 1999, no third-party
supplier furnished the Company with more than 10% of its purchased Products
during 1999.
On February 1, 2000, the Company announced that it was closing the Homco
facility in McKinney, Texas, and consolidating its operations with the GIA
manufacturing operations located in Grand Island, Nebraska. The Company plans
for the transition to G1A to be completed by March 31, 2000. Both facilities,
which manufacture various types of molded plastic products such as picture
frames, were underutilized for current market conditions. The Company expects
that the consolidation will generate new efficiencies in the production of
molded plastic products.
PRODUCT DISTRIBUTION
Displayers typically submit purchase orders to the Company's headquarters
weekly on one assigned order processing day. Upon receipt, orders are recorded
and the Displayer's recent sales activity, credit and accounts receivable status
are verified. Each purchase order is then forwarded to one of the Company's
distribution centers, where it is filled and shipped, generally on the same day
it is received.
The Company has historically filled orders manually. The Company is
currently in the process of implementing an automated order fulfillment system,
which the Company expects will result in labor savings. The automated order
fulfillment system will include a new conveyor system, special racks and storage
bins and a warehouse management software system. The Company has been able to
achieve freight savings, minimize Product damage and returns and increase timely
delivery by, among other things: (i) using an order-checking system which uses
electronic scanners and bar codes to minimize errors in filling orders, (ii)
packaging each
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order in standard-sized boxes, and (iii) preparing shipping labels that are
tailored to the requirements of each specific common carrier. The Company is
able to track each order shipped through approximately 100 common carriers.
To minimize shipping costs, the Company uses a two-step process in which
common carriers ship full truck loads of Products to approximately 210 regional
delivery sites where locally-based freight distributors ("Local Distributors")
sort the full loads and deliver the Products to each Displayer. Approximately
78% of the Products shipped by the Company are delivered in this manner. In
cases where Local Distributors are not used, the Products are shipped by common
carrier or UPS directly to Displayers.
When the Displayer receives a bulk packaged order, she unwraps, inspects
and repackages the Products for individual customers and typically delivers them
to the Hostesses, who in turn deliver the Products to customers. Displayers
sometimes contact customers to confirm their satisfaction with their Products.
Multiple contacts with Hostesses and customers provide Displayers several
opportunities to provide information regarding the Company and its Products,
which assists in the Displayers' sales and recruiting efforts.
FINANCIAL INFORMATION ABOUT SEGMENTS
Refer to the information under Note 19 to Consolidated Financial Statements
which is hereby incorporated by reference.
COMPETITION
The Company operates in a highly competitive environment. Products sold by
the Company compete with products sold elsewhere, including department and
specialty stores, mail order catalogs, Internet and other direct-sales
companies. The Company competes in the sale of Products on the basis of quality,
price and service. Because of the limited number of Products it manufactures and
its relatively small number of suppliers of finished Products, the Company is
able to exercise some control over the quality and price of the Products. This
allows Displayers to charge prices within a range believed to be acceptable to
their customers.
The Company also competes with other direct-selling organizations, even
those whose products may not compete with the Products, in recruiting and
retaining Displayers. The Company's success requires the recruitment, retention
and integration into the Company's business of other highly qualified management
and sales, marketing and product development personnel.
EMPLOYEES
As of March 13, 2000, the Company employed approximately 1,400 persons,
principally in the Dallas, Texas metropolitan area. None of the employees of the
Company is represented by a labor union or covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
ITEM 2. PROPERTIES.
As of December 31, 1999, the Company owned the following properties, which
are used for the purposes set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION(1) PURPOSE SQUARE FOOTAGE
- ----------- ------- --------------
<S> <C> <C>
Dallas................... DWC manufacturing facility 209,000
McKinney(2).............. Homco manufacturing and warehouse facility 192,000
Grand Island, Nebraska... GIA manufacturing facility 140,000
Coppell.................. Meeting and training facility 16,000
Laredo(3)................ Laredo Candle manufacturing facility 103,000
</TABLE>
- ---------------
(1) All cities are located in Texas, except as noted.
(2) On February 1, 2000, the Company announced that it was closing the Homco
facility and consolidating its operations with the GIA manufacturing
operations located in Grand Island, Nebraska. On March 13,
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2000, the Company entered into an agreement to sell the Homco manufacturing
and warehouse facility to Donald J. Carter, Jr. for approximately $3.7
million. See "Item 13. Certain Relationships and Related Transactions."
(3) Laredo Candle, which owns this property, is owned 60% by the Company.
On December 1, 1999, the Company sold substantially all of its owned
properties and facilities in the Dallas area, including all of its warehouse and
distribution facilities and its corporate headquarters, to Parker Equities, Inc.
("Parker") for approximately $14.7 million. On February 23, 2000, the Company
used the $14.7 million in net proceeds from this sale to purchase an undivided
69% interest in a new 660,000 square-foot warehouse and distribution facility in
Carrollton, Texas from Argent Frankford L.P. ("Argent"). The remaining undivided
31% interest in the facility will be purchased by the Company for approximately
$6.7 million. The Company has agreed to complete the purchase no later than May
26, 2000.
On December 1, 1999, the Company entered into lease agreements to lease
back the properties and facilities sold to Parker until the Company's new
warehouse and distribution facility is ready for occupancy, which is expected to
be in May 2000. The lease terms vary in length based on a predetermined schedule
of facility closings between April 2000 and August 2000, with month to month
extensions available for certain properties through December 2000.
On January 3, 2000, the Company entered into a ten-year lease agreement
with Granite Properties, Inc. ("Granite") for a new corporate headquarters
location in Dallas, Texas. The Company's offices occupy approximately 75,000
square feet of office space.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company is from time to time
threatened with or named as a defendant in various lawsuits, including product
liability claims. The Company is not currently a party to any material
litigation, and is not aware of any litigation threatened against it that could
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company is also subject to certain environmental
proceedings. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 15 to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of fiscal 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's common
stock, $0.10 par value per share. As of March 13, 2000, the Company had
outstanding 15,240,218 shares of common stock held by approximately 188
shareholders. On May 10, 1999, Robert H. Dedman, Jr. acquired from the Company
4,688 shares of the Company's common stock, $.10 par value per share, at a per
share price of $21.33. The sale of the common stock to Mr. Dedman was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). Additionally, on August 24, 1999, Richard Lee
exercised options to acquire 1,108 shares of the Company's common stock, $.10
par value per share, at a per share price of $18.05451. The sale of common stock
to Mr. Lee following the option exercise was exempt from registration pursuant
to Section 4(2) of the Securities Act.
Holders of common stock are entitled to share ratably in dividends, if and
when declared by the Company's Board of Directors (the "Board") out of funds
legally available therefor. Dividends of $0.075 were paid for the first quarter
of 1998. The Company has not paid any dividends on its common stock since the
closing in June 1998 of the transactions that were the subject of the Agreement
and Plan of Merger dated April 13, 1998, by and between the Company and Crowley
Investments, Inc. ("CII") (the "Merger Agreement"). The Company is also
restricted in the amount of dividends that may be paid to holders of common
stock pursuant to the credit agreement with its principal lenders (the "Senior
Credit Facility") and the Indenture dated as of June 4, 1998 (the "Indenture"),
among the Company, certain of its subsidiaries, as guarantors, and United States
Trust Company of New York, as trustee, pursuant to which the Company issued its
10 1/8% Senior Subordinated Notes Due 2008 (the "Notes"). Since the terms of
the Notes and the Company's Senior Credit Facility restrict the Company's
ability to pay dividends, the Company does not anticipate the payment of
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
The following summary is intended to highlight certain information
contained elsewhere in this report. Refer to "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements" elsewhere in this report for greater detail.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT DISPLAYER DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $482,950 $434,299 $468,845 $ 490,223 $503,344
Cost of goods sold..................... 261,806 225,137 239,664 242,343 240,390
-------- -------- -------- --------- --------
Gross profit........................... 221,144 209,162 229,181 247,880 262,954
Selling, general and administrative:
Selling.............................. 72,857 69,964 74,010 81,124 89,721
Freight, warehouse and
distribution...................... 41,041 37,842 41,844 44,718 49,860
General and administrative........... 25,398 20,096 23,921 20,641 27,270
Gains on the sale of assets.......... (14) (2,077) (198) (6,375) (10,650)
Stock option expense................. -- -- -- 563 912
Recapitalization expenses(1)......... -- -- -- 6,198 --
-------- -------- -------- --------- --------
Total selling, general and
administrative............. 139,282 125,825 139,577 146,869 157,113
-------- -------- -------- --------- --------
Operating income....................... 81,862 83,337 89,604 101,011 105,841
Other income (expense):
Interest income...................... 2,470 5,113 7,985 5,563 2,978
Interest expense..................... (2) (503) (362) (27,532) (44,081)
Other income (expense)............... 529 456 2,884 1,020 (183)
-------- -------- -------- --------- --------
Other income (expense), net............ 2,997 5,066 10,507 (20,949) (41,286)
-------- -------- -------- --------- --------
Income before income taxes............. 84,859 88,403 100,111 80,062 64,555
Income taxes........................... 35,315 33,957 37,919 31,807 22,967
-------- -------- -------- --------- --------
Net income............................. $ 49,544 $ 54,446 $ 62,192 $ 48,255 $ 41,588
======== ======== ======== ========= ========
OTHER FINANCIAL DATA:
Gross profit percentage................ 45.8% 48.2% 48.9% 50.6% 52.2%
EBITDA(2).............................. $ 85,944 $ 84,610 $ 92,019 $ 104,567 $100,134
EBITDA margin(3)....................... 17.8% 19.5% 19.6% 21.3% 19.9%
Cash flows provided by (used in):
Operating activities................. $ 64,746 $ 57,507 $ 60,285 $ 59,147 $ 28,073
Investing activities................. (1,394) (8,808) (67,023) 69,083 (6,685)
Financing activities................. (16,760) (6,086) (21,760) (191,329) (30,274)
Depreciation and amortization.......... 4,096 3,350 2,613 3,170 4,032
Capital expenditures(4)................ 1,408 2,126 4,617 7,935 10,540
Dividends paid(5)...................... 8,814 6,086 22,190 9,554 --
DOMESTIC DISPLAYER DATA:
Number of orders shipped............... 782,996 710,008 732,202 765,967 921,636
Average order size(6).................. $ 617 $ 610 $ 635 $ 632 $ 536
Active Displayers at end of
period(7)............................ 45,200 37,800 42,800 50,100 68,300
Average number of active Displayers
during period(7)..................... 41,200 39,900 41,400 45,600 59,000
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 90,235 $132,848 $104,262 $ 41,024 $ 32,406
Property, plant and equipment, net.... 17,478 15,481 17,353 21,774 30,473
Total assets.......................... 147,110 195,774 244,190 132,448 161,541
Total debt (including current
maturities)......................... -- -- -- 487,000 455,546
Shareholders' equity (deficit)........ 99,461 141,227 189,931 (414,074) (371,186)
</TABLE>
- ---------------
(1) Recapitalization expenses consist of amounts paid to the Company's financial
and legal advisors in connection with the Recapitalization.
(2) EBITDA represents operating income plus depreciation and amortization,
Recapitalization expenses and non-cash expenses for stock options, but
excludes any gains on the sale of assets. EBITDA generally is considered to
provide information regarding a company's ability to service and/or incur
debt, and it is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditure and working capital requirements. EBITDA should not be
considered in isolation, as a substitute for net income, cash flows from
operations or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles, or as a measure of
a company's profitability or liquidity.
(3) Defined as EBITDA as a percentage of net sales.
(4) Additional capital expenditures of $508,000 and $2.2 million were paid by
the minority owner of Laredo Candle in 1998 and 1999.
(5) Since the terms of the Notes and the Senior Credit Facility restrict the
Company's ability to pay dividends, the Company does not anticipate the
payment of dividends in the foreseeable future.
(6) Average order size is calculated based on net sales divided by number of
orders. For purposes of this calculation, international sales of
approximately $4.1 million, $6.4 million, and $9.1 million for 1997, 1998
and 1999 have been excluded from net sales.
(7) An active Displayer must have placed an order with the Company within the
prior 14 weeks.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this report
constitute forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause the Company's
actual results to be materially different from any future results expressed or
implied by such forward-looking statements.
In some cases, forward-looking statements are identified by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
or other comparable terminology.
All of these forward-looking statements are based on estimates and
assumptions made by management of the Company which, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed upon such statements. No assurance can be given that any of such
estimates or statements will be realized and actual results may differ
materially from those contemplated by such forward-looking statements. Factors
that may cause such differences include: (i) loss of Displayers; (ii) loss or
retirement of key members of management; (iii) imposition of state taxes; (iv)
change in status of independent contractors; (v) increased competition; (vi)
unexpected delays or problems associated with the completion of the Company's
new warehouse and distribution facility; (vii) the success of the Company's new
Hostess Program; and (viii) unexpected delays or problems associated with
integration and implementation of the automated order fulfillment system. Many
of these factors will be beyond the control of the Company.
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<PAGE> 12
Moreover, neither the Company nor any other person assumes responsibility
for the accuracy and completeness of such statements. The Company is under no
duty to update any of the forward-looking statements after the date of this Form
10-K to conform such statements to actual results.
COMPANY BACKGROUND
The Company believes it is the largest direct seller of home decorative
accessories in the United States, as measured by sales. As of December 31, 1999,
the Company sold its Products to approximately 68,300 active Displayers located
in the United States; the Company is also represented in Mexico and Puerto Rico.
The Company's sales are dependent upon the number of Displayers selling the
Company's Products and their resulting productivity. Displayer productivity
fluctuates from time to time based on seasonality and special marketing
programs, which offer Displayers new incentives and discounts timed to generate
additional sales.
To stimulate sales, the Company offers a variety of discounts and
incentives to Displayers. The amount and timing of discounts and incentives vary
from year to year. The cost of discounts is reflected in the Company's net sales
while the cost of incentives is reflected in selling expense.
Primarily, because of the nature of the direct selling industry, and as a
result of numerous general and economic factors, the Company experienced average
annual Displayer turnover of approximately 42% during the last three years. The
Company believes that new Displayers are generally among the least productive
Displayers and that the majority of Displayers whose status as Displayers
terminates in any particular year are Displayers recruited in that year or in
the immediately preceding year. The Company's ability to maintain its sales
volume and to achieve growth depends upon its ability to attract, train and
retain a significant number of new Displayers each year.
The Company revised its recruiting and training criteria in early 1999.
Among other things, the Company increased opportunities for new Displayers by
reducing initial purchase requirements and time commitments and by lowering
certain other barriers to entry. These changes resulted in a significant
increase in the number of new Displayers and the number of total active
Displayers. An active Displayer must have placed an order with the Company
within the 14 prior weeks. Active Displayers increased 36.3% to 68,300 as of
December 31, 1999 from 50,100 as of December 31, 1998. The growth in the
Displayer base resulted in a greater percentage of less experienced and,
therefore, less productive sales representation.
In connection with the recent growth in recruiting, the Company lowered its
minimum order requirement in June 1999, and, as a result, experienced a further
decline in average order sizes and an increase in the number of orders shipped.
The trend of more orders and lower order sizes resulted in additional operating
costs during the latter half of 1999. The Company expects that the trend of
higher operating costs will continue throughout 2000 until all the warehouse and
distribution centers have been consolidated, the automated order fulfillment
system is fully operational and integration is complete. In an effort to offset
a portion of its higher operating costs and to encourage larger order sizes, the
Company, effective September 1999, increased the handling charge on smaller
orders.
Historically, the Company has benefited from relatively stable gross profit
and operating profit margins. Once a Product is introduced into the Company's
product line, the price at which the Company purchases the Product from its
suppliers and the price at which the Company sells the Product to Displayers
seldom changes. The Company has steadily improved its gross profit margin since
mid-1997, when the markup on all new Products was increased. Prior to that time,
the Company seldom changed Product markups. During 1999, the Company initiated a
plan to broaden its Product line with new Product categories which are targeted
to appeal to a broader market. The Company also is reviewing its pricing
policies and, in the future, may purchase a larger percentage of Products
directly from overseas vendors, which the Company believes will improve its
gross profit margins. The Company experienced significant manufacturing
inefficiencies in the latter half of 1999. While the manufacturing
inefficiencies have been identified and corrective cost reduction actions have
been taken, the Company believes that, primarily as a result of continued volume
declines, margin deterioration will continue in 2000.
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<PAGE> 13
The Company delivers its Products to Displayers via common carrier, UPS and
a regional network of locally-based freight distributors ("Local Distributors").
Unlike many other direct sales companies that the Company believes charge their
customers shipping costs, the Company delivers its Products to Displayers free
of shipping charges if minimum order sizes are met. The Company realizes
substantial cost savings from volume discounts it receives from its common
carriers and its use of Local Distributors. The use of Local Distributors
enables the Company to avoid the premiums charged by common carriers for
delivery to private residences, where most Displayers receive their deliveries.
In addition, the Company believes that, as a result of its good relationships
with its common carriers and the Local Distributors, it is able to quickly
deliver its Products with minimal shipping errors or product damage.
In March 2000, the Company implemented a new Hostess Program. The new
Hostess Program enables Hostesses to select merchandise from the entire Product
line rather than from a limited number of exclusive Hostess Products offered
under the previous Hostess Program. Hostesses who meet certain sales thresholds
receive Products in an amount equal to 20% of the sales generated at the Show.
The exclusive line of Hostess Products offered under the previous Hostess
Program represented low-margin, non-commissionable merchandise. The conversion
of these items to retail merchandise will result in higher gross profit margins
for the Company, as well as higher selling expenses, as essentially all Products
are commissionable. In addition, as of March 2000, the Company no longer sells
Hostess merits, which will result in an increase in general and administrative
expenses due to a reduction in income from unredeemed Hostess merits. The
Company believes that, in addition to simplifying the sales process, the new
Hostess Program will also benefit Displayers by increasing the Product selection
for Hostesses and customers.
THE RECAPITALIZATION
The Company completed a recapitalization (the "Recapitalization") on June
4, 1998, through the following simultaneous transactions:
- contribution of $182.6 million by Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") in exchange for 10,111,436 shares of common stock, or
approximately 66% of all outstanding shares upon completion of the
Recapitalization;
- issuance of the Notes in the amount of $200.0 million;
- borrowing of $300.0 million under the Senior Credit Facility; and
- use of the above proceeds, together with available cash of $169.3
million, to:
-- redeem 45,836,584 shares of common stock for $827.6 million; and
-- pay fees and expenses of $24.3 million associated with the
Recapitalization consisting of:
- $11.2 million financial advisory fee paid to Hicks Muse for its role
in obtaining financing for the Recapitalization;
- $11.6 million of debt issuance costs paid primarily to the bank
syndicate group for the Senior Credit Facility and the initial
purchasers of the Notes; and
- $1.5 million of legal and accounting fees
In addition to the $24.3 million of fees and expenses related to the
Recapitalization, the Company paid additional financial advisory and legal fees
of approximately $6.2 million in connection with the Recapitalization. The
Company paid its financial advisor approximately $5.7 million to assist with the
development of strategic alternatives, identify potential buyers, evaluate
proposals and assist in the negotiation of the Hicks Muse offer. These financial
advisory and legal fees were expensed as incurred, and are reflected as
Recapitalization expenses in the accompanying statement of operations.
13
<PAGE> 14
RESULTS OF OPERATIONS
1999 Compared to 1998
Net sales increased $13.1 million, or 2.7%, to $503.3 million in 1999 from
$490.2 million in 1998. This growth primarily was attributable to an increase in
the number of orders shipped, up 20.3% from 765,967 orders in 1998 to 921,636
orders in 1999. This growth more than offset a 15.2% reduction in the average
order size of $536 in 1999 from $632 in 1998. The change in composition and
growth of the Displayer network was a major factor in the overall sales
production; the average number of active Displayers for the year increased 29.4%
to 59,000 in 1999 from 45,600 in 1998. Growth in the Displayer base resulted in
an increased percentage of less experienced, and therefore, less productive
sales representation. Orders per active Displayer decreased slightly. The
Company expects that the trend of more orders shipped and lower order sizes,
each as compared to comparable historical periods, will continue throughout 2000
as a result of the factors discussed above.
Gross profit increased $15.1 million, or 6.1%, to $263.0 million in 1999
from $247.9 in 1998. As a percentage of net sales, gross profit improved to
52.2% in 1999 from 50.6% in 1998, as the Company continued to benefit from the
introduction of new Products with higher margins; however, the Company
experienced significant manufacturing inefficiencies in the latter half of 1999.
Most of the inefficiencies were related to product mix, low production volumes
and unexpectedly high amounts of scrap material. While the manufacturing
inefficiencies have been identified and corrective cost reduction actions have
been taken, volume declines have continued. In response to these issues, the
Company announced that, effective February 1, 2000, it would consolidate its
Homco operations with its GIA operations to maximize operational efficiency and
to absorb underutilized capacity that existed in its molded plastic
manufacturing operations. The Company made additional selective, temporary and
permanent work-force reductions in the first quarter of 2000 at DWC, GIA and
Laredo Candle. In spite of the measures already taken to reduce costs, the
Company expects that it may incur additional margin deterioration in 2000 as a
result of these manufacturing related issues, primarily as a result of lower
volumes.
Selling expense increased $8.6 million, or 10.6%, to $89.7 million in 1999
from $81.1 million in 1998. As a percentage of net sales, selling expense
increased to 17.8% in 1999 from 16.5% in 1998. This increase was primarily
attributable to higher commission rates for certain Unit Directors and a
non-recurring cost of approximately $1.0 million associated with the
discontinuance of an expense reimbursement program for certain Unit Directors.
Freight, warehouse and distribution expense increased $5.2 million, or
11.5%, to $49.9 million in 1999 from $44.7 million in 1998. These costs were
9.9% of net sales in 1999 compared to 9.1% in 1998. Freight expense is typically
based on pounds shipped, which increased at a greater rate than sales in 1999
compared to 1998. This increase was partially offset through the increase in
handling charges on small orders beginning in September 1999 and the expansion
of Local Distributors during the year. Warehouse and distribution expense
increased in 1999 due to a 20.3% increase in the number of orders shipped during
1999 compared to 1998, which required hiring additional labor to service the
higher level of ordering activity. The Company expects that the trend of higher
operating costs will continue throughout 2000 until all of its warehouse and
distribution centers have been consolidated, the automated order fulfillment
system is fully operational and integration is complete.
General and administrative expense increased $6.7 million, or 32.1%, to
$27.3 million in 1999, from $20.6 million in 1998. This was due to higher costs
related to personnel and professional fees, an increase in the provision for
doubtful accounts, payment of credit card fees in connection with Home Online
orders and other credit card transactions, the full period impact of a
monitoring and oversight fee payable to Hicks Muse and increased depreciation
and amortization expense. Sales force growth and modernization of the Company's
computer systems required the Company to hire additional employees with
specialized skills, which contributed to higher personnel costs.
14
<PAGE> 15
Gains on the sale of assets of approximately $10.7 million were recorded in
1999 from the sale of office, warehouse and distribution facilities and
associated land, as compared to $6.4 million in 1998 principally from the sale
of two aircraft and a building.
Interest income decreased $2.6 million, or 46.5%, to $3.0 million in 1999
from $5.6 million in 1998 due to lower average investment balances.
Interest expense increased $16.6 million, or 60.1%, to $44.1 million in
1999 up from 1998's $27.5 million. This increase was the result of interest due
on the Notes and the Senior Credit Facility that was incurred for the entire
1999 period compared to only a seven-month period in 1998.
Income taxes decreased $8.8 million, or 27.8%, to $23.0 million in 1999
from $31.8 million in 1998. Income taxes, as a percentage of income before
income taxes, was 35.6% in 1999 compared to 39.7% in 1998. This decrease was
primarily due to certain 1998 income tax provision adjustments made in 1999.
Those adjustments primarily related to a prior-year refund applied in 1999 and
to costs associated with the Recapitalization.
1998 Compared to 1997
Net sales increased $21.4 million, or 4.6% to $490.2 million in 1998 from
$468.8 million in 1997. This growth was primarily attributable to an increase in
the number of orders shipped of 4.6% to a level of 765,967 orders in 1998 from
732,202 orders in 1997. This growth more than offset a slight decrease in the
average order size. The increase in orders shipped was primarily due to the
expansion of the active Displayer base, averaging 41,400 in 1997 compared to
45,600 in 1998, up 10.1%, along with the introduction of several new incentive
programs and discounts during the first six months of 1998.
Gross profit increased $18.7 million, or 8.2%, to $247.9 million in 1998
from $229.2 million in 1997. As a percentage of net sales, gross profit improved
to 50.6% in 1998 from 48.9% in 1997. This gain was attributable to the
introduction of new Products with higher profit margins.
Selling expense increased $7.1 million, or 9.6%, to $81.1 million in 1998
from $74.0 million in 1997. As a percentage of net sales, selling expense
increased to 16.5% in 1998 from 15.8% in 1997. This increase was primarily
attributable to higher bonuses for Directors and higher costs for incentive
programs in 1998.
Freight, warehouse and distribution expense increased $2.9 million, or
6.9%, to $44.7 million in 1998 from $41.8 million in 1997, resulting in a slight
increase in margin relative to net sales from 8.9% in 1997, to 9.1% in 1998.
General and administrative expense decreased $3.3 million, or 13.7%, to
$20.6 million in 1998 from $23.9 million in 1997. Non-recurring costs were
incurred in 1997 associated with the settlement of certain litigation, larger
charitable contributions and a change in the estimated redemption rate for
Hostess merits which caused an increase in the related Hostess merit liability
in 1997. These higher costs in 1997 more than offset higher personnel and other
administrative costs in 1998.
Gains on the sale of assets amounting to $6.4 million were recorded by the
Company in 1998, principally from the sale of two aircraft and a building.
Recapitalization expenses of $6.2 million consisted of fees and expenses
paid to the Company's financial and legal advisors in connection with the
Recapitalization.
Interest income decreased $2.4 million, or 30.3%, to $5.6 million in 1998
from $8.0 million in 1997, as a result of lower average investment balances
following the Recapitalization.
Interest expense increased $27.1 million in 1998 as a direct result of the
Senior Credit Facility and the Notes.
Income taxes decreased $6.1 million, or 16.1%, to $31.8 million in 1998
from $37.9 million in 1997. Income taxes, as a percentage of income before
income taxes, increased to 39.7% in 1998 from 37.9% in 1997.
15
<PAGE> 16
This increase was primarily due to higher effective taxes in 1998, as a result
of certain nondeductible Recapitalization expenses.
SEGMENT PROFITABILITY
The Company's reportable segments include its domestic direct sales
business, its manufacturing operations and its international business. The
manufacturing operations sell substantially all of their products to the
Company. As a result, manufacturing sales generally follow the Company's
domestic sales trend. International operations include direct sales by
Displayers in Mexico and Puerto Rico. International sales are directly
attributable to the number of international Displayers the Company has selling
its Products. The Company's chief operating decision maker monitors each
segment's profitability primarily on the basis of EBITDA performance. See Note
19 to Consolidated Financial Statements.
Consolidated net sales increased $13.1 million, or 2.7%, to $503.3 million
in 1999 from $490.2 million in 1998 due to the $13.1 million increase in the
Company's domestic direct sales. International sales increased $2.7 million, or
42.2%, to $9.1 million in 1999 from $6.4 million in 1998 due to expansion of the
international Displayer network. Manufacturing related sales in 1999 grew at a
slightly reduced rate than the Company's domestic direct sales business.
Consolidated net sales increased $21.4 million, or 4.6%, to $490.2 million in
1998 from $468.8 million in 1997 largely due to an increase in the Company's
domestic direct sales of $19.6 million. Manufacturing related sales increased
$10.2 million, or 13.3%, to $86.7 million in 1998 from $76.5 million in 1997
largely due to increased sales of framed artwork and mirrors produced by DWC.
International sales increased $2.3 million, or 56.1%, to $6.4 million in 1998
from $4.1 million in 1997 due to expansion of the international Displayer
network.
Consolidated EBITDA decreased $4.5 million, or 4.2%, to $100.1 million in
1999 from $104.6 million in 1998 primarily due to higher selling, general and
administrative costs in the Company's domestic direct sales business relative to
sales and significant manufacturing inefficiencies in 1999. Manufacturing
related EBITDA decreased $2.4 million, or 11.7%, to $18.0 million in 1999 from
$20.4 million in 1998 primarily due to lower production volumes and product mix
in the latter half of 1999. Consolidated EBITDA increased $12.6 million, or
13.6%, to $104.6 million in 1998 from $92.0 million in 1997 primarily due to
higher sales, improved gross profit from manufacturing efficiencies and the
introduction of new products with higher margins, and lower general and
administrative expenses in 1998. Manufacturing related EBITDA increased $2.4
million, or 13.3%, to $20.4 million in 1998 from $18.0 million in 1997 due to
increased sales and higher production volumes. International EBITDA is not
significant.
SEASONALITY
The Company's business is influenced by the Christmas holiday season and by
promotional events. Historically, a higher portion of the Company's sales and
net income have been realized during the fourth quarter, and net sales and net
income have generally been slightly lower during the first quarter as compared
to the second and third quarters. Working capital requirements also fluctuate
during the year. They reach their highest levels during the third and fourth
quarters as the Company increases its inventory for the peak season. In addition
to the Company's peak season fluctuations, quarterly results of operations may
fluctuate depending on the timing of, and amount of sales from, discounts,
incentive promotions and/or the introduction of new Products. As a result, the
Company's business activities and results of operations in any quarter are not
necessarily indicative of any future trends in the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its historical requirements for capital through
cash flow from operations. As a result of the borrowings under the Senior Credit
Facility and the issuance of the Notes, the Company is subject to cash
requirements, which are significantly greater than its historical requirements.
Net cash provided by operating activities totaled $60.3 million, $59.1 million,
and $28.1 million in 1997, 1998 and 1999. The Company had capital expenditures
of $4.6 million, $7.9 million, and $10.5 million in 1997, 1998 and 1999. The
Company's other significant cash outlays have historically been the payment of
dividends to
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<PAGE> 17
shareholders totaling $22.2 million and $9.6 million in 1997 and 1998. Since the
terms of the Notes and the Senior Credit Facility restrict the Company's ability
to pay dividends, the Company does not anticipate the payment of dividends in
the foreseeable future.
Net cash provided by operating activities decreased $31.0 million during
1999. This reduction from $59.1 million in 1998, to $28.1 million in 1999, was
mainly attributable to: a decline in net income of $6.7 million, largely as a
result of the full period impact of interest expense on the Senior Credit
Facility and the Notes; growth in accounts receivable of $9.9 million over 1998,
which primarily resulted from expansion of the Displayer base and an increase in
credit limits for Displayers from $2,000 in 1998 to $4,000 in 1999; an increase
in inventories of $12.5 million over 1998, mainly due to the expansion of the
Product line and the growth in the Displayer base. The investment in new Product
categories was implemented to broaden market appeal. The rapid growth in the
Company's Displayer base of 36.3% during 1999 also necessitated a higher level
of inventory to support the growth in the Displayer base.
Investing activities during 1999 resulted in a net outflow of $6.7 million.
Capital expenditures in 1999 totaled $10.5 million compared to $7.9 million in
1998. The increase in capital expenditures in 1999 was primarily due to the
Company's 60% share of building costs and equipment purchases for Laredo Candle.
Additionally, the minority owner of Laredo Candle invested $0.5 million and $2.2
million in 1998 and 1999. Investment in the Company's new computer system,
including Internet capabilities, also was included in 1999. Investing activities
were enhanced by payments on notes receivable which increased to $6.5 million
during 1999, compared to $2.0 million in 1998, due to early payoff of certain
notes. During 1998, the Company sold two aircraft and a building for proceeds of
$7.8 million.
The Company estimates that its capital expenditures for the year ended
December 31, 2000 will increase significantly compared to 1999. In February
2000, the Company purchased an undivided 69% interest in a new warehouse and
distribution facility for $14.7 million with proceeds received from the sale of
substantially all its owned properties and facilities in the Dallas area to
Parker in December 1999. The Company will purchase the remaining undivided 31%
interest in the new warehouse and distribution facility no later than May 26,
2000, for approximately $6.7 million. Additionally, the Company expects to incur
approximately $1.2 million in improvements to construct office space in the
warehouse and distribution facility.
The Company will use an automated order fulfillment system in the new
warehouse and distribution facility, which is expected to cost approximately
$11.0 million. The Company incurred $1.2 million in costs associated with the
automated order fulfillment system in 1999 and entered into a capital lease
obligation of $6.2 million for certain automated equipment which will be
installed in April 2000. The Company expects to incur the remaining $3.6 million
throughout 2000 in order to get the automated order fulfillment system
operational.
The Company intends to increase its investment in its computer system and
Internet capabilities from approximately $3.5 million in 1999 to approximately
$6.4 million in 2000. The Company's 60% share of capital expenditures for Laredo
Candle is expected to decrease from $3.3 million in 1999 to approximately $1.4
million in 2000. A majority of the costs in 1999 are related to building
construction and initial equipment purchases. Similarly, Laredo Candle's
minority owner will spend less in capital expenditures in 2000. Machinery and
equipment purchases and other routine capital expenditures in 2000 for the
Company's other manufacturing subsidiaries are expected to be similar to those
incurred in 1999.
Comparatively, the Company generated significantly higher cash flow from
investing activities during 1998 than in 1997. Prior to June 4, 1998, the
Company liquidated substantially all of its investments held as of December 31,
1997 to meet the cash requirements of the Recapitalization. As a result,
proceeds from the sale of investments during 1998 totaled $155.2 million, or
$12.8 million more than in 1997. Prior to 1997, the Company did not make any
material investments. Purchases of investments totaled $87.5 million during
1998, or $116.8 million less than in 1997.
The Company's use of cash for financing activities decreased to $30.3
million during 1999 from $191.3 million in 1998. This reduction in the use of
cash was due to the Recapitalization. The Company used proceeds of $182.6
million from the contribution of equity by Hicks Muse, $200.0 million from the
issuance of
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<PAGE> 18
the Notes and $300.0 million of borrowings under the Senior Credit Facility,
together with proceeds from the sale of investments as described above, to pay
$827.6 million for the redemption of common stock and to pay $24.3 million in
fees and expenses associated with the Recapitalization. Prior to the
Recapitalization, the Company's primary financing activity was the payment of
dividends. Dividends paid during 1998 decreased to $9.6 million from $22.2
million in 1997. Since the terms of the Notes and the Senior Credit Facility
restrict the Company's ability to pay dividends, the Company did not pay
dividends in 1999 and does not anticipate the payment of dividends in the
foreseeable future.
Payments on the Notes and the Senior Credit Facility represent significant
cash requirements for the Company. Interest payments on the Notes commenced in
December 1998, and will continue semi-annually until the Notes mature in 2008.
Borrowings under the Senior Credit Facility require quarterly interest and
principal payments. In addition, the Senior Credit Facility includes $40.0
million of Revolving Loans, which mature on June 30, 2004. The Revolving Loans
remained undrawn as of December 31, 1999.
The Company paid a total of $73.4 million in debt service for 1999,
consisting of principal payments under the Senior Credit Facility of $25.0
million, a mandatory prepayment of $7.7 million under the Senior Credit
Facility, interest under the Senior Credit Facility of approximately $20.4
million and interest of $20.3 million on the Notes. The Company anticipates that
its debt service requirements will total $68.3 million in 2000, consisting of
principal payments due under the Senior Credit Facility of $27.2 million,
interest due under the Senior Credit Facility of $20.8 million and interest of
$20.3 million due on the Notes. A one percentage point change in interest rates
would change interest expense by $1.8 million.
The terms of the Notes and Senior Credit Facility include significant
operating and financial restrictions, such as limits on the Company's ability to
incur indebtedness, create liens, sell assets, engage in mergers or
consolidations, make investments and pay dividends. In addition, under the
Senior Credit Facility, the Company is required to comply with specified
financial ratios and tests, including minimum interest coverage and maximum
leverage ratios. Subject to the financial ratios and tests, the Company will be
required to make certain mandatory prepayments of the term loans on an annual
basis. The Company prepaid $7.7 million on the term loans as of March 31, 1999.
The Company is not required to make a mandatory prepayment on March 31, 2000.
The Revolving Loans remained undrawn as of December 31, 1999. However, as a
result of the timing and the magnitude of working capital requirements and
capital expenditures, the Company may have to utilize the Revolving Loans at
varying times during 2000, primarily to meet working capital needs and to make
capital expenditures. The Company anticipates that use of the Revolving Loans,
if any, will be on a short-term basis, and borrowings thereunder will be repaid
by the end of 2000.
Current maturities of long-term debt and capital-lease obligations as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B CAPITAL
LOAN LOAN LEASE NOTES TOTAL
--------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
2000.............................. $ 26,554 $ 625 $ 129 $ -- $ 27,308
2001.............................. 31,554 625 151 -- 32,330
2002.............................. 36,554 625 162 -- 37,341
2003.............................. 41,554 625 174 -- 42,353
2004.............................. 22,025 22,625 188 -- 44,838
Thereafter........................ -- 70,939 437 200,000 271,376
-------- ------- ------ -------- --------
$158,241 $96,064 $1,241 $200,000 $455,546
======== ======= ====== ======== ========
</TABLE>
Interest Rate Swap Agreements. The Company has entered into several
interest rate swap agreements to limit the effect of changes in interest rates
on the Senior Credit Facility. The swaps provide the Company with fixed interest
rates on the related notional amounts. See "-- Market-Sensitive Instruments and
Risk Management."
The Company believes that net cash flow from operations and borrowings
under the Revolving Loans, if any, will be sufficient to fund its cash
requirements over the next twelve months, which will consist primarily
18
<PAGE> 19
of payment of principal and interest on outstanding indebtedness, working
capital requirements and capital expenditures. The Company's future operating
performance and ability to service or refinance its current indebtedness will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control.
New Warehouse and Distribution Facility. The Company is currently operating
in and from several separate warehouse and distribution facilities. On July 19,
1999, the Company entered into a contract with Argent to construct a new 660,000
square-foot warehouse and distribution facility in Carrollton, Texas for
approximately $19.4 million. The contract has been amended to provide that
Argent will complete $2.0 million of customized improvements to the facility,
thereby increasing the total purchase price to approximately $21.4 million. The
"shell" facility is substantially complete and Argent is nearing completion of
the interior improvements to the warehouse portion of the facility. The Company
expects to incur an additional $1.2 million in office improvements to the
facility.
On December 1, 1999, the Company sold substantially all of its owned
properties and facilities in the Dallas area, including all of its warehouse and
distribution facilities and its corporate headquarters, to Parker for
approximately $14.7 million. As described below, the Company's use of proceeds
is restricted to an investment in like-kind property. Accordingly, the proceeds
have been classified as restricted cash in the accompanying consolidated balance
sheet as of December 31, 1999. On February 23, 2000, the Company used the $14.7
million in net proceeds from this sale to purchase an undivided 69% interest in
the new warehouse and distribution facility from Argent. The remaining undivided
31% interest in the new facility will be purchased by the Company for
approximately $6.7 million. On March 13, 2000, the Board approved the sale of
the Homco manufacturing and warehouse facility to Donald J. Carter, Jr. for
approximately $3.7 million. The Company expects to use the $3.7 million in
proceeds from this sale to purchase a portion of the remaining undivided
interest in the new warehouse and distribution facility. The Company has agreed
to complete the purchase no later than May 26, 2000. See "Item 13. Certain
Relationships and Related Transactions."
The new warehouse and distribution facility will allow the Company to
consolidate its current warehouse and distribution operations from several
smaller facilities into a single larger facility. Among other things, the
Company anticipates that it will benefit from reduced labor and inventory costs
and property tax savings. Additionally, the new facility will allow the Company
to use an automated order fulfillment system, which the Company expects will
result in significant labor savings. The automated order fulfillment system will
include a new conveyor system, special racks and storage bins, and a warehouse
management software system. The Company has selected a vendor to provide the
warehouse management system, installation and ongoing support. The Company
expects that its automation related costs will be approximately $11.0 million.
The Company incurred approximately $1.2 million in automation related costs in
late 1999, and the remainder will be incurred throughout 2000 as the Company
transitions from its current warehouse and distribution facilities to its new
facility. The Company expects to continue to use its current distribution system
throughout the implementation of the automated order fulfillment system and
while it is consolidating its warehouse and distribution centers.
In December 1999, the Company entered into a capital lease obligation with
Bank One Leasing for certain equipment associated with the automated order
fulfillment system to be used in the new warehouse and distribution facility.
Construction of the automated order fulfillment system is in process and should
be completed by April 2000. The initial term of the lease is 7 years. Interest
is imputed at approximately 7.06%. Total costs of the equipment are
approximately $6.2 million. Total annual payments equal $1.4 million, which are
payable in monthly installments. The amounts are funded by the lessor as the
equipment is purchased. As of December 31, 1999, no funding had occurred under
this capital lease obligation.
On December 1, 1999, the Company entered into lease agreements to lease
back the properties and facilities sold to Parker until the Company's new
warehouse and distribution facility is ready for partial occupancy, which is
expected to be in May 2000. The lease terms vary in length based on a
predetermined schedule of facility closings between April 2000 and August 2000,
with month to month extensions available for certain properties through December
2000.
19
<PAGE> 20
The Company expects that the sale of its current facilities and properties
in exchange for the purchase of an undivided 69% interest in the new warehouse
and distribution facility will qualify as a non taxable Section 1031 like-kind
exchange under the United States Internal Revenue Code of 1986, as amended (the
"IRC"). The Company recorded a pre-tax gain of approximately $10.6 million on
the sale of its properties and facilities for financial reporting purposes in
1999. Additionally, the Company expects that the sale of its Homco facility in
exchange for the purchase of a portion of the remaining undivided 31% interest
in the new warehouse and distribution facility will qualify as a non taxable
Section 1031 like-kind exchange under the IRC. Accordingly, the Company expects
to record a pre-tax gain of approximately $3.0 million in the first quarter of
2000 associated with the sale of its Homco manufacturing and warehousing
facility for financial reporting purposes. See Item 13, "Certain Relationships
and Related Transactions."
The transactions described above required the consent of the Company's
senior lenders, which the Company obtained in November 1999. Additionally, the
Senior Credit Facility was amended to exclude these transactions from certain
debt covenant requirements.
Corporate Headquarters Facility. On January 3, 2000, the Company entered
into a ten-year lease with Granite for a new corporate headquarters location in
Dallas, Texas. The Company's offices occupy approximately 75,000 square feet of
office space at an annual rent of approximately $1.6 million. Tenant
improvements to customize the space totaled approximately $2.9 million, of which
approximately $2.0 million was borne by the landlord as improvement allowances.
Additionally, on December 30, 1999, the Company entered into a $1.2 million
capital-lease obligation for certain furniture and fixtures to be used in the
new corporate headquarters.
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
The Company is exposed to financial market risks, including changes in
interest rates and foreign currency exchange rates. To mitigate risks on changes
in interest rates, the Company uses derivative financial instruments. The
Company does not use derivative financial instruments for speculative or trading
purposes. The Company's international operations are not significant, and as a
result, changes in foreign currency exchange rates do not have a material effect
on the Company.
The Company is exposed to market risks related to changes in interest
rates. In July 1998, the Company entered into an interest rate swap agreement to
limit the effect of changes in interest rates on long-term borrowings. Under the
swap, the Company pays interest at 5.50% on a notional amount of $75.0 million
and receives interest thereon at three-month LIBOR on a quarterly basis.
Beginning June 9, 1999, if LIBOR is greater than 6.44% at the commencement of
any quarterly reset period, a knockout provision provides for no payment under
the swap during such period.
In late 1999, the Company entered into three separate six-month interest
rate swap agreements to limit the effect of changes in interest rates on
long-term borrowings. Under each swap agreement, the Company pays interest at a
fixed rate on the notional amount and receives interest thereon at three-month
LIBOR on a quarterly basis. The lenders have the option at the end of the term
of each swap agreement to extend each agreement for an additional six-month
period.
The knockout and option provisions are separately adjusted to market on a
quarterly basis. The total adjustment was income of approximately $159,000 in
1998 and a loss of approximately $816,000 in 1999, which is included in other
income. The level of variable-rate debt, after the effect of the swap has been
considered, is approximately 44% and 39% of the total interest-bearing debt
outstanding at December 31, 1998 and 1999. During 1999, the average rate
received on the notional amount of the swaps was 5.29% and the average rate paid
was 5.57%. During 1998, the average rate received on the notional amount of the
swap was 5.64% and the average rate paid was 5.50%.
20
<PAGE> 21
The following table summarizes the terms of the interest rate swap agreements as
of December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
EFFECTIVE DATE MATURITY DATE NOTIONAL AMOUNT FIXED RATE
- -------------- ------------- --------------- ----------
<S> <C> <C> <C>
07/01/98 12/31/00 $75,000 5.50%
09/30/99 03/30/00 70,000 5.80%
11/30/99 05/30/00 50,000 5.80%
12/03/99 06/06/00 15,000 5.90%
</TABLE>
The following table presents principal cash flows of variable rate debt by
maturity date and the related average interest rates. The table also presents
the notional amount of the swaps and option provisions and their expected future
interest rates and strike prices. The notional amount is used to calculate the
contractual payments to be exchanged. The interest rates are weighted between
the Tranche A and Tranche B loans based on debt outstanding and are estimated
based on implied forward rates using a yield curve as of December 31, 1999.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------------------------- FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE(1)
-------- ------- ------- ------- ------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Variable-rate debt................. $ 27,179 $32,179 $37,179 $42,179 $44,650 $70,939 $254,305 $254,305
Average interest rate.............. 8.71% 9.03% 9.20% 9.36% 9.50% 9.42% -- --
INTEREST RATE DERIVATIVES:
Interest rate swap:
Notional Amount.................. -- $75,000 -- -- -- -- $ 75,000 $ 1,556
Average pay rate................. 5.50% 5.50% -- -- -- -- -- --
Average receive rate............. 6.50% 6.79% -- -- -- -- -- --
Interest rate knockout provision:
Contract amount.................. -- $75,000 -- -- -- -- $ 75,000 $ (1,416)
Weighted average strike price.... 6.44% 6.44% -- -- -- -- -- --
Interest rate swaps:
Notional Amount.................. $135,000 -- -- -- -- -- $135,000 $ 138
Average pay rate................. 5.81% -- -- -- -- -- -- --
Average receive rate............. 6.06% -- -- -- -- -- -- --
Interest rate option provision (2):
Contract amount.................. $135,000 -- -- -- -- -- $135,000 $ (18)
</TABLE>
- ---------------
(1) The combined fair value of the interest rate swap and the related knockout
and option provision represents the estimated amount the Company would
receive to terminate the swap.
(2) The lenders have the option at the end of the term of each swap agreement to
extend each agreement for an additional six-month period.
The Company sells its products in Mexico, and as a result, is subject to
market risk exposure of foreign currency devaluation. Because the Company's
international operations are not significant, any decrease in value of the peso
would not have a material adverse effect on the Company's results of operations
or liquidity.
INFLATION
Although the Company's operations are affected by general economic trends,
inflation and changing prices did not have a material impact on the Company's
operations in 1997, 1998 or 1999.
ENVIRONMENTAL ISSUES
In 1989, DWC was named as a potentially responsible party ("PRP") based on
allegedly having sent 2,640 gallons of waste to the Chemical Recycling, Inc.
facility in Wylie, Texas. The Company believes that DWC's share of the total
cleanup costs based on a volumetric allocation would be less than one percent.
In the future, DWC and the other PRPs, who are jointly and severally liable, may
incur additional costs related to the
21
<PAGE> 22
cleanup of hazardous substances at the facility. DWC did not incur any cleanup
related costs during 1997, 1998 or 1999. Because the site has been dormant for
several years, the Company does not believe it is probable that any additional
costs will be incurred and, accordingly, has not established any accruals for
future cleanup costs at this site.
In 1997, Homco was named as a PRP based on allegedly having transported
hazardous substances to the Materials Recovery Enterprises, Inc. facility near
Ovalo, Texas in Taylor County, Texas. In 1998, Homco paid an assessment of
approximately $1,000 for liability at the facility. By agreement, Kraft Foods,
Inc., a partial indemnitor to Homco, paid Homco 96.5% of this past assessment,
assumed the future administration of the matter, including payment of any future
costs, and may, upon demand, request reimbursement from Homco for 3.5% of future
costs. Although Homco remains jointly and severally liable for the remediation
of the Site, the probability that Homco will be required to pay more than a de
minimis amount is remote.
On February 9, 1999, the EPA conducted an inspection at GIA to determine
compliance with the toxic chemical release reporting requirements for 1997
pursuant to the Emergency Planning and Community Right To Know Act of 1986,
Section 313. Calculation errors in the Form R Report were noted during the
inspection. The EPA assessed GIA with an administrative penalty of $21,000 on
September 21, 1999. GIA's consultant assumed responsibility for these mistakes
and paid the fine, following a negotiated reduction thereof to $14,000. The
Consent Order and Agreement was executed in early March 2000.
The ultimate outcome and aggregate cost of resolving all of the above
contingencies will be based on a number of factors and will be determined over a
number of years. Accordingly, the total cost to the Company cannot currently be
determined with certainty. It is management's opinion, however, that the total
cost of resolving such contingencies should not have a material adverse effect
on the Company's business, financial condition and results of operations.
YEAR 2000 ISSUES
As a result of certain computer programs being written using two digits
rather than four digits to define the applicable year, any of the Company's
computer programs that had date sensitive software could have recognized a date
using "00" as the Year 1900 rather than the Year 2000 (the "Year 2000 Issue").
This could have resulted in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in normal business activities.
Year 2000 testing and remediation of other aspects of the Company's
infrastructure, including the Company's subsidiaries, is complete. Because the
Company implemented a new and significantly more sophisticated computer system
in January 1999, which replaced substantially all of the hardware and software
previously in use at the Company, the Company believes its systems and related
software are Year 2000 compliant. The Company did not experience any disruption
of operations as a result of the Year 2000 Issue and does not expect in the
future to experience any disruption of operations as a result of the Year 2000
Issue.
Costs associated with the new computer system through December 31, 1999
totaled approximately $6.0 million. Additional costs associated with remediating
the Year 2000 Issue have been expensed as incurred and are not material.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board voted to delay the
effective date for implementation of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The new
standard is effective for fiscal years beginning after June 15, 2000. The
Company has not yet determined the effect the new standard will have on its
financial statements.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Securities and Exchange Commission requires that registrants include
information about potential effects of changes in interest rates and currency
exchange in their financial statements. Refer to the information appearing under
the subheading "Market-Sensitive Instruments and Risk Management" under
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<PAGE> 23
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation," which information is hereby incorporated by reference into this
Item 7A. All statements other than historical information incorporated into this
Item 7A are forward-looking statements. The actual impact of future market
changes could differ materially due to, among other things, the factors
discussed in this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and financial statement schedule of
the Company and its subsidiaries required by this Item 8 are listed in Part IV,
Item 14(a) of this report. Such consolidated financial statements are included
herein beginning on page F-1.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information as of March 13, 2000 with respect to
those individuals who are serving as members of the Board or as executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Donald J. Carter, Jr. .................... 39 Chairman of the Board and Chief Executive
Officer
Barbara J. Hammond........................ 69 Director and Vice Chairman
Christina L. Carter Urschel............... 36 Director and President
Kenneth J. Cichocki....................... 46 Vice President of Finance and Chief
Financial Officer
Leonard A. Robertson...................... 54 Chief Administrative Officer
James W. Livingston....................... 52 Vice President of Operations
Bettina S. Simon.......................... 50 Vice President, General Counsel and
Secretary
Eugenia B. Price.......................... 34 Vice President of Marketing and
International
Thomas O. Hicks........................... 54 Director
Jack D. Furst............................. 41 Director
Lawrence D. Stuart, Jr. .................. 54 Director
Joseph Colonnetta......................... 39 Director
Sheldon I. Stein.......................... 46 Director
Robert H. Dedman, Jr. .................... 42 Director
Gretchen M. Williams...................... 43 Director
</TABLE>
Set forth below is a description of the backgrounds of those persons who
are serving as members of the Board and as executive officers of the Company.
All of the Company's officers are appointed by the Board and serve at its
discretion.
Donald J. Carter, Jr. has served as Chief Executive Officer of the Company
since October 1997 and in June 1998 became Chairman of the Board following the
Recapitalization. Mr. Carter provides leadership in sales, marketing and
operational areas of the Company. Since he joined the Company in 1984, Mr.
Carter has also served the Company in various executive capacities, including as
Executive Vice President of Sales from 1994 to 1997. Mr. Carter is the son of
Donald J. Carter and the brother of Christina L. Carter Urschel.
Barbara J. Hammond has served as Vice Chairman of the Company since
February 2000, and is responsible for training and motivation of Directors. Ms.
Hammond served as President of the Company from 1995 to January 2000. Ms.
Hammond has served the Company in various executive capacities from 1986 to
23
<PAGE> 24
1995, including as National Sales Manager and Executive Vice President of Sales.
Ms. Hammond originally joined the Company as a Displayer in 1960, when she was
personally trained by Mary C. Crowley, and rose to become one of the Company's
top Displayers and Directors.
Christina L. Carter Urschel has served the Company as President since
February 2000, and is responsible for all domestic sales, development of
incentive programs, training and motivation of the Displayers and Directors. Ms.
Urschel served as Executive Vice President of the Company from 1997 to January
2000, and as Vice President from 1994 to 1997. Ms. Urschel joined the Company in
1987 and, since that time, has undertaken various sales and marketing
responsibilities. Ms. Urschel is the daughter of Donald J. Carter and the sister
of Donald J. Carter, Jr.
Kenneth J. Cichocki has served the Company as Vice President of Finance and
Chief Financial Officer since November 1999. From 1993 to October 1999, Mr.
Cichocki served as a consultant for the RMP Group, a corporate consulting firm
that provided financial and management consulting services. From 1980 to 1992,
Mr. Cichocki served Guinness PLC in various capacities, including Chief
Financial Officer of one of its divisions. Prior to joining Guinness, Mr.
Cichocki served Pricewaterhouse LLP from 1975 to 1980 as a Senior Accountant.
Mr. Cichocki is a Certified Public Accountant.
Leonard A. Robertson has served as Chief Administrative Officer of the
Company since November 1999. From 1995 to October 1999, Mr. Robertson served the
Company as Chief Financial Officer. Before joining the Company, Mr. Robertson
held various positions, most recently as partner, with Judd, Thomas, Smith &
Company, P.C., an independent public accounting firm that provides accounting,
auditing and tax services to the Company. Mr. Robertson is a Certified Public
Accountant.
James W. Livingston has served as Vice President of Operations of the
Company since August 1997. From 1984 through 1997, Mr. Livingston was the Chief
Financial Officer of the Dallas Mavericks of the National Basketball
Association. He also served as Vice President of Business Operations for the
Dallas Mavericks from 1995 through 1997. From 1975 through 1984, Mr. Livingston
was the Controller for the Company. Mr. Livingston serves as a Director of
Baylor Medical Center Foundation and Charles W. Weaver Manufacturing Company, a
supplier to the Company.
Bettina S. Simon has served as the Vice President, General Counsel, and
Secretary of the Company since July 1998. Before joining the Company, from 1984
through 1996, Ms. Simon was the Associate General Counsel and Assistant
Secretary of Zale Corporation and was a partner at Simon & Simon from 1996
through July 1998.
Eugenia B. Price has served as Vice President of Marketing and
International since August 1999. From January 1999 to July 1999, Ms. Price
served the Company as Vice President of Strategic Planning and New Market
Development. Prior to joining the Company, Ms. Price was a Regional Director of
International Marketing at Mary Kay, Inc. from 1991 to 1998, where she worked on
strategic planning and new market development for Europe and Latin America.
Thomas O. Hicks has been a Director of the Company since June 1998. Mr.
Hicks is Chairman of the Board and Chief Executive Officer of Hicks, Muse, Tate
& Furst Incorporated. From 1984 to May 1989, Mr. Hicks was Co-Chairman of the
Board and Co-Chief Executive Officer of Hicks & Haas Incorporated, a
Dallas-based private investment firm. Mr. Hicks serves as a Director, Chairman
and Chief Executive Officer of AMFM Inc. and as a Director of Viasystems Group,
Inc., International Home Foods, Inc., Sybron International Corporation, LIN
Holdings Corp., LIN Television Corporation, Regal Cinemas, Inc., Triton Energy
Limited, Mumm Perrier-Jouet, Teligent, Inc. and Cooperative Computing, Inc.
Jack D. Furst has been a Director of the Company since June 1998. Mr. Furst
is a Partner of Hicks, Muse, Tate & Furst Incorporated. Mr. Furst has
approximately 20 years of experience in leveraged acquisitions and private
investments. Mr. Furst is involved in all aspects of the Hicks, Muse, Tate &
Furst Incorporated business and has been actively involved in originating,
structuring and monitoring its investments. Prior to joining Hicks Muse, Mr.
Furst was a Vice President and subsequently a Partner of Hicks & Haas
Incorporated, a Dallas-based private investment firm from 1987 to May 1989. From
1984 to 1986, Mr. Furst was a merger and acquisition/corporate finance
specialist for The First Boston Corporation in
24
<PAGE> 25
New York. Before joining First Boston, Mr. Furst was a financial consultant at
Pricewaterhouse, LLP. Mr. Furst serves on the Board of Directors of Viasystems
Group, Inc., American Tower Corporation, Triton Energy Limited, Hedstrom
Holdings, Inc., International Wire Holding Company, Cooperative Computing, Inc.,
LLS Corp. and Globix Corporation.
Joseph Colonnetta has been a Director of the Company since August 1999. Mr.
Colonnetta has served as a Principal of Hicks, Muse, Tate & Furst Incorporated
since January 1999. From 1995 to 1998, Mr. Colonnetta served as a Managing
Principal of a management affiliate of Hicks, Muse, Tate & Furst Incorporated.
From 1994 to 1995, Mr. Colonnetta was an Operating Partner and Chief Executive
Officer of Triangle FoodService and StarMark Foods. From 1989 to 1994, Mr.
Colonnetta was the Chief Financial Officer of TRC, a company specializing in
repositioning and growing food-related companies. Mr. Colonnetta is also a
Director of Cooperative Computing, Inc., Regal Cinemas, Inc. and The Grand Union
Company.
Lawrence D. Stuart, Jr. became a Director of the Company in June 1998. Mr.
Stuart has been a Partner of Hicks, Muse, Tate & Furst Incorporated since 1995.
At Hicks, Muse, Tate & Furst Incorporated, Mr. Stuart coordinates all aspects of
negotiating and closing the firm's leveraged acquisition transactions and
managing the firm's relationships with professional service firms. Prior to
joining Hicks, Muse, Tate & Furst Incorporated Mr. Stuart had served for over 20
years as the principal outside legal counsel for the investment firms and
portfolio companies led by Thomas O. Hicks. From 1989 to 1995, Mr. Stuart was
the Managing Partner of the Dallas office of Weil, Gotshal & Manges L.L.P. Prior
thereto, he was a Partner at Johnson & Gibbs, where he was employed from 1973 to
1989. Prior to joining Johnson & Gibbs, he was employed at Rain, Harrell, Emery,
Young & Doke. Mr. Stuart serves on the Board of Directors of AMFM Inc.
Sheldon I. Stein became a Director in July 1998. Mr. Stein is a Senior
Managing Director and oversees United States Regional Investment Banking for
Bear Stearns. Prior to joining Bear Stearns in 1986, Mr. Stein was a partner in
the Dallas law firm of Hughes & Luce, where he specialized in corporate finance
and mergers and acquisitions. Mr. Stein serves on the Boards of Directors of
several public companies including Fresh America Corp., The Men's Wearhouse,
Inc., Precept Business Services, Inc. and Tandycrafts, Inc. He is a member of
the Board of Trustees of the Greenhill School and is a Trustee of Brandeis
University.
Robert H. Dedman, Jr. became a Director of the Company in May 1999. Mr.
Dedman is President and Chief Executive Officer of ClubCorp, Inc. and Chairman
of ClubCorp USA, Inc. Mr. Dedman was Director of Corporate Planning for ClubCorp
from 1980 to 1984 and then served as an associate at Salomon Brothers Inc.
specializing in mergers and acquisitions. In 1987 he returned to ClubCorp as CFO
and was named President and Chief Operating Officer in January 1989. Mr. Dedman
serves on the Board of Directors of ClubCorp, PGA European Tour Courses PLC,
Clublink Corporation, National Golf Foundation, Texas Research League, Southern
Methodist University Alumni Center Planning Committee, and University of Texas
at Austin Development Board.
Gretchen M. Williams became a Director of the Company in December 1998. Ms.
Williams is Co-Chairman of the Board and Co-Chief Executive Officer of Minyard
Food Stores, Inc., its divisions Sack 'N Save and Carnival Food Stores and its
subsidiary, Minyard Properties. She has been employed by Minyard Food Stores,
Inc. since 1978. Ms. Williams also serves as a Director of Chase Bank of Texas
N.A.
The Hicks Muse Shareholders and Adkins Family Partnership, Ltd., M. Douglas
Adkins, Estate of Fern Ardinger, Ardinger Family Partnership, Ltd., Donald J.
Carter, Linda J. Carter, Donald J. Carter, Jr., Christina L. Carter Urschel,
Ronald L. Carter, Carter 1997 Charitable Remainder Unitrust and Hammond Family
Trust (collectively, the "Carter Shareholders") entered into a Shareholders
Agreement (the "Shareholder Agreement") upon consummation of the
Recapitalization, which provides that the Board will consist of eleven members.
The Shareholders Agreement generally provides that Hicks Muse may designate six
Directors. Donald J. Carter, Jr., Barbara J. Hammond and Christina L. Carter
Urschel, as designees (the "Carter Designees") of the Carter Shareholders may
designate three Directors and Hicks Muse and the Carter Designees mutually may
designate two independent Directors. Thomas O. Hicks, Jack D. Furst, Lawrence D.
Stuart, Jr., Joseph Colonnetta and Sheldon I. Stein are designated as Directors
by Hicks Muse. Donald J. Carter, Jr., Barbara J. Hammond and Christina L. Carter
Urschel are designated as Directors by
25
<PAGE> 26
the Carter Designees. Hicks Muse and the Carter Designees mutually designated
Robert H. Dedman, Jr. and Gretchen M. Williams as independent Directors of the
Company. As of March 13, 2000, Hicks Muse is still entitled to designate one
additional Director.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Company does not have any class of equity securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended. Therefore, the
shareholders of the Company are not required to file reports pursuant to Section
16(a) thereof. Additionally, the Company has not been subject to the filing
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, for the past 90 days.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid during each of the
three years in the period ended December 31, 1999, to the Chief Executive
Officer and the other four most highly compensated executive officers who were
serving as executive officers at December 31, 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Donald J. Carter, Jr. ................................ 1999 500,324 -- --
Chairman of the Board and 1998 371,787 262,500 338,481
Chief Executive Officer 1997 192,288 190,500 --
Barbara J. Hammond.................................... 1999 475,519 -- --
Vice Chairman and Director 1998 443,753 249,375 --
1997 400,008 190,500 --
Christina L. Carter Urschel........................... 1999 400,267 -- --
President and Director 1998 313,453 210,000 338,481
1997 192,288 190,500 --
Leonard A. Robertson.................................. 1999 194,610 -- 4,688
Chief Administrative Officer 1998 180,000 48,600 11,080
1997 180,000 15,000 --
James W. Livingston................................... 1999 198,617 -- --
Vice President of Operations 1998 157,083 43,200 11,080
1997 51,683 10,417 --
</TABLE>
SUMMARY OF OPTION GRANTS
The following table provides certain summary information concerning grants
of options to the Named Executive Officers of the Company during the 1999 fiscal
year:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR PER SHARE ($) DATE VALUE $(1)
- ---- ----------- ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Donald J. Carter, Jr. ........ -- -- -- -- --
Barbara J. Hammond............ -- -- -- -- --
Christina L. Carter Urschel... -- -- -- -- --
Leonard A. Robertson.......... 4,688 11.1% $21.33 11/22/09 $5.97
James W. Livingston........... -- -- -- -- --
</TABLE>
26
<PAGE> 27
- ---------------
(1) The grant date present value was determined using the Minimum Value method
of option pricing with the following assumptions: dividend yield of zero,
risk-free interest rate of 5.63% and expected term of six years.
COMPENSATION OF DIRECTORS
Persons serving as independent Directors on the Board are paid $2,500 per
meeting. As the only independent Directors serving on the Board in 1998, Sheldon
I. Stein and Gretchen M. Williams each received $2,500 for their attendance at
the December 1998 meeting. Effective May 10, 1999, Robert H. Dedman, Jr. was
appointed to serve as an Independent Director of the Board.
During 1999, Board fees were paid to certain outside Directors in the
amount of $32,500 as follows: Mr. Stein received $15,000, Ms. Williams received
$12,500, and Mr. Dedman received $5,000.
In addition, the initial independent Directors of the Company were given
the right to purchase up to $100,000 of common stock and were granted stock
options to purchase up to $100,000 of common stock based on the amount of their
common-stock investment. Ms. Williams purchased 2,770 shares of common stock for
an aggregate purchase price of $50,000 and was granted options for 2,770 shares
of common stock at an exercise price equal to $18.05451. Mr. Stein's purchase of
common stock, indirectly through a limited partnership, qualified him to receive
options for 5,540 shares at an exercise price of $18.05451. Mr. Dedman purchased
4,688 shares of common stock for an aggregate purchase price of $100,000 and was
granted options for 4,688 shares of common stock at an exercise price equal to
$21.33. Ms. Williams and Mr. Stein were granted options on December 14, 1998.
Mr. Dedman was granted options on May 10, 1999. All such options vest in 20%
increments in five equal, consecutive annual installments on each anniversary of
the grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is comprised of Donald J. Carter Jr.,
Christina L. Carter Urschel, Thomas O. Hicks, and Jack D. Furst. All decisions
regarding compensation of executive officers are made by the Compensation
Committee.
EXECUTIVE EMPLOYMENT AND CONSULTING AGREEMENTS
On June 4, 1998, following the Recapitalization, the Company entered into
Executive Employment Agreements with each of Donald J. Carter, Jr., Barbara J.
Hammond and Christina L. Carter Urschel. Pursuant to the terms of the Executive
Employment Agreements, Donald J. Carter, Jr. will be employed as Chairman of the
Board and Chief Executive Officer of the Company for five years with a base
salary of $500,000 and with total annual compensation (including bonuses)
ranging from $500,000 to $1,125,000; Barbara J. Hammond will be employed as
President of the Company for two years with a base salary of $475,000 and with
total annual compensation (including bonuses) that ranges from $475,000 to
$1,068,750; and Christina L. Carter Urschel will be employed as Executive Vice
President of the Company until the retirement of Barbara J. Hammond (and as
President thereafter) for five years with a base salary of $400,000 ($475,000 as
President thereafter) and with total annual compensation (including bonuses)
that ranges from $400,000 to $900,000 ($475,000 to $1,068,750 at such time as
Mrs. Carter Urschel becomes President). The Executive Employment Agreements with
Donald J. Carter, Jr., Barbara J. Hammond and Christina L. Carter Urschel each
provide for lump sum severance payments in the event such individuals are
terminated by the Company without Cause (as defined in such Executive Employment
Agreements) or such individuals terminate their employment for Good Reason (as
defined in such Executive Employment Agreements). Subject to certain exceptions,
the amount of such lump sum severance payments equals (i) five times the
applicable executive's base salary if such executive is terminated within one
year after the Recapitalization or (ii) the greater of (a) the aggregate base
salary payable to the executive from the date of termination through the
expiration of the remainder of the term of the Executive Employment Agreement
and (b) three times the total base salary and annual bonus, if any, received by
the executive in the fiscal year preceding the fiscal year in which such
executive was terminated. In addition, each executive has agreed pursuant to his
or her
27
<PAGE> 28
Executive Employment Agreement not to compete with the Company during his or her
employment and for a period of three years after termination of such executive's
employment for any reason.
On November 1, 1999, the Company entered into an Employment Agreement with
Kenneth J. Cichocki. Mr. Cichocki is employed as Vice President of Finance and
Chief Financial Officer of the Company for one year with a base salary of
$250,000 and with total annual compensation (including bonuses) that ranges from
$250,000 to $350,000. Mr. Cichocki's Employment Agreement may be extended for
successive one-year periods.
1998 STOCK OPTION PLAN FOR KEY EMPLOYEES
On April 11, 1998, the Board adopted the 1998 Stock Option Plan for Key
Employees, pursuant to which options could be granted, after the consummation of
the Recapitalization, to key employees and eligible non-employees of the Company
and its subsidiaries for the purchase of shares of common stock. The 1998 Stock
Option Plan for Key Employees was approved by the shareholders of the Company at
its annual general meeting on May 16, 1998.
The employees eligible for options under the 1998 Stock Option Plan for Key
Employees are those employees whose performance and responsibilities are
determined by the Board (or a committee thereof) (in either case, the
"Committee") to be essential to the success of the Company and its subsidiaries.
A total of 1,353,924 shares of common stock are available for grant under the
1998 Stock Option Plan for Key Employees. Generally, the option period (i.e.,
the term under which an option is exercisable) may not be more than ten years
from the date the option is granted. The Committee will determine, in its
discretion, the key employees and eligible non-employees who will receive
grants, the number of shares subject to each option granted, the exercise price
and the option period and will administer and interpret the 1998 Stock Option
Plan for Key Employees.
Pursuant to the Merger Agreement and the applicable Executive Employment
Agreements, immediately after the consummation of the Recapitalization in June
1998, options for 338,481 shares were granted to each of Donald J. Carter, Jr.
and Christina L. Carter Urschel at an exercise price equal to $18.05451. The
options vest in 20% increments in five equal, consecutive annual installments on
each anniversary of the grant. Additionally, in July 1998, options for 11,080
shares were granted to each of Leonard A. Robertson, James W. Livingston and
Bettina S. Simon, executive officers of the Company, at the same exercise price
and with substantially similar terms. On March 15, 1999, Eugenia B. Price was
granted options totaling 9,376 shares at an exercise price of $21.33 per share.
On November 1, 1999, Kenneth J. Cichocki was granted options totaling 9,376
shares at an exercise price of $21.33 per share. On November 22, 1999, Leonard
A. Robertson was granted additional options for 4,688 shares of common stock at
an exercise price of $21.33 per share. Each of these options were granted with
substantially similar terms, as had been granted to other executive officers of
the Company. As of December 31, 1999, options for 984,432 shares of common stock
at an exercise price of $18.05451 and options for 42,192 shares of common stock
at an exercise price of $21.33 had been granted under the 1998 Stock Option Plan
for Key Employees. In 1999, options for 14,404 shares of common stock were
forfeited and options for 1,108 shares of common stock were exercised at an
exercise price of $18.05451. As of December 31, 1999, options for 336,164 shares
of common stock were available for grant under the Stock Option Plan for Key
Employees.
Although the Committee has full discretion to determine the terms of any
option, it is expected that options will generally vest or become exercisable in
equal annual installments over a five-year period. All installments that become
exercisable will be cumulative and may be exercised at any time after they
become exercisable until the expiration of the option period. Incentive stock
options and, unless otherwise specified in the applicable stock option
agreements, nonqualified stock options may not be transferred other than by will
or by the laws of descent and distribution. The Committee shall have the right,
but not the obligation, to accelerate the vesting of any option upon the
occurrence of, or the entering into an agreement providing for, a Change of
Control (as defined in the 1998 Stock Option Plan for Key Employees). Both
incentive stock options and nonqualified stock options may be granted under the
1998 Stock Option Plan for Key Employees.
28
<PAGE> 29
Unless terminated sooner in accordance with its terms, the 1998 Stock
Option Plan for Key Employees will terminate on April 11, 2008, and no options
may be granted under the 1998 Stock Option Plan for Key Employees thereafter.
The Committee may amend, modify, suspend or terminate the 1998 Stock Option Plan
for Key Employees without the shareholders' approval, except that, without
shareholder approval, the Committee will not have the power or authority to
increase the number of shares of common stock that may be issued pursuant to the
exercise of options under the 1998 Stock Option Plan for Key Employees, decrease
the minimum exercise price of any incentive stock options or modify the
requirements relating to eligibility with respect to incentive options. The
Committee may, however, make appropriate adjustments in the number and/or kind
of shares and/or interests subject to an option and the per share price or value
thereof to reflect any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares or other like
change in capital structure of the Company.
PURCHASE OPTION
Except in the case of options held by Donald J. Carter, Jr. and Christina
L. Carter Urschel, until such time as the Company has consummated an
underwritten public offering with the result that the ownership of the then
outstanding shares of common stock held by the Hicks Muse Shareholders (as
defined) is less than 10% of the fully diluted common stock, the Company shall
have the right, but not the obligation, to purchase an optionee's options or any
shares of common stock acquired pursuant to the exercise of his or her options
in the event of an optionee's termination of employment or the occurrence of a
Change of Control. "Change of Control" shall mean, generally, (a) any sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company to an unaffiliated person or entity or (b) a majority of the Board
shall consist of individuals other than those nominated by the majority of the
Directors then serving on the Board or affiliates of the Hicks Muse
Shareholders. If the Company exercises its right to purchase any optionee's
options or shares of common stock, the purchase price shall be equal to the fair
market value (as defined in the 1998 Stock Option Plan for Key Employees).
STOCK OPTION TRUST
Effective on June 4, 1998, the Company adopted the Home Interiors & Gifts,
Inc. 1998 Stock Option Plan for Unit Directors, Branch Directors, and certain
other independent contractors (the "1998 Independent Contractor Stock Option
Plan"). This Plan was put in place in order to afford certain Unit Directors,
Branch Directors and other independent contractors an opportunity to acquire a
proprietary interest in the Company. Options for a total of 338,481 shares of
common stock were available for grant under the 1998 Independent Contractor
Stock Option Plan. As of December 31, 1999, options for 275,330 shares of common
stock at an exercise price of $18.05451, and options for 22,230 shares of common
stock at an exercise price of $21.33 had been granted to a trustee (the "Trust
Options"), to be held in trust (the "Stock Option Trust") for the benefit of
such Unit Directors, Branch Directors and other independent contractors. As of
December 31, 1999, options for 40,913 shares of common stock were available for
grant under the Stock Option Trust. Under the terms of the Stock Option Trust,
the Trust Options vest in five equal annual installments from the date of grant
or, if earlier, upon the consummation of an underwritten initial public offering
of common stock satisfying certain requirements. The Trust Options expire on the
tenth anniversary of the date of grant. The Trust Options are not exercisable
until the first to occur of the 90th day following the consummation of an
underwritten initial public offering of common stock satisfying certain
requirements and the eighth anniversary of the consummation of the
Recapitalization. At such time as the Trust Options become exercisable, the
trust created under the Stock Option Trust will be liquidated and the Trust
Options will be distributed to the respective beneficiaries. Under certain
circumstances, the Company shall have the right to purchase the Trust Options,
or the shares of common stock issuable upon exercise thereof, for the difference
between the fair market value of the common stock underlying such Trust Options
and the option exercise price thereof.
29
<PAGE> 30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 13, 2000, certain information
regarding the beneficial ownership of the common stock by (i) each person who
owns beneficially more than 5% of the issued and outstanding shares of common
stock, (ii) each Director of the Company, (iii) each executive officer of the
Company named in "Item 11. Executive Compensation" and (iv) all Directors and
executive officers of the Company as a group. The Company believes that each
such holder has sole voting and dispositive power over the shares of common
stock held, except as otherwise indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK
-----------------------
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
OWNERSHIP OF CLASS
---------- ----------
<S> <C> <C>
5% SHAREHOLDERS
Donald J. Carter............................................ 942,151(1) 6.2%
8024 FM 428
Denton, Texas 76028
Hicks Muse Shareholders..................................... 10,111,436(2) 66.3%
c/o Hicks, Muse, Tate & Furst Incorporated
100 Crescent Court, Suite 1600
Dallas, Texas 75201
DIRECTORS AND EXECUTIVE OFFICERS
Donald J. Carter, Jr. ...................................... 666,253(3) 4.4%
Barbara J. Hammond.......................................... 535,714(4) 3.5%
Christina L. Carter Urschel................................. 665,894(5) 4.4%
Thomas O. Hicks............................................. 10,111,436(2) 66.3%
Kenneth J. Cichocki......................................... -- --
Leonard A. Robertson........................................ 280,860(6) 1.8%
James W. Livingston......................................... 3,716(7) *
Bettina S. Simon............................................ 2,216(7) *
Eugenia B. Price............................................ 1,875(8) *
Jack D. Furst............................................... --(9) --
Joseph Colonnetta........................................... -- --
Sheldon I. Stein............................................ 1,108(10) *
Lawrence D. Stuart, Jr. .................................... --(9) --
Gretchen M. Williams........................................ 3,324(11) *
Robert H. Dedman, Jr. ...................................... 937(12) *
All Directors and executive officers as a group (15 12,273,333 80.5%
persons)..................................................
</TABLE>
- ---------------
* less than 1%.
(1) Includes 33,996 shares held by Linda J. Carter, Donald J. Carter's wife.
Donald J. Carter disclaims beneficial ownership of all shares held by Linda
J. Carter.
(2) Consists of (i) 9,779,081 shares of common stock owned of record by HI
Equity Partners, L.P. ("HIEP"), a limited partnership whose sole general
partner is TOH Home Interiors LLC ("Home Interiors LLC"), (ii) 55,388
shares of common stock owned of record by HM/SS Investment Partners, L.P.,
("HMIP"), a limited partnership whose sole general partner is Home
Interiors LLC and (iii) 276,967 shares of common stock owned of record by
HM/BST Investment Partners, L.P. ("HM BST"), a limited partnership whose
sole general partner is Home Interiors LLC. Thomas O. Hicks is the sole
member and Director of Home Interiors LLC and, accordingly, may be deemed
to be the beneficial owner of common stock held by HIEP, HMIP and HM BST
(collectively, the "Hicks Muse Shareholders"). In addition, Mr. Hicks is an
indirect minority limited partner in HIEP. Mr. Hicks disclaims beneficial
ownership of common stock owned of record by the Hicks Muse Shareholders.
30
<PAGE> 31
(3) Includes 235 shares held by Penni W. Carter, Donald J. Carter, Jr.'s wife,
and a total of 422 shares held by Donald J. Carter, Jr. as custodian for
his three children. Donald J. Carter, Jr. disclaims beneficial ownership of
all shares held by Penni W. Carter. Also includes 67,696 shares of common
stock subject to presently exercisable options.
(4) Consists of 258,570 shares held in the name of Barbara J. Hammond and
Howard L. Hammond, Trustees of the Hammond Family Trust, and 277,144 shares
held in the name of David and Mary Crowley Family Partnership, Ltd. Barbara
J. Hammond shares voting and dispositive power with Howard L. Hammond as
Trustee of the Hammond Family Trust. Barbara J. Hammond is one of three
Directors of David and Mary Crowley Corporation, a Texas corporation that
is the sole general partner of David and Mary Crowley Family Partnership,
Ltd., and therefore may be deemed to share voting and dispositive power
with the other Directors. Barbara J. Hammond disclaims beneficial ownership
of all shares held in the name of David and Mary Crowley Family
Partnership, Ltd.
(5) Includes 174 shares held by Harold Clifton Urschel, III, Christina L.
Carter Urschel's husband, and 124 shares held by Christina L. Carter
Urschel as custodian for her child. Christina L. Carter Urschel disclaims
beneficial ownership of all shares held by Harold Clifton Urschel, III.
Also includes 67,696 shares of common stock subject to presently
exercisable options.
(6) Includes 277,144 shares held in the name of David and Mary Crowley Family
Partnership, Ltd. Leonard A. Robertson is one of three Directors of David
and Mary Crowley Corporation, a Texas corporation, that is the sole general
partner of David and Mary Crowley Family Partnership, Ltd., and therefore
may be deemed to share voting and dispositive power with the other
Directors. Leonard A. Robertson disclaims beneficial ownership of all
shares held in the name of David and Mary Crowley Family Partnership, Ltd.
Also includes 2,216 shares of common stock subject to presently exercisable
options.
(7) Includes 2,216 shares of common stock subject to presently exercisable
options.
(8) Includes 1,875 shares of common stock subject to presently exercisable
options.
(9) Each of Messrs. Furst and Stuart hold indirect minority limited partnership
interests in HIEP. Each of Messrs. Furst and Stuart disclaims beneficial
ownership of common stock owned of record by HIEP.
(10) Consists of 1,108 shares of common stock subject to presently exercisable
options. Mr. Stein also holds a limited partnership interest in HMIP. Mr.
Stein disclaims beneficial ownership of common stock owned of record by
HMIP.
(11) Includes 554 shares of common stock subject to presently exercisable
options.
(12) Includes 937 shares of common stock subject to presently exercisable
options.
THE SHAREHOLDERS' AGREEMENT
The Hicks Muse Shareholders and Adkins Family Partnership, Ltd., M. Douglas
Adkins, Estate of Fern Ardinger, Ardinger Family Partnership, Ltd., Donald J.
Carter, Linda J. Carter, Donald J. Carter, Jr., Christina L. Carter Urschel,
Ronald L. Carter, Carter 1997 Charitable Remainder Unitrust and Hammond Family
Trust (collectively, the "Carter Shareholders") entered into a Shareholders
Agreement (the "Shareholders Agreement") upon the consummation of the
Recapitalization, which provides that the Board will consist of eleven members,
including six Directors designated by Hicks Muse, three Directors designated by
the Carter Designees and two independent Directors mutually designated by the
Carter Designees and Hicks Muse. As of the date hereof, the Board consists of
eleven members. The number of Directors to be designated by Hicks Muse and the
Carter Designees is subject to adjustment based upon the ownership of common
stock by the Hicks Muse Shareholders and the Carter Shareholders. See "Item 10.
Directors and Executive Officers of the Registrant."
The Shareholders Agreement also includes the Company's grant of certain
registration rights to the Hicks Muse Shareholders and the Carter Shareholders,
pursuant to which they may require, after, if ever, the Company effects an
underwritten initial public offering of common stock for gross proceeds of in
excess of $25.0 million under the Securities Act, and subject to certain
restrictions, the Company to register under the
31
<PAGE> 32
Securities Act the shares of common stock owned by them. In addition, if the
Company proposes to register any of its securities under the Securities Act, the
Hicks Muse Shareholders and the Carter Shareholders shall have the right,
subject to certain restrictions, to include in such registration their shares of
common stock.
If any Hicks Muse Shareholders desire to transfer shares of common stock
representing more than 20% of the shares of common stock then held by the Hicks
Muse Shareholders, the Hicks Muse Shareholders must, subject to certain
restrictions, offer the Carter Shareholders the opportunity to include in the
proposed sale their proportionate share of the Carter Shareholders' common
stock. In addition, if through multiple sales of less than 20% of the shares of
common stock then held by the Hicks Muse Shareholders, the Hicks Muse
Shareholders desire to sell shares that, when aggregated with such prior sales,
would result in the Hicks Muse Shareholders holding less than 50% of the shares
of common stock held by them immediately after consummation of the
Recapitalization, the Carter Shareholders will have the right to sell shares of
their common stock in an amount equal to the same percentage of the shares they
owned immediately after consummation of the Recapitalization as the percentage,
in the aggregate, previously sold by the Hicks Muse Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Set forth below is a description of transactions entered into between the
Company and certain of its shareholders or affiliates during 1999.
EXECUTIVE EMPLOYMENT AGREEMENT WITH DONALD J. CARTER
In connection with the Recapitalization, the Company entered into an
Executive Employment Agreement with Donald J. Carter, a shareholder who
beneficially owns 6.2% of the outstanding common stock of the Company. Under the
terms of his Executive Employment Agreement, Donald J. Carter will remain with
the Company as Chairman Emeritus but will not work full-time. Donald J. Carter's
Executive Employment Agreement provides for an employment term of five years and
annual compensation of $200,000, plus reimbursement for certain business-related
aviation expenses, and the use of a Company-owned vehicle. Donald J. Carter's
Executive Employment Agreement generally requires the Company to pay Mr.
Carter's salary throughout the five-year term unless Mr. Carter voluntarily
terminates his employment during such term. Donald J. Carter has agreed,
pursuant to his Executive Employment Agreement, not to compete with the Company
during his employment and for three years thereafter (or, if earlier, until such
time as one of Mr. Carter's direct lineal descendants is no longer the Chief
Executive Officer of the Company). In 1999, the Company paid Mr. Carter
approximately $201,000 pursuant to the terms and conditions of his Executive
Employment Agreement.
CARTER & SONS FREIGHTWAYS, INC.
Ronald L. Carter, the brother of Donald J. Carter, Jr., Chief Executive
Officer, and Christina L. Carter Urschel, President, is President and Chief
Executive Officer of Carter & Sons Freightways, Inc. ("Carter & Sons"), a
trucking company that handles a small portion of the Company's freight. Ronald
L. Carter and Donald J. Carter own all of the outstanding stock of Carter &
Sons. During 1999, the Company paid Carter & Sons approximately $108,000 for its
services.
SALE OF HOMCO PROPERTY TO DONALD J. CARTER, JR.
On March 13, 2000, the Board approved the sale of the Homco manufacturing
and warehouse facility in McKinney, Texas to Donald J. Carter, Jr. for
approximately $3.7 million. Homco's sale of its McKinney property to Mr. Carter
is conditioned on Homco not receiving a better offer from a third party before
the consummation of that transaction. If Homco receives a better offer for the
property before the closing of that sale, Homco will have the right to accept
that offer unless Mr. Carter agrees to purchase the property on the price and
terms set forth in that offer. If Mr. Carter declines to purchase the property
on those terms, then Mr. Carter's contract will become a "back-up" contract
subordinate to the contract that Homco negotiates with the third party.
32
<PAGE> 33
The Company expects that the sale of the Homco facility will qualify as a
Section 1031 Tax-Free Exchange under the IRS Code. The Company expects to record
a pre-tax gain of approximately $3.0 million on the sale of this property for
financial reporting purposes in the first quarter of 2000.
CERTAIN OTHER TRANSACTIONS
In connection with the Recapitalization, the Company entered into an
agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse & Co.
Partners, L.P. ("Hicks Muse Partners"), an affiliate of Hicks Muse. The
Monitoring and Oversight Agreement makes available to the Company and its
management on an ongoing basis the resources of Hicks Muse Partners concerning a
wide variety of financial and operational matters. The Company does not believe
that the services that have been and will continue to be provided to the Company
by Hicks Muse Partners could otherwise be obtained by the Company without the
addition of personnel or the engagement of outside professional advisors.
Pursuant to the Monitoring and Oversight Agreement, the Company will pay Hicks
Muse Partners a fee, payable quarterly, for monitoring and oversight services to
be provided to the Company. The fee will be adjusted, but not below $1.0 million
on January 1 of each calendar year to an amount equal to 1.0% of the
consolidated annual budgeted earnings of the Company before interest, taxes,
depreciation and amortization, but in no event shall such fee exceed $1.5
million annually. The Company paid Hicks Muse Partners $1.2 million for
monitoring and oversight services in 1999.
In addition, the Company entered into an agreement (the "Financial Advisory
Agreement") with Hicks Muse Partners pursuant to which Hicks Muse Partners
received a financial advisory fee in an amount equal to $11.2 million for its
services as financial advisor to the Company in connection with the
Recapitalization and the transactions related thereto. If the Board requests
financial advisory services from Hicks Muse Partners from time to time after the
Recapitalization, Hicks Muse Partners also will be entitled to receive a fee
equal to 1.5% of the "transaction value" (as defined in the Financial Advisory
Agreement) for each "subsequent transaction" (as defined in the Financial
Advisory Agreement) in which the Company is involved. Each of the Monitoring and
Oversight Agreement and the Financial Advisory Agreement terminates upon the
earlier to occur of (a) the tenth anniversary of its execution, (b) at any time
prior to an underwritten initial public offering of common stock pursuant to the
Securities Act that meets certain requirements, if Hicks Muse and its affiliates
do not beneficially own at least 25% of the then outstanding shares of common
stock and Hicks Muse has not designated at least one member of the Board or (c)
at any time after such an underwritten initial public offering of common stock,
if Hicks Muse and its affiliates do not beneficially own at least 10% of the
then outstanding shares of common stock and Hicks Muse has not designated at
least one member of the Board.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements:
(1) and (2) Financial Statements and Schedules
See "Index to Consolidated Financial Statements and Schedules" on page
F-1.
33
<PAGE> 34
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger, dated April 13, 1998,
merging Crowley Investments, Inc. into the Company
(incorporated by reference to Exhibit 2.1 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
2.2 -- Articles of Merger, dated June 4, 1998 (incorporated by
reference to Exhibit 2.2 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
3.1 -- Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
3.2 -- Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
4.1 -- Indenture, dated as of June 4, 1998, among the Company,
as issuer, the Guarantors named therein and United States
Trust Company of New York (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
4.2 -- Purchase Agreement, dated as of May 28, 1998, among the
Company, as issuer, the Guarantors named therein and
Bear, Stearns & Co., Inc., Chase Securities, Inc., Morgan
Stanley Dean Witter and NationsBanc Montgomery Securities
LLC, as initial purchasers (incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
4.3 -- Exchange and Registration Rights Agreement, dated as of
June 4, 1998, among the Company, the Guarantors named
therein and Bear, Stearns & Co., Inc., Chase Securities,
Inc., Morgan Stanley Dean Witter and NationsBanc
Montgomery Securities LLC. (incorporated by reference to
Exhibit 4.3 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
10.1 -- Credit Agreement, dated as of June 4, 1998, among the
Company, the Lenders from time to time party thereto, The
Chase Manhattan Bank, as syndication agent, National
Westminster Bank, PLC, as documentation agent, The
Prudential Insurance Company of America, as a co-agent,
Societe Generale, as a co-agent, Citicorp USA, Inc., as a
co-agent, and Nationsbank, N.A., as administrative agent
for the Lenders (incorporated by reference to Exhibit
10.1 of the Company's Registration Statement on Form S-4,
No. 333-62021, filed on November 30, 1998).
10.1.1 -- First Amendment to Credit Agreement, dated as of December
18, 1998, among the Company, the Lenders from time to
time party thereto, The Chase Manhattan Bank, as
syndication agent, National Westminster Bank, PLC, as
documentation agent, The Prudential Insurance Company of
America, as a co-agent, Societe Generale, as a co-agent,
Citicorp USA, Inc., as a co-agent, and Nationsbank, N.A.,
as administrative agent for the Lenders (incorporated by
reference to Exhibit 10.1.1 of the Company's Annual
Report on Form 10-K, No. 333-62021, filed March 16,
1999).
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1.2 -- Second Amendment to Credit Agreement, dated as of March
12, 1999, among the Company, the Lenders from time to
time party thereto, The Chase Manhattan Bank, as
syndication agent, National Westminster Bank, PLC, as
documentation agent, The Prudential Insurance Company of
America, as a co-agent, Societe Generale, as a co-agent,
Citicorp USA, Inc., as a co-agent, and Nationsbank, N.A.,
as administrative agent for the Lenders (incorporated by
reference to Exhibit 10.1.2 of the Company's Annual
Report on Form 10-K, No. 333-62021, filed March 16,
1999).
10.1.3* -- Third Amendment to Credit Agreement, dated as of November
19, 1999, among the Company, the Lenders from time to
time party thereto, The Chase Manhattan Bank, as
syndication agent, National Westminster Bank, PLC, as
documentation agent, The Prudential Insurance Company of
America, as a co-agent, Societe Generale, as a co-agent,
Citicorp USA, Inc., as a co-agent, and Nationsbank, N.A.,
as administrative agent for the Lenders.
10.2 -- Financial Advisory Agreement, dated June 4, 1998, between
the Company, Dallas Woodcraft, Inc., GIA, Inc., Homco,
Inc., Homco Puerto Rico, Inc., Spring Valley Scents,
Inc., Homco de Mexico, S.A. de C.V., and Hicks, Muse &
Co. Partners, L.P. (incorporated by reference to Exhibit
10.2 of the Company's Registration Statement on Form S-4,
No. 333-62021, filed on November 30, 1998).
10.3 -- Monitoring and Oversight Agreement, dated June 4, 1998
between the Company, Dallas Woodcraft, Inc., GIA, Inc.,
Homco, Inc., Homco Puerto Rico, Inc., Spring Valley
Scents, Inc., Homco de Mexico, S.A. de C.V., and Hicks,
Muse & Co. Partners, L.P. (incorporated by reference to
Exhibit 10.3 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
10.4 -- Consulting Agreement, dated June 4, 1998, between Company
and Ronald L. Carter (incorporated by reference to
Exhibit 10.4 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
10.5 -- Home Interiors & Gifts, Inc. 1998 Stock Option Plan for
Key Employees, dated June 4, 1998 (incorporated by
reference to Exhibit 10.5 of the Company's Annual Report
on Form 10-K, No. 333-62021, filed March 16, 1999).
10.6 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Donald J. Carter (incorporated by
reference to Exhibit 10.6 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
10.7 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Donald J. Carter Jr.
(incorporated by reference to Exhibit 10.7 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
10.8 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Barbara J. Hammond (incorporated
by reference to Exhibit 10.8 of the Company's
Registration Statement on Form S-4, No. 333-62021, filed
on November 30, 1998).
10.9 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Christina L. Carter Urschel
(incorporated by reference to Exhibit 10.9 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
10.10 -- Home Interiors & Gifts, Inc., 1998 Stock Option Plan for
Unit Directors, Branch Directors and Certain Other
Independent Contractors (incorporated by reference to
Exhibit 10.10 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.11 -- Home Interiors & Gifts, Inc. 1998 Stock Option Trust,
dated June 4, 1998 (incorporated by reference to Exhibit
10.11 of the Company's Registration Statement on Form
S-4, No. 333-62021, filed on November 30, 1998).
10.12 -- Agreement, dated February 26, 1997, by and between the
Company and Distribution Architects International, Inc.
(incorporated by reference to Exhibit 10.12 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
10.13 -- ISDA Master Agreement, dated as of June 25, 1998, by and
between NationsBank, N.A. and the Company (incorporated
by reference to Exhibit 10.13 of the Company's
Registration Statement on Form S-4, No. 333-62021, filed
on November 30, 1998).
10.14 -- Shareholders Agreement, as of June 4, 1998 between the
Company, Adkins Family Partnership, LTD., M. Douglas
Adkins, Estate of Fern Ardinger, Ardinger Family
Partnership, LTD., Donald J. Carter, Jr., Linda J.
Carter, Ronald Lee Carter, Donald J. Carter, William J.
Hendrix, as Independent Special Trustee of the Carter
1997 Charitable Remainder Unit Trust, Howard L. Hammond
and Barbara J. Hammond, Trustees of the Hammond Family
Trust and Christina Carter Urschel (incorporated by
reference to Exhibit 10.14 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
10.15 -- Agreement of Partnership of Laredo Candle Company, dated
as of December 14, 1998, between the Company and Miracle
Candle Company (incorporated by reference to Exhibit
10.15 of the Company's Annual Report on Form 10-K, No.
333-62021, filed March 16, 1999).
10.15.1 -- First Amendment to Agreement of Partnership of Laredo
Candle Company, dated as of February 1, 1999, between the
Company and Miracle Candle Company (incorporated by
reference to Exhibit 10.15.1 of the Company's Annual
Report on Form 10-K, No. 333-62021, filed March 16,
1999).
10.16 -- Consulting Services Agreement dated as of June 3, 1999,
between the Company and Tompkins Associated Incorporated
(incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.17 -- Real Estate Purchase Contract dated July 19, 1999,
between the Company and Parker Equities, Inc.
(incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.17.1 -- First Amendment to Real Estate Purchase Contract dated
July 19, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.17.2 -- Second Amendment to Real Estate Purchase Contract dated
August 18, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on November 8, 1999).
10.17.3 -- Third Amendment to Real Estate Purchase Contract dated
August 18, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on November 8, 1999).
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17.4 -- Fourth Amendment to Real Estate Purchase Contract dated
August 18, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on November 8, 1999).
10.18 -- Purchase and Sale Agreement dated July 19, 1999, between
Argent Frankford, L.P. and the Company (incorporated by
reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q, No. 333-62021, filed on August 13,
1999).
10.18.1 -- First Amendment to Purchase and Sale Agreement dated July
23, 1999, between Argent Frankford, L.P. and the Company
(incorporated by reference to Exhibit 10.5 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.18.2* -- Second Amendment to Purchase and Sale Agreement dated
October 20, 1999, between Argent Frankford, L.P. and the
Company.
10.18.3* -- Third Amendment to Purchase and Sale Agreement dated
February 9, 2000, between Argent Frankford, L.P. and the
Company.
10.19 -- Employment Agreement dated November 1, 1999, between the
Company and Parker Equities, Inc. (incorporated by
reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q of the Company, No. 333-62021, filed
on November 8, 1999).
10.20* -- Professional Services Agreement dated December 1, 1999,
between EXE Technologies, Inc. and the Company.
10.21* -- Master Software License Agreement dated December 1, 1999,
between EXE Technologies, Inc. and the Company.
10.22* -- Granite Tower at the Centre Office Lease dated August 17,
1999, between 520 Partners, Ltd. and the Company.
10.23* -- Proposal Including Sales Agreement No. 56-5879 Rev. B
dated December 14, 1999, between Mannesmann Dematic
Rapistan Corp. and the Company.
10.24* -- Proposal Including Sales Agreement No. 56-5898 Rev. B
dated December 14, 1999, between Mannesmann Dematic
Rapistan Corp. and the Company.
10.25* -- Proposal Including Sales Agreement No. 56-5738 Rev. B
dated December 14, 1999, between Mannesmann Dematic
Rapistan Corp. and the Company.
10.26* -- Form of Purchase and Sale Agreement between Homco, Inc.
and Donald J. Carter, Jr.
21.1* -- Subsidiaries of the Company.
27.1* -- Financial Data Schedule (EDGAR only).
</TABLE>
- ---------------
* Filed herewith.
(b) Reports on Form 8-K; Not applicable.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOME INTERIORS & GIFTS, INC.
By: /s/ DONALD J. CARTER, JR.
---------------------------------
Donald J. Carter, Jr.
Chairman of the Board and
Chief Executive Officer
Date: March 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD J. CARTER, JR. Chairman of the Board and Chief March 13, 2000
- ----------------------------------------------------- Executive Officer (principal
Donald J. Carter, Jr. executive officer)
/s/ BARBARA J. HAMMOND Director and Vice Chairman March 13, 2000
- -----------------------------------------------------
Barbara J. Hammond
/s/ CHRISTINA L. CARTER URSCHEL Director and President March 13, 2000
- -----------------------------------------------------
Christina L. Carter Urschel
/s/ KENNETH J. CICHOCKI Vice President of Finance and March 13, 2000
- ----------------------------------------------------- Chief Financial Officer
Kenneth J. Cichocki (principal financial and
accounting officer)
/s/ THOMAS O. HICKS Director March 13, 2000
- -----------------------------------------------------
Thomas O. Hicks
/s/ JACK D. FURST Director March 13, 2000
- -----------------------------------------------------
Jack D. Furst
/s/ JOSEPH COLONNETTA Director March 13, 2000
- -----------------------------------------------------
Joseph Colonnetta
/s/ SHELDON I. STEIN Director March 13, 2000
- -----------------------------------------------------
Sheldon I. Stein
/s/ GRETCHEN M. WILLIAMS Director March 13, 2000
- -----------------------------------------------------
Gretchen M. Williams
/s/ ROBERT H. DEDMAN, JR. Director March 13, 2000
- -----------------------------------------------------
Robert H. Dedman, Jr.
</TABLE>
38
<PAGE> 39
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 1997, 1998 and
1999...................................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1997, 1998 and 1999...... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule II Valuation and Qualifying Accounts............... F-28
</TABLE>
F-1
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
March 13, 2000
To the Board of Directors and Shareholders
of Home Interiors & Gifts, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive income,
shareholders' equity (deficit) and cash flows present fairly, in all material
respects, the consolidated financial position of Home Interiors & Gifts, Inc.
and Subsidiaries as of December 31, 1998 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
F-2
<PAGE> 41
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 41,024 $ 32,406
Accounts receivable, net.................................. 7,975 13,885
Inventories, net.......................................... 31,010 42,716
Deferred income tax benefit............................... 2,164 3,922
Other current assets...................................... 1,040 4,736
--------- ---------
Total current assets.............................. 83,213 97,665
Property, plant and equipment, net.......................... 21,774 30,473
Restricted cash............................................. -- 14,590
Investments................................................. 1,667 1,668
Debt issuance costs, net.................................... 19,132 15,881
Other assets................................................ 6,662 1,264
--------- ---------
Total assets...................................... $ 132,448 $ 161,541
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 13,119 $ 20,986
Accrued seminars and incentive awards..................... 12,422 14,146
Royalties payable......................................... 6,922 9,771
Hostess prepayments....................................... 8,719 8,687
Income taxes payable...................................... 4,101 2,858
Current maturities of long-term debt and capital lease
obligations............................................ 33,723 27,308
Other current liabilities................................. 13,555 11,318
--------- ---------
Total current liabilities......................... 92,561 95,074
Long-term debt and capital lease obligations, net of current
maturities................................................ 453,277 428,238
Other liabilities........................................... 176 6,443
--------- ---------
Total liabilities................................. 546,014 529,755
--------- ---------
Minority interest........................................... 508 2,972
Commitments and contingencies (see Note 15)
Shareholders' equity (deficit):
Preferred stock, 10,000 shares authorized................... -- --
Common stock, par value $0.10 per share, 75,000,000 shares
authorized, 15,234,422 and 15,240,218 shares issued and
outstanding............................................ 1,523 1,524
Additional paid-in capital................................ 178,944 179,975
Accumulated deficit....................................... (594,314) (552,726)
Other..................................................... (227) 41
--------- ---------
Total shareholders' equity (deficit).............. (414,074) (371,186)
--------- ---------
Total liabilities and shareholders' equity
(deficit)....................................... $ 132,448 $ 161,541
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 42
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $468,845 $490,223 $503,344
Cost of goods sold.......................................... 239,664 242,343 240,390
-------- -------- --------
Gross profit................................................ 229,181 247,880 262,954
Selling, general and administrative:
Selling................................................... 74,010 81,124 89,721
Freight, warehouse and distribution....................... 41,844 44,718 49,860
General and administrative................................ 23,921 20,641 27,270
Gains on the sale of assets............................... (198) (6,375) (10,650)
Stock option expense...................................... -- 563 912
Recapitalization expenses................................. -- 6,198 --
-------- -------- --------
Total selling, general and administrative......... 139,577 146,869 157,113
-------- -------- --------
Operating income............................................ 89,604 101,011 105,841
Other income (expense):
Interest income........................................... 7,985 5,563 2,978
Interest expense.......................................... (362) (27,532) (44,081)
Other income (expense), net............................... 2,884 1,020 (183)
-------- -------- --------
Other income (expense), net....................... 10,507 (20,949) (41,286)
-------- -------- --------
Income before income taxes.................................. 100,111 80,062 64,555
Income taxes................................................ 37,919 31,807 22,967
-------- -------- --------
Net income.................................................. 62,192 48,255 41,588
Other comprehensive income (loss), before tax:
Cumulative translation adjustment......................... (88) (139) 268
Unrealized gains (losses) on investments.................. 1,074 (1,074) --
-------- -------- --------
Other comprehensive income (loss), before tax..... 986 (1,213) 268
Income tax (expense) benefit related to items of other
comprehensive income................................... (376) 376 --
-------- -------- --------
Other comprehensive income (loss), net of tax..... 610 (837) 268
-------- -------- --------
Comprehensive income........................................ $ 62,802 $ 47,418 $ 41,856
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 43
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON COMMON PAID-IN (ACCUMULATED TREASURY
SHARES STOCK CAPITAL DEFICIT) STOCK OTHER TOTAL
----------- ------- ---------- ------------ -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996......... 58,704,900 $5,870 $ -- $ 209,171 $(73,814) $ -- $ 141,227
Net income....................... 62,192 62,192
Issuance of common stock......... 237,600 24 1,120 1,144
Cumulative translation
adjustment..................... (88) (88)
Unrealized gains on
investments.................... 698 698
Dividends, $0.30 per share....... (15,242) (15,242)
----------- ------- -------- --------- -------- ----- ---------
Balance, December 31, 1997......... 58,942,500 5,894 1,120 256,121 (73,814) 610 189,931
Net income....................... 48,255 48,255
Recapitalization adjustments (see
Note 3):
Issuance of common stock to
Hicks Muse................... 10,111,436 1,011 181,546 182,557
Purchase and retirement of
common stock................. (45,836,584) (4,584) (1,120) (821,853) (827,557)
Retirement of treasury stock... (7,985,700) (798) (73,016) 73,814 --
Transaction fees and
expenses..................... (3,215) (3,215)
Issuance of common stock......... 2,770 -- 50 50
Cumulative translation
adjustment..................... (139) (139)
Unrealized losses on
investments.................... (698) (698)
Stock option expense............. 563 563
Dividends, $0.075 per share...... (3,821) (3,821)
----------- ------- -------- --------- -------- ----- ---------
Balance, December 31, 1998......... 15,234,422 1,523 178,944 (594,314) -- (227) (414,074)
Net income....................... 41,588 41,588
Issuance of common stock......... 5,796 1 119 120
Cumulative translation
adjustment..................... 268 268
Stock option expense............. 912 912
----------- ------- -------- --------- -------- ----- ---------
Balance, December 31, 1999......... 15,240,218 $1,524 $179,975 $(552,726) $ -- $ 41 $(371,186)
=========== ======= ======== ========= ======== ===== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 44
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 62,192 $ 48,255 $ 41,588
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,613 3,170 4,032
Amortization of debt issuance costs and other............. 146 1,986 3,251
Provision for doubtful accounts........................... 753 664 1,662
Provision for losses on inventories....................... 1,561 -- 1,342
Gains on the sale of assets............................... (198) (6,375) (10,650)
Stock option expense...................................... -- 563 912
Realized gains on investments............................. (1,859) (203) --
Equity in earnings of an affiliate........................ (180) (159) (1)
Deferred tax expense (benefit)............................ (577) 364 1,591
Minority interest......................................... -- -- 163
Changes in assets and liabilities:
Accounts receivable..................................... (1,754) 1,023 (8,867)
Inventories............................................. (8,958) (479) (13,048)
Other current assets.................................... (32) (600) (2,946)
Other assets............................................ (491) 470 (179)
Accounts payable........................................ 1,229 4,418 6,948
Income taxes payable.................................... (989) 994 (1,243)
Other accrued liabilities............................... 6,829 5,056 3,160
--------- --------- ---------
Total adjustments................................... (1,907) 10,892 (13,515)
--------- --------- ---------
Net cash provided by operating activities........... 60,285 59,147 28,073
--------- --------- ---------
Cash flows from investing activities:
Purchases of investments and other assets................. (204,315) (87,482) --
Proceeds from the sale of investments..................... 142,388 155,163 --
Deposit on new warehouse and distribution facility........ -- -- (750)
Purchases of property, plant and equipment................ (4,617) (7,935) (10,540)
Purchases of property, plant, and equipment by the
minority owner of Laredo Candle......................... -- (508) (2,163)
Issuance of notes receivable.............................. (2,520) -- --
Payments received on notes receivable..................... 1,812 2,045 6,464
Proceeds from the sale of property, plant and equipment... 229 7,800 --
Other..................................................... -- -- 304
--------- --------- ---------
Net cash (used in) provided by investing
activities........................................ (67,023) 69,083 (6,685)
--------- --------- ---------
Cash flows from financing activities:
Dividends paid............................................ (22,190) (9,554) --
Capital contribution from the minority owner of Laredo
Candle.................................................. -- 508 2,301
Proceeds from issuance of common stock.................... 430 182,607 120
Purchase of treasury stock................................ -- (827,557) --
Proceeds from issuance of the Notes....................... -- 200,000 --
Proceeds from borrowings under the Senior Credit
Facility................................................ -- 300,000 --
Payments under the Senior Credit Facility................. -- (13,000) (32,695)
Debt issuance costs....................................... -- (21,118) --
Recapitalization fees and expenses........................ -- (3,215) --
--------- --------- ---------
Net cash used in financing activities............... (21,760) (191,329) (30,274)
--------- --------- ---------
Effect of cumulative translation adjustment................. (88) (139) 268
--------- --------- ---------
Net decrease in cash and cash equivalents................... (28,586) (63,238) (8,618)
Cash and cash equivalents at beginning of year.............. 132,848 104,262 41,024
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 104,262 $ 41,024 $ 32,406
========= ========= =========
Supplemental disclosures:
Income taxes paid......................................... $ 38,723 $ 29,935 $ 24,210
Interest paid............................................. 19 22,354 40,692
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 45
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BACKGROUND
Home Interiors & Gifts, Inc., ("HI") together with its subsidiaries (the
"Company"), is a direct seller of home decorative accessories using the "party
plan" method whereby members of its non-employee, independent sales
representatives ("Displayers") conduct shows in the homes of potential
customers. The Company believes that in-home shows provide a comfortable
environment where the unique benefits and attributes of the Company's products
can be demonstrated in a more effective manner than the typical retail setting.
The Company has been located in Dallas, Texas since its inception in 1957.
Approximately 27% of the dollar volume of products purchased by the Company in
1999 were purchased from, and manufactured by, the Company's subsidiaries. The
Company's subsidiaries sell substantially all of their products to the Company.
The Company purchases the remainder of its product line from a select group of
independent suppliers, many of whom sell their products exclusively to the
Company. The Company expanded its operations internationally in 1995.
The following is a brief description of the Company's subsidiaries, each of
which is wholly-owned, except as indicated:
- Dallas Woodcraft, Inc. ("DWC") manufactures framed artwork and mirrors
using custom-designed equipment.
- GIA, Inc. ("GIA") and Homco, Inc. ("Homco") manufacture various types of
molded plastic products using custom-designed equipment. On February 1,
2000, the Company announced that it would combine its two separate
injection molding facilities into a single facility at GIA in Grand
Island, Nebraska. (See Note 14).
- Laredo Candle Company, L.L.P. ("Laredo Candle"), which is owned 60% by
the Company, recently was established and began manufacturing candles in
late 1999.
- Subsidiaries of the Company in Mexico and Puerto Rico provide sales
support services to the international Displayers.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its accounting records and prepares financial
statements on the accrual basis of accounting, which conforms with generally
accepted accounting principles. Following these principles, management makes
estimates and assumptions that affect the amounts reported in the financial
statements and notes. Actual results may differ from these estimates.
Principles of Consolidation
These consolidated financial statements include the accounts of the
Company. Accordingly, all significant inter-company transactions have been
eliminated.
Financial Instruments
The Company considers all liquid interest-bearing instruments with a
maturity of three months or less when purchased to be cash equivalents. The
Company maintains cash and cash equivalents at financial institutions in excess
of federally insured limits.
The Company uses interest rate swap agreements to limit the effect of
changes in interest rates on its variable rate long-term borrowings. Periodic
amounts paid or received under the swap agreements are recorded as part of
interest expense. The swaps contain option provisions, which are separately
valued and adjusted to market quarterly. Any resulting gain or loss is included
in other income (expense).
F-7
<PAGE> 46
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost or current market price using
the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at the cost of the asset less
accumulated depreciation. Depreciation is computed using the declining balance
and straight-line methods over estimated useful lives. Major expenditures for
property, plant and equipment and those which substantially increase useful
lives are capitalized. Direct external costs of developing software, including
programming and enhancements, are capitalized and amortized over the estimated
useful lives once the software is placed in service. Software training costs,
maintenance and repairs are expensed as incurred. When assets are sold or
otherwise disposed of, costs and related accumulated depreciation are removed
from the financial statements and any resulting gains or losses are included in
operating income.
Income Taxes
The Company files its federal income tax return on a consolidated basis.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income tax purposes, based upon enacted tax rates in effect for the
periods the tax differences are expected to be settled or realized.
Sales Recognition
Sales are recognized when products are shipped.
Hostess Prepayments
As a sales incentive, hostesses earn certificates redeemable for an
exclusive line of hostess merchandise. The amount of certificates awarded to
hostesses varies depending, among other things, upon the sales of the show, the
number of customers attending the show and whether any promotional program is in
effect. The Company issues these certificates to its Displayers in exchange for
cash and establishes a liability for the amount of certificates issued. These
certificates are later redeemed by Displayers as payment for hostess
merchandise. The Company reduces the liability for these hostess certificates to
the extent that purchased certificates are not expected to be redeemed based on
historical redemption rates and management's estimates and assumptions.
Foreign Currency Translation
The balance sheet accounts of the Company's foreign operations are
translated into U.S. dollars at the year-end exchange rate. Revenues and
expenses are translated at the weighted average exchange rate for each period.
Translation gains and losses are included in shareholders' equity (deficit).
New Accounting Pronouncement
In June 1999, the Financial Accounting Standards Board (the "FASB") voted
to delay the effective date for implementation of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The new standard is effective for fiscal years
beginning after June 15, 2000. The Company has not yet determined the effect the
new standard will have on its financial statements.
F-8
<PAGE> 47
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain reclassifications have been made to prior years' balances to
conform with current year presentation.
3. THE RECAPITALIZATION
The Company completed a recapitalization (the "Recapitalization") on June
4, 1998 through the following simultaneous transactions:
- contribution of $182.6 million by Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") in exchange for 10,111,436 shares of the common stock, or
approximately 66% of all outstanding shares upon completion of the
Recapitalization;
- issuance of $200.0 million of senior subordinated notes (the "Notes");
- borrowing of $300.0 million under a $340.0 million senior credit facility
(the "Senior Credit Facility"); and,
- use of the above proceeds, together with available cash of $169.3
million, to:
-- redeem 45,836,584 shares of common stock for $827.6 million
-- pay fees and expenses of $24.3 million associated with the
Recapitalization consisting of:
- $11.2 million financial advisory fee paid to Hicks Muse for its role
in obtaining financing for the Recapitalization;
- $11.6 million of debt issuance costs paid primarily to the bank
syndicate group for the Senior Credit Facility and the initial
purchasers of the Notes; and,
- $1.5 million of legal and accounting fees
The Company allocated the Hicks Muse financial advisory fee and the legal
and accounting fees on a proportionate basis to the debt and equity financing
for the Recapitalization. Accordingly, the Company allocated $9.5 million to
debt issuance costs and $3.2 million to additional paid-in capital. The total
debt issuance costs of $21.1 million are being amortized using the effective
interest method over the term of the related indebtedness.
In addition to the $24.3 million of fees and expenses related to the
Recapitalization, the Company paid additional financial advisory and legal fees
of approximately $6.2 million in connection with the Recapitalization. The
Company paid its financial advisor approximately $5.7 million to assist with the
development of strategic alternatives, identify potential buyers, evaluate
proposals and assist in the negotiation of the Hicks Muse offer. These financial
advisory and legal fees were expensed as incurred and are reflected as
Recapitalization expenses in the accompanying statement of operations.
As a result of the Recapitalization, the issued and outstanding shares of
common stock decreased to 15,231,652 shares as of June 4, 1998, all treasury
stock was retired and Hicks Muse acquired a controlling interest in the Company.
Hicks Muse and Adkins Family Partnership, Ltd., M. Douglas Adkins, Estate
of Fern Ardinger, Ardinger Family Partnership, Ltd., Donald J. Carter, Linda J.
Carter, Donald J. Carter, Jr., Christina L. Carter Urschel, Ronald L. Carter,
Carter 1997 Charitable Remainder Unitrust and Hammond Family Trust
(collectively, the "Carter Shareholders") entered into a Shareholders Agreement
(the "Shareholders Agreement") upon the consummation of the Recapitalization.
The Shareholders Agreement provides that the Company's Board of Directors (the
"Board") shall consist of six Directors designated by Hicks Muse, three
F-9
<PAGE> 48
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Directors designated by the Carter Shareholders, and two independent Directors
mutually designated. As of March 13, 2000, Hicks Muse is still entitled to
designate one additional Director.
The Shareholders Agreement provides certain registration rights to Hicks
Muse and the Carter Shareholders. Hicks Muse and the Carter Shareholders may
require the Company to register or include their shares in any future
registration of securities. The Carter Shareholders also have the right to be
included, on a proportionate basis, in any proposed sale of common stock by
Hicks Muse if (i) such sale individually represents more than 20% of the shares
then held by Hicks Muse or (ii) in the aggregate, such sale would result in
Hicks Muse having sold more than 50% of the shares held by Hicks Muse
immediately subsequent to the Recapitalization.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Trade receivables.......................................... $5,090 $14,166
Current portion of notes receivable........................ 1,485 189
Other...................................................... 1,748 843
------ -------
8,323 15,198
Allowance for doubtful accounts............................ (348) (1,313)
------ -------
$7,975 $13,885
====== =======
</TABLE>
5. INVENTORIES
Inventories, net consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Raw materials............................................. $ 6,134 $ 7,085
Work in process........................................... 1,742 2,598
Finished goods............................................ 23,134 33,033
------- -------
$31,010 $42,716
======= =======
</TABLE>
As of December 31, 1999, raw materials include an allowance of $593,000 for
obsolete materials, and finished goods include a net realizable value provision
of $749,000. No provision or allowance for losses on inventories was recorded as
of December 31, 1998.
F-10
<PAGE> 49
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of December 31
(in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1998 1999
----------- -------- --------
<S> <C> <C> <C>
Land................................................ $ 5,388 $ 4,290
Buildings and improvements.......................... 5-40 years 18,416 15,427
Computer hardware and software...................... 5 years 2,831 8,024
Equipment, furniture and fixtures................... 3-10 years 29,758 35,650
-------- --------
56,393 63,391
Accumulated depreciation and amortization........... (36,882) (34,798)
-------- --------
19,511 28,593
Software and hardware implementation in process..... 2,263 510
Distribution automation in process.................. -- 1,370
-------- --------
$ 21,774 $ 30,473
======== ========
</TABLE>
Equipment, furniture and fixtures include furniture and fixtures held under
a capital lease obligation, with a cost of $1,241,000 and no accumulated
amortization as of December 31, 1999. No assets were held under capital lease
obligations as of December 31, 1998.
7. NEW WAREHOUSE AND DISTRIBUTION FACILITY
The Company is currently operating in and from several separate warehouse
and distribution facilities. On July 19, 1999, the Company entered into a
contract with Argent Frankford L.P. ("Argent") to construct a new 660,000
square-foot warehouse and distribution facility in Carrollton, Texas for
approximately $19.4 million. The contract has been amended to provide that
Argent will complete $2.0 million of customized improvements to the facility,
for a total purchase price of approximately $21.4 million. The "shell" facility
is substantially complete and Argent is nearing completion of the interior
improvements to the warehouse portion of the facility. The Company expects to
incur an additional $1.2 million in office improvements to the facility.
On December 1, 1999, the Company sold substantially all its owned
properties and facilities in the Dallas area, including all its warehouse and
distribution facilities and its corporate headquarters, to Parker Equities, Inc.
("Parker") for approximately $14.7 million. On February 23, 2000, the Company
used the $14.7 million in net proceeds from this sale to purchase an undivided
69% interest in the new warehouse and distribution facility from Argent. The
remaining undivided 31% interest in the facility will be purchased by the
Company for approximately $6.7 million. The Company has agreed to complete the
purchase no later than May 26, 2000.
The new warehouse and distribution facility will allow the Company to use
an automated order fulfillment system, which the Company expects will result in
significant labor savings. The automated order fulfillment system will include a
new conveyor system, special racks and storage bins, and a warehouse management
software system. In December 1999, the Company entered into a capital lease
obligation with Bank One Leasing for certain equipment associated with the
automated order fulfillment system to be used in the new warehouse and
distribution facility. Construction of the automated order fulfillment system is
in process and should be completed by April 2000. The initial term of the lease
is 7 years. Interest is imputed at approximately 7.06%. Total costs of the
equipment are approximately $6.2 million. Total annual payments equal $1.4
million, which are payable in monthly installments. The amounts are funded by
the lessor as the equipment is purchased. As of December 31, 1999, no funding
had occurred under this capital lease obligation.
F-11
<PAGE> 50
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company expects that the sale of its current facilities and properties
in exchange for the purchase of the new warehouse and distribution facility will
qualify as a non-taxable Section 1031 like-kind exchange under the United States
Internal Revenue Code of 1986, as amended (the "IRC"). The Company recorded a
pre-tax gain of approximately $10.6 million on the sale of its properties and
facilities for financial reporting purposes in 1999.
The transactions described above required the consent of the Company's
senior lenders, which the Company obtained in November 1999. Additionally, the
Senior Credit Facility was amended to exclude these transactions from certain
debt covenant requirements.
On December 1, 1999, the Company entered into several lease agreements to
lease back the properties and facilities sold to Parker until the Company's new
warehouse and distribution facility is ready for occupancy, which is expected to
be in April 2000. The lease terms vary in length based on a predetermined
schedule of facility closings between April 2000 and August 2000 with month to
month extensions available for certain properties through December 2000. The
Company expects that its rent expense associated with the lease of these
facilities will be approximately $1.1 million in 2000. Rent expense associated
with the lease of these facilities totaled $149,000 in 1999.
8. CORPORATE HEADQUARTERS FACILITY
On January 3, 2000, the Company entered into a ten-year lease for a new
corporate headquarters location in Dallas, Texas. This facility consists of
approximately 75,000 square feet of office space for annual rent of
approximately $1.6 million. Tenant improvements to customize the space totaled
approximately $2.9 million, of which approximately $2.0 million was borne by the
landlord as improvement allowances and $0.9 million was included in accounts
payable as of December 31, 1999. Additionally, on December 30, 1999, the Company
entered into a $1.2 million capital-lease obligation for certain furniture and
fixtures to be used in the new corporate headquarters.
Future minimum annual lease payments due under non-cancellable operating
lease agreements for the new corporate headquarters as of December 31, 1999, is
as follows (in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 1,416
2001....................................................... 1,416
2002....................................................... 1,416
2003....................................................... 1,416
2004....................................................... 1,416
Thereafter................................................. 7,450
-------
$14,530
=======
</TABLE>
The Company's rent payments per square foot are fixed for the first 5 years
and escalate to a fixed amount per square foot for the remaining five years of
the lease term. Approximately $2.0 million of tenant improvements borne by the
landlord are being deferred and amortized over the term of the lease. These
deferred lease incentives reduce annual rent expense by approximately $200,000
and are included in other liabilities as of December 31, 1999. The Company did
not incur any rent expense under the lease for the new corporate headquarters in
1999.
F-12
<PAGE> 51
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following as of December 31,
1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Interest payable.......................................... $ 2,959 $ 2,289
Accrued compensation...................................... 3,606 2,803
Employee benefit plan contributions....................... 2,264 1,190
Sales taxes payable....................................... 1,871 2,644
Other current liabilities................................. 2,855 2,392
------- -------
$13,555 $11,318
======= =======
</TABLE>
10. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
In connection with the Recapitalization, the Company issued $200.0 million
of Notes and entered into a $340.0 million Senior Credit Facility, which
includes $40.0 million of revolving loans (the "Revolving Loans"). The Revolving
Loans remained undrawn as of December 31, 1999. Prior to the Recapitalization,
the Company had no indebtedness. The Senior Credit Facility provides for a
$200.0 million term loan (the "Tranche A Loan"), a $100.0 million term loan (the
"Tranche B Loan"), and $40.0 million of Revolving Loans. The Company may use the
Revolving Loans for letters of credit of up to $15.0 million. Letters of credit
of $2.2 million were outstanding as of December 31, 1998 and 1999.
Borrowings under the Senior Credit Facility require quarterly principal and
interest payments. The Tranche A Loan and Revolving Loans mature on June 30,
2004. The Tranche B Loan matures on June 30, 2006. The Company may, at its
option, prepay the term loans without premium or penalty. Additionally, the
Company may reduce or eliminate its revolving loan commitment prior to maturity.
The Senior Credit Facility is guaranteed unconditionally on a senior basis by
the Company's wholly-owned domestic subsidiaries and is collateralized by a lien
on substantially all assets of the Company and its wholly-owned subsidiaries.
There are no material restrictions on the Company's ability to obtain funds from
its wholly-owned subsidiaries by dividend or otherwise.
The loans under the Senior Credit Facility bear interest, at the Company's
election, at either the LIBOR Rate plus an applicable margin or the Base Rate
Basis plus an applicable margin. The Base Rate Basis is the higher of the prime
rate of NationsBank, N.A. or the federal funds effective rate plus 0.5%. The
applicable LIBOR margin is 2.0% for the Tranche A Loan and the Revolving Loans
and 2.5% for the Tranche B Loan. The applicable Base Rate Basis margin is 0.75%
for the Tranche A Loan and the Revolving Loans, and 1.25% for the Tranche B
Loan. The interest rates on all borrowings outstanding under the Senior Credit
Facility as of December 31, 1998 and 1999 were based on LIBOR. The applicable
margin with respect to the loans will be eligible for certain performance
pricing step-downs.
F-13
<PAGE> 52
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of long-term debt and capital lease obligations as of December
31, is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Notes, interest at 10.125% with semi-annual interest
payments due on June 1 and December 1..................... $200,000 $200,000
Tranche A Loan, interest at LIBOR plus an applicable margin
(7.10% and 7.94% as of December 31, 1998 and 1999)........ 187,500 158,241
Tranche B Loan, interest at LIBOR plus an applicable margin
(7.52% and 8.33% as of December 31, 1998 and 1999)........ 99,500 96,064
Capitalized lease obligation, collateralized by certain
furniture and fixtures, effective interest at 7.29%....... -- 1,241
-------- --------
487,000 455,546
Less current maturities..................................... (33,723) (27,308)
-------- --------
$453,277 $428,238
======== ========
</TABLE>
The Revolving Loans are subject to a commitment fee based on the undrawn
portion of the Revolving Loans. The commitment fee is eligible for certain
performance pricing step-downs and was 0.5% per annum as of December 31, 1998
and 1999. Commitment fees of $114,000 and $200,000 are included in interest
expense in 1998 and 1999.
The Notes bear interest at 10.125% per year, payable semi-annually in
arrears on June 1 and December 1 of each year. The Notes mature on June 1, 2008
and are guaranteed, unconditionally, jointly and severally, on an unsecured
senior subordinated basis by all of the Company's wholly-owned domestic
subsidiaries. Except as set forth below, the Notes are not redeemable by the
Company prior to June 1, 2003. Thereafter, the Notes are subject to redemption
by the Company, in whole or in part, at specified redemption prices. In
addition, prior to June 1, 2001, the Company may, subject to certain
requirements, redeem up to 35% of the aggregate principal amount of the Notes
outstanding at a redemption price equal to 110.125% plus accrued and unpaid
interest.
The following table represents a summary of the current maturities of
long-term debt and capital lease obligations as of December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
TRANCHE A TRANCHE B CAPITAL
LOAN LOAN LEASE NOTES TOTAL
--------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
2000.................................. $ 26,554 $ 625 $ 129 $ -- $ 27,308
2001.................................. 31,554 625 151 -- 32,330
2002.................................. 36,554 625 162 -- 37,341
2003.................................. 41,554 625 174 -- 42,353
2004.................................. 22,025 22,625 188 -- 44,838
Thereafter............................ -- 70,939 437 200,000 271,376
-------- ------- ------ -------- --------
$158,241 $96,064 $1,241 $200,000 $455,546
======== ======= ====== ======== ========
</TABLE>
The terms of the Notes and the Senior Credit Facility contain a number of
covenants which, among other things, limit or restrict the ability of the
Company and its subsidiaries to make investments, incur additional indebtedness,
create liens on assets, enter into mergers or consolidations or liquidate, wind
up or dissolve, dispose of assets, pay dividends and redeem stock, redeem or
make prepayments on the Notes, make capital expenditures in excess of certain
amounts and engage in certain transactions with subsidiaries and affiliates. In
addition, under the Senior Credit Facility, the Company is required to comply
with specified financial ratios and tests, including minimum interest coverage
and maximum leverage ratios. Subject to these financial ratios
F-14
<PAGE> 53
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and tests, the Company will be required to make certain mandatory prepayments of
the term loans annually on March 31. The Company was required to prepay $7.7
million of the term loans on March 31, 1999. The Company is not required to make
a mandatory prepayment on March 31, 2000.
Interest Rate Swap Agreements
The Company is exposed to market risks related to changes in interest
rates. In July 1998, the Company entered into an interest rate swap agreement to
limit the effect of changes in interest rates on long-term borrowings. Under the
swap, the Company pays interest at 5.50% on a notional amount of $75.0 million
and receives interest thereon at three-month LIBOR on a quarterly basis.
Beginning June 9, 1999, if LIBOR is greater than 6.44% at the commencement of
any quarterly reset period, a knockout provision provides for no payment under
the swap during such period.
In late 1999, the Company entered into three separate six-month interest
rate swap agreements to limit the effect of changes in interest rates on
long-term borrowings. Under each swap agreement, the Company pays interest at a
fixed rate on the notional amount and receives interest thereon at three-month
LIBOR on a quarterly basis. The lenders have the option at the end of the term
of each swap agreement to extend each agreement for an additional six-month
period.
The knockout and option provisions are separately adjusted to market on a
quarterly basis. The total adjustment was income of approximately $159,000 in
1998 and a loss of approximately $816,000 in 1999, which is included in other
income. The level of variable-rate debt, after the effect of the swap has been
considered, is approximately 44% and 39% of the total interest-bearing debt
outstanding at December 31, 1998 and 1999. During 1999, the average rate
received on the notional amount of the swaps was 5.29% and the average rate paid
was 5.57%. During 1998, the average rate received on the notional amount of the
swap was 5.64% and the average rate paid was 5.50%.
The following table summarizes the terms of the interest rate swap
agreements as of December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
EFFECTIVE DATE MATURITY DATE NOTIONAL AMOUNT FIXED RATE
- -------------- ------------- --------------- ----------
<S> <C> <C> <C>
07/01/98 12/31/00 7$5,000 5.50%
09/30/99 03/30/00 70,000 5.80%
11/30/99 05/30/00 50,000 5.80%
12/03/99 06/06/00 15,000 5.90%
</TABLE>
11. INCOME TAXES
The components of income tax expense for the years ended December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $33,144 $29,095 $19,143
State................................................. 5,352 2,348 2,233
------- ------- -------
38,496 31,443 21,376
Deferred, net........................................... (577) 364 1,591
------- ------- -------
$37,919 $31,807 $22,967
======= ======= =======
</TABLE>
F-15
<PAGE> 54
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax expense computed at the federal statutory
rate to income tax expense at the Company's effective tax rate for the years
ended December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate applied to earnings before income
taxes................................................. $35,039 $28,022 $22,594
State income taxes, net of federal benefit.............. 3,479 1,526 1,783
Nondeductible Recapitalization expenses................. -- 2,169 --
Other................................................... (599) 90 (1,410)
------- ------- -------
$37,919 $31,807 $22,967
======= ======= =======
</TABLE>
The components of the net deferred tax balances as of December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Inventories................................................. $ 272 $ 1,012
Allowance for doubtful accounts............................. 122 525
Debt issuance costs and stock options....................... -- 958
Investments................................................. -- 263
Accrued employee benefits and Displayer incentives.......... 1,791 1,962
Other....................................................... -- 423
------ -------
Gross deferred tax assets................................. 2,185 5,143
Deferred gain on sale of facilities......................... -- (4,030)
Property, plant and equipment............................... (176) (516)
Investments................................................. -- (200)
Other....................................................... (21) --
------ -------
Net deferred tax asset.................................... 1,988 397
Less current deferred tax asset............................. 2,164 3,922
------ -------
Noncurrent deferred income tax liability.................. $ 176 $ 3,525
====== =======
</TABLE>
12. OTHER LIABILITIES
Other long-term liabilities consisted of the following as of December 31,
1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Deferred income tax liability............................... $176 $3,525
Interest rate swap derivatives.............................. -- 916
Deferred lease incentives................................... -- 2,002
---- ------
$176 $6,443
==== ======
</TABLE>
13. BENEFIT PLANS
Employee Benefit Plans
In 1993, the Company established an Employee Stock Ownership Plan (the
"ESOP") for all full-time employees who had at least one year of service and
were age 18 or older. Historically, the Company made annual contributions to the
ESOP at the discretion of the Board.
In connection with the Recapitalization, the ESOP was converted into a
401(k) plan and the shares of common stock previously held by the ESOP were
redeemed for cash. The 401(k) plan covers all full-time employees who have at
least six months of service and are age 18 or older. Beginning in 1999, the
401(k) plan generally allows employees to contribute up to 16% of their base
salary in various investment alternatives and
F-16
<PAGE> 55
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provides for Company matching contributions of up to 4%. Company matching
contributions totaled $1.0 million in 1999. Additionally, the Board may make
discretionary contributions to the 401(k) plan at any time. The Board approved
discretionary contributions of $2.3 million and $1.2 million to the 401(k) for
1998 and 1999.
Stock-Based Compensation Plans
In connection with the Recapitalization, the Company adopted stock option
plans for key employees (the "Key Employee Stock Option Plan") and for
Displayers and other independent contractors (the "Independent Contractor Stock
Option Plan"). A trust (the "Stock Option Trust") holds and distributes stock
options granted under the Independent Contractor Stock Option Plan.
Options under both plans are issued at an exercise price equal to the
estimated fair market value of common stock on the date of grant. The option
exercise period is specified when the option is granted, not to exceed 10 years.
Options granted under both plans vest ratably over five years and have a 10
year term; however, if an initial public offering occurs, vesting is accelerated
for options issued under the Independent Contractor Stock Option Plan. All
options issued in 1998 under both plans have an exercise price of $18.05451, the
price per share paid in connection with the Recapitalization. There were no
expired or exercisable options under either plan as of December 31, 1998. All
options issued in 1999 under both plans have an exercise price of $21.33.
Key Employee Stock Option Plan
Options for a total of 1,353,924 shares of common stock are available for
grant under the Key Employee Stock Option Plan. As common stock is not publicly
traded, the fair value of options granted to key employees was estimated on the
date of grant using the Minimum Value method of option pricing and the
assumptions set forth below in order to determine compensation expense for
disclosure purposes only in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company accounts for options issued
under the Key Employee Stock Option Plan in accordance with Accounting
Principles Board Opinion No. 25 ("APB 25").
Independent Contractor Stock Option Plan
Options for a total of 338,481 shares are available for grant to the Stock
Option Trust for the benefit of certain Displayers and other independent
contractors under the Independent Contractor Stock Option Plan. The fair value
of each stock option grant is estimated on the date of the grant using the
Black-Scholes method of option pricing based on the assumptions set forth below
in order to determine compensation expense for the period. As common stock is
not publicly traded, a volatility factor for a peer group of public companies is
utilized in the Black-Scholes model. The Company accounts for options issued
under the Independent Contractor Stock Option Plan in accordance with SFAS 123.
Compensation expense totaled $563,000 and $912,000 for 1998 and 1999.
F-17
<PAGE> 56
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Key information related to the Company's stock-based compensation plans is
summarized below:
<TABLE>
<CAPTION>
INDEPENDENT
CONTRACTOR
KEY EMPLOYEE STOCK
STOCK OPTION EXERCISE OPTION EXERCISE
PLAN PRICE PLAN PRICE
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Options outstanding as of December 31, 1997... -- -- -- --
Granted..................................... 984,432 $18.05451 275,338 $18.05451
Exercised................................... -- -- -- --
Forfeited................................... -- -- (3,047) $18.05451
--------- ---------
Options outstanding as of December 31, 1998... 984,432 272,291
Granted..................................... 42,192 $ 21.33 22,230 $ 21.33
Exercised................................... 1,108 $18.05451 --
Forfeited................................... (5,540) $18.05451 (7,036) $18.05451
--------- ---------
Options outstanding as of December 31, 1999... 1,022,192 287,485
========= =========
Options exercisable as of December 31, 1999... 194,670 $18.05451 264,311 $18.05451
Weighted average fair value of all options
granted..................................... $ 5.97 $ 9.92
Weighted average remaining contractual life... 8.6 years 8.5 years
Valuation assumptions:
Expected term............................... 6.0 years 6.0 years
Expected dividend yield..................... 0.00% 0.00%
Expected volatility......................... -- 38.05%
Risk-free interest rate..................... 5.63% 5.23%
</TABLE>
SFAS 123 establishes a fair value basis of accounting for stock-based
compensation plans. The effects of applying SFAS 123 as shown below are not
indicative of future amounts. Had the compensation cost for the Company's Key
Employee Stock Option Plan been determined consistent with SFAS 123, the
Company's compensation cost and net income for 1998 and 1999 would approximate
(in thousands):
<TABLE>
<CAPTION>
KEY EMPLOYEE
STOCK
OPTION PLAN
-----------------
1998 1999
------- -------
<S> <C> <C>
SFAS 123 Compensation Cost:
As reported............................................ -- --
Pro forma.............................................. $ 336 $ 649
Net Income:
As reported............................................ $48,255 $41,588
Pro forma.............................................. $47,919 $40,939
</TABLE>
14. SUBSEQUENT EVENTS
On February 1, 2000, the Company announced that it will close the Homco
manufacturing and warehouse facility in McKinney, Texas, and its operations will
be combined with the GIA manufacturing operations located in Grand Island,
Nebraska. The Company plans for the transition to be completed by March 31,
2000. Both facilities, which manufacture various types of molded plastic
products such as picture frames, were underutilized for current market
conditions. The Company expects that the consolidation will generate new
efficiencies in the production of molded plastic products.
The Company will incur non-recurring costs of approximately $700,000
related to the combination of Homco operations into GIA. These charges include
direct costs that can be estimated with reasonable
F-18
<PAGE> 57
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accuracy, and are clearly identifiable, and will be reflected in the Company's
statement of operations during the quarter ended March 31, 2000. The Company
does not anticipate any significant impairment of fixed assets at Homco.
On March 13, 2000, the Board approved the sale of the Homco manufacturing
and warehouse facility to Donald J. Carter, Jr., the Company's Chairman of the
Board and Chief Executive Officer, for approximately $3.7 million. Homco's sale
of its McKinney property to Mr. Carter, is conditioned on Homco not receiving a
better offer from a third party before the consummation of the transaction. If
Homco receives a better offer for the property before the closing of that sale,
Homco will have the right to accept that offer unless Mr. Carter agrees to
purchase the property on the price and terms set forth in that offer. If Mr.
Carter declines to purchase the property on those terms, then Mr. Carter's
contract will become a "back-up" contract subordinate to the contract that Homco
negotiates with the third party.
The Company expects that the sale of the Homco manufacturing and warehouse
facility in exchange for the purchase of a new facility will qualify as a
non-taxable Section 1031 like-kind exchange under the IRC. The Company expects
to record a pre-tax gain of approximately $3.0 million in the first quarter of
2000 on the sale of this property for financial reporting purposes.
15. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal proceedings incidental to its
normal business activities. Because most of the claims are covered by insurance,
management believes that the amounts, if any, which ultimately may be due in
connection with such lawsuits and claims would not have a material effect upon
the Company.
State Income Taxes
Various states, in which the Company does not currently file income or
franchise tax returns, have occasionally made inquiries to determine whether the
Company is subject to their income tax laws. To date, only one such state has
made a final assessment, which the Company has settled under protest. The
Company continues to believe that its current activities in such states in which
it is not filing income or franchise tax returns are exempt from state income or
franchise tax under federal law and that no provision for these taxes is
necessary.
Environmental Issues
In 1989, DWC was named as a potentially responsible party ("PRP") based on
allegedly having sent 2,640 gallons of waste to the Chemical Recycling, Inc.
facility in Wylie, Texas. The Company believes that DWC's share of the total
cleanup costs based on a volumetric allocation would be less than one percent.
In the future, DWC and the other PRPs, who are jointly and severally liable, may
incur additional costs related to the cleanup of hazardous substances at the
facility. DWC did not incur any cleanup related costs during 1997, 1998 or 1999.
Because the site has been dormant for several years, the Company does not
believe it is probable that any additional costs will be incurred and,
accordingly, has not established any accruals for future cleanup costs at this
site.
In 1997, Homco was named as a PRP based on allegedly having transported
hazardous substances to the Materials Recovery Enterprises, Inc. facility near
Ovalo, Texas in Taylor County, Texas. In 1998, Homco paid an assessment of
$1,000 for liability at the facility. By agreement, Kraft Foods, Inc., a partial
indemnitor to Homco, paid Homco 96.5% of this past assessment; assumed the
future administration of the matter, including payment of future costs; and may,
upon demand, request reimbursement from Homco for 3.5% of future costs. Although
Homco remains jointly and severally liable for the remediation of the Site, the
probability that Homco will be required to pay more than a de minimis amount is
remote.
F-19
<PAGE> 58
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 9, 1999, the EPA conducted an inspection at GIA to determine
compliance with the toxic chemical release reporting requirements for 1997
pursuant to the Emergency Planning and Community Right To Know Act of 1986 (the
"EPCRA"), Section 313. Calculation errors in the Form R Report were noted during
the inspection. The EPA assessed GIA with an administrative penalty of $21,000
on September 21, 1999. GIA's consultant assumed responsibility for these
mistakes including paying the fine, and negotiated a reduction in the penalty to
$14,000. The Consent Order and Agreement was executed in early March, 2000. This
matter is closed.
The ultimate outcome and aggregate cost of resolving all of the above
contingencies will be based on a number of factors and will be determined over a
number of years. Accordingly, the total cost to the Company cannot currently be
determined with certainty. It is management's opinion, however, that the total
cost of resolving such contingencies should not have a material adverse effect
on the Company's business, financial condition and results of operations.
16. RELATED PARTY TRANSACTIONS
A majority of the Company's inventory purchases are from suppliers whose
primary customer is the Company.
A shareholder and former Director of the Company is a partner of a law firm
that renders various legal services for the Company. The Company paid the firm
approximately $269,000, $798,000, and $385,000 for legal services during 1997,
1998 and 1999. Approximately $398,000 of the fees paid in 1998 were incurred in
connection with the Recapitalization and accordingly are reflected in
Recapitalization expenses in the accompanying statements of operations. Amounts
due to the law firm totaled $25,000, and $27,000 as of December 31, 1998 and
1999.
Another shareholder and former Director of the Company owns a company which
supplies inventory items to the Company and whose primary customer is the
Company. The Company paid the supplier approximately $45.6 million, $37.0
million, and $30.9 million during 1997, 1998 and 1999. Amounts due to this
supplier totaled approximately $14,000 and $4.2 million as of December 31, 1998
and 1999.
The Company owns 21% of the common stock of Charles W. Weaver Manufacturing
Company, a supplier whose primary customer is the Company. The investment was
purchased on December 31, 1996 from a former affiliate for approximately $1.3
million and had a balance of approximately $1.6 million and $1.7 million as of
December 31, 1998 and 1999. The Company paid the supplier approximately $10.5
million, $11.4 million, and $10.7 million during 1997, 1998 and 1999. Amounts
due to this supplier totaled $0.4 million as of December 31, 1998. No amounts
were due as of December 31, 1999.
In connection with the Recapitalization, CCP acted as a consultant to the
Company from July 1997 under a consulting agreement, which was cancellable upon
30 days notice. CCP assisted the Company in reviewing proposals for potential
transactions in order to select a third party whose objectives were consistent
with those of the Company. The Company paid CCP $11,000 per month for its
services. The consulting agreement was terminated upon the closing of the
Recapitalization in June 1998.
The Company leased improved real estate from its former chief executive
officer for $52,000 per year plus expenses during 1997 and the three month
period ended March 31, 1998. CCP subleased a portion of the real estate from the
Company from June through December 1997 for monthly payments of $2,000. In April
1998, the Company exchanged such real estate, which was valued at approximately
$1.9 million, for two airplane hangers and cash of approximately $340,000. The
real estate was recorded by the Company at an amount equal to the sum of the net
book value of the two airplane hangars exchanged of $858,000 and the cash paid.
During 1997 and 1998, the Company leased a condominium from a related party
for approximately $24,000 per year; the amount paid in 1999 was approximately
$19,000.
F-20
<PAGE> 59
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company engages the services of a freight company to handle a small
portion of its freight. The freight company is controlled by former Directors of
the Company. The Company paid this freight company $96,000, $87,000 and $108,000
during 1997, 1998 and 1999 for its services. Amounts due to this freight company
totaled $5,600 and $13,000 as of December 31, 1998 and 1999.
In conjunction with the Recapitalization, the Company entered into an
agreement requiring payment of a quarterly management fee to Hicks Muse. The
management fee will be adjusted annually, but in no event will the annual fee be
less than $1.0 million or exceed $1.5 million. Management fees totaled $574,000
and $1.2 million during 1998 and 1999. In addition, if the Board requests Hicks
Muse to perform additional financial advisory services in the future, Hicks Muse
will receive a financial advisory fee. The management agreement with Hicks Muse
terminates on June 4, 2008 or earlier under certain circumstances.
On June 4, 1998, the Company entered into a five-year executive employment
agreement with its former chief executive officer with annual compensation of
$200,000, plus reimbursement for certain expenses. The agreement generally
requires the Company to pay the former chief executive officer's salary
throughout the five-year term unless he voluntarily terminates his employment
during such term. The agreement, which contains a covenant not to compete with
the Company during the employment term and for three years thereafter, can be
voluntarily terminated only by the employee. In 1998 and 1999, the Company paid
the former chief executive officer approximately $127,000 and $201,000 pursuant
to the terms and conditions of his executive employment agreement.
On June 4, 1998, the Company also entered into a one-year consulting
agreement with a former employee and former Director for $200,000. The agreement
also contains a three-year covenant not to compete.
During 1999, Board fees were paid to certain outside Directors which
totaled $32,500. These Board fees were paid to Sheldon I. Stein in the amount of
$15,000, Gretchen M. Williams in the amount of $12,500 and Robert H. Dedman, Jr.
in the amount of $5,000.
17. LAREDO CANDLE COMPANY
The Company entered into a partnership agreement with Miracle Candle
Company ("Miracle") on December 14, 1998 to form Laredo Candle. In December
1998, the Company contributed $762,000 for its share of land which was purchased
for approximately $1.3 million. The land was used to build a candle
manufacturing plant, which became operational in late 1999. The Company's former
chief executive officer provided a bridge loan of $2.8 million to Miracle at the
prime rate plus 1.0% per annum until Miracle repaid the loan in late 1999.
Miracle is also a current supplier to the Company. The Company paid Miracle $4.1
million and $34.0 million in 1998 and 1999 for inventory items. No amounts were
due to Miracle as of December 31, 1998; as of December 31, 1999, $9,000 was due.
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and other current liabilities approximate fair market value due
to their short maturities. The carrying amounts of notes receivable and variable
rate long-term debt also approximate fair market value as their interest rates
are based on current interest rates. The Notes had a carrying value of $200.0
million as of December 31, 1998 and 1999. The Notes approximated fair value as
of December 31, 1998, and the Notes had a fair value of approximately $170.0
million as of December 31, 1999. The interest rate swap had a carrying value of
$68,000 and negative fair value of approximately $1.4 million as of December 31,
1998. The interest rate swaps had a combined negative carrying value of $916,000
and a combined fair value of $260,000 as of December 31, 1999. The negative fair
value of the swaps reflect the estimated amount that the Company would have to
pay to terminate the swaps.
F-21
<PAGE> 60
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. SEGMENT REPORTING
The Company's reportable segments are based upon functional lines of
business as follows:
- HI -- direct seller of home decorative accessories in the United States;
- Manufacturing -- manufactures framed artwork and mirrors, as well as
various types of molded plastic products and candles for Home Interiors;
and
- International -- direct seller of home decorative accessories in Mexico
and Puerto Rico.
The Company evaluates the performance of its segments and allocates
resources to them based on earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The accounting principles of the segments are the same
as those described in Note 2. Segment data includes intersegment sales.
Eliminations consist primarily of intersegment sales between Manufacturing and
HI, as well as the elimination of the investment in each subsidiary for
consolidated purposes. The table below presents information about reportable
segments used by the chief operation decision maker of the Company as of and for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
HI MANUFACTURING INTERNATIONAL ELIMINATIONS CONSOLIDATED
-------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1997
Net sales........................ $466,831 $76,493 $4,094 $(78,573) $468,845
EBITDA........................... 72,791 17,995 (607) 1,840 92,019
Total assets..................... 226,476 42,641 234 (25,161) 244,190
Capital expenditures............. 2,893 1,794 22 (92) 4,617
1998
Net sales........................ 486,434 86,661 6,406 (89,278) 490,223
EBITDA........................... 84,392 20,380 (296) 91 104,567
Total assets..................... 115,310 26,906 (608) (9,160) 132,448
Capital expenditures............. 4,872 3,013 50 -- 7,935
1999
Net sales........................ $499,515 $88,083 $9,098 $(93,352) $503,344
EBITDA........................... 83,425 17,993 (338) (946) 100,134
Total assets..................... 145,222 42,577 825 (27,083) 161,541
Capital expenditures............. 5,449 4,938 245 (92) 10,540
</TABLE>
The following table represents a reconciliation of consolidated EBITDA to
income before income taxes for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
EBITDA............................................... $ 92,019 $104,567 $100,134
Depreciation and amortization........................ (2,613) (3,170) (4,032)
Gains on the sale of assets.......................... 198 6,375 10,650
Stock option expenses................................ -- (563) (912)
Recapitalization expenses............................ -- (6,198) --
Interest income...................................... 7,985 5,563 2,978
Interest expense..................................... (362) (27,532) (44,081)
Other income (expense), net.......................... 2,884 1,020 (183)
-------- -------- --------
Income before income taxes........................... $100,111 $ 80,062 $ 64,555
======== ======== ========
</TABLE>
F-22
<PAGE> 61
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited quarterly results of
operations for the quarters ended (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL
-------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
1997
Net sales.......................... $ 85,784 $122,736 $113,579 $146,746 $468,845
Gross profit....................... 41,779 60,216 53,841 73,345 229,181
Operating income................... 14,409 26,403 19,268 29,524 89,604
Net income......................... 9,634 17,575 13,216 21,767 62,192
1998
Net sales.......................... $108,321 $127,752 $111,132 $143,018 $490,223
Gross profit....................... 53,997 65,989 56,561 71,333 247,880
Operating income................... 24,435 21,161 23,271 32,144 101,011
Net income......................... 16,010 12,179 7,287 12,779 48,255
1999
Net sales.......................... $116,748 $126,234 $112,075 $148,287 $503,344
Gross profit....................... 60,036 65,955 56,867 80,096 262,954
Operating income................... 20,489 26,147 18,080 41,125 105,841
Net income......................... 5,942 9,018 7,048 19,580 41,588
</TABLE>
The Company's quarterly results have been impacted by several significant
items. In June 1998 the Company incurred approximately $6.2 in financial and
legal advisory fees in connection with the Recapitalization. The Company
incurred significant interest expense beginning in June 1998 as a result of
issuance of the Notes and borrowings under the Senior Credit Facility. The
Company recorded a gain of $4.1 million on the sale of one of its aircraft in
the first quarter of 1998. The Company recorded a gain of approximately $10.6
million on the sale of substantially all of its properties and facilities in the
fourth quarter of 1999. Net sales for the quarter ended December 31, 1998
included an unusual backlog of unfilled orders of approximately $6.5 million,
which the Company was unable to fill and ship during the final week of September
1998.
21. ISSUANCE OF COMPANY COMMON STOCK
In October 1997, a former employee of the Company purchased 237,600 shares
of common stock for approximately $430,000 under an exclusive stock option
agreement. The transaction resulted in a tax benefit for the Company of
$714,000, which has been credited to additional paid-in capital.
F-23
<PAGE> 62
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. GUARANTOR FINANCIAL DATA
DWC, GIA, Homco, SVS and Homco PR (collectively, the "Guarantors")
unconditionally, on a joint and several basis, guarantee the Notes. The
Company's other subsidiaries, Homco de Mexico and Laredo Candle (the
"Non-Guarantors") have not guaranteed the Notes. Guarantor and Non-Guarantor
financial statements on an individual basis are not significant and have been
omitted. Accordingly, the following presents financial information of the
Guarantors and Non-Guarantors on a consolidating basis (in thousands):
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HI GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $487,028 $87,900 $ 5,168 $(89,873) $490,223
Cost of good sold................. 262,918 64,483 3,553 (88,611) 242,343
-------- ------- ------- -------- --------
Gross profit.................... 224,110 23,417 1,615 (1,262) 247,880
-------- ------- ------- -------- --------
Total selling, general and
administrative.................. 140,797 4,164 2,667 (759) 146,869
-------- ------- ------- -------- --------
Operating income................ 83,313 19,253 (1,052) (503) 101,011
Other income (expense), net....... (21,579) 860 529 (759) (20,949)
-------- ------- ------- -------- --------
Income before income taxes...... 61,734 20,113 (523) (1,262) 80,062
Income taxes...................... 24,539 7,268 -- -- 31,807
-------- ------- ------- -------- --------
Net income...................... $ 37,195 $12,845 $ (523) $ (1,262) $ 48,255
======== ======= ======= ======== ========
</TABLE>
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HI GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $499,515 $84,590 $12,591 $(93,352) $503,344
Cost of good sold................. 259,266 63,950 8,891 (91,717) 240,390
-------- ------- ------- -------- --------
Gross profit.................... 240,249 20,640 3,700 (1,635) 262,954
-------- ------- ------- -------- --------
Total selling, general and
administrative.................. 149,124 4,771 3,964 (746) 157,113
-------- ------- ------- -------- --------
Operating income................ 91,125 15,869 (264) (889) 105,841
Other income (expense), net....... (41,821) 1,107 (29) (543) (41,286)
-------- ------- ------- -------- --------
Income before income taxes...... 49,304 16,976 (293) (1,432) 64,555
Income taxes...................... 16,313 6,654 -- -- 22,967
-------- ------- ------- -------- --------
Net income...................... $ 32,991 $10,322 $ (293) $ (1,432) $ 41,588
======== ======= ======= ======== ========
</TABLE>
F-24
<PAGE> 63
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
HI GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 40,428 $ 440 $ 156 $ -- $ 41,024
Accounts receivable, net....... 7,553 293 129 -- 7,975
Inventories.................... 21,103 10,558 418 (1,069) 31,010
Other current assets........... 2,721 461 22 -- 3,204
Intercompany................... (2,075) 4,484 (1,554) (855) --
--------- ------- ------- -------- ---------
Total current assets........ 69,730 16,236 (829) (1,924) 83,213
Property, plant and equipment,
net............................ 12,080 8,421 1,365 (92) 21,774
Investment in subsidiaries....... 7,029 -- -- (7,029) --
Debt issuance costs and Other
assets......................... 26,471 1,105 -- (115) 27,461
--------- ------- ------- -------- ---------
Total assets................ $ 115,310 $25,762 $ 536 $ (9,160) $ 132,448
========= ======= ======= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............... $ 12,069 $ 1,963 $ 36 $ (949) $ 13,119
Current maturities of long-term
debt........................ 33,723 -- -- -- 33,723
Other current liabilities...... 42,315 3,543 88 (227) 45,719
--------- ------- ------- -------- ---------
Total current liabilities... 88,107 5,506 124 (1,176) 92,561
Long-term debt, net of current
maturities..................... 453,277 -- -- -- 453,277
Deferred income taxes............ 25 266 -- (115) 176
--------- ------- ------- -------- ---------
Total liabilities........... 541,409 5,772 124 (1,291) 546,014
--------- ------- ------- -------- ---------
Minority interest................ -- -- 508 -- 508
Commitments and contingencies
(see Note 15)
Shareholders' equity (deficit):
Common stock................... 1,523 1,010 9 (1,019) 1,523
Additional paid-in capital..... 178,944 10,292 763 (11,055) 178,944
Retained earnings (accumulated
deficit).................... (606,566) 8,688 (641) 4,205 (594,314)
Other.......................... -- -- (227) -- (227)
--------- ------- ------- -------- ---------
Total shareholders' equity
(deficit)................. (426,099) 19,990 (96) (7,869) (414,074)
--------- ------- ------- -------- ---------
Total liabilities and
shareholders' equity
(deficit)................. $ 115,310 $25,762 $ 536 $ (9,160) $ 132,448
========= ======= ======= ======== =========
</TABLE>
F-25
<PAGE> 64
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
HI GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 31,687 $ 150 $ 151 $ 418 $ 32,406
Accounts receivable, net....... 13,372 182 331 -- 13,885
Inventories, net............... 33,778 8,797 2,479 (2,338) 42,716
Other current assets........... 7,678 824 156 -- 8,658
Intercompany................... (11,850) 14,867 (1,204) (1,813) --
--------- ------- ------- -------- ---------
Total current assets........ 74,665 24,820 1,913 (3,733) 97,665
Property, plant and equipment,
net............................ 15,525 7,543 7,497 (92) 30,473
Restricted cash.................. 14,590 -- -- -- 14,590
Investment in subsidiaries....... 22,038 -- -- (22,038) --
Debt issuance costs and other
assets......................... 19,003 1,031 -- (1,221) 18,813
--------- ------- ------- -------- ---------
Total assets................ $ 145,821 $33,394 $ 9,410 $(27,084) $ 161,541
========= ======= ======= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............... $ 19,528 $ 1,148 $ 1,797 $ (1,487) $ 20,986
Current maturities of long-term
debt and capital lease
obligations................. 27,308 -- -- -- 27,308
Other current liabilities...... 43,236 3,187 357 -- 46,780
--------- ------- ------- -------- ---------
Total current liabilities... 90,072 4,335 2,154 (1,487) 95,074
Long-term debt and capital lease
obligations, net of current
maturities..................... 428,238 -- -- -- 428,238
Other liabilities................ 7,265 399 -- (1,221) 6,443
--------- ------- ------- -------- ---------
Total liabilities........... 525,575 4,734 2,154 (2,708) 529,755
Minority interest................ -- -- 2,809 163 2,972
Commitments and contingencies
(see Note 15)
Shareholders' equity (deficit):
Common stock................... 1,524 1,011 8 (1,019) 1,524
Additional paid-in capital..... 179,976 10,292 5,458 (15,751) 179,975
Retained earnings (accumulated
deficit).................... (561,254) 17,357 (1,060) (7,769) (552,726)
Other.......................... -- -- 41 -- 41
--------- ------- ------- -------- ---------
Total shareholders' equity
(deficit)................. (379,754) 28,660 4,447 (24,539) (371,186)
--------- ------- ------- -------- ---------
Total liabilities and
shareholders' equity
(deficit)................. $ 145,821 $33,394 $ 9,410 $(27,084) $ 161,541
========= ======= ======= ======== =========
</TABLE>
F-26
<PAGE> 65
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------
HI GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities.......................... $ 49,370 $ 10,410 $(406) $(227) $ 59,147
Net cash provided by investing
activities.......................... 72,122 (2,625) (414) -- 69,083
Net cash provided by financing
activities.......................... (162,378) (30,079) 901 227 (191,329)
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
HI GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities........................... $ 41,281 $ 1,684 $ (138) $(14,754) $ 28,073
Net cash provided by investing
activities........................... (17,284) (1,974) (2,436) 15,009 (6,685)
Net cash provided by financing
activities........................... (32,738) -- 2,301 163 (30,274)
</TABLE>
F-27
<PAGE> 66
HOME INTERIORS & GIFTS, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
-------- ------------ --------------------------------- ------------- -------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT
PERIOD EXPENSES(1) OTHER ACCOUNTS(2) DEDUCTIONS(3) END OF PERIOD
------------ ------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended December 31,
1997..................... $ 218 $ 753 $357 $(1,089) $ 239
Year ended December 31,
1998..................... 239 664 289 (844) 348
Year ended December 31,
1999..................... 348 1,662 108 (805) 1,313
</TABLE>
- ---------------
(1) Represents provision for losses on accounts receivable.
(2) Represents collection of bad debts.
(3) Represents write-off of uncollectible accounts receivable.
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D COLUMN E
-------- ------------ --------------------------------- ------------- -------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT
PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) END OF PERIOD
------------ ------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Inventory
Losses:
Year ended December 31,
1997..................... $ -- $1,561 $ -- $ -- $1,561
Year ended December 31,
1998..................... 1,561 -- -- (1,561) --
Year ended December 31,
1999..................... -- 1,342 -- -- 1,342
</TABLE>
- ---------------
(1) Represents disposal of obsolete inventories.
F-28
<PAGE> 67
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger, dated April 13, 1998,
merging Crowley Investments, Inc. into the Company
(incorporated by reference to Exhibit 2.1 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
2.2 -- Articles of Merger, dated June 4, 1998 (incorporated by
reference to Exhibit 2.2 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
3.1 -- Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
3.2 -- Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
4.1 -- Indenture, dated as of June 4, 1998, among the Company,
as issuer, the Guarantors named therein and United States
Trust Company of New York (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
4.2 -- Purchase Agreement, dated as of May 28, 1998, among the
Company, as issuer, the Guarantors named therein and
Bear, Stearns & Co., Inc., Chase Securities, Inc., Morgan
Stanley Dean Witter and NationsBanc Montgomery Securities
LLC, as initial purchasers (incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
4.3 -- Exchange and Registration Rights Agreement, dated as of
June 4, 1998, among the Company, the Guarantors named
therein and Bear, Stearns & Co., Inc., Chase Securities,
Inc., Morgan Stanley Dean Witter and NationsBanc
Montgomery Securities LLC. (incorporated by reference to
Exhibit 4.3 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
10.1 -- Credit Agreement, dated as of June 4, 1998, among the
Company, the Lenders from time to time party thereto, The
Chase Manhattan Bank, as syndication agent, National
Westminster Bank, PLC, as documentation agent, The
Prudential Insurance Company of America, as a co-agent,
Societe Generale, as a co-agent, Citicorp USA, Inc., as a
co-agent, and Nationsbank, N.A., as administrative agent
for the Lenders (incorporated by reference to Exhibit
10.1 of the Company's Registration Statement on Form S-4,
No. 333-62021, filed on November 30, 1998).
10.1.1 -- First Amendment to Credit Agreement, dated as of December
18, 1998, among the Company, the Lenders from time to
time party thereto, The Chase Manhattan Bank, as
syndication agent, National Westminster Bank, PLC, as
documentation agent, The Prudential Insurance Company of
America, as a co-agent, Societe Generale, as a co-agent,
Citicorp USA, Inc., as a co-agent, and Nationsbank, N.A.,
as administrative agent for the Lenders (incorporated by
reference to Exhibit 10.1.1 of the Company's Annual
Report on Form 10-K, No. 333-62021, filed March 16,
1999).
10.1.2 -- Second Amendment to Credit Agreement, dated as of March
12, 1999, among the Company, the Lenders from time to
time party thereto, The Chase Manhattan Bank, as
syndication agent, National Westminster Bank, PLC, as
documentation agent, The Prudential Insurance Company of
America, as a co-agent, Societe Generale, as a co-agent,
Citicorp USA, Inc., as a co-agent, and Nationsbank, N.A.,
as administrative agent for the Lenders (incorporated by
reference to Exhibit 10.1.2 of the Company's Annual
Report on Form 10-K, No. 333-62021, filed March 16,
1999).
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1.3* -- Third Amendment to Credit Agreement, dated as of November
19, 1999, among the Company, the Lenders from time to
time party thereto, The Chase Manhattan Bank, as
syndication agent, National Westminster Bank, PLC, as
documentation agent, The Prudential Insurance Company of
America, as a co-agent, Societe Generale, as a co-agent,
Citicorp USA, Inc., as a co-agent, and Nationsbank, N.A.,
as administrative agent for the Lenders.
10.2 -- Financial Advisory Agreement, dated June 4, 1998, between
the Company, Dallas Woodcraft, Inc., GIA, Inc., Homco,
Inc., Homco Puerto Rico, Inc., Spring Valley Scents,
Inc., Homco de Mexico, S.A. de C.V., and Hicks, Muse &
Co. Partners, L.P. (incorporated by reference to Exhibit
10.2 of the Company's Registration Statement on Form S-4,
No. 333-62021, filed on November 30, 1998).
10.3 -- Monitoring and Oversight Agreement, dated June 4, 1998
between the Company, Dallas Woodcraft, Inc., GIA, Inc.,
Homco, Inc., Homco Puerto Rico, Inc., Spring Valley
Scents, Inc., Homco de Mexico, S.A. de C.V., and Hicks,
Muse & Co. Partners, L.P. (incorporated by reference to
Exhibit 10.3 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
10.4 -- Consulting Agreement, dated June 4, 1998, between Company
and Ronald L. Carter (incorporated by reference to
Exhibit 10.4 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
10.5 -- Home Interiors & Gifts, Inc. 1998 Stock Option Plan for
Key Employees, dated June 4, 1998 (incorporated by
reference to Exhibit 10.5 of the Company's Annual Report
on Form 10-K, No. 333-62021, filed March 16, 1999).
10.6 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Donald J. Carter (incorporated by
reference to Exhibit 10.6 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
10.7 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Donald J. Carter Jr.
(incorporated by reference to Exhibit 10.7 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
10.8 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Barbara J. Hammond (incorporated
by reference to Exhibit 10.8 of the Company's
Registration Statement on Form S-4, No. 333-62021, filed
on November 30, 1998).
10.9 -- Executive Employment Agreement, dated June 4, 1998,
between the Company and Christina L. Carter Urschel
(incorporated by reference to Exhibit 10.9 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
10.10 -- Home Interiors & Gifts, Inc., 1998 Stock Option Plan for
Unit Directors, Branch Directors and Certain Other
Independent Contractors (incorporated by reference to
Exhibit 10.10 of the Company's Registration Statement on
Form S-4, No. 333-62021, filed on November 30, 1998).
10.11 -- Home Interiors & Gifts, Inc. 1998 Stock Option Trust,
dated June 4, 1998 (incorporated by reference to Exhibit
10.11 of the Company's Registration Statement on Form
S-4, No. 333-62021, filed on November 30, 1998).
10.12 -- Agreement, dated February 26, 1997, by and between the
Company and Distribution Architects International, Inc.
(incorporated by reference to Exhibit 10.12 of the
Company's Registration Statement on Form S-4, No.
333-62021, filed on November 30, 1998).
10.13 -- ISDA Master Agreement, dated as of June 25, 1998, by and
between NationsBank, N.A. and the Company (incorporated
by reference to Exhibit 10.13 of the Company's
Registration Statement on Form S-4, No. 333-62021, filed
on November 30, 1998).
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.14 -- Shareholders Agreement, as of June 4, 1998 between the
Company, Adkins Family Partnership, LTD., M. Douglas
Adkins, Estate of Fern Ardinger, Ardinger Family
Partnership, LTD., Donald J. Carter, Jr., Linda J.
Carter, Ronald Lee Carter, Donald J. Carter, William J.
Hendrix, as Independent Special Trustee of the Carter
1997 Charitable Remainder Unit Trust, Howard L. Hammond
and Barbara J. Hammond, Trustees of the Hammond Family
Trust and Christina Carter Urschel (incorporated by
reference to Exhibit 10.14 of the Company's Registration
Statement on Form S-4, No. 333-62021, filed on November
30, 1998).
10.15 -- Agreement of Partnership of Laredo Candle Company, dated
as of December 14, 1998, between the Company and Miracle
Candle Company (incorporated by reference to Exhibit
10.15 of the Company's Annual Report on Form 10-K, No.
333-62021, filed March 16, 1999).
10.15.1 -- First Amendment to Agreement of Partnership of Laredo
Candle Company, dated as of February 1, 1999, between the
Company and Miracle Candle Company (incorporated by
reference to Exhibit 10.15.1 of the Company's Annual
Report on Form 10-K, No. 333-62021, filed March 16,
1999).
10.16 -- Consulting Services Agreement dated as of June 3, 1999,
between the Company and Tompkins Associated Incorporated
(incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.17 -- Real Estate Purchase Contract dated July 19, 1999,
between the Company and Parker Equities, Inc.
(incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.17.1 -- First Amendment to Real Estate Purchase Contract dated
July 19, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.17.2 -- Second Amendment to Real Estate Purchase Contract dated
August 18, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on November 8, 1999).
10.17.3 -- Third Amendment to Real Estate Purchase Contract dated
August 18, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on November 8, 1999).
10.17.4 -- Fourth Amendment to Real Estate Purchase Contract dated
August 18, 1999, between the Company and Parker Equities,
Inc. (incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on November 8, 1999).
10.18 -- Purchase and Sale Agreement dated July 19, 1999, between
Argent Frankford, L.P. and the Company (incorporated by
reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q, No. 333-62021, filed on August 13,
1999).
10.18.1 -- First Amendment to Purchase and Sale Agreement dated July
23, 1999, between Argent Frankford, L.P. and the Company
(incorporated by reference to Exhibit 10.5 of the
Company's Quarterly Report on Form 10-Q, No. 333-62021,
filed on August 13, 1999).
10.18.2* -- Second Amendment to Purchase and Sale Agreement dated
October 20, 1999, between Argent Frankford, L.P. and the
Company.
10.18.3* -- Third Amendment to Purchase and Sale Agreement dated
February 9, 2000, between Argent Frankford, L.P. and the
Company.
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.19 -- Employment Agreement dated November 1, 1999, between the
Company and Parker Equities, Inc. (incorporated by
reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q of the Company, No. 333-62021, filed
on November 8, 1999).
10.20* -- Professional Services Agreement dated December 1, 1999,
between EXE Technologies, Inc. and the Company.
10.21* -- Master Software License Agreement dated December 1, 1999,
between EXE Technologies, Inc. and the Company.
10.22* -- Granite Tower at the Centre Office Lease dated August 17,
1999, between 520 Partners, Ltd. and the Company.
10.23* -- Proposal Including Sales Agreement No. 56-5879 Rev. B
dated December 14, 1999, between Mannesmann Dematic
Rapistan Corp. and the Company.
10.24* -- Proposal Including Sales Agreement No. 56-5898 Rev. B
dated December 14, 1999, between Mannesmann Dematic
Rapistan Corp. and the Company.
10.25* -- Proposal Including Sales Agreement No. 56-5738 Rev. B
dated December 14, 1999, between Mannesmann Dematic
Rapistan Corp. and the Company.
10.26* -- Form of Purchase and Sale Agreement, between
Homco, Inc. and Donald J. Carter, Jr.
21.1* -- Subsidiaries of the Company.
27.1* -- Financial Data Schedule (EDGAR only).
</TABLE>
- ---------------
* Filed herewith.
(REMAINDER OF PAGE LEFT INTENTIONALLY BLANK)
<PAGE> 1
EXHIBIT 10.1.3
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment"),
dated as of November 19, 1999, is entered into among HOME INTERIORS & GIFTS,
INC., a Texas corporation (the "Borrower"), the institutions listed on the
signature pages hereof that are parties to the Credit Agreement defined below
(collectively, the "Lenders"), THE CHASE MANHATTAN BANK, as syndication agent
(in said capacity, the "Syndication Agent"). NATIONAL WESTMINSTER BANK, PLC, as
documentation agent (the "Documentation Agent"), THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, as a co-agent, SOCIETE GENERALE, as a co-agent, CITICORP
USA. INC., as a co-agent (collectively, the "Co-Agents"), and BANK OF AMERICA,
N.A., formerly known as NationsBank, N.A., as administrative agent (in said
capacity, the "Administrative Agent").
BACKGROUND
A. The Borrower, the Lenders, the Documentation Agent, the
Syndication Agent, the Co-Agents, and the Administrative Agent are parties to
that certain Credit Agreement, dated as of June 4, 1998, as amended by that
certain First Amendment to Credit Agreement, dated as of December 18, 1998, and
that certain Second Amendment to Credit Agreement dated as of March 12, 1999
(said Credit Agreement, as amended, the "Credit Agreement"; the terms defined in
the Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement).
B. The Borrower, the Lenders, the Documentation Agent, the
Syndication Agent, the Co-Agents, and the Administrative Agent desire to make
certain amendments to the Credit Agreement.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Lenders, the Documentation Agent, the Syndication Agent, the Co-Agents, and the
Administrative Agent covenant and agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement is hereby amended by
adding the following definitions in the proper alphabetical order:
"'Frankford Facility' means the approximately 630,000 square
foot new warehouse and distribution facility of the Borrower in
Carrollton, Texas."
<PAGE> 2
"`Parker Equities Properties' means the seven properties
owned by the Borrower to be purchased by Parker Equities, Inc.,
located at 4550 Spring Valley, Dallas, Texas, 4545 Spring Valley,
Dallas, Texas, 1130 W. Jackson Road, Carrollton, Texas, 815 S. Coppell
Road, Coppell, Texas, 10351 Home Road, Frisco, Texas, 2601 W.
Kingsley, Garland, Texas, and 582 E. Highway 121, Lewisville, Texas."
"`Parker Equities Properties Net Cash Proceeds' means the Net
Cash Proceeds from the sale of the Parker Equities Properties."
"`Qualified Intermediary' has the meaning given to such term
in Treasury Regulation Section 1.1031(k)-1(g)(4)(iii)."
"`Qualified Intermediary Agreement' means that certain
Deferred Exchange Agreement between the Borrower and Texas Escrow
Company, Inc. related to the sale of the Parker Equities Properties."
(b) Article 5 of the Credit Agreement is hereby amended by adding
the following Section at the end thereof:
"Section 5.13 Landlord's Waivers. The Borrower shall, in good
faith, use commercially reasonable efforts to obtain, in form and
substance reasonably satisfactory to the Administrative Agent and its
counsel, one or more landlord's waivers executed by the landlord of
the Parker Equities Properties."
(c) Article 5 of the Credit Agreement is hereby amended by adding
the following Section at the end thereof:
"Section 5.14 Parker Equities Properties Net Cash Proceeds.
The Parker Equity Properties Net Cash Proceeds shall (i) immediately
upon the sale of the Parker Equities Properties, be placed on deposit
with a Qualified Intermediary and (ii) only be accessible to the
Borrower for costs associated with the purchase and improvement of the
Frankford Facility. Upon the earlier of (i) the occurrence of an Event
of Default and a demand by the Administrative Agent at the request of
the Determining Lenders (subject to the applicable terms of the
Qualified Intermediary Agreement) or (ii) the failure of the purchase
of the Frankford Facility to occur during the "Exchange Period" as
defined in Treasury Regulation Section 1.1031(k)-l(b)(2)(ii), the
Borrower shall deliver, or cause to be delivered, to the
Administrative Agent as Collateral the Parker Equity Properties Net
Cash Proceeds. Concurrent with such delivery, the Borrower shall
execute such documents and take such other actions as are determined
by the Administrative Agent to be reasonably necessary to perfect a
Lien in the Parker Equity Properties Net Cash Proceeds in favor of the
Administrative Agent for the benefit of the Lenders."
-2-
<PAGE> 3
(d) Section 7.3(k)is hereby amended by deleting the dollar amount
"$5,000,000" therein and inserting the dollar amount "$6,000,000" in lieu
thereof.
(e) Section 7.5 of the Credit Agreement is hereby deleted in its
entirety and the following is inserted in lieu thereof:
"Section 7.5 Sale of Assets. The Borrower shall not, and shall not
permit any of its Subsidiaries to, sell (including for discount or
otherwise), lease, transfer or otherwise dispose of assets, except (a)
sales of inventory and other assets sold in the ordinary course of
business, (b) sales or other dispositions of worn-out or obsolete
assets or assets no longer useful in the conduct of the Borrower's
business in the ordinary course of business, (c) sales of Cash and
Cash Equivalents in the ordinary course of business, (d) sales of
assets (excluding the Parker Equities Properties) in which the Net
Cash Proceeds thereof are used within 365 days of such sale to
purchase assets of similar value and quality and business utility to
those assets sold, provided that the aggregate amount of Net Cash
Proceeds outstanding and pending reinvestment pursuant to this clause
(d) shall not exceed $5,000,000 at any time, (e) sales and
dispositions (i) from any Domestic Subsidiary to the Borrower or any
other Domestic Subsidiary and (ii) from any Foreign Subsidiary to the
Borrower or any of its Subsidiaries, (f) transfers resulting from any
casualty or condemnation of property or assets, (g) the sale or
discount of overdue accounts receivable in the ordinary course of
business, in connection with the compromise or collection thereof, (h)
licenses or sublicenses of intellectual property and general
intangibles and licenses, leases or subleases of other property in
each case in the ordinary course of business and which do not
materially interfere with the business of the Borrower and its
Subsidiaries, (i) the sale of assets in respect of the Candle Making
Joint Venture not to exceed $2,500,000 in aggregate amount, (j) sales
of assets during any fiscal year the aggregate Net Cash Proceeds of
which do not exceed $1,000,000, (k) assets sales, the Net Cash
Proceeds of which are applied in accordance with Section 2.5(c)
hereof, and (1) sale of the Parker Equities Properties; provided that
(i) until the closing of the purchase of the Frankford Facility, the
Net Cash Proceeds thereof are held on deposit with a Qualified
Intermediary or the Administrative Agent and (ii) the Net Cash
Proceeds thereof are used to purchase and/or construct and improve the
Frankford Facility or the Borrower's new corporate headquarters."
(f) Section 7.10 of the Credit Agreement is hereby deleted in its
entirety and the following is inserted in lieu thereof:
"Section 7.10 Sale and Leaseback. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any arrangement
whereby it sells or transfers any of its assets, and thereafter rents
or leases such assets, except the Parker Equity Properties, provided
that this Section 7.10 hereof does not prohibit any sale and leaseback
resulting from the incurrence of any lease or purchase money financing
in respect of any capital assets entered into within 90 days of the
acquisition of such capital asset for the purpose of providing
permanent financing of such capital asset permitted under Section 7.1
hereof."
-3-
<PAGE> 4
(g) Section 7.11 of the Credit Agreement is hereby amended by
inserting the following proviso at the end of such section:
"; provided, however, notwithstanding anything in this Section 7.11
to the contrary, for purposes of Section 7.11 only, Capital
Expenditures shall not include (i) the difference between the Parker
Equity Properties Net Cash Proceeds and the purchase price of the
Frankford Facility, and (ii) build-out costs for the Frankford
Facility, costs related to the automated order fulfillment system for
the Frankford Facility and leasehold improvements for the Borrower's
new corporate headquarters, not to exceed with respect to both clauses
(i) and (ii) above $23,400,000 in aggregate amount."
(h) The first sentence of Section 11.6(d) of the Credit Agreement
is hereby amended by deleting clause (iv) thereof and inserting the following in
lieu thereof:
"(iv) no such assignment, other than to an Affiliate of a Lender, to
an existing Lender hereunder or to a Related Fund, shall be in an
amount of less than $5,000,000, unless the portion of the Commitments
or Advances of a Lender is less than $5,000,000, in which case such
assignment may be in the total amount of such Lender's portion of the
Commitments or Advances; provided, however, notwithstanding anything
herein to the contrary, in no event shall the portion of any
Commitments or Advances retained by any Lender in connection with and
as a result of any such assignment be less than $1,000,000."
2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT.
By its execution and delivery hereof, the Borrower represents and warrants that,
as of the date hereof and after giving effect to the amendment contemplated by
the foregoing Section 1:
(a) the representations and warranties contained in the Credit
Agreement (other than those representations and warranties that specifically
relate to an earlier date) and the other Loan Documents are true and correct in
all material respects on and as of the date hereof as made on and as of such
date;
(b) no event has occurred and is continuing which constitutes a
Default or an Event of Default;
(c) the Borrower has full corporate power and authority to
execute and deliver this Third Amendment, and this Third Amendment constitutes
the legal, valid and binding obligations of the Borrower, enforceable in
accordance with its terms, except as enforceability may be limited by applicable
Debtor Relief Laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;
(d) neither the execution, delivery and performance of this Third
Amendment nor the consummation of any transactions contemplated herein will
conflict with any material Applicable Law, the articles of incorporation, bylaws
or other governance document of the Borrower or any of
-4-
<PAGE> 5
its Subsidiaries, or any material indenture, agreement or other instrument to
which the Borrower or any of its Subsidiaries or any of their respective
property may be bound; and
(e) no authorization, approval, consent, or other action by,
notice to, or filing with, any governmental authority or other Person (including
the Board of Directors of the Borrower or any Guarantor), is required for the
execution, delivery or performance by the Borrower of this Third Amendment or
the acknowledgment of this Third Amendment by any Guarantor other than (i) those
approvals and consents already obtained, and (ii) consents under immaterial
contractual obligations.
3. CONDITIONS OF EFFECTIVENESS. This Third Amendment shall be
effective as of November 19, 1999, subject to the following:
(a) the Administrative Agent shall receive counterparts of this
Third Amendment executed by the Determining Lenders, the Required Facility A
Term Loan Lenders and the Required Facility B Term Loan Lenders;
(b) the Administrative Agent shall receive counterparts of this
Third Amendment executed by the Borrower and acknowledged by each Guarantor;
(c) arrangements shall have been made, in form and substance
reasonably satisfactory to the Administrative Agent and its counsel, for the
possession by a Qualified Intermediary of the Parker Equity Properties Net Cash
Proceeds; and
(d) the Administrative Agent shall receive, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall reasonably
require.
4. GUARANTOR ACKNOWLEDGMENT. By signing below, each of the
Guarantors (i) acknowledges, consents and agrees to the execution and delivery
of this Third Amendment, (ii) acknowledges and agrees that its obligations in
respect of its Subsidiary Guaranty are not released, diminished, waived,
modified, impaired or affected in any manner by this Third Amendment or any of
the provisions contemplated herein, (iii) ratifies and confirms its obligations
under its Subsidiary Guaranty, and (iv) acknowledges and agrees that it has no
claims or offsets against, or defenses or counterclaims to, its Subsidiary
Guaranty solely as a result of the execution and delivery of this Third
Amendment.
5. REFERENCE TO THE CREDIT AGREEMENT.
(a) Upon the effectiveness of this Third Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", or words of like
import shall mean and be a reference to the Credit Agreement, as amended by this
Third Amendment.
(b) The Credit Agreement, as amended by this Third Amendment,
and all other Loan Documents shall remain in full force and effect and are
hereby ratified and confirmed.
-5-
<PAGE> 6
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Administrative
Agent in connection with the preparation, reproduction, execution and delivery
of this Third Amendment and the other instruments and documents to be delivered
hereunder (including the reasonable fees and out-of-pocket expenses of counsel
for the Administrative Agent with respect thereto and with respect to advising
the Administrative Agent as to its rights and responsibilities under the Credit
Agreement, as amended by this Third Amendment).
7. EXECUTION IN COUNTERPARTS. This Third Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each which when so executed and delivered shall be deemed
to be an original and all of which taken together shall constitute but one and
the same instrument.
8. GOVERNING LAW: BINDING EFFECT. This Third Amendment shall be
governed by and construed in accordance with the Laws of the State of Texas
without regard to the principles of the conflicts of Laws and the applicable
federal Laws and shall be binding upon the Borrower, the Administrative Agent,
the Syndication Agent, the Documentation Agent and each Lender and their
respective successors and assigns.
9. HEADINGS. Section headings in this Third Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Third Amendment for any other purpose.
10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY
THIS THIRD AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
================================================================================
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
================================================================================
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as the date first written.
HOME INTERIORS & GIFTS, INC.
By: /s/ KENNETH J. CICHOCKI
------------------------------------
Name: KENNETH J. CICHOCKI
------------------------------
Title: CHIEF FINANCIAL OFFICER
-----------------------------
BANK OF AMERICA, N.A., as Administrative
Agent and as a Lender
By: /s/ NATALIE HEBERT
------------------------------------
Natalie Hebert NATALIE HEBERT
Vice President VICE PRESIDENT
THE CHASE MANHATTAN BANK, as Syndication
Agent and as a Lender
By: /s/ WILLIAM J. CAGGIANO
------------------------------------
Name: KENNETH J. CAGGIANO
------------------------------
Title: MANAGING DIRECTOR
-----------------------------
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, as Co-Agent and as a Lender
By: /s/ B. ROSS SMEAD
------------------------------------
Name: B. Ross Smead
------------------------------
Title: Vice President
-----------------------------
SOCIETE GENERALE, as Co-Agent and as a
Lender
By: /s/ CYNTHIA A. JAY
------------------------------------
Name: Cynthia A. Jay
------------------------------
Title: Managing Director
-----------------------------
CITICORP USA, INC., as Co-Agent and as a
Lender
By: /s/ TIMOTHY L. FREEMAN
------------------------------------
Name: TIMOTHY L. FREEMAN
------------------------------
Title: MANAGING DIRECTOR/SCO
-----------------------------
BANK ONE, TEXAS, N.A.
By: /s/ GINA A. NORRIS
------------------------------------
Name: Gina A. Norris
------------------------------
Title: Managing Director
-----------------------------
BANKERS TRUST COMPANY
By: /s/ DAVID J. BELL
------------------------------------
Name: DAVID BELL
------------------------------
Title: PRINCIPAL
-----------------------------
BHF (USA) CAPITAL Corporation
By: /s/ JEFFREY FROST
------------------------------------
Name: JEFFREY FROST
------------------------------
Title: VICE PRESIDENT
-----------------------------
By: /s/ CHRISTOPHER DUGGER
------------------------------------
Name: CHRISTOPHER DUGGER
------------------------------
Title: ASSOCIATE
-----------------------------
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: /s/ RICHARD VARALLA
------------------------------------
Name: RICHARD VARALLA
------------------------------
Title: ASSOCIATE
-----------------------------
-7-
<PAGE> 8
By: /s/ ROBERT M. BIRINGER
------------------------------------
Name: ROBERT M. BIRINGER
------------------------------
Title: EXECUTIVE VICE PRESIDENT
-----------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
HELLER FINANCIAL, INC.
By: /s/ SHEILA C. WEIMER
------------------------------------
Name: SHEILA C. WEIMER
------------------------------
Title: VICE PRESIDENT
-----------------------------
NATIONAL CITY BANK OF KENTUCKY
By: /s/ TOM GARBACH
------------------------------------
Name: TOM GARBACH
------------------------------
Title: VICE PRESIDENT
-----------------------------
BALANCED HIGH-YIELD FUND I
By: BHF (USA) Capital Corporation
acting as attorney-in-fact
By: /s/ JEFFREY FROST
------------------------------------
Name: JEFFREY FROST
------------------------------
Title: VICE PRESIDENT
-----------------------------
By: /s/ CHRISTOPHER DUGGER
------------------------------------
Name: CHRISTOPHER DUGGER
------------------------------
Title: ASSOCIATE
-----------------------------
KZH ING-2 LLC
By: /s/ PETER CHIN
------------------------------------
Name: Peter Chin
------------------------------
Title: Authorized Agent
-----------------------------
DELANO COMPANY
By: Pacific Investment Management
Company, As its Investment Advisor
By: Pimco Management Inc., A General
Partner
By: /s/ Mohan V. Phansalkar
------------------------------------
Name: Mohan V. Phansalkar
------------------------------
Title: Senior Vice President
-----------------------------
VAN KAMPEN CLO II, LIMITED
By: Van Kampen American Capital
Management, Inc.,
as Collateral Manager
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as
Investment Manager
By: /s/ BARBARA CAMPELL
------------------------------------
Name: BARBARA CAMPELL
------------------------------
Title: VICE PRESIDENT
-----------------------------
FIRST DOMINION FUNDING I
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisers (Bermuda), Ltd., as
General Partner
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
By: TCW Investment Management Company,
as Investment Manager
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW Advisers (Bermuda), Ltd., as
General Partner
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
By: TCW Investment Management Company,
as Investment Manager
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
CAPTIVA III FINANCE LTD., as advised by
Pacific Investment Management Company
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors LLC
as Collateral Manager
By: /s/ MICHAEL D. HATLEY
------------------------------------
Name: MICHAEL D. HATLEY
------------------------------
Title: MANAGING DIRECTOR
-----------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ J. SCOTT JESSUP
------------------------------------
Name: J. SCOTT JESSUP
------------------------------
Title: VICE PRESIDENT
-----------------------------
SEQUILS-ING I (HBDGM), LTD.
By: ING Capital Advisors LLC,
as Collateral Manager
By: /s/ MICHAEL D. HATLEY
------------------------------------
Name: MICHAEL D. HATLEY
------------------------------
Title: MANAGING DIRECTOR
-----------------------------
EATON VANCE INSTITUTIONAL SENIOR LOAN
FUND
By: Eaton Vance Management, as
Investment Advisor
By: /s/ BARBARA CAMPELL
------------------------------------
Name: BARBARA CAMPELL
------------------------------
Title: VICE PRESIDENT
-----------------------------
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management, as
Investment Advisor
By: /s/ BARBARA CAMPELL
------------------------------------
Name: BARBARA CAMPELL
------------------------------
Title: VICE PRESIDENT
-----------------------------
ACKNOWLEDGED AND AGREED:
DALLAS WOODCRAFT, INC., a Texas corporation
GIA, INC., a Nebraska corporation
HOMCO, INC., a Texas corporation
By: /s/ LEONARD A. ROBERTSON
---------------------------------
Name: LEONARD A. ROBERTSON
-------------------------------
Title: SECRETARY
------------------------------
HOMCO PUERTO RICO, INC., a Delaware corporation
SPRING VALLEY SCENTS, INC., a Texas corporation
By: /s/ LEONARD A. ROBERTSON
------------------------------------
Name: LEONARD A. ROBERTSON
----------------------------------
Title: SECRETARY
---------------------------------
-8-
<PAGE> 1
EXHIBIT 10.18.2
SECOND AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement")
is made and entered into as of October 20, 1999 (the "Effective Date"), by and
between ARGENT FRANKFORD, L.P., a Texas limited partnership ("Seller"), and HOME
INTERIORS & GIFTS, INC. a Texas corporation ("Buyer").
W I T N E S S E T H :
A. Seller and Purchaser entered into that one certain Purchase
and Sale Agreement (the "Agreement") with an effective date of
July 19, 1999.
B. Seller and Purchaser entered into that one certain First
Amendment to Purchase and Sale Agreement (the "Agreement")
with an effective date of July 23, 1999.
C. Seller and Purchaser hereby intend to further amend the
Agreement as more particularly provided herein.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Exhibit "E" to the Exhibit "A" to Purchase and Sale Agreement,
the approved form of Subordination, Nondisturbance and
Attornment Agreement to be utilized in the event a lease of
the Property is executed, is deleted and the Exhibit "E -
Lease" attached to this Second Amendment is substituted in its
place for all purposes.
2. Buyer hereby acknowledges its approval of (a) the preliminary
replat of the Property in the form of the replat attached
hereto as Exhibit "E - Agreement", (b) the Amendment to Rail
Easement Agreement attached hereto as Exhibit "F," and (c) the
Common Access Easement attached hereto as Exhibit "G," subject
to the
3. terms and conditions of the Agreement and all rights of Buyer
provided therein. Seller agrees to advise Buyer on a regular
basis of any changes to the preliminary replat required by the
City of Carrollton, and to submit any such changes in the
preliminary replat to Buyer for Buyer's approval, which
approval shall not be unreasonably withheld or delayed.
4. Except as amended hereby, the Agreement is in full force and
effect.
[The remainder of this page is left blank intentionally.]
Second Amendment to
Purchase and Sale Agreement Page 1 of 2
<PAGE> 2
EXECUTED as of the day and year first above set forth, which shall be
the Effective Date of this First Amendment for all purposes.
SELLER:
ARGENT FRANKFORD, L.P.,
a Texas limited partnership
By: ARGENT FRANKFORD GP, LLC,
a Texas limited liability company
its General Partner
By: /s/ C.E. CORNUTT
-----------------------------------------
Name: C.E. Cornutt
Title: President
BUYER:
HOME INTERIORS & GIFTS, INC.
a Texas corporation
By: /s/ BETTINA SIMON
-----------------------------------------
Name: Bettina Simon
---------------------------------------
Title: Vice President, General Counsel
and Secretary
--------------------------------------
Second Amendment to
Purchase and Sale Agreement Page 2 of 2
<PAGE> 1
EXHIBIT 10.18.3
THIRD AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement") is
made and entered into as of February 9, 2000 (the "Effective Date"), by and
between ARGENT FRANKFORD, L.P., a Texas limited partnership ("Seller"), and HOME
INTERIORS & GIFTS, INC. a Texas corporation ("Buyer").
--------------------------
W I T N E S S E T H :
A. Seller and Purchaser entered into that one certain Purchase and Sale
Agreement (as amended, the "Agreement") with an effective date of July 19, 1999.
B. Seller and Purchaser entered amendments of the Agreement with effective
dates of July 23, 1999, and October 20, 1999.
C. Seller has notified Buyer of upcoming Substantial Completion of the
Seller's Improvements, including those items originally shown on Exhibit "C-1"
of the Agreement and additional modifications and additions as described on the
plans and specifications approved by Buyer on November 23, 1999, in accordance
with the letter attached hereto as Exhibit "A."
D. Buyer and Seller have reached agreement as to the scope of the
Improvements contemplated by Exhibit "C" of the Agreement, including the
agreement for Seller to construct certain improvements in the Building (defined
in Section 6 as the "HIG Improvements") described on the plans and
specifications approved by Buyer on January 4, 2000, in accordance with the
letter attached hereto as Exhibit "B." The parties' agreements concerning the
HIG Improvements are incorporated into Exhibit "C-1" of the Agreement, for the
sake of convenience, by this Third Amendment.
E. Pursuant to the parties' agreement, the construction of the HIG
Improvements will result in an addition to the purchase price as more
particularly provided in this Third Amendment.
F. Seller and Purchaser hereby intend to amend the Agreement as more
particularly provided herein.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
I. DIVISION OF PROPERTY FOR PURPOSES OF TWO CLOSINGS. THE PROPERTY SHALL
BE PURCHASED AND CONVEYED IN TWO SEPARATE CLOSINGS. SELLER SHALL CONVEY TO THE
BUYER:
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 1 -
<PAGE> 2
A. A SIXTY NINE PERCENT (69%) UNDIVIDED INTEREST IN THE PROPERTY
(THE "69% INTEREST") AT THE FIRST CLOSING (HEREIN SO-CALLED); AND
B. A THIRTY ONE PERCENT (31%) UNDIVIDED INTEREST IN THE PROPERTY
(THE "31% INTEREST") AT THE SECOND AND FINAL CLOSING (THE "SECOND
CLOSING").
II. PURCHASE PRICE. THE AGGREGATE PURCHASE PRICE FOR THE PROPERTY IS
AGREED TO BE TWENTY ONE MILLION THREE HUNDRED SEVENTY TWO THOUSAND ONE HUNDRED
THIRTY THREE AND NO/100 DOLLARS ($21,372,133), CALCULATED AS FOLLOWS:
<TABLE>
<CAPTION>
Purchase Price [in Seller's Scope of Improvements]:
-------------------------------------------------
<S> <C> <C> <C>
1 Shell, Per Agreement Exhibit "C-1" ["Project Model"] $17,782,000
2 Construction Interest on Original Optional Items Cost 31,123
3 Cost of HIG Improvements (as of 2/1/2000):
4 Revised Cost of Buyer's Original Optional Items (Per Agreement) 1,074,991
5 HIG Improvements (Per Attached Exhibit "B") 2,371,992
---------
6 Subtotal Optional Items + HIG Improvements 3,446,983
7 Seller's Construction Management Fee on HIG Improvements 3.25% 112,027
-------
8 Total Revised Purchase Price 21,372,133
==========
9 Funding of Purchase Price:
10 Buyer's Payment at First Closing ( = Full Balance, Exchange 14,650,000
Escrow Account; 2/2/00 Estimate Shown)
11 Construction Security (Previously Paid) 700,000
12 Seller Funding Until Second Closing 5,300,000
13 Progress Payments (Current Scope of HIG Improvements) 853,133
14 Buyer's Payment at Second Closing 5,169,000
---------
15 TOTAL PAYMENTS [SELLER'S SCOPE OF IMPROVEMENTS] 21,372,133
==========
</TABLE>
The purchase price shall be allocated and paid as follows:
A. $14,650,000 FOR THE 69% INTEREST, PLUS ADDITIONAL AMOUNTS, IF
ANY, IN THE BUYER'S EXCHANGE ESCROW ACCOUNT WHICH BUYER ELECTS TO APPLY
TO THE PURCHASE PRICE AT THE FIRST CLOSING; AND
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 2 -
<PAGE> 3
B. $6,722,133 FOR THE 31% INTEREST. THE EARNEST MONEY DEPOSIT,
ALL INTEREST ACCRUED AND TO ACCRUE THEREON, THE CONSTRUCTION SECURITY,
AND PROGRESS PAYMENTS (HEREAFTER DEFINED IN SECTION 6) SHALL BE APPLIED
TO THE PURCHASE PRICE FOR THE 31% INTEREST.
III. PERMITTED LIEN. THE 69% INTEREST SHALL BE CONVEYED SUBJECT TO THE
LIEN OF A DEED OF TRUST (THE "PERMITTED LIEN") SECURING A PROMISSORY NOTE IN THE
ORIGINAL PRINCIPAL AMOUNT NOT EXCEEDING $5,300,000, PAYABLE TO THE ORDER OF BANK
OF AMERICA, N.A., MATURING MAY 31, 2000. SELLER SHALL RETAIN THE LIABILITY AND
RESPONSIBILITY FOR THE RELEASE OF THE PROPERTY FROM THE PERMITTED LIEN AT THE
TIME OF THE SECOND CLOSING (CONDITIONED ON BUYER'S PERFORMANCE HEREUNDER) AND
AGREES TO INDEMNIFY AND HOLD BUYER HARMLESS FROM AND AGAINST LOSS OR CLAIMS
ARISING OUT OF SELLER'S FAILURE TO OBTAIN SUCH RELEASE AS REQUIRED BY THE TERMS
OF THIS THIRD AMENDMENT. THE PERMITTED LIEN SHALL BE DEEMED TO BE A PERMITTED
EXCEPTION UNDER THE AGREEMENT AS TO THE 69% INTEREST TO BE CONVEYED AT THE FIRST
CLOSING. THE PERMITTED LIEN SHALL NOT BE A PERMITTED EXCEPTION AS TO THE 31%
INTEREST.
IV. PRORATION OF AD VALOREM TAXES AND EXPENSES. ALL AD VALOREM TAXES,
PROPERTY OWNERS' ASSOCIATION DUES AND ASSESSMENTS, AND UTILITIES CONSUMED BY
BUYER IN CONNECTION WITH BUYER'S OCCUPANCY OF THE PROPERTY (EXCLUDING THE
GENERAL CONTRACTOR`S POWER, WATER, AND SEWER UTILIZATION PURSUANT TO THE
CONSTRUCTION CONTRACT FOR THE HIG IMPROVEMENTS) SHALL BE PRORATED AS OF THE DATE
OF THE FIRST CLOSING, AND BUYER SHALL ASSUME SUCH OBLIGATIONS EFFECTIVE AS OF
THE FIRST CLOSING. BUYER AGREES TO REIMBURSE SELLER AT EACH OF THE FIRST AND
SECOND CLOSINGS FOR THE REASONABLE ATTORNEYS' FEES AND COSTS (COLLECTIVELY, THE
"REVISED TRANSACTION COSTS") INCURRED BY SELLER IN CONNECTION WITH SELLER'S
FACILITATION OF BUYER'S SECTION 1031 EXCHANGE TRANSACTION, OF WHICH THE EXPENSE
INCIDENT TO NEGOTIATION AND PREPARATION OF THIS THIRD AMENDMENT, MODIFICATION OF
THE SELLER'S CONSTRUCTION LOAN DOCUMENTATION, THE PARTICIPATION IN THE SECOND
CLOSING, AND LOAN FEES AND INTEREST EXPENSE INCURRED IN MODIFYING AND EXTENDING
SELLER'S CONSTRUCTION LOAN ARE ALL A PART. THE AGGREGATE OF REVISED TRANSACTION
FEES REIMBURSABLE TO SELLER HEREUNDER SHALL NOT EXCEED $150,000, AND IS
CURRENTLY ESTIMATED TO BE $135,000, COMPOSED OF:
Estimated Additional Interest
on $5,300,000
$110,000
Estimated Additional Title Insurance Premium on $21,372,133 6,200
Estimated Additional Cost, Contract Amendment, Revised
Documents and Loan 18,800
V. TITLE INSURANCE. SELLER AND BUYER AGREE THAT THE AGGREGATE OF PREMIUM
EXPENSE PAYABLE BY SELLER FOR THE OWNER'S POLICIES OF TITLE INSURANCE TO BE
ISSUED TO BUYER IN CONNECTION WITH THE INSURING OF BUYER'S TITLE TO THE 69%
INTEREST AND THE 31% INTEREST SHALL NOT EXCEED: (A) THE BASIC PREMIUM PAYABLE
UNDER APPLICABLE TITLE INSURANCE RATE RULES FOR A
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 3 -
<PAGE> 4
SINGLE OWNER'S POLICY OF TITLE INSURANCE IN THE AMOUNT OF $19,354,974, LESS (B)
ANY BASIC PREMIUM CREDIT TO WHICH SELLER SHALL BE ENTITLED PURSUANT TO THE RATE
RULES, BASIC MANUAL OF RULES, RATES, AND FORMS PROMULGATED BY THE TEXAS
INSURANCE COMMISSION. BUYER SHALL HAVE THE RIGHT AND OPTION TO OBTAIN ADDITIONAL
TITLE INSURANCE ON THE PROPERTY AT BUYER'S SOLE COST AND EXPENSE.
VI. CLOSING SCHEDULE.
A. THE FIRST CLOSING SHALL OCCUR ON FEBRUARY 15, 2000, BY WHICH
DATE THE PARTIES AGREE SUBSTANTIAL COMPLETION OF THE SELLER'S
IMPROVEMENTS, AS DEFINED IN THE AGREEMENT, SHALL BE DEEMED TO HAVE
OCCURRED, SUBJECT TO THE PUNCHLIST ITEMS DETERMINED IN ACCORDANCE WITH
SECTION 5 OF EXHIBIT "C" TO THE AGREEMENT.
B. THE SECOND CLOSING SHALL OCCUR ON THE LATER OF: (I) TEN (10)
DAYS AFTER THE BUYER'S CLOSING OF THE DISPOSITION OF BUYER'S MCKINNEY
PROPERTY, DESCRIBED ON EXHIBIT "C" ATTACHED TO THIS THIRD AMENDMENT, AND
(II) TEN (10) DAYS AFTER SUBSTANTIAL COMPLETION OF THE INTERIOR
IMPROVEMENTS (THE "HIG IMPROVEMENTS") DESCRIBED ON EXHIBIT "B" ATTACHED
TO THIS THIRD AMENDMENT. NOTWITHSTANDING THE FOREGOING, IF SUBSTANTIAL
COMPLETION OF THE HIG IMPROVEMENTS OR BUYER'S CLOSING OF THE MCKINNEY
PROPERTY SHALL NOT HAVE OCCURRED PRIOR TO MAY 15, 2000, THE SECOND
CLOSING SHALL OCCUR NO LATER THAN MAY 26, 2000, AND SELLER'S OBLIGATIONS
WITH RESPECT TO THE HIG IMPROVEMENTS SHALL SURVIVE THE SECOND CLOSING.
C. BUYER AGREES TO NOTIFY SELLER PROMPTLY WHEN THE CLOSING OF THE
MCKINNEY PROPERTY OCCURS.
D. AT THE FIRST CLOSING, BUYER WILL FURNISH A LETTER
ACKNOWLEDGING SUBSTANTIAL COMPLETION OF THE SELLER IMPROVEMENTS, AS
FURTHER DESCRIBED IN EXHIBIT "C" OF THE AGREEMENT, SECTION 5F, SUBJECT IN
ALL RESPECTS TO SELLER'S OBLIGATION UNDER THE AGREEMENT TO CAUSE
COMPLETION OF UNFINISHED IMPROVEMENTS, FIXTURES, OR EQUIPMENT NOTED IN
THE PROJECT ARCHITECT'S CERTIFICATE OF SUBSTANTIAL COMPLETION (THE
"PUNCHLIST ITEMS"). PRIOR TO THE FIRST CLOSING, THE PARTIES SHALL
COOPERATE WITH ONE ANOTHER IN GOOD FAITH TO CAUSE A PUNCHLIST TO BE
PREPARED IN ACCORDANCE WITH SECTION 5 OF EXHIBIT "C" TO THE AGREEMENT.
BUYER RESERVES ALL OF BUYER'S RIGHTS GRANTED PURSUANT TO THE AGREEMENT
WITH RESPECT TO COMPLETION OF PUNCHLIST ITEMS, NOTWITHSTANDING BUYER'S
PARTICIPATION IN THE FIRST CLOSING. BUYER'S LETTER SHALL EXPRESSLY
EXCLUDE THE PUNCHLIST ITEMS FROM ANY ACKNOWLEDGMENT OF ACCEPTANCE OR
COMPLETION.
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 4 -
<PAGE> 5
E. THE HIG IMPROVEMENTS ARE DESCRIBED BY REFERENCE ON EXHIBIT "B"
ATTACHED TO THIS THIRD AMENDMENT. THE VALUE OF THE HIG IMPROVEMENTS IS
REFLECTED IN THE PURCHASE PRICE STATED IN SECTION 2, ABOVE. IF THE SCOPE
OF THE HIG IMPROVEMENTS SHALL HEREAFTER BE ADJUSTED PURSUANT TO CHANGE
ORDERS BETWEEN BUYER AND SELLER, SUCH ADJUSTMENT SHALL CAUSE: (I) AN
ADJUSTMENT OF THE PURCHASE PRICE IN ACCORDANCE WITH THE TERMS OF SECTION
2G OF EXHIBIT "C" TO THE AGREEMENT, IN THE SAME MANNER AS CHANGES IN
SELLER'S IMPROVEMENTS HAVE PREVIOUSLY BEEN REFLECTED IN THE PURCHASE
PRICE, AND (II) AN ADJUSTMENT OF THE PROGRESS PAYMENTS PAYABLE BY BUYER.
F. BUYER AGREES TO PAY SELLER THE SUM OF $853,000 (COLLECTIVELY,
AS ADJUSTED IN ACCORDANCE WITH SUBPARAGRAPH 6E, THE "PROGRESS PAYMENTS")
IN ORDER TO DEFRAY THE COST OF FINANCING A PORTION OF THE HIG
IMPROVEMENTS. EACH INSTALLMENT OF PROGRESS PAYMENTS SHALL BE MADE UPON
FIVE (5) BUSINESS DAYS NOTICE FROM SELLER TO BUYER, FORWARDING TO BUYER A
REQUEST FOR PAYMENT REFLECTING THE PROGRESS OF WORK ON THE HIG
IMPROVEMENTS. THE PROGRESS PAYMENTS SHALL OCCUR IN TWO EQUAL MONTHLY
INSTALLMENTS, EACH OF WHICH SHALL BE PAID ON OR ABOUT THE 15TH DAY OF
APRIL AND MAY, 2000. THE AGGREGATE OF PROGRESS PAYMENTS SHALL BE APPLIED
TO THE PORTION OF THE PURCHASE PRICE PAYABLE AT THE SECOND CLOSING.
G. SUBSTANTIAL COMPLETION OF THE HIG IMPROVEMENTS SHALL BE THE
DATE ON WHICH (I) SELLER OBTAINS AND DELIVERS TO BUYER A CERTIFICATE OF
OCCUPANCY FROM THE CITY OF CARROLLTON, TEXAS, WITH RESPECT TO THE HIG
IMPROVEMENTS (OR THE PORTIONS OF SUCH IMPROVEMENTS FOR WHICH MUNICIPAL
INSPECTIONS AND APPROVALS ARE REQUIRED BY LAW); AND (II) THE PROJECT
ARCHITECT SHALL HAVE ISSUED HIS CERTIFICATE OF SUBSTANTIAL COMPLETION FOR
THE HIG IMPROVEMENTS IN THE FORM OF AIA CERTIFICATE OF SUBSTANTIAL
COMPLETION (AIA DOCUMENT G704).
H. AT EACH OF THE FIRST AND SECOND CLOSINGS, EACH DOCUMENT
REQUIRED TO BE DELIVERED IN CONNECTION WITH SUCH CLOSING WHICH DESCRIBES
OR REFERS TO THE PROPERTY SHALL DESCRIBE OR REFER TO THE UNDIVIDED
INTEREST IN THE PROPERTY PROVIDED TO BE CONVEYED AT SUCH CLOSING
HEREUNDER.
VII. INTERIM OPERATIONS. THE BUYER SHALL HAVE THE EXCLUSIVE RIGHT TO
OCCUPY AND UTILIZE THE BUILDING AND THE LAND IN PREPARATION FOR THE OPERATION OF
ITS BUSINESS THEREIN, AND TO OPERATE ITS BUSINESS THEREIN DURING THE TERM OF THE
AGREEMENT, SO LONG AS NO DEFAULT SHALL EXIST HEREUNDER. BUYER'S RIGHT OF
OCCUPANCY SHALL BE SUBJECT TO:
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 5 -
<PAGE> 6
A. THE RIGHTS OF SELLER TO COMPLETE THE HIG IMPROVEMENTS
(HEREAFTER DEFINED) IN ACCORDANCE WITH THE PARTIES' AGREEMENTS RELATING
TO CONSTRUCTION IN AND AROUND THE BUILDING.
B. FROM AND AFTER THE TERMINATION OF THE GENERAL CONTRACTOR'S
BUILDER'S RISK INSURANCE AS THE RESULT OF THE COMPLETION OF THE
CONSTRUCTION CONTRACT, BUYER'S PURCHASE OF COMPREHENSIVE GENERAL
LIABILITY INSURANCE POLICIES WITH COVERAGE LIMITS NOT LESS THAN
$10,000,000 IN THE AGGREGATE AND $1,000,000 PER OCCURRENCE FOR PERSONAL
INJURY AND PROPERTY DAMAGE, AND POLICIES INSURING AGAINST CASUALTY LOSS
OF, OR DAMAGE TO, THE BUILDING IN THE AMOUNT OF THE FULL REPLACEMENT COST
THEREOF, WHICH POLICIES SHALL NAME SELLER AND SELLER'S MORTGAGEE AS
ADDITIONAL INSUREDS IN ACCORDANCE WITH THEIR INTERESTS. SELLER SHALL NOT
BE LIABLE IN ANY WAY FOR ANY INJURY, LOSS, OR DAMAGE WHICH MAY OCCUR TO
ANY OF BUYER'S PROPERTY OR INSTALLATIONS IN THE BUILDING, OR ELSEWHERE ON
THE LAND, PRIOR TO THE SECOND CLOSING. BUYER SHALL PROTECT, DEFEND,
INDEMNIFY, AND HOLD HARMLESS SELLER FROM AND AGAINST ALL LIABILITIES,
COSTS, DAMAGES, FEES, AND EXPENSES ARISING OUT OF THE ACTIVITIES OF BUYER
OR ITS AGENTS, CONTRACTORS, SUPPLIERS, AGENTS, OR WORKMEN ON THE
PROPERTY.
C. BUYER AGREES TO COOPERATE WITH SELLER AND SELLER'S
CONSTRUCTION LENDER TO THE EXTENT REASONABLY NECESSARY TO FACILITATE
SELLER'S FINANCING OF THE CONSTRUCTION OF THE HIG IMPROVEMENTS, WHICH
FINANCING SHALL BE SECURED BY A DEED OF TRUST LIEN ON THE PROPERTY
THROUGHOUT THE TERM OF THE AGREEMENT, UNTIL THE SECOND CLOSING. IN
CONNECTION WITH SUCH FINANCING, SELLER ANTICIPATES THAT AT A MINIMUM, THE
MORTGAGEE SHALL REQUEST, AND BUYER HEREBY AGREES TO EXECUTE AND DELIVER,
AN ESTOPPEL CERTIFICATE STATING THAT THE AGREEMENT IS IN FULL FORCE AND
EFFECT, WITHOUT DEFAULT, AND AFFIRMING BUYER'S OBLIGATIONS THEREUNDER.
VIII. WARRANTIES AND GUARANTIES. IN ORDER TO MAXIMIZE APPLICABLE
WARRANTY PERIODS, SELLER SHALL, SUBJECT TO GENERAL CONTRACTOR APPROVAL, ASSIGN
WARRANTIES AND GUARANTIES RELATING TO THE SELLER'S IMPROVEMENTS AND HIG
IMPROVEMENTS AT THE DATE OF SUBSTANTIAL COMPLETION OF THE HIG IMPROVEMENTS, AS
PROVIDED IN THIS THIRD AMENDMENT AND NOT AT THE FIRST CLOSING.
IX. CASUALTY LOSS. SECTION 12 OF THE AGREEMENT IS AMENDED IN THE FOLLOWING
RESPECTS:
A. THE WORD "CLOSING" IN SUCH SECTION IS AMENDED TO READ "FIRST
CLOSING."
B. THE FOLLOWING SENTENCE IS ADDED TO THE END OF SUCH SECTION:
THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT - 6 -
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 6 -
<PAGE> 7
After the First Closing, all risk of loss of the Property shall be
Buyer's risk, and Buyer shall be solely responsible for insuring such
risk. Seller shall not authorize the General Contractor to cancel the
existing builder's risk coverage except as permitted by the terms of
the General Contractor's contract for construction of the Building
following Substantial Completion of the HIG Improvements.
X. LEASE OPTION. SECTION 16 OF THE AGREEMENT IS HEREBY DELETED.
XI. WAIVER OF PARTITION RIGHTS. BUYER AND SELLER WAIVE THEIR LEGAL AND
EQUITABLE RIGHTS TO PARTITION THE PROPERTY DURING THE PERIOD BETWEEN THE FIRST
CLOSING AND SECOND CLOSING, PROVIDED THAT IF EITHER PARTY SHALL BREACH ITS
OBLIGATIONS UNDER THE AGREEMENT, THE NONDEFAULTING PARTY SHALL HAVE THE RIGHT
AND OPTION TO SEEK PARTITION OF THE PROPERTY, CUMULATIVE OF ALL OTHER RIGHTS AND
REMEDIES AVAILABLE TO THE NONDEFAULTING PARTY ON ACCOUNT OF SUCH BREACH.
XII. RATIFICATION OF TERMS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS THIRD AMENDMENT, THE PROVISION OF THE AGREEMENT ARE IN FULL FORCE AND
EFFECT, AND THE CLOSING OF THE BUYER'S ACQUISITION OF THE 69% INTEREST AND THE
31% INTEREST SHALL BE SUBJECT IN ALL RESPECTS TO THE TERMS OF THE AGREEMENT, AS
AMENDED HEREIN. EACH CAPITALIZED TERM UTILIZED HEREIN SHALL HAVE THE MEANING
THEREFOR ASSIGNED IN THE AGREEMENT, UNLESS OTHERWISE DEFINED IN THIS THIRD
AMENDMENT.
EXECUTED as of the day and year first above set forth, which shall be
the Effective Date of this Third Amendment for all purposes.
[The balance of this page is left blank intentionally.]
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 7 -
<PAGE> 8
SELLER:
ARGENT FRANKFORD, L.P.,
a Texas limited partnership
By: ARGENT FRANKFORD GP, LLC,
a Texas limited liability company
its General Partner
By: /s/ C. E. CORNUTT
--------------------------------
Name: C. E. Cornutt
Title: President
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 8 -
<PAGE> 9
BUYER:
HOME INTERIORS & GIFTS, INC.
a Texas corporation
By: /s/ DONALD J. CARTER, JR.
------------------------------------
Name: Donald J. Carter, Jr.
----------------------------------
Title: Chief Executive Officer
---------------------------------
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 9 -
<PAGE> 10
EXHIBIT "C"
McKinney Property Description
THIRD AMENDMENT TO PURCHASE
AND SALE AGREEMENT - 10 -
<PAGE> 1
EXHIBIT 10.20
EXE TECHNOLOGIES, INC.
PROFESSIONAL SERVICES AGREEMENT
THIS PROFESSIONAL SERVICES AGREEMENT (this "Agreement") is entered into this
1st, day of December, 1999, between EXE TECHNOLOGIES, INC., a Delaware
corporation ("EXE"), and HOME INTERIORS & GIFTS, INC., a Texas corporation
("Customer").
BACKGROUND
Contemporaneously with the execution of this Agreement, Customer and EXE
are entering into an agreement entitled Master Software License Agreement (the
"License Agreement") to license certain software products from EXE. The License
Agreement does not include related emergency, installation, customization,
technical consulting, engineering, support and/or Year 2000 services. Customer
wishes to retain EXE to perform some or all the foregoing services under the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants contained herein and intending to be legally bound, the
parties hereby agree as follows:
1. DEFINITIONS.
(a) "Exhibit Index" means the original Exhibit Index to the
Professional Services Agreement that follows the signature page of this
Agreement and each new Exhibit Index that may be attached subsequently to this
Agreement pursuant to Section 2.
(b) "Licensed Product" means the software obtained by Customer from
EXE or EXE's predecessors, Dallas Systems Corporation or Neptune Systems, Inc.;
provided that Licensed Product shall not include any third-party software even
if obtained from EXE or its predecessors.
(c) "Services" means all of the services rendered by EXE pursuant to
this Agreement.
2. ELECTION OF SERVICES. Customer hereby retains EXE to perform the
services contained in the Exhibits marked as "Applicable" on the Exhibit Index.
In addition, Customer may retain EXE to perform additional services if:
(a) both parties complete, execute and attach hereto the relevant
Exhibit(s) and a new Exhibit Index; and
(b) Customer pays EXE all relevant and current fees therefor,
whereupon such new Exhibit shall become a supplement to this Agreement.
3. PAYMENT. Customer shall pay EXE for the Services in accordance with
the applicable Exhibit or Exhibits. Prices quoted do not include, and Customer
shall pay, all sales/use, value-added, GST, personal property or other similar
taxes (including interest and penalties imposed thereon which are caused by
Customer's late payment or failure to pay) arising from the transactions
contemplated herein, except for taxes levied on EXE's net income. Provisions to
the contrary notwithstanding, Customer shall have no obligation to pay for
services provided by EXE unless Customer has expressly so agreed in this
Agreement or as agreed to by any officer of Customer or by any of the
individuals listed in Exhibit G attached hereto.
4. TERM AND TERMINATION. The term of this Agreement (the "Term") shall
commence on the date written above and shall continue in full force and effect
until the Services are completed or terminated in accordance with the relevant
Exhibit. Termination shall have no effect on Customer's obligation to pay the
applicable charges, which are not the subject of a bona fide dispute, with
respect to Services rendered prior to termination. Section 3, this Section 4,
Sections 6(a) through 10, inclusive, and Sections 11(b) and 11 (h) shall
survive the termination or expiration of this Agreement for any reason. Time is
of the essence with respect to EXE's and Customer's performance in accordance
with the provisions of Exhibit B1.
<PAGE> 2
5. LIMITED WARRANTY. EXE shall perform the Services in a professional and
workmanlike manner using only qualified staff. EXCEPT AS SPECIFICALLY CONTAINED
IN THIS SECTION 5, EXE PROVIDES THE SERVICES TO CUSTOMER WITHOUT, AND EXE
EXPRESSLY DISCLAIMS, ANY AND ALL OTHER WARRANTIES AND REPRESENTATIONS, WHETHER
EXPRESS OR IMPLIED, WITHER ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A
COURSE OF DEALING OR USAGE OF TRADE, INCLUDING BUT NOT LIMITED TO ANY WARRANTY
OF ACCURACY, COMPLETENESS, PERFORMANCE, CURRENCY, MERCHANTABILITY, OR FITNESS
FOR A PARTICULAR PURPOSE.
6. LIMITATIONS OF REMEDY AND LIABILITY. The parties acknowledge that the
following provisions have been negotiated by them, reflect a fair allocation of
risk and such allocation is reflected in the fees payable under this Agreement:
(a) Remedies. Customer's sole and exclusive remedy for any damage or
loss in any way connected with EXE's default hereunder, whether by EXE's breach
of warranty, negligence or breach of any other duty, shall be, at EXE's option
(provided, however, that in the event of a material default it shall be at
Customer's option), re-performance of the relevant Services or a refund of the
appropriate portion of the fees paid by Customer for the Services.
(b) LIMITATION OF LIABILITY.
(i) General. IN NO EVENT SHALL EXE'S LIABILITY, IN THE
AGGREGATE, TO CUSTOMER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES ARISING OUT OF
THIS AGREEMENT, WHETHER IN TORT, CONTRACT OR OTHERWISE, EXCEED THE AMOUNT OF
FEES ACTUALLY PAID BY CUSTOMER PURSUANT TO THIS AGREEMENT.
(ii) Consequential Damages, Etc. as to Customer. IN NO EVENT
SHALL EXE OR ITS THIRD PARTY SUPPLIERS BE LIABLE FOR ANY CONSEQUENTIAL,
INCIDENTAL, INDIRECT, PUNITIVE, SPECIAL, OR SIMILAR DAMAGES, INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF PROFITS, LOSS OF GOOD WILL, WORK STOPPAGE,
COMPUTER FAILURE OR MALFUNCTION, LOSS OF WORK PRODUCT, OR ANY AND ALL OTHER
COMMERCIAL DAMAGES OR LOSSES, WHETHER DIRECTLY OR INDIRECTLY CAUSED, WHETHER IN
TORT, CONTRACT, OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
(iii) Consequential Damages. Etc. as to EXE. IN NO EVENT
SHALL CUSTOMER BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE,
SPECIAL, OR SIMILAR DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF
GOOD WILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, LOSS OF WORK
PRODUCT, OR ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSSES, WHETHER DIRECTLY OR
INDIRECTLY CAUSED, WHETHER IN TORT, CONTRACT, OR OTHERWISE, EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES; PROVIDED HOWEVER, THE PARTIES ACKNOWLEDGE THAT
ANY DIRECT OR INDIRECT DAMAGES FOR LOSS OF PROFITS BY REASON OF A BREACH BY
CUSTOMER OF SECTION 7 OF THIS AGREEMENT SHALL NOT BE LIMITED BY THIS SECTION.
(iv) THE LIMITATIONS OF LIABILITY SET FORTH IN THIS SECTION
6(b) SHALL REMAIN FULLY OPERATIVE EVEN IF THE LIMITED REMEDY SET FORTH IN
SECTION 6(a) FAILS OF ITS ESSENTIAL PURPOSE OR IS OTHERWISE HELD TO BE
UNENFORCEABLE.
2
<PAGE> 3
7. CONFIDENTIALITY.
(a) EXE and Customer acknowledge that each party may receive or have
access to confidential materials and information of the other party, both
written and oral. All such materials and information (including without
limitation technical, scientific, financial, strategic, marketing or product
information), if marked confidential or treated as confidential by the
disclosing party, are collectively defined as "Confidential Information" and
constitute the exclusive property of the disclosing party.
(b) To protect this Confidential Information, the parties shall not
use (except to perform the Services) or disclose to third parties any
Confidential Information of the other party without the other party's prior
written consent, except to an Authorized Third Party. As used in this
Agreement, an "Authorized Third Party" shall mean such third parties, including
but not limited to third party logistics providers and outsourcing providers,
that (i) have first executed a confidentiality agreement in the form attached
hereto as Exhibit H; and (ii) are not an EXE Competitor (as hereafter defined)
or an affiliate of an EXE Competitor. An "EXE Competitor" means any person or
entity that offers to the public a software product that directly competes with
a Licensed Product or with EXE's other software products offered, on the
Effective Date, for warehouse distribution. Furthermore, when use of
Confidential Information is permitted under this Section 7(b) to perform the
Services, the parties agree to limit such disclosure to those persons within
their respective organizations who need to know such Confidential Information.
(c) The confidentiality obligations set forth in Section 7(b) shall
not apply to a party's Confidential Information that:
(i) becomes public knowledge prior to or after the time of
disclosure through no fault of the other party;
(ii) was in the other party's possession prior to disclosure by the
party (as evidenced by written records or other evidence of the other party
pre-dating disclosure by the party); or
(iii) becomes available to the other party from another source
without any limitations on it; provided that such Confidential Information was
not obtained by such source, directly or indirectly, from the party.
(d) Upon written request, the parties shall cause their respective
employees, subcontractors and agents involved in the performance of this
Agreement to sign individual confidentiality agreements binding them to the
same obligations of non-disclosure and non-use as provided herein. At the
request of a party, the other party shall certify in writing that it has
complied with the previous sentence.
(e) Upon the expiration or termination of this Agreement or at any
other time upon written request, each party shall promptly deliver to the other
party all Confidential Information and any other materials (including
preliminary outlines, notes, sketches, plans, unpublished memoranda, and other
documents) provided by, or prepared for, the other party hereunder. Neither
party may retain copies of any such items without the other party's prior
written consent.
8. NON-SOLICITATION. During the Term and for a period of ninety (90) days
thereafter, neither party shall hire, solicit, or attempt to solicit the
services of any employee or contractor of the other party without the prior
written consent of the other party.
9. OVERDUE PAYMENTS. Any late payment shall be subject to EXE's costs of
collection (including reasonable legal fees and costs) and shall also bear
interest at the rate of one and one-half percent (1.5%) per month (or part
thereof) or, if lower, the highest rate permitted by applicable law until paid.
3
<PAGE> 4
10. DISPUTES.
(a) Time Limit for Claims. Each party shall have two (2) years from
the accrual of a cause of action to bring such action as provided by law or
equity. If a party fails to bring such action within two (2) years of its
accrual, then such party shall be deemed to have waived whatever rights it may
have had in relation to such cause of action including all legal and equitable
remedies. Exclusive venue for any and all actions arising out of this Agreement
shall lie in Dallas County, Texas.
11. MISCELLANEOUS.
(a) Force Majeure. Neither party hereto shall have any liability for
delay or non-fulfillment of any terms of this Agreement caused by any cause not
within such party's direct control (but excluding financial inability) such as
act of God, war, riots or civil disturbance, strikes, accident, fire,
transportation conditions, labor and/or material shortages, governmental
controls, regulations and permits and/or embargoes.
(b) Notice. All notices and other required communications hereunder
shall be in writing and shall be given to the other party either personally or
by sending a copy thereof by first class mail, postage prepaid, or by
recognized overnight courier service, charges prepaid, or by facsimile, to such
party's address or facsimile number set forth below or such other address or
facsimile number as may be modified by the receiving party by giving notice as
provided in this Section 11(b). If sent by mail as provided above, then the
notice shall be deemed to have been given and received five (5) days after
deposit in the United States mail. If sent by courier service as provided
above, then the notice shall be deemed to have been given and received one (1)
business day after deposit with the courier service. If the notice is sent by
facsimile, then the notice shall be deemed to have been given and received when
transmitted if successful transmission is confirmed by facsimile report, and a
confirming copy of such notice is sent by first class, certified mail, postage
prepaid, return receipt requested.
To EXE:
EXE Technologies, Inc.
8787 Stemmons Freeway
Dallas, TX 75247
Attention: C.F.O.
Facsimile: 214-775-0913
With copy to:
EXE Technologies, Inc.
300 Baldwin Tower Blvd.
Eddystone, PA 19022
Attention: General Counsel
Facsimile: 610-447-1824
To Customer, before January 1, 2000:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, TX 75234
Attention: Jim Livingston
Facsimile: ________________________
With copy to:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, TX 75234
Attention: General Counsel
Facsimile: 972-386-1106
To Customer, after January 1, 2000:
Home Interiors & Gifts, Inc.
4055 Valley View Ln., Suite 500
Dallas, TX 75244-5074
With Copy to:
Home Interiors & Gifts, Inc.
4055 Valley View Ln., Suite 500
Dallas, TX 75244-5074
Attention: General Counsel
(c) Severability. If any provision of this Agreement shall be
determined to be void, invalid, unenforceable or illegal for any reason, then
the validity and enforceability of all of the remaining provisions hereof shall
not be affected thereby. If any particular provision of this Agreement shall be
adjudicated to be invalid or
4
<PAGE> 5
unenforceable, then such provision shall be deemed amended by limiting and
reducing it so as to be valid and enforceable to the maximum extent compatible
with the applicable laws of such jurisdiction, such amendment only to apply
with respect to the operation of such provision in the applicable jurisdiction
in which the adjudication is made.
(d) Waiver & Remedies. No waiver by either of the parties hereto of
any failure by the other party to keep or perform any covenant or condition of
this Agreement shall be deemed a waiver of any preceding or succeeding breach
of the same or any other covenant or condition. Except as expressly provided to
the contrary, the remedies herein provided shall be deemed cumulative, and the
exercise of one shall not preclude the exercise of any other remedy nor shall
the specifications of remedies herein exclude any rights or remedies at law or
in equity which may be available.
(e) Transferability: Change of Control. Neither party shall assign,
transfer or encumber the rights granted under this Agreement or delegate the
obligations imposed on it by this Agreement, in whole or in part, without
obtaining the prior written consent of the other party which consent the other
may withhold in its sole discretion but which shall not be unreasonably
withheld or delayed; provided that either party may assign or transfer its
rights under this Agreement to an entity that purchases all or substantially
all the assets of such party, provided that (i) the surviving entity is not an
EXE Competitor, and (ii) the assigning party promptly provides written notice
of any such transfer to the other party, together with a copy of the
transferee's written agreement to be bound hereto. In the event that, in
accordance with the provisions of this Section 11(e), Customer intends to
assign this Agreement to an affiliate of an EXE Competitor, Customer shall give
EXE prior, written notice thereof in accordance with applicable law and subject
to a mutually agreeable non-disclosure agreement.
(f) Independent Contractors. In making and performing this Agreement,
the parties act and shall act at all times as independent contractors, and
nothing contained herein shall be construed or implied to create an agency,
association, partnership or joint venture between the parties. At no time shall
either party make commitments or incur any charges or expenses for or in the
name of the other party.
(g) Titles. The titles of the Sections hereof are for convenience only
and do not in any way limit or amplify the terms and conditions of this
Agreement.
(h) Governing Law. This Agreement shall be construed and interpreted
and its performance shall be governed by the laws of the State of Texas without
regard to conflicts of law principles of any jurisdiction.
(i) Amendments. Except as provided in Section 2, this Agreement may
not be modified or amended except by a writing signed by authorized
representatives of both parties.
(j) Counterparts. This Agreement, including all Exhibits hereto, may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute the same instrument.
(k) Effective Date. This Agreement shall govern the relations of the
parties as of the date first written above but shall not become effective until
authorized representatives of both parties execute this Agreement and the
Exhibit Index.
(l) Conflict. In the event of a conflict, inconsistency or ambiguity
among this Agreement and the Exhibits hereto, this Agreement shall prevail.
(m) Publicity . Neither party may use the other party's name or marks
or refer to this Agreement in any advertisement or press release or any public
manner without the prior, express, and written consent of the other party,
except as otherwise required by law or as reasonably necessary to perform such
party's obligations or to exercise such party's rights in this Agreement.
Furthermore, each party will
5
<PAGE> 6
use commercially reasonable efforts to ensure that the other party's name is
not used in customer solicitations without the other party's prior, express,
and written consent.
(n) EXE shall maintain, at its expense, the following insurance:
(1) Worker's compensation insurance in accordance with the
requirements of the applicable laws of the State in which the work is
to be performed;
(2) General liability and property damage insurance,
including contractual liability coverage, with limits of not less than
$1,000,000.00 combined single limit for bodily injury, death, and
property damage; and
(3) Automobile insurance for owned or hired vehicles with
minimum limits for liability of not less than $1,000,000.00 combined
single limit for bodily injury, death, or property damage.
(4) Errors and omissions coverage with limits of not less
than $2,000,000.00 per claim.
(5) Upon request by Customer, EXE shall deliver to Customer
certificates or other evidence of coverage which reflect, at a
minimum, the above requirements.
(o) Entire Agreement. This Agreement, together with the Exhibit Index
and the Exhibits marked as "Applicable" on the Exhibit Index (which Exhibits
are incorporated herein), contains the entire agreement between the parties
hereto, and supersedes all other oral or written representations, statements,
promises, agreements and letters or other expressions of intent of any kind
with respect to the subject matter hereof between them. No purchase orders,
acknowledgments or other standard business forms of EXE or Customer shall amend
this Agreement unless signed by EXE and Customer.
6
<PAGE> 7
IN WITNESS WHEREOF, EXE and Customer have caused this Agreement to be
executed by their duly authorized representatives.
EXE TECHNOLOGIES, INC. HOME INTERIORS & GIFTS, INC.
By /s/ Michael Burstein By /s/ Donald J. Carter, Jr.
----------------------------- --------------------------------
Name Michael Burstein Name Donald J. Carter, Jr.
--------------------------- ------------------------------
Title CFO Title CEO
-------------------------- ------------------------------
7
<PAGE> 8
EXHIBIT INDEX
TO
PROFESSIONAL SERVICES AGREEMENT
This Exhibit Index to the Professional Services Agreement is dated
December 1, 1999. The following Exhibits, if marked as "Applicable", are
incorporated by reference into this Agreement:
(A BOX FOR EACH EXHIBIT MUST BE CHECKED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
EXHIBIT APPLICABLE NOT APPLICABLE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exhibit B1 - Installation Services Addendum 1 X
- -----------------------------------------------------------------------------------------------------------
Exhibit C1 - Customization Services Addendum 1 X
- -----------------------------------------------------------------------------------------------------------
Exhibit F1 - Customized Product Support X
Addendum 1
- -----------------------------------------------------------------------------------------------------------
Exhibit G - Customer's Designated Approval X
Authorities (under Section 3 of the
Agreement)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, for adequate consideration and intending to be
legally bound, the parties hereto have caused this Exhibit Index to the
Professional Services Agreement to be executed by their duly authorized
representatives on the date first above written.
EXE TECHNOLOGIES, INC. HOME INTERIORS & GIFTS INC.
By /s/ Michael Burstein By /s/ Donald J. Carter, Jr.
----------------------- --------------------------------
Name Michael Burstein Name Donald J. Carter, Jr.
-------------------- ------------------------------
Title CFO Title CEO
-------------------- ------------------------------
<PAGE> 9
EXHIBIT B1
INSTALLATION SERVICES ADDENDUM 1
This Exhibit sets forth certain terms and conditions with respect to
EXE's provision of the services outlined in this Exhibit in accordance with the
Professional Services Agreement, dated December 1, 1999, between EXE and
Customer (the "Agreement") and is subject to all of the terms and conditions of
the Agreement and of this Exhibit. In the event of a conflict, inconsistency or
ambiguity between this Exhibit and the Agreement, the Agreement shall prevail.
1. DEFINITIONS.
(a) Capitalized terms in this Exhibit B 1 shall have the same meaning
given to them in the Agreement to which this Exhibit BI is attached.
(b) "Project" means the plans, tasks and undertakings associated with
the installation of, and/or transition to, the Licensed Product.
2. SCOPE OF SERVICES. EXE shall provide the services described in this
Section 2, in accordance with EXE's Global Execution Methodology, Schedule B1,
Schedule B2-Estimated Services Cost Schedule (as applicable), and the Business
Review Packet. In the event of a conflict or inconsistency between this
Exhibit, Schedule B1, Schedule B2, and the Business Review Packet, the Business
Review Packet shall control (collectively, such services are the "Installation
Services"). Customer acknowledges and agrees that any unexpected or
unreasonable delay in Customer's review and acceptance, where required herein,
will affect the project schedule and Installation Services Fees.
(a) Project Initiation Services. EXE shall consult with Customer to
define the scope, responsibilities, outcomes, deliverables and goals of the
Project by holding a kick-off meeting with Customer in which Customer and EXE
shall: (i) confirm in writing the deliverables and responsibilities of the
parties; (ii) establish the requisite communication processes; (iii) review
Customer's expectations for the Project; (iv) define and present the team (both
EXE and Customer) for the Project; (v) review a tentative plan for the Project;
(vi) confirm the schedule for the performance and completion of the Information
Gathering Services, Education Services and Business Review Summit (all as
defined and described in this Section 2); (vii) define the roles and
responsibilities of Customer and EXE for the Project; and (viii) review the
deliverables or outcomes associated with each phase of the Project (such
services being "Project Initiation Services").
(b) Information Gathering Services. EXE shall consult with Customer's
business, information technology, warehouse and other personnel to gain a
thorough understanding of Customer's business and operations and to identify
areas for business process improvements (such services being "Information
Gathering Services"). EXE shall prepare a preliminary report that details
Customer's current operations, systems and communication infrastructure, areas
for business process improvements and an estimate of the hardware configuration
necessary to support the Licensed Product in Customer's operations (such report
being the "Preliminary Business Narrative Report").
(c) Education Services. EXE shall hold classroom training sessions, at
EXE University at a mutually agreeable date and time, in which EXE will educate
Customer about the Licensed Product (such services being "Education Services").
Upon completion of this classroom training, EXE shall deliver a certificate to
Customer certifying completion of the Education Services.
(d) Business Review Summit. EXE shall hold a meeting, at a mutually agreeable
place, date and time, at which EXE shall present a structured overview of the
Licensed Product in relation to Customer's business utilizing the Preliminary
Business Narrative Report in which
<PAGE> 10
EXE shall: (i) if appropriate, recommend new or different business processes
for Customer; (ii) explain how such new or different business processes and
Customer's existing business processes interact with the Licensed Product; and
(iii) recommend a solution for Customer including a listing of the hardware and
software configuration (such meeting being the "Business Review Summit").
During the Business Review Summit, EXE shall confer with Customer on EXE's
recommendations and explain how adjustments to these recommendations will
affect Customer's business processes and the interaction with the Licensed
Product. Following the Business Review Summit, EXE shall deliver to Customer a
packet (the "Business Review Packet") which shall include: (1) a complete
Customer Profile Analysis; (2) EXE's recommended Business Narrative Report; (3)
complete functional business requirements for the Licensed Product (such
requirements being the "Functional Business Requirements"), each of which shall
be defined as Critical or Non-Critical (a Functional Business Requirement not
so defined is deemed to be Non-Critical); (4) a finalized plan for the Project;
(5) a finalized budget for the Project; (6) finalized hardware specifications;
(7) a transition strategy; and (8) an executive summary.
(e) Readiness Review I. Soon after Customer's receipt of the Business
Review Packet, Customer and EXE shall execute the Sign-Off form included in the
Business Review Packet indicating that EXE has delivered the Business Review
Packet to Customer and Customer has accepted the Business Review Packet and is
ready to proceed with the Project as outlined therein. Unless within ten (10)
days after delivery by EXE to Customer of the Business Review Packet Customer
otherwise notifies EXE in writing, Customer shall be deemed to have accepted
the Business Review Packet as indicated hereinabove. On the other hand, if
Customer does otherwise notify EXE in writing within such period and such
notice specifies in reasonable detail a reasonable explanation of Customer's
reason(s) for non-acceptance, then EXE (at no additional charge to Customer if
EXE is primarily responsible for such reason(s)) shall immediately revise the
Business Review Packet and resubmit same to Customer, at which time the above
process shall be repeated, until Customer's acceptance of the Business Review
Packet pursuant to this Section 2(e).
(f) Design and Development. Consistent with the information,
specifications and recommendations in the Business Review Packet, EXE shall
design and develop: (i) if required to satisfy the Functional Business
Requirements, the Customized Product (as defined and under the terms contained
in Exhibit C[1]); (ii) the necessary data conversion methods; (iii) hardware
recommendations and (iii) operational plans for training, site preparation and
contingencies (such plans being the "Operational Plans"). Unless within ten
(10) days after delivery by EXE to Customer of the Operational Plans. Customer
otherwise notifies EXE in writing, Customer shall be deemed to have accepted
the Operational Plans as indicated hereinabove. On the other hand, if Customer
does otherwise notify EXE in writing within such period and such notice
specifies in reasonable detail a reasonable explanation of Customer's reason(s)
for non-acceptance, then EXE (at no additional charge to Customer if EXE is
primarily responsible for such reason(s)) shall immediately revise the
Operational Plans and resubmit same to Customer, at which time the above
process shall be repeated, until Customer's acceptance of the Operational Plans
pursuant to this Section 2(f).
(g) Deployment. Consistent with the information and recommendations in
the Business Review Packet and the Operational Plans, EXE shall: (i) deliver
the Customized Product, if any, together with a user acceptance plan, subject
to Customer's written acceptance of such plan, that includes, but is not
limited to, any appropriate integration volume testing; (ii) where appropriate,
install the hardware and operating system for the Licensed Product (including
network resources); and (iii) together with Customer, implement the Operational
Plans and any transition strategies (collectively, such services are the
"Deployment Services"). Deployment Services do not include, and
<PAGE> 11
Customer is solely responsible for, loading all applicable data into the
Licensed Product.
(h) Readiness Review II. Upon completion of the Deployment Services,
EXE shall consult with Customer and confirm in writing that each is ready to
go-live with the Licensed Product.
(i) Implementation. EXE shall assist Customer in implementing the
Licensed Product for actual use in Customer's business (such services being the
"Implementation Services").
(j) Post-Implementation Audit. Upon the completion of the
Implementation Services, EXE shall audit Customer's operation to ensure that
implementation of the Licensed Product in accordance with the Business Review
Packet is complete. EXE shall deliver a written report to Customer detailing
the results of this audit (such report being the "Post-Implementation Audit
Summary").
(k) Project Closure. After delivery of the Post-Implementation Audit
Summary and acceptance of the Customized Product for customizations identified
in the Business Review Summit and for which Functional Business Requirement(s)
are and approved in writing by Customer in the Business Review Packet, EXE
shall formally close the project and assist Customer in the transition of
support for the Licensed Product to EXE Worldwide Support. Unless within ten
(10) days after delivery by EXE to Customer of the Post-Implementation Audit
Summary, Customer otherwise notifies EXE in writing, Customer shall be deemed
to have accepted all Installation Services provided pursuant to this Exhibit.
On the other hand, if Customer does otherwise notify EXE in writing within such
period and such notice specifies in reasonable detail a reasonable explanation
of Customer's reason(s) for non-acceptance, then EXE, at no additional charge
to Customer if EXE is primarily responsible for such reason(s), shall
immediately pursue all reasonable corrective action and resubmit the
Post-Implementation Audit Summary to Customer, at which time the above process
shall be repeated, until Customer's acceptance of the Installation Services
pursuant to this Section 2(k).
3. INSTALLATION SERVICES FEES. EXE shall perform Installation Services
(except Education Services) on a time and materials basis at the hourly rates
shown in the table below, for actual hours worked by EXE personnel (such fees
being "Installation Services Fees"), plus EXE's reasonable out-of-pocket
expenses including, without limitation, travel, meal, lodging and long distance
telephone expenses; provided that Customer shall approve material travel
expenses prior to incurring such expenses. Education Services shall be
performed by EXE at current EXE Education Services rates on a
per-student/per-day basis, plus EXE's reasonable out-of-pocket expenses, if
any. Travel and other permitted expenses shall be charged at cost; flights of
less than five hours' duration will use economy class; documentation of all
expenses for which reimbursement is sought will be available to Customer upon
Customer's reasonable, written request. Rates as stated above shall be
effective for Installation Services and Education Services performed pursuant
to this Exhibit through Project Closure at Customer's initial site. Thereafter,
EXE shall have the right to increase its rates for Installation Services and
Education Services. EXE shall promptly inform Customer in writing if EXE
reasonably believes the Installation Services Fees at the initial site are
likely to exceed the amounts specified in Schedule B2-Estimated Services Cost
Schedule.
- ---------------------- ----------------
Executive USD$252.00
- ---------------------- ----------------
Senior Manager USD$215.00
- ---------------------- ----------------
Manager USD$185.00
- ---------------------- ----------------
- ---------------------- ----------------
Senior Staff USD$165.00
- ---------------------- ----------------
Staff USD$135.00
- ---------------------- ----------------
Administrator USD$60.00
- ---------------------- ----------------
4. PAYMENT. EXE shall invoice Customer for the Installation Services Fees
and out-of-pocket expenses on a monthly basis for each month. Customer shall
pay the Installation
<PAGE> 12
Services Fees to EXE and reimburse EXE for such out-of-pocket expenses within
thirty (30) days of Customer's receipt of EXE's invoice therefor.
5. TERMINATION. Subject to Section 4 of the Agreement, Customer may
terminate this Exhibit upon ten (10) days written notice to EXE. Upon
termination, Customer shall pay to EXE all amounts due under this Exhibit and
(ii) EXE shall have no further obligation to perform Installation Services or
Education Services as of the date of termination.
<PAGE> 13
SCHEDULE B1
This Schedule B1 to Exhibit B1 to the Professional Services Agreement is
dated December 1, 1999. EXE shall provide the following services outlined in
Exhibit B1 if marked as "Applicable."
(A BOX FOR EACH SERVICE MUST BE CHECKED)]
-------------------------------------------------------------------------------
SERVICE APPLICABLE NOT APPLICABLE
-------------------------------------------------------------------------------
Project Initiation Services X
-------------------------------------------------------------------------------
Information Gathering Services X
-------------------------------------------------------------------------------
Education Services X
-------------------------------------------------------------------------------
Business Review Summit X
-------------------------------------------------------------------------------
Readiness Review I X
-------------------------------------------------------------------------------
Design and Development X
-------------------------------------------------------------------------------
Deployment X
-------------------------------------------------------------------------------
Readiness Review II X
-------------------------------------------------------------------------------
Implementation X
-------------------------------------------------------------------------------
Post-Implementation Audit X
-------------------------------------------------------------------------------
Project Closure X
-------------------------------------------------------------------------------
<PAGE> 14
SCHEDULE B2
Estimated Services Cost Schedule
Key Deliverables
This Schedule B2 to Exhibit BI to the Professional Services Agreement is
dated December 1, 1999. Subject to the Business Review Packet and the
Assumptions defined in this Schedule B2, the following general project cost
estimates are provided:
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION OF SERVICE (AT AGREED UPON ESTIMATE (BASED ON
INITIAL CUSTOMER SITE) DISCOUNTED RATES FOR INITIAL SITE)
- --------------------------------------------------------------------------------
EXE Base Implementation (Exceed 2000 or USD265,000.00
4000)
- --------------------------------------------------------------------------------
EXE Identified Gap Enhancements USD100,000.00
- --------------------------------------------------------------------------------
EXE DAI Host Application Integration Included in Base
Implementation estimate
above
- --------------------------------------------------------------------------------
TOTALS USD365,000.00
- --------------------------------------------------------------------------------
ALL ESTIMATED COSTS HEREIN ARE BASED ON DISCUSSIONS BETWEEN EXE AND CUSTOMER TO
DATE AND ARE SUBJECT TO (i) THE BUSINESS REVIEW PACKET TO BE APPROVED BY
CUSTOMER AND EXE PURSUANT TO EXHIBIT B1 OF THE AGREEMENT AND (ii) THE
ASSUMPTIONS LISTED BELOW.
ASSUMPTIONS
1. EXE's Global Execution Methodology (GEM) will be used as the basis for
defining the tasks to be performed during the project.
2. Following the confirmation and project planning phase (Phase 4 of
GEM), EXE will provide a work plan with specific resource requirements
from both Home Interiors and EXE. These resources must be available
for the tasks required for the aggressive timeline to be met.
3. As part of the project training in GEM Phase 6-Deployment, key
Customer implementation resources will attend an operational training
program that has been included in the Base implementation cost
estimate. Additional project team training referenced in GEM Phase
3-Education Services will be provided via EXE University, the cost of
which is not included in the estimate.
4. Customer will determine the technical environment, based on expected
volumes in 2004, by the Information Gathering phase. EXE will provide
sizing and configuration information to facilitate this Customer
decision process.
5. Customer will provide a Co-Project Manager, 2 operations resources,
and 2 technical resources assigned to the project full-time for the
duration of the effort. If Customer is unable to provide these
resources, EXE will supplement them at an additional cost on a time
and materials basis, not included in the cost estimates above.
<PAGE> 15
6. EXE will provide onsite go-live support by providing three (3)
resources (1 Project Manager, 1 Operations Consultant, and 1 Technical
Consultant) for a period of up to 14 days, beginning two (2) days
before the actual go-live date.
7. Customer will provide adequate facilities for the EXE consultants
including workspace, terminal, printer, phone and copying capabilities.
8. Customer will provide required data such as Locations, Products,
Dimensions, Aisle Ranges, and DC Points, as required to support the
EXceed 2000 product. EXE will help gather this information at an
additional cost on a time and materials basis at the request of
Customer, not included in the cost estimates above.
9. Customer will provide EXE consultants access to the facilities during
business hours. If work is required other than during business hours,
Customer will make the appropriate arrangements for access.
10. Customer will perform fifty percent (50%) of the control table set-up.
EXE will supplement Customer's efforts at an additional cost on a time
and materials basis, not included in the cost estimates above.
11. Base implementation cost estimate does not include any customizations
or extensions.
12. Base implementation cost estimate includes limited support for host
interface development, beyond which EXE will provide additional host
interface development services at an additional cost on a time and
materials basis.
13. Implementation of Labor Standards is not included in this Schedule B2.
14. Customer is responsible for setting up and installing all hardware.
15. Customer is responsible for the design and implementation of the
technical infrastructure. This includes the following types of
infrastructure: Network, RIF Network, Unix machine, terminals, and
printers. As it relates to the technical infrastructure, EXE will be
responsible for the initial load and configuration of the WMS
software, PVCS set-up, and Queue Master set-up.
16. Customer has assumed responsibility for completing Phase 8 of GEM
Methodology with limited assistance from EXE. EXE will provide the
template audit documentation to customer and in return Customer will
provide EXE with the results of the audit.
17. EXE will provide Customer with the existing test scripts for the
unmodified system test.
<PAGE> 16
EXHIBIT C1
CUSTOMIZATION SERVICES ADDENDUM 1
This Exhibit sets forth certain terms and conditions with respect to
EXE's provision of the services outlined in this Exhibit in accordance with the
Professional Services Agreement, dated December 1, 1999, between EXE and
Customer (the "Agreement") and is subject to all of the terms and conditions of
the Agreement and of this Exhibit. In the event of a conflict, inconsistency or
ambiguity between this Exhibit and the Agreement, the Agreement shall prevail.
1. DEFINITIONS.
(a) Capitalized terms in this Exhibit C1 shall have the same meaning
given to them in the Agreement to which this Exhibit C1 is attached.
(b) "Customized Product" means the customized Licensed Product
developed pursuant to the Agreement and this Exhibit Cl.
2. SCOPE OF SERVICES. EXE shall customize the Licensed Products in
accordance with the Functional Business Requirements (as defined in Exhibit
B1), Schedule 1-Services Cost Schedule (as applicable), and the Business Review
Packet. In the event of a conflict or inconsistency between this Exhibit,
Schedule 1, and the Business Review Packet, the Business Review Packet shall
control.(collectively, such services are the "Customization Services").
Customer acknowledges and agrees that any unexpected or unreasonable delay in
Customer's review, testing or acceptance, where required herein, will affect
the timing of the project and Services Fees.
3. TESTING LICENSE. Upon completing development of the Customized Product
pursuant to Section 2 of this Exhibit C1, EXE shall be deemed to have granted
Customer, until Customer either accepts the Customized Product or rejects the
Customized Product in accordance with Section 4, a non-exclusive license to the
object code of the Customized Product for the sole purpose of testing the
Customized Product pursuant to Section 4 of this Exhibit C 1. EXE shall deliver
to Customer a copy of the Customized Product upon completion of development.
4. ACCEPTANCE TESTING. Upon Project Closure at Customer's first site,
together with installation of all related hardware and equipment necessary to
perform the testing contemplated by this Section, Customer shall have thirty
(30) days in which to test whether the Customized Product(s) performs
substantially in accordance with the Documentation as amended by the applicable
Functional Business Requirement(s) (the "Testing Period"). Within ten (10)
business days after the conclusion of the Testing Period, Customer shall notify
EXE in writing if the Customized Product does not perform substantially in
accordance with the Documentation as amended by the applicable Functional
Business Requirement(s) or Customer shall notify EXE in writing that Customer
accepts the Customized Product. If Customer notifies EXE as required above and
such notice specifies in reasonable detail the nature of such failure to
perform, then EXE (at no additional cost to Customer if EXE is primarily
responsible for such failure) shall have a reasonable opportunity to correct
such defect(s). If, after EXE has had reasonable opportunity to correct, the
Customized Product continues not to perform substantially in accordance with
the Documentation as amended by the applicable Functional Business
Requirement(s), then the Customer may:
(a) if such failure to perform is Non-Critical, as defined in the
applicable Functional Business Requirement(s), and EXE is primarily responsible
for such failure to perform, reject that portion of the Customized Product
applicable to such Function Business Requirement(s)and receive a refund equal
to (i) the fees paid by Customer for the applicable Functional Business
Requirement(s); or
<PAGE> 17
(b) if such failure to perform is Critical, as defined in the
applicable Functional Business Requirements(s), and EXE is primarily
responsible for such failure to perform, reject the Customized Product and
receive a refund equal to all fees paid by Customer to EXE under this Exhibit.
Upon acceptance by Customer of the Customized Product, EXE shall deliver a copy
of the Source Code (as defined in the License Agreement) to the Customized
Product to Customer, subject to the provisions of Exhibit E-Source Code License
Addendum to the License Agreement.
5. LICENSE; INTELLECTUAL PROPERTY PROTECTION. Upon acceptance pursuant to
Section 4 of this Exhibit C 1, the Customized Product shall be considered part
of the Licensed Product for purposes of Section 3, 5, 10, 14 and 16 of the
License Agreement.
6. WARRANTY COORDINATION. Upon acceptance of the Customized Product
pursuant to Section 4 of this Exhibit C l, the warranty contained in the
Agreement shall expire with respect to the Customized Product, and the
Customized Product then shall be considered part of the Licensed Product for
purposes of Section 11 of the License Agreement except that: (a) the Warranty
Period referred to in Section 11 (a) of the License Agreement shall not begin
to run with respect to the Customized Product until acceptance under Section 4
of this Exhibit Cl; and (b) the phrase "Documentation" in Section 11 (a) of the
License Agreement shall be replaced with the phrase "Documentation as amended
by the Functional Business Requirement(s)." Also upon acceptance pursuant to
Section 4 of this Exhibit C 1, the Customized Product shall be considered part
of the Licensed Product for purposes of Section 12(a) of the License Agreement.
Section 6(b) of the Agreement shall continue to apply to the Customized
Product.
7. CUSTOMIZATION SERVICES FEES. EXE shall perform the Customization
Services on a time and materials basis at the hourly rates shown in the table
below, for actual hours worked by EXE personnel (such fees being "Customization
Services Fees"), plus EXE's reasonable out-of-pocket expenses including,
without limitation, travel, meal, lodging and long distance telephone expenses;
provided that Customer shall approve material travel expenses prior to EXE's
incurring such expenses. The rates stated above shall be effective for
Customization Services performed pursuant to this Exhibit through Project
Closure at Customer's initial site. Thereafter, EXE shall have the right to
increase its rates for Customization Services.
- ---------------------- ----------------
Executive USD$252.00
- ---------------------- ----------------
Senior Manager USD$215.00
- ---------------------- ----------------
Manager USD$185.00
- ---------------------- ----------------
Senior Staff USD$165.00
- ---------------------- ----------------
Staff USD$135.00
- ---------------------- ----------------
Administrator USD$60.00
- ---------------------- ----------------
8. PAYMENT. EXE shall invoice Customer for the Customization Services Fees
and out-of-pocket expenses on a monthly basis for each month. Customer shall
pay the Customization Services Fees to EXE and reimburse EXE for such
out-of-pocket expenses within thirty (30) days of Customer's receipt of EXE's
invoice therefor.
9. TERMINATION. Subject to Section 4 of the Agreement, Customer may
terminate this Exhibit upon ten (10) days written notice to EXE. Upon
termination, Customer shall pay to EXE all amounts due under this Exhibit and
(ii) EXE shall have no further obligation to perform Customization Services as
of the date of termination.
<PAGE> 18
EXHIBIT F1
CUSTOMIZED PRODUCT SUPPORT ADDENDUM 1
This Exhibit sets forth certain terms and conditions under which EXE
shall perform software support services for the Customized Product created
under Exhibit C1 - Customization Services Addendum 1 of the Professional
Services Agreement, dated December 1, 1999, between EXE and Customer (the
"Agreement") and is subject to all of the terms and conditions of the Agreement
and this Exhibit. In the event of a conflict, inconsistency or ambiguity
between this Exhibit and the Agreement, the Agreement shall prevail.
1. DEFINITIONS. Unless otherwise defined herein, capitalized terms in
this Exhibit Fl shall have the same meaning given to them in the Agreement to
which this Exhibit F1 is attached.
2. TERM. The initial term of this Exhibit F1 shall commence upon
acceptance of the Customized Product pursuant to Exhibit C1 of the Agreement
and shall run for one (1) year therefrom (the "Initial Term"). This Exhibit F1
shall automatically renew for successive like periods (each such period being a
"Renewal Term"), to a maximum of five years, unless Customer gives written
notice to EXE of Customer's intent to terminate this Exhibit F1 at least thirty
(30) days prior to the expiration of the Initial Term or Renewal Term, as the
case may be. If not already expired, this Exhibit F1 shall terminate upon the
termination of the License Agreement.
3. SCOPE OF SUPPORT SERVICES - WORLDWIDE SUPPORT CENTER.
(a) EXE's Worldwide Support Center shall provide a telephone help line
twenty-four (24) hours per day, seven (7) days per week, excluding holidays.
(b) EXE shall allocate a support engineer to any error in the Customized
Product reported to the Worldwide Support Center. The support engineer will
then be responsible for arranging for diagnosis and resolution of the error,
and EXE shall use its commercially reasonable efforts to resolve the errors
within a reasonable period of time. Customer shall be responsible for
implementing any error corrections supplied by EXE.
(c) Together with each error correction that EXE provides to Customer, EXE
shall provide the Source Code for such error correction to Customer.
(d) EXE shall escalate its attention to all errors for the Customized
Product the same way it escalates errors for the Licensed Product in the
License Agreement.
4. PAYMENT. Upon acceptance of the Customized Product pursuant to Exhibit
C 1 of the Agreement, Customer shall pay EXE a fee of twenty percent (20%) of
the Customization Services Fees annually for software support services. EXE may
increase the fees due hereunder for Renewal Terms; provided that EXE notifies
Customer in writing of such an increase at least sixty (60) days prior to the
expiration of the Initial Term or Renewal Term, as the case may be; and
provided further that such increase does not exceed five percent (5%) of the
then current fee. Customer shall pay the fees for Renewal Terms within thirty
(30) days after receipt of EXE's invoice therefor.
5. CUSTOMER'S RESPONSIBILITIES. Customer shall designate up to three (3)
persons and may designate up to three alternates to contact EXE's Worldwide
Support Center (collectively the "Project Manager"). The Project Manager must
be fully acquainted with Customer's information technology
<PAGE> 19
systems including the Customized Product. Customer is exclusively responsible
for the supervision, management, backup, security and control of all aspects of
Customer's information technology systems.
<PAGE> 20
EXHIBIT G
CUSTOMER DESIGNATED APPROVAL AUTHORITIES
UNDER SECTION 3 OF THE AGREEMENT
1. Any officer of Home Interiors & Gifts, Inc.
2. Chris Lesher
3. Royanna Chappel
4. Any other individual expressly designated in writing by an officer of
Customer as being included in this Exhibit. Customer may remove an
individual from this Exhibit upon written notice to EXE.
<PAGE> 1
EXHIBIT 10.21
EXE TECHNOLOGIES, INC.
MASTER SOFTWARE LICENSE AGREEMENT
THIS MASTER SOFTWARE LICENSE AGREEMENT (this "Agreement") is entered
into on this 1st day of December, 1999, between EXE TECHNOLOGIES, INC., a
Delaware corporation ("EXE"), and HOME INTERIORS & GIFTS, INC., a Texas
corporation ("Customer"). Intending to be legally bound hereby, EXE and Customer
agree to the following terms and conditions:
1. DEFINITIONS.
(a) "Documentation" means the user guides and manuals for
installation and use of the Licensed Product.
(b) "Exhibit Index" means the original Exhibit Index to Master
Software License Agreement that follows the signature page of this Agreement and
each new Exhibit Index that may be attached subsequently to this Agreement
pursuant to Sections 2 and 170).
(c) "Licensed Product" means the object code version of the
software listed on the Order Forms. "Licensed Product" does not include,
however, any third party software that is subject to a separate written
agreement between Customer and such third party even if listed on an Order Form.
(d) "Nodes" means any and all devices (including, without
limitation, workstations, terminals and handheld RF devices) that permit an
individual to input data into, or otherwise access or Use, the Licensed Product.
(e) "Order Form" means each sequentially numbered order form,
beginning with the number 1, in the form attached hereto as Exhibit AI, and
which the parties have attached and may subsequently attach to this Agreement
pursuant to Section 2.
(f) Source Code means, for the applicable Licensed Product, such
Licensed Product in source code format, together with a copy of all relevant,
available and existing technical documentation.
2. ORDERING. Customer hereby orders the Licensed Product listed on Order
Form 1. Customer may, from time to time, order additional Licensed Product at
EXE's then current list price or agreed upon price subject to the following
procedure: the parties shall: (1) complete an Order Form; (2) execute a new
Exhibit Index indicating that such Order Form has been incorporated into this
Agreement by marking the relevant "Applicable" box; and (3) attach such Order
Form and Exhibit Index to this Agreement.
3. LICENSE & SCOPE OF USE.
(a) Operating Licenses. With respect to each Licensed Product
ordered by Customer pursuant to Section 2, EXE
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 1
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 2
grants to Customer a non-exclusive license (each, an "Operating License") to
install, store, load, execute and display (collectively, "Use") the Licensed
Product according to the applicable License Type (as defined in Section 3(b))
listed in the Order Form. Each Operating License shall be perpetual unless
earlier terminated pursuant to Section 14. Customer's Use of the Licensed
Product shall be limited to the United States of America and its territories and
possessions unless Exhibit C (the "International Addendum") is marked as
"Applicable" on the Exhibit Index and attached hereto.
(b) License Types. The available types of licenses ("License
Types") are as follows:
(i) Site License. A Site License authorizes Customer to
make the Licensed Product available for Use at the facility or facilities, and
by the number of Nodes, listed in the applicable Order Form in support of
Customer's internal business activities. Upon written notice to EXE, Customer
may relocate the Licensed Product from the facility or facilities where it was
originally installed and Use the Licensed Product at another facility or
facilities; provided that Customer Uses the Licensed Product obtained under a
Site License at no more than the number of facilities, and by no more than the
number of Nodes, listed in the applicable Order Form. (License Type Code: SL).
(ii) Business Unit License. A Business Unit License
authorizes Customer to make the Licensed Product available for Use by the number
of Nodes listed in the applicable Order Form in support of the internal business
activities of Customer's division or other business unit, whether or not
incorporated, listed in the applicable Order Form. (License Type Code: BUL).
(c) Transfer and Other Restrictions. Except as specifically
authorized in another provision of this Agreement, Customer may not copy,
relocate, move, sublicense, rent, timeshare, loan, lease, or otherwise
distribute the Licensed Product or operate the Licensed Product for the benefit
of third parties without EXE's prior written consent and any attempt to the
contrary shall be void and of no legal effect. If, Customer is or becomes a
third party logistics provider and Customer has disclosed such fact to EXE, then
the foregoing restriction against operating the Licensed Product for the benefit
of third parties shall not be applicable. Further restrictions are contained in
Section 10 of this Agreement.
(d) Backup Exception. Customer may make copies of the Licensed
Product solely for archival/backup purposes.
(e) Outsourcing Exception. Subject to Section 10 of this
Agreement, Customer may engage an outsourcing provider to provide information
technology services to Customer.
4. VERIFICATION AND AUDIT.
(a) Verification. Within ten (10) days after a written request by
EXE,
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 2
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 3
which request shall occur no more often than once annually, Customer shall
furnish to EXE a certification signed by an appropriate officer of Customer
certifying that Customer is Using the Licensed Product in accordance with the
terms of this Agreement.
(b) Audit. No more often than once annually, EXE may conduct
audits of Customer's Use of the Licensed Product to ensure compliance with this
Agreement (each, a "Compliance Audit"). Customer shall grant EXE, within ten
(10) days after EXE's written request, access to Customer's facilities during
Customer's regular business hours for the purpose of conducting the Compliance
Audit. EXE shall not unreasonably interfere with Customer's business activities
while conducting the Compliance Audit. If an audit reveals that Customer has
Used the Licensed Product in breach of this Agreement, then EXE may, at its
option: (i) charge Customer additional fees that reflect Customer's actual Use
of the Licensed Product, at EXE's then-current list price(s); or (ii) if such
breach is material and is not cured by Customer within ten (10) days of EXE's
written notice, EXE may terminate this Agreement; provided, however, if any such
breach results solely from Customer's Use of the Licensed Product on a temporary
basis in excess of the number of licensed Nodes to accommodate Customer's
increased orders resulting from seasonal variations, promotions, or similar
reasons such use is not a material breach of this Agreement, then EXE's sole
remedy under this Section 4(b) is to charge Customer additional license fees
that reflect Customer's actual Use of the Licensed Product at EXE's then-current
list prices. If EXE chooses to charge additional fees pursuant to this Section
4(b), then Customer shall pay such additional fees promptly upon receipt of
EXE's invoice.
5. SOURCE CODE. Customer acknowledges that no source code or
technical-level documentation is licensed under this Agreement , unless Exhibit
E-Source Code License Addendum is checked as Applicable on the Exhibit Index and
attached to this Agreement.
6. DOCUMENTATION. EXE shall provide to Customer one (1) copy of the
Documentation on computer readable media- Customer may reproduce the
Documentation solely for the purposes of any Use of the Licensed Product by
Customer authorized herein.
7. DELIVERY. EXE shall deliver the Licensed Product ordered under this
Agreement to Customer on mutually acceptable media and by mutually acceptable
means. Customer shall be deemed to have accepted each such shipment of the
Licensed Product upon shipment or complete transmission of the Licensed Product
to Customer, whichever occurs first.
8. SOFTWARE UPGRADES AND SUPPORT.
(a) Software Upgrades and Support. EXE shall not provide Customer
with error corrections, updates or other releases of the Licensed Product unless
Exhibit B 1 (the "Software Upgrade and Support Addendum") is marked as
"Applicable" on the Exhibit Index and attached hereto.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 3
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 4
(b) EXE does not provide any services under this Agreement, other
than warranty coverage as described in Section 11(a) and software upgrade and
support services pursuant to the Software Upgrade and Support Addendum.
9. PRICES & PAYMENT. The Order Form sets forth the fees for the Licensed
Product (the "License Fees"). Customer shall pay EXE the License Fees due
hereunder in accordance with the payment schedules set forth in the applicable
Order Form. Such payments become non-refundable upon shipment or transmission in
accordance with Section 7. All other invoiced amounts shall be paid within
thirty (30) days from Customer's receipt of EXE's invoice therefor. Customer may
not withhold or setoff any amounts due hereunder. Any late payment shall be
subject to EXE's costs of collection (including reasonable legal fees and costs)
and shall also bear interest at the rate of one and one-half percent (1.5%) per
month (or part thereof) or, if lower, the highest rate permitted by applicable
law until paid. Prices quoted do not include, and Customer shall pay all
sales/use, , value-added, GST, personal property or other similar taxes
(including interest and penalties imposed thereon which are caused by Customer's
late payment or failure to pay) arising from the transactions contemplated
herein, except for taxes levied on EXE's net income.
10. CONFIDENTIAL INFORMATION.
(a) Customer acknowledges that: (i) the Licensed Product and the
Source Code are and shall remain the exclusive property of EXE, its third party
suppliers, and their respective successors and assigns; and (ii) Customer has no
right, title or interest to or in the Licensed Product or the Source Code,
except as expressly granted in this Agreement.
(b) Acknowledgment. Customer hereby acknowledges that the Licensed
Product (including any Documentation, source code, translations, compilations,
partial copies and derivative works) and those materials provided under Section
17(P) of this Agreement contain confidential and proprietary information
belonging exclusively to EXE or a third party supplier of EXE ("Confidential and
Proprietary Information"). Confidential and Proprietary Information does not
include: (i) information already known or independently developed by Customer
outside the scope of this Agreement by personnel not having access to any
Confidential and Proprietary Information; (ii) information already in the public
domain through no wrongful act of Customer; or (iii) information received by
Customer from a third party who was free to disclose such information.
(c) Covenants. With respect to the Confidential and Proprietary
Information, and except as expressly authorized herein, Customer shall not use
or commercialize the Confidential and Proprietary Information or disclose
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 4
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 5
the Confidential and Proprietary Information to any person or entity including
any entity that is an affiliate of Customer, except to its own employees having
a "need to know" (and who themselves are bound by equivalent non-use and
non-disclosure obligations applicable to the Licensed Product), and to such
third parties, including, but not limited to, third party logistics providers
and outsourcing providers that (i) have first executed a confidentiality
agreement in the form attached hereto as Exhibit F; and (ii) are not an EXE
Competitor (as hereafter defined) or an affiliate of an EXE Competitor (such
third parties being "Authorized Third Parties"). An EXE Competitor means any
person or entity that offers to the public a software product that directly
competes with a Licensed Product or with EXE's other software products offered,
on the Effective Date, for warehouse distribution. Upon the written request of
EXE, Customer shall provide EXE with copies of the confidentiality agreement(s)
signed by the Authorized Third Parties. Neither Customer nor any Authorized
Third Parties shall: (i) alter or remove from any Licensed Product or associated
Documentation any proprietary, copyright, trademark or trade secret legend; or
(ii) attempt to decompile, disassemble or reverse engineer the Licensed Product
or other Confidential and Proprietary Information (and any information derived
in violation of such covenant shall automatically be deemed Confidential and
Proprietary Information owned exclusively by EXE) Customer and its Authorized
Third Parties shall use at least the same degree of care in safeguarding the
Confidential and Proprietary Information as Customer uses in safeguarding its
own confidential information, but in no event less than reasonable due diligence
and care. Upon termination of this Agreement, Customer shall, and shall cause
its Authorized Third Parties to, cease all use of, and return or destroy, all
Confidential and Proprietary Information in its or their possession or control.
The appropriate officer of Customer shall certify to EXE in writing, within
fifteen (15) days after such termination, that Customer has complied with the
obligations of the foregoing sentence.
11. WARRANTIES & INDEMNIFICATION.
(a) Limited Performance Warranty. EXE warrants to Customer that
for a period of one (1) year following delivery of the Licensed Product under
Section 7 (the "Warranty Period") the Licensed Product will operate
substantially in accordance with the applicable Documentation; provided that:
(i) the Licensed Product is installed and operated in accordance with the
Documentation; (ii) Customer notifies EXE of any alleged malfunction within ten
(10) days after Customer's discovery thereof; (iii) Customer has properly
installed all releases made available by EXE with respect to the Licensed
Product and updates recommended by EXE with respect to any third party software
products (including operating system software) that materially affect the
performance of the Licensed Product; (iv) Customer has properly maintained all
associated equipment, software and environmental conditions in accordance with
applicable specifications and industry standards that
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 5
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 6
materially affect the performance or functionality of the Licensed Product; (v)
Customer has not introduced other equipment or software creating an adverse
impact on the Licensed Product that materially affects the performance or
functionality of the Licensed Product; and (vi) Customer has paid all amounts
due hereunder not the subject of a bona fide dispute and Customer is not in
material default of any provision of this Agreement.
(b) Surreptitious Code Warranty. EXE warrants to Customer that,
except as otherwise provided in the International Addendum (if applicable), the
Licensed Product will not contain any software lock, "time bomb" or similar
disabling device (other than security features described in the Documentation)
that is intended to disable or intentionally impair the ability of the Licensed
Product to operate in accordance with this Agreement.
(c) Year 2000 Warranty; Third-Party Product Disclaimer. EXE
warrants that the Licensed Product accurately, correctly and consistently
processes date/time data (including without limitation accepting, calculating,
comparing, sorting, sequencing and returning) prior to, during and after the
calendar year 2000 A.D., including leap year calculations ("Year 2000 Ready").
NOTWITHSTANDING THE FOREGOING, EXE MAKES NO REPRESENTATIONS OR WARRANTIES
WHATSOEVER, EXPRESS OR IMPLIED (INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND/OR USE), WITH RESPECT TO
ANY THIRD-PARTY PRODUCTS, INCLUDING, WITHOUT LIMITATION, WHETHER SUCH
THIRD-PARTY PRODUCTS ARE OR WILL BE YEAR 2000 READY OR WILL PROPERLY EXCHANGE
DATA WITH THE LICENSED PRODUCT, WHETHER OR NOT SUCH THIRD-PARTY PRODUCTS ARE
USED IN CONJUNCTION WITH, OR SHARE DATA WITH, THE LICENSED PRODUCT.
EXCEPT AS OTHERWISE AGREED TO BY EXE IN WRITING, AS BETWEEN EXE AND CUSTOMER,
ANY AND ALL THIRD-PARTY PRODUCTS ARE EXPRESSLY PROVIDED "AS IS." EXE's sole
obligation with respect to third-party products shall be to use commercially
reasonable efforts to pass through and assign to Customer any warranties
provided by the third-party vendors or suppliers that are reasonably capable of
being assigned.
(d) Warranty Disclaimer. EXCEPT AS SPECIFICALLY PROVIDED IN THIS
SECTION 11, THE LICENSED PRODUCT IS PROVIDED TO CUSTOMER WITHOUT, AND EXE
EXPRESSLY DISCLAIMS, ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, WHETHER
EXPRESS OR IMPLIED, WHETHER ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A
COURSE OF DEALING OR USAGE OF TRADE, INCLUDING BUT NOT LIMITED TO ANY WARRANTY
OF ACCURACY,
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 6
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 7
COMPLETENESS, PERFORMANCE, CURRENCY, MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, NON-INFRINGEMENT OR TITLE. FURTHERMORE, THE WARRANTIES IN SECTIONS
11(a), 11(b) AND 11(c) DO NOT EXTEND TO MODIFICATIONS OF THE LICENSED PRODUCT
MADE BY CUSTOMER OR A THIRD PARTY OR TO APPLICATIONS CREATED BY CUSTOMER OR A
THIRD PARTY THROUGH USE OF A LICENSED PRODUCT, AND SUCH WARRANTIES ARE VOID TO
THE EXTENT THAT SUCH MODIFICATIONS OR APPLICATIONS CAUSE THE WARRANTY CLAIM.
(e) Non-Infringement Indemnity. EXE shall indemnify, defend and
hold harmless Customer from and against any and all claims, actions, judgments
and expenses suffered by Customer in connection with a claim or action that a
Licensed Product infringes or misappropriates any United States copyright,
patent or trade secret provided that: (i) the claimed infringement or
misappropriation does not relate to, or result from, Customer's or any third
party's modifications) of the Licensed Product or use of the Licensed Product in
combination with software or hardware not supplied or expressly approved in
writing by EXE; and (ii) Customer gives EXE prompt, written notice of any such
claim and allows EXE to control the defense and all related settlement
negotiations. If any infringement claim has occurred or in EXE's reasonable
judgment is likely to occur and EXE is required to indemnify and defend Customer
by virtue of the foregoing sentence, then Customer shall allow EXE, at EXE's
option and expense, to procure the right for Customer to continue using the
Licensed Product that is the subject of such claim, or to replace or modify such
Licensed Product so that such Licensed Product becomes non-infringing yet
remains functionally equivalent. If neither of the foregoing alternatives is
available on terms that are reasonable, in EXE's sole discretion, then Customer
shall, upon the request of EXE, return the Licensed Product to EXE, whereupon
EXE shall return to Customer an equitable portion of the License Fees paid by
Customer for such Licensed Product. This Section 11(e) states Customer's sole
and exclusive remedy arising from copyright, patent and trade secret
infringement claims made against Customer with respect to the Licensed Product,
and EXE shall incur no liability to Customer relating to such infringement
claims except as provided in this Section I 1(e).
12. LIMITATIONS OF REMEDIES & LIABILITIES. The parties acknowledge that the
following provisions have been negotiated by them, reflect a fair allocation of
risk and such allocation is reflected in the fees payable under this Agreement:
(a) Remedies. Except as otherwise provided by Section 11(e),
Customer's sole and exclusive remedies for EXE's default hereunder shall be: (i)
to obtain the repair, replacement or correction of the defective Licensed
Product; or (ii) if EXE reasonably determines that such remedy is not
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 7
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 8
economically or technically feasible, to obtain a refund of an equitable portion
of the License Fees actually paid by Customer with respect to the defective
Licensed Product.
(b) Limitations of Liability.
(i) General. EXCEPT FOR EXE'S LIABILITY ARISING UNDER
SECTION I 1(e), IN NO EVENT SHALL EXE'S OR ITS THIRD PARTY SUPPLIERS LIABILITY,
IN THE AGGREGATE, FOR DAMAGES ARISING OUT OF THE USE OR LICENSING OF THE
LICENSED PRODUCT OR ARISING UNDER THIS AGREEMENT OR THE EXHIBITS HERETO, WHETHER
IN TORT, CONTRACT OR OTHERWISE, TO CUSTOMER OR ANY OTHER PERSON OR ENTITY EXCEED
THE LICENSE FEES ACTUALLY PAID BY CUSTOMER.
(ii) Consequential Damages, Etc. as to Customer. IN NO
EVENT SHALL EXE OR ITS THIRD PARTY SUPPLIERS BE LIABLE FOR ANY CONSEQUENTIAL,
INCIDENTAL, INDIRECT, PUNITIVE, SPECIAL, OR SIMILAR DAMAGES, INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR LOSS OF PROFITS, LOSS OF GOOD WILL, WORK STOPPAGE,
COMPUTER FAILURE OR MALFUNCTION, LOSS OF WORK PRODUCT, OR ANY AND ALL OTHER
COMMERCIAL DAMAGES OR LOSSES, WHETHER DIRECTLY OR INDIRECTLY CAUSED, WHETHER IN
TORT, CONTRACT, OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
(iii) Consequential Damages as to EXE. IN NO EVENT SHALL
CUSTOMER BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE,
SPECIAL, OR SIMILAR DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF
GOOD WILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, LOSS OF WORK PRODUCT,
OR ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSSES, WHETHER DIRECTLY OR
INDIRECTLY CAUSED, WHETHER IN TORT, CONTRACT, OR OTHERWISE, EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES; PROVIDED HOWEVER, THE PARTIES ACKNOWLEDGE THAT
ANY DIRECT OR INDIRECT DAMAGES FOR LOSS OF PROFITS BY REASON OF A BREACH BY
CUSTOMER OF SECTION 3 OR SECTION 10 OF THIS AGREEMENT SHALL NOT BE LIMITED BY
THIS SECTION.
13. TIME LIMIT FOR CLAIMS. Each party shall have two (2) years from the
accrual of a cause of action to bring such action. If a party fails to bring
such action within two (2) years of its accrual, then such party shall be deemed
to have waived whatever rights it may have had in relation to such cause of
action including all legal and equitable remedies.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 8
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 9
14. TERM AND TERMINATION.
(a) Term. This Agreement shall commence on the day first written
above and shall continue until terminated in accordance with this Section 14.
Notwithstanding the foregoing, services under the Software Upgrade and Support
Addendum shall commence and terminate as provided in the Software Upgrade and
Support Addendum.
(b) Termination. Either party may, in addition to other relief,
terminate this Agreement or any license granted hereunder if the other party
breaches any material provision hereof and fails, within thirty (30) days after
receipt of notice of such breach, to: (i) correct the breach if the breach is
capable of correction within such thirty (30) day time period; or (ii) commence
corrective action reasonably acceptable to the aggrieved party and proceed with
due diligence to completion of such action if the breach cannot be remedied
within such thirty (30) day time period.
(c) Effect of Termination. Upon termination of this Agreement, all
Operating Licenses terminate automatically, and Customer shall promptly destroy
or return to EXE all copies of the Licensed Product and Documentation. The
appropriate officer of Customer shall certify to EXE in writing, within fifteen
(15) days of such termination, that Customer has complied with the obligations
of the foregoing sentence.
(d) Survival. The provisions contained in Sections 3(c), 9, 10, 11
(e) and 12-17 shall survive the termination of this Agreement for any reason in
accordance with their respective terms.
15. DISPUTES. Exclusive venue for any and all actions arising out of this
Agreement shall lie in Dallas County, Texas.
16. EXPORT REGULATIONS.
The transfer of technology across national boundaries is regulated by
the United States Government. Customer shall not acquire, ship, transport,
export or re-export the Licensed Product, directly or indirectly, into any
country in violation of any applicable law (including, but not limited to, the
United States Export Administration Act and the regulations promulgated
thereunder) nor will Customer use the Licensed Product for any purpose
prohibited by such laws.
17. MISCELLANEOUS.
(a) Force Majeure. Neither party hereto shall have any liability
for delay or non-fulfillment of any terms of this Agreement caused by any cause
not within such party's direct control (but excluding financial inability) such
as an act of God, war, riots or civil disturbance, strikes, accident, fire,
transportation conditions, labor and/or material shortages, governmental
controls, regulations and permits and/or embargoes.
(b) Notice. All notices, certifications and other required
communications hereunder (each a "Notice") shall be in writing and shall be
given to the receiving party: (1) personally; (2) by sending a copy of
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 9
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 10
such Notice by first class, certified mail, postage prepaid, return receipt
requested; (3) by recognized overnight courier service, charges prepaid; or (4)
by facsimile, to such party's address or facsimile number set forth below or
such other address or facsimile number as the receiving party may modify from
time to time by giving notice as provided in this Section 17(b). A Notice shall
become effective on the earlier of receipt or: (i) five (5) days after deposit
in the United States mail if such Notice is properly addressed as set forth
below and sent as provided above; (ii) one (1) business day after deposit with
the courier service in the continental United States if such Notice is properly
addressed as set forth below and sent as provided above; and (iii) upon
transmission if such Notice is sent by facsimile as provided above, successful
transmission is confirmed by facsimile report, and a confirming copy of such
Notice is sent by first class, certified mail, postage prepaid, return receipt
requested.
To EXE:
EXE Technologies, Inc.
8787 Stemmons Freeway
Dallas, TX 75247
Attention: C.F.O.
Facsimile: 214-775-0913
With copy to:
EXE Technologies, Inc.
300 Baldwin Tower Blvd.
Eddystone, PA 19022
Attention: General Counsel
Facsimile: 610-447-1824
To Customer before January 1, 2000:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, TX 75234
Attention: Jim Livingston
Facsimile: ____________________
With copy to:
Home Interiors & Gifts, Inc.
4550 Spring Valley Road
Dallas, TX 75234
Attention: General Counsel
Facsimile: 972-386-1106
To Customer after January 1, 2000:
Home Interiors & Gifts, Inc.
4055 Valley View Lane, Suite 500
Dallas, TX 75244-5074
Attention: Jim Livingston
Facsimile: ____________________
With copy to:
Home Interiors & Gifts, Inc.
- --------------------------------
- --------------------------------
Attention: General Counsel
Facsimile: ____________________
(c) Severability. If any provision of this Agreement shall be
determined to be void, invalid, unenforceable or illegal for any reason, then
the validity and enforceability of all of the remaining provisions hereof shall
not be affected thereby. Furthermore, if any particular provision of this
Agreement shall be adjudicated to be invalid or unenforceable, then such
provision shall be deemed amended by limiting and reducing it so as to be as
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 10
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 11
close to the parties' intent while remaining valid and enforceable to the
maximum extent compatible with the applicable laws of such jurisdiction, such
amendment only to apply with respect to the operation of such provision in the
applicable jurisdiction in which the adjudication is made.
(d) Waiver & Remedies. No waiver by either of the parties hereto
of any failure by the other party to keep or perform any covenant or condition
of this Agreement shall be deemed a waiver of any preceding or succeeding breach
of the same or any other covenant or condition. Except for those remedies
denominated as sole and exclusive remedies in this Agreement, the remedies
herein provided shall be deemed cumulative, and the exercise of one shall not
preclude the exercise of any other remedy nor shall the specifications of
remedies herein exclude any rights or remedies at law or in equity which may be
available.
(e) Third Party Beneficiaries. This Agreement shall inure to the
benefit of EXE and its third party suppliers.
(f) Transferability; Change of Control. Customer shall not assign,
transfer or encumber the rights granted under this Agreement or delegate the
obligations imposed on it by this Agreement, in whole or in part, without
obtaining the prior written consent of EXE which consent EXE may withhold in its
sole discretion, but which shall not be unreasonably withheld or delayed. The
word assign shall be deemed to include: (i) a sale of all or substantially all
the assets of Customer; (ii) any merger of Customer into or with another
company; and (iii) any other transaction or series of transactions which result
in a change of control of Customer. Any assignment or delegation made in breach
of this Section 17(f) shall be null and void. Notwithstanding the foregoing,
Customer may assign this Agreement, in whole, but not in part, in connection
with the sale of all or substantially all of the assets of Customer or to the
surviving entity of a transaction or series of transactions which result in a
change of control of Customer; provided that (i) the surviving entity is not an
EXE Competitor; (ii) the surviving entity agrees in writing at the time of such
assignment to be bound by the terms and conditions of this Agreement; (iii) any
and all licenses granted hereunder, through the date of such assignment, are
Licenses limited by number of Nodes (or users); and (iv) Customer promptly
provides written notice of any such assignment to EXE, together with a copy of
assignee's written agreement to be bound hereto; provided, however, if EXE has
granted one or more licenses hereunder, through the date of such assignment,
that are not Licenses limited by number of Nodes (or users) and which cannot be
assigned without EXE's consent (collectively Unlimited User Licenses ), Customer
may, in accordance with the provisions of this Section 17(f), assign this
Agreement without EXE's consent as to the licenses that are not Unlimited User
Licenses, but may not assign this Agreement as to the Unlimited User Licenses
without EXE's consent which shall not be unreasonably withheld or delayed. In
the event that, in accordance with the provisions of this Section 17(f),
Customer intends to
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 11
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 12
assign this Agreement to an affiliate of an EXE Competitor, Customer shall give
EXE prior, written notice thereof in accordance with applicable law and subject
to a mutually agreeable non-disclosure agreement.
(g) Independent Contractors. In making and performing this
Agreement, the parties act and shall act at all times as independent
contractors, and nothing contained herein shall be construed or implied to
create an agency, association, partnership or joint venture between the parties.
At no time shall either party make commitments or incur any charges or expenses
for or in the name of the other party.
(h) Titles. The titles of the Sections hereof are for convenience
only and do not in any way limit or amplify the terms and conditions of this
Agreement.
(i) Governing Law. This Agreement shall be construed and
interpreted and its performance shall be governed by the laws of the State of
Texas without regard to conflicts of law principles of any jurisdiction.
(j) Amendments. This Agreement may not be modified or amended
except in a writing executed by authorized representatives of both parties;
provided that Customer may: (1) order additional Licensed Product as provided in
Section 2; and (2) obtain the other rights (and become subject to the other
obligations) provided by the Exhibits listed on the current Exhibit Index as
"Not Applicable" if both parties complete, execute and attach hereto a new
Exhibit Index and Customer pays EXE all relevant and current fees therefor,
whereupon such new documentation shall become a supplement to this Agreement.
Any subsequent purchase orders or other standard business forms of Customer
shall not be an amendment hereto or revision hereof, whether or not received,
accepted, approved or signed by EXE.
(k) Counterparts. This Agreement, including the Exhibit Index, may
be executed in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute the same instrument.
(l) Effective Date. This Agreement shall govern the relations of
the parties as of the date first written above but shall not become effective
until authorized representatives of both parties execute this Agreement and the
Exhibit Index.
(m) Conflict. Each Exhibit hereto states whether this Agreement or
such Exhibit prevails in the event of a conflict, inconsistency or ambiguity
among this Agreement and such Exhibit.
(n) Entire Agreement. This Agreement, together with the Exhibit
Index and the Exhibits marked as "Applicable" on the Exhibit Index (which
Exhibits are incorporated herein), contains the entire agreement between the
parties hereto, and supersedes all other oral or written representations,
statements, promises, agreements and letters or other expressions of intent of
any kind with respect to the subject matter hereof between them.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 12
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 13
(o) Publicity. Neither party may use the other party's name or
marks or refer to this Agreement in any advertisement or press release or any
public manner without the prior, express, and written consent of the other
party, except as otherwise required by law or as reasonably necessary to perform
such party's obligations or to exercise such party's rights in this Agreement.
Furthermore, each party will use commercially reasonable efforts to ensure that
the other party's name is not used in customer solicitations without the other
party's prior written consent.
(p) Additional Documents. If requested in writing by Customer and
specifically subject to the confidentiality provisions of Section 10 of this
Agreement, EXE will provide to Customer any relevant, available and existing
technical documentation and Proprietary Software (as hereafter defined) for
installation and support of the Licensed Product and any available training
manuals applicable to the Licensed Product which have not already been provided
to Customer, for which Customer shall pay to EXE any associated reproduction and
shipping costs. Proprietary Software means any compilers and similar software
that are not generally available in the open market including, but not limited
to, compilers developed by EXE. EXE hereby grants a license to any and all
software provided under this Section 17(p); provided, further, that any source
code provided under this Section is subject to the provisions of Exhibit E
Source Code License Addendum.
(q) Benchmark Representation. EXE has previously performed the
performance benchmarks identified in Exhibit G attached hereto, which produced
the results identified therein. EXE makes no representation or warranty
whatsoever that Customer will achieve similar results through Customer's use of
the Licensed Product.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 13
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 14
IN WITNESS WHEREOF, EXE and Customer have caused this Agreement to be
executed by their duly authorized representatives.
EXE TECHNOLOGIES, INC. HOME INTERIORS & GIFTS, INC.
By /s/ Michael Burstein By /s/ Donald J. Carter, Jr.
------------------------------------- -------------------------------
Name Michael Burstein Name Donald J. Carter, Jr.
------------------------------------ -------------------------------
Title CFO Title CEO
----------------------------------- -------------------------------
Home Interiors & Gifts, Inc. Master Software License Agreement Page: 14
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 15
EXHIBIT INDEX
TO
MASTER SOFTWARE LICENSE AGREEMENT
This Exhibit Index to the Master Software License Agreement is dated December 1,
1999. The following Exhibits, if marked as "Applicable", are incorporated by
reference into this Agreement:
(A BOX FOR EACH EXHIBIT MUST BE CHECKED)
<TABLE>
<CAPTION>
EXHIBIT APPLICABLE NOT APPLICABLE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exhibit A1 - Order Form 1 X
- -------------------------------------------------------------------------------------------------------------
Exhibit B1 - Software Upgrade and Support
Addendum X
- -------------------------------------------------------------------------------------------------------------
Exhibit C - International Addendum X
- -------------------------------------------------------------------------------------------------------------
Exhibit E - Source Code Addendum X
- -------------------------------------------------------------------------------------------------------------
Exhibit F - Non-disclosure Agreement X
- -------------------------------------------------------------------------------------------------------------
Exhibit G - Performance Benchmarks X
- -------------------------------------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, FOR ADEQUATE CONSIDERATION AND INTENDING TO BE
LEGALLY BOUND, THE PARTIES HERETO HAVE CAUSED THIS EXHIBIT INDEX TO THE MASTER
SOFTWARE LICENSE AGREEMENT TO BE EXECUTED BY THEIR DULY AUTHORIZED
REPRESENTATIVES.
EXE TECHNOLOGIES, INC. HOME INTERIORS & GIFTS, INC.
By /s/ Michael Burstein By /s/ Donald J. Carter, Jr.
---------------------------------- --------------------------------
Name Michael Burstein Name Donald J. Carter, Jr.
-------------------------------- ------------------------------
Title CFO Title CEO
------------------------------- -----------------------------
Home Interiors & Gifts, Inc. Master Software License Agreement Page: Exhibit
Index
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 16
EXHIBIT A-1
ORDER FORM 1
Capitalized terms in this Exhibit A1 shall have the same meaning given to them
in the Master Software License Agreement between EXE and Customer dated December
1, 1999 (the "Agreement").
Bill To: Home Interiors & Gifts, Inc. Ship to: Home Interior & Gifts, Inc.
4055 Valley View Lane 4055 Valley View Lane
Suite 500 Suite 500
Dallas, TX 75244-5074 Dallas, TX 75244-5074
Attn: Chris Lesher Attn: Chris Lesher
Phone: 972-386-1000 Phone: 972-386-1000
County: Dallas
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Licensed Product License Facility or Facilities Nodes License Fees
Type
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exceed 2000
EXE Connect
RF Server
Crossdock USD477,000.00
Succeed Alert Server SL [one Home Interiors & Gifts, Inc. 200 [See Payment Terms
Labor Standards (1) site] Carrollton, Texas below.]
Exceed 4000v3.x
[current general release(s)[
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Payment Terms:
Customer shall pay to EXE License Fees due under this Exhibit A l in the amount
of USD477,000.00 as follows:
(a) USD190,800.00 shall be due upon execution of the Agreement;
(b) USD143,100.00 shall be due on December 30, 1999; and
(c) USD143,100.00 shall be due on May 1, 2000.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: A1-1
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 17
Other Terms and Conditions:
1. Until December 31, 2000, Customer shall have the option to purchase
additional Site Licenses (20 Nodes each) for the Licensed Product(s)
ordered in this Exhibit Al at USD70,000.00 per Site License; provided
that each Customer facility licensed pursuant to this option shall
contain less than 0,000 distribution square feet.
2. Until December 31, 2000, Customer shall have the option to purchase the
following additional Licensed Products at the following license fees:
<TABLE>
<S> <C> <C>
A. Succeed Warehouse Optimizer.................................USD50,000
B. The following two modules for a total of....................USD75,000
Yard & Dock
Succeed ODSS 2000
</TABLE>
3. Until December 31, 2001, Customer shall have the option to purchase
additional Nodes for the Licensed Product(s) ordered in this Exhibit A
1 at a price not to exceed USD1,500 per additional Node.
4. Subject to Customer's execution of the additional documents described
in Section 2 of the Agreement and on the same terms and conditions of
the Agreement as applicable, Customer may exercise any and all options
to purchase pursuant to this Exhibit Al by written notice to EXE.
Payment for an option is due within 30 days after the later of the date
of delivery to Customer or Customer's receipt of EXE's invoice
therefor.
Conflict: In the event of a conflict, inconsistency or ambiguity between this
Exhibit and the Agreement, the Agreement shall prevail.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: A1-2
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 18
EXHIBIT B1
SOFTWARE UPGRADE AND SUPPORT ADDENDUM
This Exhibit sets forth certain terms and conditions under which EXE
shall perform software upgrade and support services with respect to the Licensed
Product(s) licensed to Customer pursuant to Exhibit A1 of the Master Software
License Agreement, dated December 1, 1999, between EXE and Customer (the
"Agreement") and is subject to all of the terms and conditions of the Agreement
and of this Exhibit. In the event of a conflict, inconsistency or ambiguity
between this Exhibit and the Agreement, the Agreement shall prevail.
Section 1. Defined Terms. Unless otherwise defined herein, capitalized
terms in this Exhibit B 1 shall have the same meaning given to them in the
Agreement to which this Exhibit is attached.
Section 2. Term. The initial term of this Exhibit shall commence on the
day this Exhibit is incorporated into the Agreement and shall run for a period
of one (1) year (the "Initial Term"). This Exhibit shall automatically renew for
successive one-year periods (each such period being a "Renewal Term" commencing
on the first day after the expiration of the Initial Term) up to a maximum of
four Renewal Terms, unless Customer gives written notice to EXE of the
Customer's intent to terminate this Exhibit at least thirty (30) days prior to
the expiration of the Initial Term or Renewal Term, as the case may be. If not
previously terminated by Customer as provided for in this Section 2, this
Exhibit shall terminate upon the earlier to occur of (i) expiration of the
fourth Renewal Term; or (ii) termination of the Agreement.
Section 3. Scope of Support Services - Worldwide Support Center.
(a) EXE's Worldwide Support Center shall provide a telephone help
line twenty-four (24) hours per day, seven (7) days per week, excluding
holidays.
(b) EXE shall allocate a support engineer to any error in the
Licensed Product reported to the Worldwide Support Center. The support engineer
will then be responsible for arranging for diagnosis of the error. If EXE
determines that such error is in unmodified Licensed Product, EXE shall use its
commercially reasonable efforts to resolve the errors within a reasonable period
of time. For the avoidance of doubt, neither Releases (as defined below)
delivered by EXE pursuant to this Exhibit nor the implementation of such
Releases alone shall constitute modifications under this Section 3(b). Customer
shall be responsible for implementing any error corrections or other Releases
supplied by EXE. Schedule 1 to this Exhibit B 1 sets forth EXE's current
estimated response times.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: B1-1
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 19
Section 4. Scope of Software Upgrade Services. EXE shall license and
deliver to Customer all error corrections, updates and other releases of the
Licensed Product listed on the Order Forms (collectively "Releases"), and a copy
of the Source Code therefor, if and when such Releases and Source Code become
available.
Section 5. Payment. Customer shall pay EXE fees for the Initial Term of
software upgrade and support services as follows:
(a) USD25,100.00 shall be due upon execution of the Agreement
(based on an annual amount of 10% of the License Fees due under Exhibit A 1 of
the Agreement, prorated from execution through April 30, 2000);
(b) USD50,200.00 shall be due by April 30, 2000 (based on an
annual amount of 20% of the License Fees due under Exhibit A 1 of the Agreement,
prorated from May 1, 2000 through the end of the Initial Term).
EXE may increase the fees due hereunder for Renewal Terms; provided
that (i) EXE notifies Customer in writing of such an increase at least sixty
(60) days prior to the expiration of the Initial Term or Renewal Term as the
case may be; and (ii) for the first three (3) Renewal Terms, each such increase
shall not exceed five percent (5(degree)/0) annually. Customer shall pay the
fees for Renewal Terms net thirty (30) days from Customer's receipt of EXE's
invoice therefor.
Section 6. Coordination with Agreement. Releases shall be considered
Licensed Product for all purposes of the Agreement and the Exhibits thereto
except that the warranty period in Section 11(a) of the Agreement shall not
begin to run with respect to a Release until delivery of such Release to
Customer.
Section 7. Customer's Responsibilities. Customer shall designate up to
three (3) persons and may designate up to three alternates to contact EXE's
Worldwide Support Center (collectively the "Project Manager"). The Project
Manager must be fully acquainted with Customer's information technology systems
including the Licensed Product. Customer is responsible for integration and
installation of all Releases. Customer is exclusively responsible for the
supervision, management, backup, security and control of all aspects of
Customer's information technology systems.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: B1-2
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 20
Schedule 1 to Exhibit B1
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
EXE Issue Classification EXE Assignment Issue Escalated to
Classification Definition Timeframe who and when... Other
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severity 1 Down production Immediately assigned Escalated within an At 6 hours the SVP
system. Warehouse to support analyst hour if problem is of R&D and
operations have qualified to work on not isolated and Professional
stopped. issue. EXE will fixed. At 3 hours Services are
work around the the Director of WWCS notified.
clock on issue until is notified. At 4
either fix or hours the VP of
workaround provided. Worldwide Customer
Support is
notified along
with the
customer EXE
Regional VP.
- -------------------------------------------------------------------------------------------------------------
Severity 2 Down business process Assigned to support Escalated within 4 R&D will work on
with workaround. analyst. Attempt to days after work this to resolve or
Operations continue Resolved within 4-8 began. At 4 days provide ability to
but at reduced rate. business days. If the WWCS Director is move it to
Needs to be not resolved within notified. After 8 Severity 3. SVP
resolved. Urgent but eight (8) days, days the VP of of R&D and
not critical. issue becomes Worldwide Customer Professional
Severity 1. Support is notified Services are
and if a Base notified after 8
problem, escalated days.
to R&D. Regional VP
is notified as well.
- -------------------------------------------------------------------------------------------------------------
Severity 3 Problem with Assigned to support Will be tracked with
software. Not analysis a goal to close
impacting operations (PMT-Product within the next
adversely. Important Maintenance Team). product release.
but not urgent. If not resolved
within 90 days,
issue becomes
Severity 2.
- -------------------------------------------------------------------------------------------------------------
Severity 4 Software or Assigned to support Will be tracked with
documentation bug analyst (PMT). If a goal to be closed
that can wait until not resolved in the within the next
next release. Not next product product release.
urgent. release, issue
becomes Severity 3.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Customer may update status of issues by calling Worldwide Support.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: B1-3
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 21
EXHIBIT C
INTERNATIONAL ADDENDUM
This Exhibit sets forth certain terms and conditions of EXE's provision
of the Licensed Product in accordance with the Master Software License
Agreement, dated December 1, 1999, between EXE and Customer (the "Agreement")
and is subject to all of the terms and conditions of the Agreement and of this
Exhibit. In the event of a conflict, inconsistency or ambiguity between this
Exhibit and the Agreement, this Exhibit shall prevail.
Section 1. Defined Terms.
(a) Unless otherwise defined herein, capitalized terms in this
Exhibit C shall have the same meaning given to them in the Agreement to which
this Exhibit is attached.
(b) "Territory" shall mean the geographical location where
Customer is licensed to Use the Licensed Products outside of the United States.
Section 2. United Nations Convention on Contracts. EXE and Customer expressly
agree that the United Nations Convention on Contracts for the International Sale
of Goods shall not apply to the Agreement.
Section 3. Shipment Term. EXE shall ship the Licensed Products to Customer "Free
Carrier" (as defined in Incoterms 1990) EXE's place of business; provided that
title to the media containing the Licensed Product shall not pass to Customer
until the media leaves territory under the jurisdiction of the United States.
Section 4. Protection Devices. At EXE's request, Customer shall use EXE's
hardware-based copy protection device (EXE's currently supported device is
Rainbow Technology's Net Sentinel) on all installations of the Licensed Product
outside of the United States and Canada to enable the copy protection features
of the Licensed Product at those sites. ABSENCE OF THE DEVICE WHEN PROTECTION IS
ENABLED CAUSES THE DEACTIVATION OF CERTAIN KEY FUNCTIONS OF THE LICENSED PRODUCT
(SUCH AS PRINTING, DATA IMPORT AND EXPORT) BUT DOES NOT DAMAGE OR OTHERWISE
AFFECT EXISTING DATA. Customer acknowledges that this additional protection is
required by the lack of controls on software piracy in many markets. Customer
shall acquire the required number of devices (one per network) from EXE.
Customer shall pay for the devices at EXE's cost, plus reasonable costs of
shipment and handling, within thirty (30) days of Customer's receipt of EXE's
invoice therefor.
Section 5. Disputes. Exclusive venue for any and all actions arising out of this
Agreement shall lie in Dallas County, Texas, U.S.A..
Home Interiors & Gifts, Inc. Master Software License Agreement Page: C-1
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 22
Section 6. Compliance with Laws and Regulations.
(a) Compliance with Local Law. Customer shall not undertake, cause
or permit to be undertaken, any activity that is illegal under any laws,
decrees, rules or regulations in effect in the Territory.
(b) Compliance with United States Law. Notwithstanding Section
6(a) of this Exhibit C, Customer shall not undertake, cause or permit to be
undertaken, any activity that would have the effect of causing EXE to be in
violation of any laws, decrees, rules or regulations in effect in the United
States or the Territory. Customer shall also comply with the requirements of the
United States Foreign Corrupt Practices Act and United States Anti-Boycott
Regulations (in present form or as they may be amended in the future) as they
may apply to Customer's activities. Customer shall comply, and shall at all
times cooperate promptly with EXE to enable EXE to comply, with the provisions
of the United States Export Administration Act, the War Powers Act, or any other
law or Executive Order relating to control of exports or transfer of technology,
and the regulations of the United States Departments of State, Commerce and
Defense relating thereto, (in present form or as they may be amended in the
future) as they may apply to Customer's activities.
(c) Compliance with Export Laws and Regulations. The Agreement and
Customer's performance thereof are specifically made subject to all laws,
regulations, orders or other restrictions on the export from the United States
of America of computer software, hardware, communications equipment and
technical knowledge or know-how relating thereto, which may be imposed from time
to time by the federal government of the United States of America. Customer
shall not export, re-export or transfer, directly or indirectly, any such
software, hardware, communications equipment or information to any country for
which the United States Government or any agency thereof requires, with respect
to United States exporters, an export license or other governmental approval at
the time of export, re-export, or transfer, without first obtaining such license
or approval.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: C-2
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 23
EXHIBIT E
SOURCE CODE LICENSE ADDENDUM
This Exhibit sets forth the terms and conditions of EXE's provision of
source code to the Licensed Product, as may be modified by EXE from time to
time, and related documentation (collectively, the "Source Code") in accordance
with the Master Software Agreement, dated December 1, 1999, between EXE and
Customer (the "Agreement") and is subject to all of the terms and conditions of
the Agreement and of this Exhibit. In the event that any of the terms of this
Exhibit conflict with the Agreement, this Exhibit shall control.
Section 1. Defined Terms. Capitalized terms in this Exhibit E shall have the
same meaning given to them in the Agreement to which this Exhibit is attached.
Section 2. Source Code License. Except upon a Release Event, as hereinafter
defined or for the purposes of verification, (a) Customer may not Use the Source
Code for any purpose; (2) Customer may not modify the Source Code; and (3)
Customer shall keep the Source Code in a location accessible only to officers of
the Customer or upon Customer's computer system in a secure environment
accessible only by password known to one or more officers of Customer. A Release
Event means one or more of the following events: (i) EXE has ceased to offer the
Licensed Product for licensing; (ii) EXE has materially failed to provide
support services for the Licensed Product in accordance with its contractual
obligations to Customer in accordance with Exhibit B I of the Agreement; (iii)
EXE has ceased business operations; or (iv) EXE becomes insolvent, makes an
assignment for the benefit of its creditors, a receiver is appointed, or a
petition in bankruptcy is filed with respect to EXE and such petition is not
dismissed within thirty (30) days. From time to time, Customer may, in its sole
discretion, use reasonable means to verify that the Source Code is the correct
version for the then-current executable form of the Licensed Product. Such
reasonable means include, but are not limited to, compiling the Source Code.
Section 3. Additional Restrictions. Customer may not and shall not at any time:
(a) distribute, transfer, rent, lease, sublicense, time-share or lend the Source
Code (including any extract, copy or transcription thereof, any derivative works
thereof or any object code produced therefrom) to any third party, except that
providing the Source Code (or the object code produced therefrom) to an
Authorized Third Party in support of Customer's authorized use of a Licensed
Product does not violate the provisions of this Section; (b) use the Source
Code, any derivative works thereof or any object code produced therefrom for the
benefit of any third party, except as permitted by the Agreement; or (c) remove
or obscure EXE's copyright, trademark and proprietary information notices from
the Source Code. Customer shall not make
Home Interiors & Gifts, Inc. Master Software License Agreement Page: E-1
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 24
copies of the Source Code; provided that during the term of this Exhibit E,
Customer may maintain a total of two (2) copies of the Source Code under its
possession or control (one of which is the copy of the Source Code delivered by
EXE to Customer). Customer shall inform EXE the location of each copy of the
Source Code and shall not relocate any copy of the Source Code to a location
other than the location of the associated Licensed Product without EXE s prior
written consent which consent shall not be unreasonably delayed or withheld.
Section 4. Delivery. EXE shall deliver the Source Code to Customer on mutually
acceptable media and by mutually acceptable means. Customer shall be deemed to
have accepted the Source Code and Source Code License upon shipment or complete
transmission of the Source Code to Customer, whichever occurs first.
Section 5. Exclusive Ownership.
(a) Exclusive Ownership. The Source Code License does not provide
Customer with title to or ownership of the Source Code or the Licensed Product.
Rather, the Source Code License provides Customer with only the limited rights
set forth in this Exhibit.
(b) Acknowledgment of Proprietary Features. Customer acknowledges
that the Source Code is a commercially valuable, highly proprietary product of
EXE and that its design and development reflect the effort of skilled
development experts and the investment of considerable time and money. Customer
acknowledges that the Source Code contains substantial trade secrets of EXE,
which EXE has entrusted to Customer in confidence to use only as expressly
authorized by this Exhibit E. Customer further acknowledges that the Source Code
License in no way allows Customer to distribute derivative works created using
or from the Source Code (including object code) to a third party or to the
public in general. Customer further acknowledges that EXE claims and reserves
all rights and benefits that are afforded under federal copyright law with
respect to software programs. Any copying, modification or distribution of the
Source Code not expressly authorized by this Exhibit E is strictly forbidden.
Section 6. Confidentiality. Customer shall not, at any time, disclose or
disseminate the Source Code (including any extract, copy or transcription
thereof), or the trade secrets embodied therein, whether in whole or in part,
except to those employees, consultants, contractors or other persons who: (a)
have a need to know and to obtain access thereto in order to give effect to the
rights granted to Customer under this Exhibit; (b) are not EXE Competitors; and
(c) have signed agreements with respect to the Source Code containing
non-disclosure and non-use provisions substantially equivalent to those set
forth in this Exhibit. Customer shall take appropriate action, by instruction,
agreement, and otherwise, with any persons authorized to have access to the
Source Code, so as to enable Customer to fulfill the foregoing obligations.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: E-2
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 25
Under no circumstances may Customer give any known EXE Competitor direct access
to the Source Code without the prior written consent of EXE in its sole
discretion.
Section 7. Term. The term of the Source Code License shall commence upon the
incorporation of this Exhibit E into the Agreement and shall continue until the
earlier of the termination of the Agreement or the date upon which Customer
ceases to use the Licensed Product. Upon the termination of the Source Code
License, Customer shall return to EXE all copies of the Source Code in its
possession or under its control, but Customer's obligation to protect the
confidentiality of the Source Code shall continue.
Section 8. Injunctive Relief. Customer acknowledges that it is impossible to
measure fully, in monetary damages, the injury that will be caused to EXE in the
event of a breach or threatened breach of any of the provisions of this Exhibit
E, and Customer waives the claim or defense that EXE has an adequate remedy at
law. Customer shall not in any action or proceeding to enforce any of the
provisions of this Exhibit, assert the claim or defense that an adequate remedy
at law exists. EXE shall be entitled to injunctive relief to enforce the
provisions hereof, without prejudice to any other remedy EXE may have at law or
in equity.
Section 9. No Warranty. THE SOURCE CODE IS PROVIDED TO CUSTOMER WITHOUT, AND EXE
EXPRESSLY DISCLAIMS, ANY AND ALL REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS
OR IMPLIED, WHETHER ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF
DEALING OR USAGE OF TRADE, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
ACCURACY, COMPLETENESS, PERFORMANCE, CURRENCY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NON-INFRINGEMENT OR TITLE. Customer acknowledges that the
warranties in Sections 11(a), 11(b) and 11(c) of the Agreement do not extend to
the Source Code or to applications created by Customer or a third party through
use of the Source Code.
Section 10. Limitations of Liabilities. The parties acknowledge that the
following provisions have been negotiated by them, reflect a fair allocation of
risk and such allocation is reflected in the fees payable under this Agreement:
(a) General. IN NO EVENT SHALL EXE'S LIABILITY, IN THE AGGREGATE,
FOR DAMAGES ARISING OUT OF THE USE OR LICENSING OF THE SOURCE CODE, WHETHER IN
TORT, CONTRACT OR OTHERWISE, TO CUSTOMER OR ANY OTHER PERSON OR ENTITY EXCEED
THE FEES ACTUALLY PAID BY CUSTOMER FOR THE SOURCE CODE LICENSE.
(b) Consequential Damages, Etc. EXE SHALL NOT BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE, SPECIAL, OR SIMILAR DAMAGES,
INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS, LOSS OF GOODWILL,
WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, LOSS OF WORK PRODUCT, OR ANY AND
ALL OTHER COMMERCIAL DAMAGES OR LOSSES, WHETHER DIRECTLY OR INDIRECTLY CAUSED,
WHETHER IN TORT, CONTRACT. OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: E-3
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 26
EXHIBIT F
NON-DISCLOSURE AGREEMENT
THIS NON-DISCLOSURE AGREEMENT (this Agreement ) is made on between HOME
INTERIORS & GIFTS, INC., a Texas corporation ( Home Interiors ), and a [STATE OF
ORIGIN] [LEGAL ENTITY] (the Agent).
BACKGROUND
The Agent provides contracted services for Home Interiors & Gifts, Inc.
( Home Interiors ) at Home Interiors' facility located at [INSERT ADDRESS OF THE
SITE]. Home Interiors has obtained from EXE Technologies, Inc. ( EXE ) a license
to use the object code and/or Source Code version(s) of certain EXceed or other
EXE software (the Software ) at the Facility pursuant to a Master Software
License Agreement between EXE and Home Interiors (the License ), as it is
installed at the Facility. The Agent and Home Interiors desire the Agent to be
an authorized user of the Software under the License exclusively in support of
Home Interiors' internal business activities. EXE has granted Home Interiors the
right to make the Agent an authorized user of the Software exclusively in
support of Home Interiors' internal business activities; provided that the Agent
first enters into this Agreement. For the avoidance of doubt, the internal
business activities of Customer are deemed to include Customer's use of a
Licensed Product as a third party logistics provider and Customer's use of an
outsourcing provider to supply information technology services to Customer.
NOW, THEREFORE, in consideration of the foregoing premises and making
the Agent an authorized user of the Software, intending to be legally bound, the
Agent and Home Interiors agree as follows:
1. Acknowledgments. The Agent acknowledges that: (i) the Software and any
and all associated documentation, source code, translations, compilations,
partial copies and derivative works (collectively, Confidential and Proprietary
Information ) is valuable, confidential and proprietary property owned
exclusively by EXE; (ii) the Agent has no right, title or interest to or in any
of the Confidential and Proprietary Information; (iii) the Agent itself has no
license to any of the Confidential and Proprietary Information, rather the Agent
is merely an authorized user of the Software under the License between EXE and
Home Interiors; (iv) all use of the Software is governed by the License,
including limiting Agent's use of the software under the Agreement exclusively
to support Home Interiors' internal business activities and for no other
purpose; and (v) this Agreement in no way expands the rights granted under the
License.
2. Negative Covenants. The Agent shall not: (a) use any of the
Confidential and Proprietary Information for any person's benefit (including the
Agent's) except that the Agent may (i) review Documentation for the Software to
become familiar with its
Home Interiors & Gifts, Inc. Master Software License Agreement Page: F-1
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 27
operation and (ii) use the Software solely for Home Interiors' benefit at the
Facility in accordance with the terms of the License; (b) disclose the
Confidential and Proprietary Information; (c) except as authorized in the
License, copy, relocate, move, rent, loan, lease, commercialize or otherwise
distribute any of the Confidential and Proprietary Information; (d) alter or
remove any proprietary, copyright, trademark or trade secret legend affixed to
or embedded in the Confidential and Proprietary Information; or (e) attempt to
decompile, disassemble or reverse engineer the Software or any other
Confidential and Proprietary Information (and any information derived in
violation of such covenant shall automatically be deemed Confidential and
Proprietary Information owned exclusively by EXE).
3. Affirmative Covenants. The Agent shall: (a) immediately consult with
Home Interiors if it has any questions regarding the permitted use of the
Confidential and Proprietary Information; (b) shall take all reasonable measures
to protect the secrecy of, and avoid the unauthorized disclosure or use of
Confidential and Proprietary Information including (i) the highest degree of
care that the Agent uses to protect the Agent's own confidential and proprietary
information of a similar nature, but no less than due diligence and care and
(ii) requiring its employees and consultants who have access to any of the
Confidential and Proprietary Information to sign or have signed an agreement
with provisions that are substantially equivalent to the terms of this
Agreement; and (c) promptly inform Home Interiors in writing of any disclosure,
misuse or misappropriation of any Confidential and Proprietary Information that
may come to the Agent's attention including, without limitation, any use of the
Software beyond the terms of the License.
4. Termination. Upon the earlier to occur of (a) termination of the
License or (b) any breach of this Agreement, the Agent shall immediately: (i)
cease all use of the Confidential and Proprietary Information; (ii) return or
destroy all Confidential and Proprietary in its possession or control; and (iii)
certify to Home Interiors in writing that the Agent has complied with the
obligations of this Section.
5. Notice of Required Disclosure. If the Agent is required by judicial or
administrative process to disclose any of the Confidential and Proprietary
Information, then the Agent shall promptly notify Home Interiors and allow Home
Interiors and/or EXE a reasonable time to oppose such process.
6. Successors; Assignment. This Agreement shall be binding upon the Agent
and the Agent's successors and assigns; provided, however, that this Agreement
and the rights and obligations thereunder may not be assigned or delegated, in
whole or in part, without the prior written consent of Home Interiors.
7. Governing Law; Jurisdiction. This Agreement any dispute arising
hereunder shall be governed by the laws of the State of Texas without regard to
any conflict of law rules of any jurisdiction. The Agent irrevocably and
unconditionally: (a) agrees that any suit, action or other legal proceeding
arising out of or relating to this Agreement (including, without limitation, any
action for preliminary and permanent injunctive relief and other
Home Interiors & Gifts, Inc. Master Software License Agreement Page: F-2
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 28
equitable relief) may be instituted in the State of Texas or federal courts in
the Northern District of Texas, Dallas Division; (b) consents to personal
jurisdiction in such courts and further agrees that service of process upon the
Agent may be effected by certified mail or by any other means permitted by law;
(c) waives any objection that the Agent may have to the laying of venue of any
such suit, action or proceeding in any such court; and (d) waives any claim or
defense of inconvenient forum. Any judgment entered in such courts may be
enforced against the Agent in any court of competent jurisdiction.
8. Remedies. The Agent acknowledges that: (a) its obligations under this
Agreement are necessary and reasonable to protect Home Interiors and EXE and
Home Interiors' and EXE's businesses; (b) any violation or threatened violation
of the Agent's covenants and agreements set forth in this Agreement will cause
irreparable injury to Home Interiors and EXE; and (c) monetary damages will be
inadequate to compensate Home Interiors and EXE for any such violation or
threatened violation. In addition to any other remedies that may be available,
in law, in equity or otherwise, Home Interiors and EXE shall be entitled to
obtain injunctive relief to enforce the provisions of this Agreement.
9. Third Party Beneficiary. Agent and Home Interiors acknowledge that EXE
is an intended third party beneficiary of this Agreement.
10. Entire Agreement. This Agreement contains the entire agreement and
understanding relating to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings. This Agreement may not be
changed or modified, except in a writing signed by both the Agent and Home
Interiors. The failure or delay of Home Interiors or EXE to exercise any right
under this Agreement shall not be deemed a waiver of any rights under this
Agreement.
Home Interiors & Gifts, Inc. Master Software License Agreement Page: F-3
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 29
IN WITNESS WHEREOF, the Agent has caused its duly authorized
representatives to execute this Agreement on the date first written above.
[AGENT NAME] HOME INTERIORS & GIFTS, INC.
By By
------------------------- ----------------------------------
Name Name
----------------------- -------------------------------
Title Title
---------------------- ------------------------------
Home Interiors & Gifts, Inc. Master Software License Agreement Page: F-4
EXE Technologies, Inc. Contract No. LTOD-4BQJPW
<PAGE> 30
CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT
This Agreement, dated as of October 29, 1999, is by and between Home
Interiors & Gifts, Inc., a Texas corporation (the "Home Interiors"), and EXE
Technologies, Inc., a Delaware corporation ( "EXE").
In connection with a consulting relationship between Home Interiors and
EXE, Home Interiors and EXE are disclosing to each other certain of their
proprietary information. As a material inducement to each party to disclose such
information, the party receiving (the "Receiving Party") any information
concerning the other party (the "Disclosing Party") agrees to treat
confidentially all information concerning the Disclosing Party furnished to the
Receiving Party, whether or not in writing (collectively, the "Evaluation
Material"), in accordance with the provisions of this Agreement. The Evaluation
Material will not, however, include information which (a) is or becomes publicly
available other than as a result of a disclosure by the Receiving Party or its
representatives, (b) is in the possession of or known to the Receiving Party
prior to its receipt from the Disclosing Party, (c) is independently developed
by the Receiving Party without the utilization of any Evaluation Material, or
(d) is or becomes available to the Receiving Party on a non-confidential basis
from a source (other than the Disclosing Party or its representatives) which, to
the best of the Receiving Party's knowledge after due inquiry, is not prohibited
from disclosing such information to the Receiving Party by a legal, contractual
or fiduciary obligation to the Disclosing Party.
The Evaluation Material shall be used solely for the purposes described
above and for no other purpose, and the Receiving Party and its representatives
shall not, without the Disclosing Party's prior written authorization, directly
or indirectly, intentionally or inadvertently, through its agents,
representatives, employees or otherwise, (a) disclose the contents of any of the
Evaluation Material received from the Disclosing Party or of the discussions
between the parties to any other person or use or exploit the Evaluation
Material received from the Disclosing Party, or (b) discuss the Disclosing Party
or its affairs with any person other than the Disclosing Party's
representatives. Neither party shall disclose to any other person either the
fact that any discussions are taking place between the parties or that either
party has requested or received information from the other party or any of the
terms, conditions or other facts with respect to the relationship between the
parties, including the status thereof. The term "person" as used herein shall be
broadly interpreted to include without limitation any corporation, partnership,
company, association, mutual fund or other organization, group or individual.
Each party reserves the right, in its sole and absolute discretion, to reject
any and all proposals and to terminate discussions with, or directly or
indirectly involving, the other party at any time without affecting the either
party's obligations hereunder.
If the Receiving Party is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar processes) to disclose the contents of any
Evaluation Material received from the
1
<PAGE> 31
Disclosing Party, the Receiving Party shall (i) provide the Disclosing Party
with prompt notice of such request and the information requested so that the
Disclosing Party may seek an appropriate protective order and/or waive the
Receiving Party's compliance with the provisions of this Agreement, and (ii)
consult with the Disclosing Party as to the advisability of taking legally
available steps to resist or narrow such request. If in the absence of a
protective order or the receipt of a waiver hereunder the Receiving Party is
nonetheless, in the written opinion of its legal counsel, compelled to disclose
the contents of any Evaluation Material received from the Disclosing Party to
any tribunal or else be or risk being liable for contempt or suffer other
censure or penalty, the Receiving Party may disclose such information to such
tribunal; provided, however, that the Receiving Party shall give the Disclosing
Party written notice of the information to be so disclosed as far in advance of
its disclosure as is practicable and shall use its commercially reasonable
efforts to obtain an order or other reliable assurance that confidential
treatment shall be afforded to such portion of the contents of any Evaluation
Material received from the Disclosing Party required to be disclosed as the
Disclosing Party designates.
At any time upon the Disclosing Party's request, the Receiving Party
shall promptly deliver to the Disclosing Party all written material based on,
containing or reflecting any information contained in the Evaluation Material
(whether prepared by the Disclosing Party, the Receiving Party or otherwise, and
whether in the possession of the Receiving Party or of its agents,
representatives or employees), including all memoranda, notes, summaries,
compilations and analyses, and shall not retain any copies, extracts or other
reproductions, in whole or in part, of such material. The delivery of such
material shall not relieve the Receiving Party of its confidentiality or other
obligations hereunder.
The Receiving Party understands that the Disclosing Party makes no
representation or warranty as to the accuracy or completeness of the Evaluation
Material received from the Disclosing Party. The Receiving Party agrees that the
Disclosing Party shall not have any liability to the Receiving Party or any of
its agents, representatives or employees resulting from the Receiving Party's
reliance on the Evaluation Material received from the Disclosing Party.
Each party understands and agrees that money damages would not be an
adequate remedy for any breach of this Agreement and that the other party shall
be entitled to specific performance and injunctive or other equitable relief as
a remedy for any such breach, and each party further agrees to waive any
requirement for the securing or posting of any bond or any other security in
connection with such remedy. Such remedy shall not be deemed to be the exclusive
remedy for any breach of this Agreement, but shall be in addition to all other
remedies available at law or in equity. Except as specifically provided
otherwise herein, the obligations under this Agreement shall continue
indefinitely and in perpetuity.
2
<PAGE> 32
If either party brings any legal action or other proceeding to enforce
this Agreement or as a result of a dispute, breach or default by the other party
of any of the provisions hereunder, the prevailing party in such action or
proceeding shall be entitled to recover its attorneys' fees and other costs
incurred in connection therewith. This Agreement shall be performable in Dallas
County, Texas, and shall be governed by and construed in accordance with the
laws of the State of Texas. The parties hereby irrevocably and unconditionally
consent to submit to the jurisdiction of the courts of the State of Texas for
any actions, suits or proceedings arising out of or relating to this Agreement
(and agree not to commence any action, suit or proceeding relating thereto
except in such courts), and further agree that service of any process, summons
or notice by U.S. registered mail to the addresses set forth below shall be
effective service or process for any action, suit or proceeding brought in any
such court. The parties hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement in the courts of the State of Texas.
3
<PAGE> 33
IN WITNESS WHEREOF, the undersigned, acting on their own behalf and on
behalf of all of their subsidiaries and other affiliates as if they had executed
this Agreement, have executed this Agreement as of the date first above written.
Home Interiors & Gifts, Inc.
By: /s/ Jim Livingston
------------------------------------
Its:
-----------------------------------
Address: 4550 Spring Valley Road
Dallas, Texas 75244
EXE Technologies, Inc.
By: /s/ George Van Ness
------------------------------------
Its:
-----------------------------------
Address: 8787 Stemmons Freeway
Dallas, Texas 75247
4
<PAGE> 34
EXHIBIT G
WHITE PAPER
EXCEED 2000 PERFORMANCE BENCHMARKS
FOR INFORMIX
<PAGE> 35
EXCEED 2000 PERFORMANCE BENCHMARKS
Purpose of this White Paper:
The purpose of this white paper is to provide an overview of the EXceed
2000 Performance Benchmarks for Informix, using the IBM S80 platform.
The benchmarking process and results are documented in this paper.
Audience:
This paper is suitable for publication to internal and external
audiences.
<PAGE> 36
EXCEED 2000 PERFORMANCE BENCHMARKS
BENCHMARK DEFINITION
Most high volume distribution centers focus on the ability of the WMS
system to process waves of orders in the shortest possible timeframe.
The trend in distribution logistics is toward shorter order cycle
times, putting pressure on the distribution center to be able to turn
customer orders around in a faster and faster manner. The days of
receiving a customer order today and shipping it tomorrow is rapidly
moving to receiving a customer order now, making a delivery promise
instantly, and shipping to meet that delivery promise. In short,
distribution managers and executives care about how quickly a system
can take a customer order and turn it into work that can be given to an
associate to select that customer order.
Given the above operational description, EXE defines the performance
throughput capabilities of the EXceed 2000 system in order lines per
minute through the wave planning process. In layman's terms, this is
the amount of order lines processed by the system from the start of the
wave planning process until the selection documents have been created.
This includes all system processes needed to allocate inventory to the
customer orders, determine batch picking opportunities, create the most
efficient picking assignments for the orders included in the wave, and
create the pick documents needed for an associate to select the orders.
Print time of selection documents is not included in the benchmark
numbers, due to the variances in print speed technology.
Additionally, EXE performed identical benchmarking on a "quiet"
environment, with no user activity other than the benchmark wave
planning process, and on a simulated "stressed" environment, with other
users and processes competing with the benchmark wave planning process.
WAVE PLANNING ORDER MIX
Performance tests of the wave planning process for the Exceed 2000 WMS
were conducted using a standard order mix consisting of 500 customer
orders, with an average of 115 order lines per order. Each benchmarking
wave run consisted of restoring the database, running the wave for all
500 customer orders, and documenting the results. In this way, each run
was done against the same orders and inventory position, ensuring the
appropriate comparisons.
HARDWARE PLATFORM
Performance tests of the wave planning process for the Exceed 2000 WMS
were conducted at the IBM Solutions Partnerships Center in San Mateo,
CA.
2
<PAGE> 37
IBM hardware used to conduct the performance testing consisted of an
IBM RS/6000 S80 with 4 GBs of RAM with 12 450MHz processors.
SYSTEM COMPONENTS
Number of processors 12 configured down from 24
Processor Type RISC 6000 450MHz
Total RAM in Megabytes 4096
Number of Disk Drives 16
Number of Disk Controllers 4
OS Release Level AIX 4.3.3
Database Informix 7.3.1uc2
EXceed 2000 V4.6 SR2
Note: All tests were run with 4096 MB of memory.
DISK CONFIGURATION
FOUR OF THE SSA ADAPTERS WERE CONFIGURED WITH FAST WRITE,
TOTALING 16 DISKS.
SSAO with 4 x 9.1 GB drives
SSA2 with 4 x 9.1 GB drives
SSA3 with 4 x 9.1 GB drives
SSA4 with 4 x 9.1 GB drives
Utilized LVM mirroring placing the mirrors on separate
adapters. System was spread across 8 separate disks.
"QUIET" VERSUS "STRESSED"
"Quiet" benchmark performance tests consisted of running the wave
planning process, only. No other system activity was allowed.
"Stressed" benchmark performance tests consisted of using a load
simulation tool to simulate users in an operational environment,
competing for system resources with the benchmark wave planning
process. The tool used was Rational's PurePerformix/TTY character based
load simulation tool. The simulation was driven from an IBM F40.
3
<PAGE> 38
The following application processes were exercised during the S80112way
Stress tests:
Full Screen Receiving 10 receivers.
System Directed Put Away 35 forklift drivers.
Replenishment 40 forklift drivers.
Reports 2 operators processing enough
reports to keep the print queues busy.
Inventory Reduction 1 operator running the benchmark
wave planning process.
BENCHMARK RESULTS
Benchmark performance tests of the wave planning process for the Exceed
2000 WMS were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
"QUIET" SYSTEM "STRESSED" SYSTEM
ORDER LINES PER MINUTE ORDER LINES PER MINUTE
------------------------------------------------------------------------------------------------
<S> <C> <C>
IBM S80/12 Way Processor
6194 6161
(as previously defined)
------------------------------------------------------------------------------------------------
</TABLE>
These results are very impressive. "Quiet" system throughput has
increased between 300 and 400 percent over the last documented
benchmarks, mainly due to increases in hardware capabilities with the
IBM S80 platform and performance improvements with Informix 7.3.1uc2.
Additionally, almost no loss in benchmark performance was documented
when stressing the environment with additional users and processes.
4
<PAGE> 1
EXHIBIT 10.22
GRANITE TOWER AT THE CENTRE
---------------------------
OFFICE LEASE
BETWEEN
520 PARTNERS, LTD.
------------------
LANDLORD,
AND
HOME INTERIORS & GIFTS, INC.
----------------------------
TENANT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 GENERAL PROVISIONS...........................................................................1
1.01. INTRODUCTION PROVISIONS AND DEFINITIONS...................................................1
ARTICLE 2 PREMISES ....................................................................................2
2.01. PREMISES..................................................................................2
2.02. IMPROVEMENTS BY LANDLORD..................................................................2
2.03. CONDITION.................................................................................3
ARTICLE 3 TERMS ......................................................................................3
3.01. TERM......................................................................................3
3.02. COMMENCEMENT..............................................................................3
3.03. LATE POSSESSION...........................................................................3
3.04. EARLY POSSESSION .........................................................................3
3.05. ACCEPTANCE OF PREMISES....................................................................3
ARTICLE 4 RENTAL ......................................................................................4
4.01. BASE RENT ................................................................................4
4.02. PAYMENT OF RENT ..........................................................................4
4.03. SECURITY DEPOSIT ........................................................................4
ARTICLE 5 OPERATING EXPENSE ...........................................................................5
5.01. OPERATING EXPENSE REIMBURSEMENT .........................................................5
5.02A. OPERATING EXPENSES........................................................................6
5.02B. TENANT'S ELECTRICITY CHARGE...............................................................7
5.03. PRORATION AND ADJUSTMENT OF OPERATING EXPENSES............................................8
ARTICLE 6 USE..........................................................................................8
6.01. USE.......................................................................................8
ARTICLE 7 LANDLORD'S SERVICES .........................................................................8
7.01. LANDLORD'S SERVICES.......................................................................8
7.02. ADDITIONAL SERVICES.......................................................................9
7.03. INTERRUPTION OF SERVICES.................................................................10
7.04. KEYS AND LOCKS...........................................................................10
7.05. SIGNS....................................................................................10
ARTICLE 8 ALTERATIONS AND REPAIRS.....................................................................10
8.01. ALTERATIONS..............................................................................10
8.02. REMOVAL OF TRADE FIXTURES AND PERSONAL PROPERTY..........................................11
8.03. REPAIRS BY LANDLORD......................................................................11
8.04. REPAIRS BY TENANT........................................................................12
ARTICLE 9 INSURANCE...................................................................................12
9.01. LANDLORD'S INSURANCE.....................................................................12
9.02. TENANT'S INSURANCE...................................................................... 12
9.03. WAIVER OF SUBROGATION....................................................................13
9.04. INDEMNITY................................................................................13
ARTICLE 10 CASUALTY.....................................................................................14
10.01. CASUALTY..................................................................................14
10.02. END OF TERM CASUALTY......................................................................14
ARTICLE 11 CONDEMNATION.................................................................................14
11.01. CONDEMNATION..............................................................................14
11.02. CONDEMNATION AWARD........................................................................14
ARTICLE 12 ACCESS.......................................................................................15
12.01. ACCESS....................................................................................15
ARTICLE 13 SUBORDINATIONS AND ATTORNMENT................................................................15
13.01. SUBORDINATION.............................................................................15
13.02. ATTORNMENT................................................................................15
13.03. QUIET ENJOYMENT...........................................................................15
ARTICLE 14 ASSIGNMENT...................................................................................15
14.01. ASSIGNMENT................................................................................15
14.02. CONSENT...................................................................................16
14.03. TRANSFER BY LANDLORD......................................................................16
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 15 DEFAULT......................................................................................16
15.01. DEFAULT BY TENANT.........................................................................16
15.02. RIGHTS UPON DEFAULT BY TENANT.............................................................17
15.03. EXPENSE OF REPOSSESSION...................................................................19
15.04. CUMULATIVE REMEDIES: WAIVER OR RELEASE....................................................19
15.05. ATTORNEY'S FEES...........................................................................19
15.06. FINANCIAL STATEMENTS......................................................................19
15.07. LANDLORD'S CONTRACTUAL SECURITY INTEREST..................................................19
15.08. USE AND STORAGE OF PERSONAL PROPERTY......................................................20
15.09. DEFAULT BY LANDLORD.......................................................................20
ARTICLE 16 ENVIRONMENTAL................................................................................20
16.01. HAZARDOUS WASTE...........................................................................20
ARTICLE 17 MISCELLANEOUS................................................................................21
17.01. SUBSTITUTE PREMISES.......................................................................21
17.02. ESTOPPEL LETTERS..........................................................................21
17.03. HOLDOVER .................................................................................21
17.04. SURRENDER.................................................................................22
17.05. NOTICE....................................................................................22
17.06. RULES AND REGULATIONS.....................................................................22
17.07. LANDLORD'S LIABILITY......................................................................22
17.08. TEXAS DTPA WAIVER.........................................................................22
17.09 AMERICANS WITH DISABILITIES ACT...........................................................22
17.10. INABILITY TO PERFORM......................................................................23
17.11. TENANT AUTHORIZATION......................................................................23
17.12. BROKER....................................................................................23
17.13. MEMORANDUM OF LEASE.......................................................................23
17.14. PARKING...................................................................................23
17.15. OTHER TAXES...............................................................................23
17.16. JOINT AND SEVERAL LIABILITY...............................................................23
17.17. ACCEPTANCE BY LANDLORD....................................................................23
17.18. TIME OF ESSENCE...........................................................................23
17.19. ENTIRE AGREEMENT..........................................................................24
17.20. AMENDMENT.................................................................................24
17.21. SEVERABILITY..............................................................................24
17.22. SUCCESSORS................................................................................24
17.23. CAPTIONS..................................................................................24
17.24. NUMBER AND GENDER.........................................................................24
17.25. GOVERNING LAW.............................................................................24
17.26. RIGHTS RESERVED TO LANDLORD...............................................................24
17.27. VISIBLE AREAS CLAUSE......................................................................24
17.28. NO PRESUMPTION AGAINST DRAFTER ...........................................................25
17.29 EXAMINATION OF LEASE......................................................................25
17.30 DEFINED TERMS AND MARGINAL HEADINGS.......................................................25
17.31 NO REPRESENTATIONS........................................................................25
17.32 NO LIGHT, AIR OR VIEW EASEMENT............................................................25
17.33 SURVIVAL OF INDEMNITIES.................................................................. 25
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT "A" - FLOOR PLAN................................................................................27
EXHIBIT "B" - LEGAL DESCRIPTION.........................................................................31
EXHIBIT "C" - RULES AND REGULATIONS.....................................................................32
EXHIBIT "D" - WORK LETTER...............................................................................35
EXHIBIT "D-1" - BUILDING SHELL IMPROVEMENTS.............................................................38
EXHIBIT "E" - ACCEPTANCE OF PREMISES MEMORANDUM.........................................................39
EXHIBIT "F" - PARKING GARAGE............................................................................40
RIDER 1 - TENANT'S RIGHT OF FIRST REFUSAL...............................................................41
SCHEDULE A..............................................................................................42
RIDER 2 - TENANT'S RENEWAL OPTION.......................................................................45
RIDER 3 - EXPANSION OPTION..............................................................................46
SCHEDULE B..............................................................................................47
RIDER 4 - CAP ON CERTAIN OPERATING EXPENSES.............................................................48
RIDER 5 - SIGNAGE.......................................................................................49
ANNEX 1.................................................................................................50
</TABLE>
iii
<PAGE> 4
LEASE
THIS LEASE ("Lease") is entered into as of the 17th day of August,
1999, by and between 520 Partners, Ltd. ("Landlord"), and Home Interiors &
Gifts, Inc. ("Tenant").
W I T N E S S E T H:
ARTICLE 1
1.01. INTRODUCTORY PROVISIONS AND DEFINITIONS. The Lease provisions and
definitions set forth in this Section 1.01 and all exhibits, riders, and other
attachments to this Lease are incorporated into this Lease and made a part
hereof. Capitalized terms used in this Lease without definitions have the
respective meanings assigned to them in this Section.
<TABLE>
<S> <C> <C>
(a) Addresses for notices
due under this Lease
(See Article 17)
Landlord's Name
and Address: 520 Partners, Ltd.
4099 McEwen Road, Suite 370
Dallas, Texas 75244
Fax: (972) 386-6811
Attn: Property Manager
Tenant's Name and Home Interiors & Gifts, Inc.
Address: 4055 Valley View Lane, Suite 700
Dallas, Texas 75244
Fax:______________________________________
Attn: Donald J. Carter, Jr. and Tina Simon
With Copies To:
Weil, Gotshel & Manges
100 Crescent Court, #1300
Dallas, Texas 75201
Attn: Robert Feldman
(b) Building: Granite Tower at The Centre
4055 Valley View Lane
Dallas, Texas 75244
containing approximately 240,153 square feet
of total rentable area
(c) Premises: Approximately 74,139 square feet of rentable
area on the fifth, sixth and seventh floors
of the Building, designated as Suite Nos.
500, 600 and 700 respectively. (See Exhibit A)
Surface Parking Garage Parking
(d) Parking: 83 Unreserved spaces @ $ 0.00 214 Unreserved spaces @ $ 0.00
per month each per month each
10 Reserved spaces @ $ 0.00
per month each (See Exhibit "F")
Tenant shall have the continuing right to substitute at any time and from time to time up to ten (10) unreserved garage
spaces for ten (10) covered reserved spaces at a monthly cost of $20.00 per space.
(e) Permitted Use: General Office Use and all other lawful purposes (per Article 6
herein)
</TABLE>
Home Interiors & Gifts, Inc.
Granite Tower at The Centre, 8/17/1999
1
<PAGE> 5
<TABLE>
<S> <C>
(f) Primary Term: Ten ( 10 ) years and zero ( 0 ) months (See Article 3)
(g) Commencement Date: January 3, 2000, subject to Exhibit "D" hereto, paragraph 2.4
(See Article 3)
(h) Expiration Date: January 2, 2010 subject to Exhibit "D" hereto, paragraph 2.4
(See Article 3)
(i) Tenant's Pro Rata
Share: 30.87% (See Article 5)
(j) Base Rent:
Rate per Square Base Base
Rental Foot of Annual Monthly
Period Rentable Area Rent Rent
January 3, 2000 - December 31, 2004 $21.80 $1,616,230.20 $134,685.85
January 1, 2005 - January 2, 2010 $22.80 $1,690,369.20 $140,864.10
(k) Base Operating
Expense: Operating Expenses per square foot of rentable area for the calendar
year 2000 (excluding electricity) as grossed up for 95% occupancy,
fully assessed taxes (See Article 5.)
(l) Security Deposit: Waived (See Article 4)
(m) Guarantor: N/A (See "Rider No. " )
(n) Tenant's Broker: The Staubach Company (such broker is represented by
Greg Burns )
(o) Address for Payment of Base Rent:
(See Article 4)
520 Partners, Ltd.
P.O. Box 911597
Dallas, Texas 75391-1597
</TABLE>
ARTICLE 2
2.01. PREMISES. In consideration of the obligation of Tenant to pay
Rent as herein provided and in consideration of the other terms, covenants and
conditions hereof, Landlord hereby does lease, let and demise unto Tenant, and
Tenant hereby does lease and rent from Landlord, upon and subject to the
provisions of this Lease, rentable area which is hereby stipulated and for all
purposes hereof agreed to be as stated in 1.01(c) above and as reflected on the
floor plan(s) attached hereto as Exhibit "A" and incorporated herein for all
purposes (such space so leased to Tenant is herein called the "Premises")
located in the Building as set forth in Article 1.01(b) and situated on the
tract of "Land" herein so called and described in Exhibit "B" attached hereto
and incorporated herein for all purposes, together with the parking spaces
described in Article 1.01 (d) (the Building, the Land, and the parking area and
garage being hereinafter collectively referred to as the "Project"), TO HAVE AND
TO HOLD said Premises for the Term, subject to the provisions of this Lease.
2.02. IMPROVEMENTS BY LANDLORD. Subject to delays caused solely by
Tenant, Tenant's agents or contractors, Landlord shall substantially complete
Tenant's Improvements (as defined in Exhibit "D" attached hereto) to be
constructed or installed by Landlord pursuant to Exhibit "D" attached hereto and
incorporated herein for all purposes, on or before December 1, 1999. All
installations now or hereafter placed on the Premises in excess of the Tenant's
Improvements as set forth in Exhibit "D" shall be for Tenant's account and at
Tenant's cost (and Tenant shall pay ad valorem taxes and increased insurance
thereon), which costs shall be payable by Tenant to Landlord as additional rent
hereunder promptly upon being invoiced therefor, and failure by Tenant to pay
same in full within thirty (30) days of invoice shall constitute an event of
default by Tenant hereunder giving rise to all remedies available to Landlord
under this Lease and at law for non-payment of rent. In the event that Tenant's
Improvements and remainder of the Premises are not Substantially Complete (as
defined in Exhibit "D") by December 1, 1999 (subject to Force Majeure and Tenant
Delay), then Tenant may withhold from Base Rent liquidated damages in an amount
equal to one (1) day of Base Rent for each one (1) day of delay from and after
December 1, 1999 until December 31, 1999 and two (2) days of Base Rent for each
one (1) day of delay from and after January 1, 2000 until Substantial Completion
occurs.
Home Interiors & Gifts, Inc.
Granite Tower at The Centre, 8/17/1999
2
<PAGE> 6
2.03. CONDITION OF PREMISES. Landlord represents and warrants that (a)
the Building is in material compliance with all governmental laws, ordinances
and codes (including, without limitation, all building codes) applicable to the
Building, and (b) the levelness of floor slabs is materially equivalent to that
contained in comparable buildings. Tenant has inspected the Premises and the
common areas of the Building and the parking facilities, is familiar with their
condition and accepts same in their present "AS IS" condition. Tenant
acknowledges that Landlord is not obligated to do any further construction or
make any additional improvements, except as provided in Section 2.02 and Exhibit
"D" hereof.
2.04. MODIFICATIONS OF AREA. Upon Substantial Completion (as defined in
Exhibit "D") of the Premises, at Tenant's request and expense, Landlord's
architect and Tenant's architect shall jointly remeasure and recalculate the
rentable area of the Premises in accordance with the Standards contained in the
published by Building Owners and Managers Association International as revised
and readopted June 7, 1996. In the event the rentable area of the Premises as
recalculated differs from the amount of rentable area set forth in 1.01(c)
hereof, then this Lease will be amended by the parties to reflect such
difference in rentable area, including, without limitation, the difference in
Base Rent and Tenant's Pro Rata Share (as both are hereinafter defined).
ARTICLE 3
3.01. TERM. Subject to the other provisions hereof, this Lease shall be
and continue in full force and effect for the Primary Term as set forth in
Section 1.01(f) and commencing on the Commencement Date set forth in Section
1.01(g) (subject to Exhibit "D" hereto, paragraph 2.4) and expiring on the
Expiration Date set forth in Section 1.01(h). Such term, as it may be extended
or modified only by written agreement of the parties or pursuant to an express
provision of this Lease, is herein called the " Term".
3.02. COMMENCEMENT. The Commencement Date shall be January 3, 2000
(subject to Exhibit "D" hereto, paragraph 2.4).
3.03. LATE POSSESSION. Tenant Delays shall not delay the Commencement
Date, the Expiration Date or the commencement of installments of Rent.
3.04. EARLY POSSESSION. If prior to the Commencement Date, Tenant shall
enter into possession of all or any part of the Premises, such possession shall
be subject to all of the provisions of this Lease, and the Term and the payment
of all Rent shall commence, with respect to all or such part of the Premises as
are so occupied by Tenant, on the date of such entry, and the total amount of
all Rent due hereunder shall be increased accordingly, provided that no such
early entry shall operate to change the Expiration Date provided for herein.
Notwithstanding the foregoing, Tenant and Tenant's contractors and consultants
shall have the right to enter upon the Premises prior to the Commencement Date
for the purpose of installing Tenant's telephone systems, office equipment,
trade fixtures and furnishings and such entry shall be subject to all terms and
conditions of this Lease other than the obligation to pay Rent.
3.05. ACCEPTANCE OF PREMISES MEMORANDUM. Upon Substantial
Completion (as defined in Exhibit "D") of Tenant's Improvements, Landlord and
Tenant shall execute the Acceptance of Premises Memorandum, a form of which is
attached hereto as Exhibit "E" and incorporated herein for all purposes. If
Tenant fails to execute a completed Acceptance of Premises Memorandum within
fifteen (15) days after the occurrence of Substantial Completion, Tenant shall
be deemed to have accepted the Premises and Substantial Completion shall be
deemed to have occurred on the date specified in Landlord's notice of
Substantial Completion.
ARTICLE 4
4.01. BASE RENT. Tenant, in consideration for this Lease and the
leasing of the Premises for the Term, agrees to pay to Landlord the Base Rent in
such amounts as set forth in Section 1.01(j) (subject to adjustments as provided
for herein). Base Rent is payable in advance, and without demand, on the first
day of each calendar month during the Term. If the Commencement Date is other
than the first day of a month, Tenant shall be required to pay only a pro rata
portion of the monthly installment of Base Rent for such partial month.
4.02. PAYMENT OF RENT. As used in this Lease, "Rent" shall mean the
Base Rent, the Operating Expense reimbursements pursuant to Section 5.01,
Tenant's Electricity Charge pursuant to Section 5.02B, the Parking Rent pursuant
to Section 17.14 hereof, and all other monetary obligations provided for in this
Lease to be paid by Tenant, all of which shall constitute rental in
consideration for this Lease and the leasing of the Premises. Without invoice or
other notice from Landlord, Tenant shall send Base Rent and other sums due
hereunder in legal tender of the United States of America to Landlord at the
address set forth in Section 1.01(o) or to such other person or at such other
address as Landlord may from time to time designate in writing. The Rent shall
be paid without notice, demand, abatement, deduction, or offset except as may be
expressly set forth in this Lease.
Home Interiors & Gifts, Inc.
Granite Tower at The Centre, 8/17/1999
3
<PAGE> 7
Landlord shall, at its option, have the right to collect from Tenant,
ten cents ($.10) for each dollar ($1.00) of each installment of Rent which is
not received on its due date for any reason whatsoever and such non-payment
continues for five (5) days after written notice thereof has been given by
Landlord to Tenant and Tenant agrees to pay such amount immediately on demand as
liquidated damages to cover the additional costs of collecting and processing
such late payments. Tenant acknowledges that the late payment by Tenant to
Landlord of Rent due hereunder will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of the late payment by
Tenant. If such failure to pay Rent continues beyond a fifteen (15) day period,
any and all due and unpaid Rent shall bear interest at the lesser of (i)
eighteen percent (18%) per annum, or (ii) the maximum non-usurious rate allowed
by applicable law (the "Default Interest Rate"), from the date such Rent became
due until the date such Rent is received by Landlord. Such interest shall be
immediately due and payable as additional Rent hereunder. The collection of such
late charge and/or such interest by Landlord shall be in addition to and
cumulative of any and all other remedies available to Landlord.
It is the intention of Landlord and Tenant to conform to all applicable
laws concerning the contracting for, charging and receiving of interest. In the
event that any payments of interest required under this Lease are ever found to
exceed any applicable limits, Landlord shall credit the amount of any such
excess paid by Tenant against any amount owing under this Lease or if all
amounts owing under this Lease have been paid, Landlord shall refund to Tenant
the amount of such excess paid by Tenant. Landlord and Tenant agree that
Landlord shall not be subject to any applicable penalties in connection with any
such excess interest, it being agreed that any such excess interest contracted
for, charged or received pursuant to this Lease shall be deemed a result of a
bona fide error and a mistake. The obligation of Tenant to pay Rent is an
independent covenant, and, except as may otherwise be provided for herein, no
act or circumstance, whether constituting a breach of covenant by Landlord or
not, shall release or modify Tenant's obligation to pay Rent.
4.03. SECURITY DEPOSIT. Intentionally Deleted.
ARTICLE 5
5.01. OPERATING EXPENSE REIMBURSEMENT. The Base Rent payable under
Section 4.01 of this Lease includes an annual allocation for operating expenses
equal to the Operating Expense (defined in Section 5.02 hereof) per square foot
of rentable area of the Premises for the calendar year set forth in
Section1.01(k) (the "Base Operating Expense"). In the event that Tenant's Pro
Rata share of Operating Expenses (defined in Section 5.02A hereof) of the
Building during any calendar year of the Term shall exceed the Base Operating
Expense, Tenant shall pay to Landlord its proportionate share of the increase in
such Operating Expenses over the Base Operating Expense. On or before the first
day of each calendar year during the Term (or as soon thereafter as is
reasonably possible), Landlord shall provide to Tenant the reasonable Estimated
Operating Expense Increase for the upcoming year. In addition to the Base Rent,
Tenant shall pay in advance on the first day of each calendar month during the
Term, installments equal to 1/12th of Tenant's Pro Rata Share (as set forth in
Section 1.01 (i) of the Estimated Operating Expense Increase.
As soon as possible after the end of each calendar year during the
Term, Landlord shall furnish to Tenant a statement of the Actual Operating
Expense Increase (hereinafter defined) for the immediately preceding calendar
year, which statement shall specify the various types of Operating Expenses and
set forth Landlord's calculations of Tenant's Pro Rata Share of the Actual
Operating Expense Increase. If Tenant's Pro Rata Share of the Estimated
Operating Expense Increase paid to Landlord during the previous calendar year
exceeds Tenant's Pro Rata Share of the Actual Operating Expense Increase, then
Landlord shall, at Tenant's option, either refund the difference to Tenant at
the time Landlord furnishes the statement of the Actual Operating Expense
Increase or credit the amount overpaid by Tenant to Tenant's Pro Rata Share of
the Estimated Operating Expense Increase for the next calendar year. If Tenant's
Pro Rata Share of Estimated Operating Expense Increase paid to Landlord during
the previous calendar year is less than Tenant's Pro Rata Share of the Actual
Operating Expense Increase, then Tenant shall pay to Landlord the amount of such
underpayment. Any amount due Landlord as shown on any such statement shall be
paid by Tenant within sixty (60) days after it is furnished to Tenant.
The "Estimated Operating Expense Increase" shall equal Landlord's
reasonable estimate of Tenant's Pro Rata share of Operating Expenses for the
applicable calendar year, less the Base Operating Expense. Landlord's statement
of the Estimated Operating Expense Increase shall control for the year specified
in such statement and for each succeeding year during the Term until Landlord
provides a new statement of the Estimated Operating Expense Increase. The
"Actual Operating Expense Increase" shall equal Tenant's Pro Rata share of the
actual Operating Expenses for the applicable calendar year, less the Base
Operating Expense. If Operating Expenses change during a calendar year or if the
number of square feet of rentable area in the Premises changes, Landlord may
revise the estimated Additional Rent during such year by giving Tenant written
notice to that effect and thereafter Tenant shall pay to Landlord, in each of
the remaining months of such year, an amount commensurate with the change in the
estimated Additional Rent divided by the number of months remaining in such
year.
5.02A. OPERATING EXPENSES. The term "Operating Expenses" shall mean and
include all reasonable and customary amounts, expenses, and costs of whatsoever
nature (other than electricity) that Landlord incurs, pays or becomes obligated
to pay because of or in connection with the ownership, operation, management,
repair, or maintenance of the Project and Landlord's personal property used
solely in connection therewith. Operating Expenses shall be determined on an
accrual basis in accordance with generally accepted accounting principles
consistently applied
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and shall include, without limitation, the following:
(a) Wages, salaries, fees, related taxes, insurance, benefits, and
reimbursable expenses of all personnel directly engaged in operating, repairing,
and maintaining the Project and providing traffic control about the Project;
provided, however, that if during the Term such personnel are also working on
other projects being operated by Landlord, their wages, salaries, fees and
related expenses shall be allocated by Landlord in good faith among all of such
projects and only that portion of such expenses incurred directly with respect
to the Project shall be included as an "Operating Expense."
(b) Cost of all labor, supplies, tools, equipment and materials used in
operating, repairing, and maintaining the Project.
(c) Cost of all utilities (except for electricity) for the Project,
including, without limitation, water, gas and fuel oil.
(d) Cost of all maintenance, security, window cleaning, elevator
maintenance, landscaping, repair, janitorial, and other similar service
agreements for the Project and the equipment and other personal property of
Landlord therein and thereon used solely in connection with the operation,
management, repair or maintenance of the Project.
(e) Cost of all insurance relating to the Project and its occupancy or
operations, including but not limited to (i) the cost of casualty and liability
insurance applicable to the Project or Landlord's personal property used solely
in connection with the operation of the Project, (ii) the cost of business
interruption insurance in such amounts as will reimburse Landlord for all losses
of earnings and other income attributable to the ownership and operation of the
Project, and (iii) the cost of insurance against such perils and occurrences as
are commonly insured against by prudent landlords.
(f) All taxes, assessments, and governmental charges and fees of
whatsoever nature, whether now existing or subsequently created, attributable to
the Project or its occupancy or operation, excluding only franchise and income
taxes of Landlord (but not excluding such taxes if imposed in the future wholly
or partially in lieu of present real estate, ad valorem, or similar taxes), and
including all such taxes whether assessed to or paid by Landlord or third
parties, but excluding such taxes to the extent, if any, that Tenant, any other
tenant of the Project, or any other party specifically reimburses Landlord
therefor (other than through the payment of Operating Expense reimbursements).
Section 41.413 of the Texas Property Tax Code gives Tenant the right to protest
a determination of the appraised value of the Land if Landlord does not so
protest and requires Landlord to deliver to Tenant a notice of any determination
of the appraisal value of the Land. Tenant agrees not to protest any valuation
unless Tenant notifies Landlord in writing of Tenant's intent to protest and
Landlord fails to protest the valuation within fifteen (15) days after Landlord
receives Tenant's written notice. Tenant shall be responsible for all costs
associated with any protest brought by Tenant, except that Tenant shall be
reimbursed for its costs from any refund or rebate of taxes obtained as a direct
result of Tenant's protest.
(g) Costs of repairs to and maintenance of the Project undertaken by
Landlord in its sole reasonable discretion on or of the Project, excluding any
such costs as are paid by the proceeds of insurance, by Tenant, or by other
third parties, and excluding any alterations of space occupied by other tenants
of the Building.
(h) A management fee customary in the marketplace for office buildings
comparable to the Building for management services rendered in connection with
the Project (as used in this Lease, "comparable" buildings shall mean Class A
office buildings in the North Dallas office market which are similar in age,
size, location and structure as the Building).
(i) The cost of capital investment items to the extent they are
generally designed and intended to reduce Operating Expenses for the benefit of
all of the Project's tenants or which may be required by any governmental
authority. All such costs, including interest costs, shall be amortized over the
reasonable life of the capital investment items, with the reasonable life and
amortization schedule being determined by Landlord according to generally
accepted accounting principles, but in no event to extend beyond the reasonable
life of the Building.
(j) Landlord's central accounting costs allocated by Landlord in good
faith among all projects of Landlord, and legal, appraisal (if such appraisal is
related to efforts to reduce Operating Expenses), and other such third party
fees directly relating to the operation of the Project.
(k) The fair market rental value of Landlord's and the property
manager's offices, if any, in the Building.
Nothing contained in this Section 5.02 shall be construed as requiring
Landlord to provide any services which are not specifically set forth in this
Lease as obligations of Landlord.
5.02 B. EXCLUSIONS FROM OPERATING EXPENSES. The term "Operating
Expenses" shall not include any item which is not customarily considered to be a
normal expense of maintenance, operation or repair, including, without
limitation, the following:
(a) electrical expenses.
(b) federal income and state franchise taxes payable by Landlord.
(c) costs for which Landlord actually receives reimbursement by
insurance or condemnation awards.
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(d) expenses incurred in leasing or procuring new tenants, including
advertising expenses, legal fees or leasing commissions paid to agents of
Landlord or other brokers.
(e) depreciation of the Building or Landlord's personal property at the
Building.
(f) interest on debt or amortization payments on any debt served by a
deed of trust on the Land.
(g) rental under any superior lease or sublease.
(h) dividends or partnership distributions paid by Landlord.
(i) (except as provided in Section 5.02A(i) above) cost of alterations
and capital improvements not treatable as expenses under generally accepted
accounting principals.
(j) costs for repair or maintenance that are reimbursed by others.
(k) above market or noncompetitive payments to venders.
(l) costs resulting from defects in design, construction or workmanship
with respect to the Building.
(m) costs due to Landlord's default under this Lease.
(n) costs due solely to the negligence or willful misconduct of the
Landlord, its employees, agents, contractors or assigns.
(o) costs, fines or penalties incurred due to a violation of law by
Landlord and the defense of same.
(p) any legal fees to resolve disputes involving Landlord.
(q) cost of artwork.
(r) any costs of work which is to be performed by Landlord under
Exhibit "D" of this Lease.
(s) expenses for vacant or vacated space.
(t) expenses incurred solely for the benefit of any other tenant.
(u) costs related to the addition of other buildings on, and/or
expansion of the Land.
(v) local or civic contributions
(w) any other unreasonable cost. To the extent that an expense is not
specifically included or excluded as a component of Operating Expenses, whether
such expense shall be treated as an Operating Expense, shall be determined in
accordance with generally accepted accounting principles, consistently applied.
5.02 C. TENANT'S ELECTRICITY CHARGE. Tenant covenants and agrees to pay
to Landlord as additional Rent without any setoff or deduction whatsoever
Tenant's Pro Rata Share as set forth in Section 1.01(i) of all electricity
consumed in the use, occupancy, and operation of the Building, the parking
garage associated with the Building and the exterior perimeter lights for the
remainder of the Building and Project (hereinafter called "Tenant's Electricity
Charge"). By the Commencement Date (or as soon thereafter as is reasonably
possible), Landlord shall give Tenant written notice of the reasonable estimated
amount of Tenant's Electricity Charge owing for the remainder of the calendar
year in which the Commencement Date occurs and the amount of the monthly
installment of Tenant's Electricity charge due for each month during such year.
By December 1 of the calendar year in which the Commencement Date occurs and by
December 1 of each calendar year thereafter (or as soon thereafter as is
reasonably possible), Landlord shall give Tenant written notice of the
reasonable estimated amount of Tenant's Electricity Charge for the next calendar
year and the amount of the monthly installment of Tenant's Electricity Charge
due for each month during such year. Beginning on the Commencement Date and
continuing on the first day of each month thereafter, Tenant shall pay to
Landlord the amount of the applicable monthly installment of Tenant's
Electricity Charge, without demand, offset or deduction, provided, however, if
the applicable installment covers a partial month, then such installment shall
be prorated on a daily basis.
(b) This subparagraph (b) applies to each calendar year during which
Tenant's Electricity Charge is owing except for the calendar year in which the
Expiration Date occurs. Within thirty (30) days after the end of each calendar
year or as soon thereafter as is reasonably possible, Landlord shall prepare and
deliver to Tenant a statement showing the actual amount of Tenant's Electricity
Charge for the applicable calendar year. If Tenant's total monthly payments of
estimated Tenant's Electricity Charge for the applicable year are less than the
actual amount of Tenant's Electricity Charge, then Tenant shall pay to Landlord
the amount of such underpayment within thirty (30) days. If Tenant's total
monthly
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payments of estimated Tenant's Electricity Charge for the applicable year are
more than Tenant's actual Tenant's Electricity Charge, then Landlord shall
credit or against the next Tenant's Electricity Charge payment or payments due
from Tenant or refund to Tenant at Tenant's option the amount of such
overpayment within thirty (30) days.
(c) This subparagraph (c) applies to the calendar year during which the
Expiration Date occurs (the "Final Calendar Year"). Within ninety (90) days
after the Expiration Date or as soon thereafter as is reasonably possible,
Landlord shall prepare and deliver to Tenant a statement showing the actual
amount of Tenant's Electricity Charge for the period beginning January 1 of the
Final Calendar year and ending on the Expiration Date (such period is herein
called the "Final Electricity Period"). If Tenant's total monthly payments of
estimated Tenant's Electricity Charge for the Final Electricity Period are less
than Tenant's actual Tenant's Electricity Charge for such period, then Tenant
shall pay to Landlord the amount of such underpayment within thirty (30) days.
If Tenant's total monthly payments of estimated Tenant's Electricity Charge for
the Final Electricity Period are more than Tenant's actual Tenant's Electricity
Charge for such period, Landlord shall pay to Tenant the amount of such excess
payments, less any amounts then owed to Landlord within thirty (30) days.
Notwithstanding anything to the contrary hereinbefore contained,
Landlord may at any time during the Term hereof, elect to install meters
measuring electricity used in the Building and/or the Premises which may also
include meters measuring electricity used for heating and cooling the Building
and/or the Premises, and in such cases, Tenant's Pro Rata Share of such costs
shall then be based on actual use as measured by such meters but with any areas
sharing a meter being prorated on the basis that the area of the Premises bears
to the area covered by the meters.
Electrical power which is separately metered or is otherwise separately
assessable to tenants of the area served by such facilities and the cost of
normal and after-hours air conditioning supplied to tenants of the area so
served shall be excluded in computing Tenant's Electricity Charge as aforesaid.
5.03. PRORATION AND ADJUSTMENT OF OPERATING EXPENSES. If this Lease
commences on other than the first day of a calendar year, or if this Lease
expires or terminates on other than the last day of a calendar year, then the
Operating Expenses for all of such calendar year shall be prorated according to
the portion of the Term that occurs during such calendar year. If at any time
the Building is not fully occupied or Landlord is not supplying all services to
all portions of the Building during an entire calendar year, then, at Landlord's
option, Operating Expenses, the Actual Operating Expense Increase, and the
Estimated Operating Expense Increase shall be adjusted as though the Building
had been ninety-five percent (95%) occupied and Landlord were supplying all
services to such portions of the Building during the entire calendar year. Such
ninety-five percent (95%) gross up shall be applied to the Base Operating
Expense.
5.04 RIGHT TO AUDIT.
(a) Landlord shall maintain for a period of at least two (2)
years following the end of the period to which they pertain complete and
accurate books and records of all items of Operating Expenses and electricity
expenses paid or incurred by Landlord. Such books and records shall be kept at a
location in Dallas County, and Tenant's third-party auditors shall have the
right, with reasonable notice, to inspect, copy and audit such books and records
at any time during normal business hours. Landlord shall promptly repay Tenant
for any overpayments which Tenant's third-party auditors accurately identify
together with interest thereon at the rate of ten percent (10%) per annum from
the date paid by Tenant until full refund. If such overpayments exceed three
percent (3%) of the aggregate of Tenant's Operating Expense and Electricity
Charge for the period in question, then Landlord shall pay for the reasonable
cost of such audit. If Landlord fails to maintain sufficient documentation to
reasonably substantiate any item of Operating Expense or Electricity Charge,
Landlord shall on demand refund to Tenant its payment of such item, together
with interest thereon at the highest legal rate from the date paid until full
refund.
ARTICLE 6
6.01. USE. Tenant shall use and occupy the Premises only for the
Permitted Use set forth in Section 1.01(e) hereof, and for no other purposes.
Tenant shall not use or permit the Premises or any portion thereof to be used
for any purpose other than the Permitted Use or for any unlawful purpose or in
any unlawful manner, and shall comply with all federal, state, and local
governmental laws, ordinances, orders, rules and regulations applicable to the
Premises, the Project, and the occupancy thereof and Tenant shall give prompt
written notice to Landlord of any notification to Tenant of any claimed
violation thereof. Tenant shall not do or permit anything to be done in or about
the Premises, nor bring or keep anything therein which will in any way increase
the existing rate of or affect any fire or other insurance upon the Project or
any of its contents, or cause cancellation of any insurance policy covering the
Project or any part thereof or any of its contents. In the event that, solely by
reason of any acts of Tenant or its conduct of business, there shall be any
increase in the rate of insurance on the Building or its contents, Tenant hereby
agrees to pay such increase. Tenant shall not do or permit anything to be done
in or about the Premises and/or Project which will in any way obstruct or
interfere with the rights of other tenants or occupants of the Project or injure
or annoy them. Tenant shall not permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or upon
the Premises. Without limitation of the foregoing, Tenant shall not, without
Landlord's prior written consent, use, store, install, spill, remove, release or
dispose of, within or about the Premises or any other portion of the Project,
any asbestos-containing materials or any solid, liquid or gaseous material now
or hereafter considered toxic or hazardous under the provisions of 42 U.S.C.
9601, et seq., or any other applicable environmental law which may now or
hereafter be in effect. If Landlord does give written consent to Tenant pursuant
to the foregoing sentence, Tenant shall comply with all applicable laws, rules
and regulations pertaining to and governing such use by Tenant, and shall remain
liable for the costs of any clean up or removal required to be performed with
respect to such asbestos-containing, toxic or hazardous materials.
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ARTICLE 7
7.01. LANDLORD'S SERVICES. Subject to the availability of necessary
service from the appropriate public utility or other entity responsible for
providing such service, Landlord shall, at Landlord's expense, except as
provided to the contrary in this Lease, furnish to Tenant in the occupied
portion of the Premises the following services, which shall be of a standard of
quality for buildings "comparable" to the Building:
(a) Air-conditioning and central heat at such temperatures and in such
amounts as are customary for buildings "comparable" to the Building, during
normal business hours for the Building as set forth in the Rules and Regulations
attached as Exhibit "C" attached hereto and incorporated herein for all
purposes.
(b) Janitorial cleaning services in the Premises and public and
exterior portions of the Building for all days, except Saturdays, Sundays and
holidays; provided, however, if Tenant's floor covering or other improvements is
other than Building Standard, Tenant shall pay the additional cleaning cost
attributable thereto as additional Rent within thirty (30) days of the
presentation of a statement therefor by Landlord. Such services will be provided
at such times and in accordance with Annex 1 hereto.
(c) Hot and cold water at those points of supply provided for general
use of other tenants in the Building.
(d) Normal and customary routine maintenance for all public,
structural, and exterior portions of the Project according to standards
customary for office buildings "comparable" to the Building.
(e) Electric lighting service for all public portions of the Project in
the manner and to the extent customary for office buildings "comparable" to the
Building.
(f) Automatic passenger elevator service for access to and egress from
the Premises. Freight elevator service, in common with other tenants, shall be
provided during reasonable business hours as prescribed by Landlord, exclusive
of Saturdays, Sundays, and holidays. Landlord may reduce the number of elevators
operating outside of business hours.
(g) All Building Standard fluorescent bulb replacement in all common
and public areas, toilet and restroom areas and stairwells, and the electrical
power required for Building Standard fluorescent fixtures; provided, however,
bulb replacement required for lights in the Premises which are above Building
Standard shall be paid for by Tenant in a manner determined by Landlord, in
Landlord's reasonable discretion.
(h) Electrical facilities to furnish sufficient power for typewriters,
calculating machines, personal computers and other machines of similar low
electrical consumption such that the total electrical power available shall be
at least six watts per square foot of rentable area; but not including
electricity required for electronic data processing equipment, special lighting
in excess of Building Standard, and any other item of electrical equipment, the
electrical power equipment of which (singly) is more than 0.5 kilowatts per hour
at rated capacity or requires a voltage other than 110/120 volts single phase;
and provided that Landlord shall not be obligated to provide dedicated circuits
or electrical power in excess of Building Standard and provided that if the
installation of said electrical equipment requires additional air conditioning
capacity above that provided by the Building Standard system, then the
additional air conditioning installation and operating costs will be the
obligation of Tenant. Landlord, at its option, may cause a water meter, electric
current meter or such similar device to be installed on the Premises so as to
measure the amount of water and electric current consumed by Tenant. The cost of
any such meters and of the installation, maintenance and repair thereof shall be
paid for by Tenant and Tenant agrees to pay Landlord, after thirty (30) days of
demand by Landlord, for all such excess water and electric expense incurred. If
a separate meter is not installed or Landlord is prevented from installing a
separate meter by operation of law or other cause beyond Landlord's control,
such excess costs for such water and electric current will be established by an
estimate made by the utility company, electrical engineer, or an independent
consultant, which estimate shall be binding on Tenant. Landlord and Tenant agree
that in the event Landlord adopts a new method for measuring, allocating and
charging for electrical usage within the Building, the Lease shall be amended to
reflect the new method.
(i) Security services standard for office buildings i "comparable" to
the Building, including, without limitation, an electrically controlled security
card access system controlling access to the Building and parking garage, which
will grant access to individuals with authorized cards. NOTWITHSTANDING ANYTHING
HEREIN TO THE CONTRARY, TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD
IS NOT WARRANTING THE EFFICIENCY OF ANY SUCH SECURITY PERSONNEL, SERVICE,
PROCEDURES OR EQUIPMENT. LANDLORD SHALL NOT BE RESPONSIBLE OR LIABLE IN ANY
MANNER FOR FAILURE OF ANY SUCH SECURITY PERSONNEL, SERVICES, PROCEDURES OR
EQUIPMENT TO PREVENT, CONTROL, OR APPREHEND ANYONE SUSPECTED OF CAUSING PERSONAL
INJURY OR DAMAGE IN, ON OR AROUND THE PROJECT (EXCLUDING LANDLORD'S GROSS
NEGLIGENCE AND WILLFUL MISCONDUCT).
Notwithstanding anything hereinabove to the contrary, Landlord
reserves the right from time to time to make reasonable modifications to the
above standards for utilities and services that are provided to all tenants in
the Building.
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7.02. ADDITIONAL SERVICES. Landlord may impose a reasonable charge for
any utilities and services, (including without limitation, janitorial,
maintenance, security, air conditioning, electrical current and water), provided
by Landlord by reason of any use of the services at any time other than the
hours as set forth in the Rules and Regulations attached hereto as Exhibit "C"
or beyond the levels or quantities that Landlord agrees herein to furnish or
because of special electrical, cooling or ventilating needs created by Tenant's
hybrid telephone equipment, computers or other equipment; provided, however,
that Tenant's excessive use or consumption of heating, air conditioning and/or
electrical services in violation of Section 7.01 above, without Landlord's prior
written consent, shall constitute a Default under this Lease. Upon request of
Tenant to be given to the Property Manager of the Project before 3:00 p.m. of
the business day of requested extra usage, Landlord shall make available, at
Tenant's expense, after hours heat or air conditioning. The minimum charge and
the hourly rate for the use of after hours heat or air conditioning (HVAC) shall
be the actual cost of the utilities to Landlord of providing such service plus
an equipment depreciation charge as reasonably determined by Landlord's thirty
party engineers (such determination to be substantiated to the reasonable
satisfaction of Tenant). For purposes of this Lease, the hourly rate charged for
calendar year 2000 for such after hours HVAC is $12.58 per hour per floor.
7.03. INTERRUPTION OF SERVICES. Notwithstanding anything herein to the
contrary, the obligations of the Landlord to provide the services and utilities
provided above shall be subject to governmental regulation (e.g., rationing,
temperature, control, etc.) and any such regulation which requires Landlord to
provide or not provide such services or utilities other than as herein provided,
shall not constitute a default hereunder, but rather compliance with such
regulation shall be deemed to be compliance by Landlord hereunder. Any failure
or defect in Landlord's hereinabove described services shall not be construed as
an eviction of Tenant, nor entitle Tenant to any reduction, abatement, offset,
or refund of Rent or to any damages from Landlord and in no event shall Landlord
be liable for damage to persons or property (including, without limitation,
business interruption) or be in default hereunder as a result of any such
uncontrollable event or results or effects thereof. Landlord shall not be in
breach or default under this Lease, provided Landlord uses reasonable diligence
to restore any such failure or defect promptly after Landlord receives written
notice thereof. Notwithstanding the foregoing, in the event of the failure to
furnish, any stoppage of or other interruption in the furnishing of the services
or utilities described in Section 7.01, which continues for three (3)
consecutive business days after receipt by Landlord of written notice thereof
from Tenant, and such failure, stoppage or interruption is not caused by force
majeure (defined in Section 17.10 hereof), a casualty covered by Section 10.01
hereof, a failure on the part of a public utility, or by any negligent act or
omission of Tenant, its agents, employees or contractors, Tenant shall be
entitled, as its sole and exclusive remedy, to an abatement of Base Rent and
Actual Operating Expense Increases in proportion to the area of the Premises
that is rendered untenantable by such failure, stoppage or interruption, with
such abatement to begin on the fourth (4th) business day after the receipt by
Landlord of written notice of such occurrence and continuing until such failure,
stoppage or interruption has been cured.
7.04. KEYS AND LOCKS. Landlord shall furnish to Tenant two (2) keys for
each corridor door entering the Premises. Additional keys will be furnished at a
charge by Landlord on an order signed by Tenant or Tenant's authorized
representative. All such keys shall remain the property of Landlord. No
additional locks shall be allowed on any door of the Premises without Landlord's
written consent, and Tenant shall not make, or permit to be made, any duplicate
keys, except those furnished by Landlord. Upon termination of this Lease, Tenant
shall surrender to Landlord all keys to the Premises, and give to Landlord an
explanation of the combination of all locks for safes, safe cabinets and vault
doors, if any, in the Premises.
7.05. SIGNS. Landlord shall provide and install all letters and
numerals on entrance doors in or at the Premises. All such letters and numerals
are to be Building Standard graphics, and no other letters, numbers, or signage
shall be used or permitted on the Premises without the prior written consent of
Landlord. Tenant shall not place signs on the Premises which are visible from
outside the Premises, without Landlord's prior written consent. Tenant shall not
place or permit to be placed or maintained on any exterior door, wall or window
of the Premises any sign, awning, canopy, advertising matter or similar item of
any kind, and will not place or maintain any decoration, lettering or
advertising matter on the glass of any window or door of the Premises without
first obtaining Landlord's prior written approval in each instance. Tenant shall
maintain any such sign, awning, canopy, decoration, lettering, advertising
matter or similar item as may be approved by Landlord, in good condition and
repair at all times. The restrictions contained in this Section 7.05 shall not
apply to the interior of any floor on which Tenant is the sole tenant.
ARTICLE 8
8.01. ALTERATIONS. Tenant shall not make or allow to be made any
alterations, installations, additions, or improvements in or to the Premises or
install any equipment or machinery (other than standard office equipment and
unattached personal property), without Landlord's prior written consent, which
shall not be unreasonably withheld or delayed. The parties agree that it shall
be reasonable under this Lease for Landlord to withhold its consent to any
proposed work only where such work will have a material adverse effect on
load-bearing or corridor walls, Building systems or equipment or the Building
structure or will alter the Building's external appearance. Notwithstanding the
foregoing, Tenant may, without Landlord's consent, perform interior work to the
Premises (such as replacement of floor coverings, window coverings, fixtures,
equipment, signage). Notwithstanding anything to the contrary contained herein,
unless such alterations exceed $25,000.00 or affect the mechanical systems,
floor, roof or other structural components of the Premises, Tenant shall not be
required to obtain Landlord's prior written approval for alterations, provided,
however, Tenant shall notify Landlord to provide Landlord with as-built drawings
within ten (10) days of the completion of such alterations. Should Tenant desire
to perform any alterations which require Landlord's consent, Tenant shall submit
plans
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and specifications for same to Landlord for Landlord's written approval before
beginning such work. Upon receipt by Tenant of the written approval of Landlord
of such plans and specifications, and upon payment by Tenant to Landlord of the
reasonable fees incurred by Landlord to have such plans and specifications
reviewed, Tenant may proceed to make such approved alterations so long as they
are in compliance with such approved plans and specifications and are performed
by a contractor approved by Landlord. Any and all such alterations, physical
additions or improvements, including those improvements made at the Tenant's
expense or under any agreement with the Tenant whereby the Tenant is given an
allowance or rent reduction in exchange for Tenant's agreement to install or
allow to be installed lease improvements, such as by way of example, but not
limitation, wall coverings, floor coverings or carpet, paneling, doors,
cabinets, appliances (such as refrigerators and dishwashers) and hardware, shall
become the property of Landlord at the expiration or termination of this Lease
or the termination of Tenant's right to possession of the Premises and shall in
no event be removed by Tenant; provided, however, that Landlord may require
Tenant, at Tenant's cost, to remove any or all of such items upon the expiration
or termination of this Lease or the termination of Tenant's right to possession
of the Premises (provided that Landlord had previously specified in writing in
connection with the approval of the plans and specifications relating thereto,
the requirement of removal) and, at Tenant's expense, repair any damage caused
by such removal. All installations shall be at Tenant's sole cost and expense.
Without in any way limiting Landlord's consent rights, Landlord shall not be
required to give its consent until (a) Landlord approves the contractor or
person making such and approves such contractor's insurance coverage to be
provided in connection with the work, (b) Landlord approves final and complete
plans and specifications for the work and (c) the appropriate governmental
agency, if any, has approved the plans and specifications for such work. All
work performed by Tenant or its contractor relating to the installations shall
conform to applicable governmental laws, rules and regulations, including,
without limitation, the Disability Acts. Upon completion of the installations,
Tenant shall deliver to Landlord "as built" plans. If Landlord performs such
installations at Tenant's request, Tenant shall pay Landlord, as additional
Rent, the cost thereof plus ten percent (10%) as reimbursement for Landlord's
overhead. Each payment shall be made to Landlord within ten (10) days after
receipt of an invoice from Landlord.
All work performed by Tenant with respect to the Premises shall (a) be
performed so as not to alter the exterior appearance of the Building, (b) be
performed so as not to adversely affect the structure or safety of the Building,
(c) comply with all building, safety, fire, and other codes and governmental and
insurance requirements, (d) be performed so as not to result in any usage in
excess of Building Standard quantities of water, electricity, gas, heating,
ventilating, or air-conditioning (either during or after such work) unless prior
written arrangements reasonably satisfactory to Landlord are made with respect
thereto, (e) be completed promptly and in a good and workmanlike manner and in a
quality equivalent to Building Standard, (f) be performed at Tenant's expense
and at such times and in such manner as Landlord may designate from time to time
to insure minimum disruption to other tenants in the Building, and (g) be
performed in such a manner that no valid mechanic's, materialman's, or other
similar liens be attached to Tenant's leasehold estate and in no event shall
Tenant permit, or be authorized to permit, any such liens (valid or alleged) or
other claims to be asserted against Landlord or Landlord's rights, estates, and
interests with respect to the Project or this Lease. Landlord will have the
right, but not the obligation, to inspect periodically the work in the Premises
and may require reasonable changes in the method of the work.
If any mechanic's lien is filed against the Premises or the Project or
any portion thereof, Tenant shall cause same to be discharged within twenty (20)
days after the lien is filed by paying or bonding over said lien. If Tenant
fails to comply with the foregoing sentence, Landlord shall (without limitation
of its other rights or remedies) have the right, but not the obligation, to
discharge said lien and Tenant shall immediately reimburse Landlord for any sum
of money expended by Landlord in connection with obtaining such discharge, which
amount shall be deemed to be Rent hereunder for all purposes. Landlord may
require, at Tenant's sole cost and expense, a lien and completion bond in an
amount equal to the estimated cost of any improvements, additions or alterations
in the Premises which have been approved by Landlord.
Any approval by Landlord (or Landlord's architect and/or engineers) of
any of Tenant's contractors or Tenant's drawings, plans or specifications which
are prepared in connection with any construction of improvements (including
without limitation, Tenant's Improvements) in the Premises shall not in any way
be construed as or constitute a representation or warranty of Landlord as to the
abilities of the contractor or the adequacy or sufficiency of such drawings,
plans or specifications or the improvements to which they relate, for any use,
purpose or condition.
8.02. REMOVAL OF TRADE FIXTURES AND PERSONAL PROPERTY. Tenant agrees to
remove all of its trade fixtures, personal property and, at Landlord's request,
certain other non-Building standard additions, installations, and/or
improvements (provided that Landlord had previously specified in writing in
connection with the approval of the plans and specifications relating thereto,
the requirement of removal) on or before the date of expiration or termination
of the Term, and shall promptly reimburse Landlord for the cost of repairing all
damage done to the Premises or the Project by such removal and the cost of
restoring the Premises to its original condition, casualty and reasonable wear
and tear excepted, after such removal. If Tenant fails to deliver the Premises
in the condition aforesaid, then Landlord may restore the Premises to such a
condition at Tenant's expense. All property required to be removed pursuant to
this Section not removed within the time period required hereunder shall
thereupon be conclusively presumed to have been abandoned by Tenant and Landlord
may, at its option, take over possession of such property and either (a) declare
the same to be the property of Landlord by written notice to Tenant at the
address provided herein or (b) at the sole cost and expense of Tenant, remove
and store and/or dispose of the same or any part thereof in a commercially
reasonable manner.
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8.03. REPAIRS BY LANDLORD. Landlord shall repair and maintain at its
cost the structural portions of the Project, including the basic plumbing, air
conditioning, heating and electrical systems installed or furnished by Landlord,
and all areas of the Project for the common non-exclusive use of all tenants in
the Project, in accordance with the standard for office buildings "comparable"
to the Building. Any maintenance or repairs caused solely by the negligence or
willful misconduct of Tenant or any of Tenant's employees, agents, invitees or
contractors shall be made by Landlord at Tenant's reasonable expense. Landlord
shall not be liable for any damages, compensation or claim for loss of the use
of the whole or any part of the Premises or Tenant's personal property, or any
inconvenience, loss of business, or annoyance arising from any such repair
and/or maintenance performed by Landlord hereunder, except for damage resulting
from Landlord's gross negligence or willful misconduct. Landlord reserves the
right to make such repairs, changes, alterations, additions, or improvements in
or to any portion of the Project and the fixtures and equipment thereof as it
may reasonably deem necessary or desirable.
8.04. REPAIRS BY TENANT. Tenant shall, at Tenant's sole cost and
expense, keep the Premises and any appliances in good condition and repair.
Tenant shall, upon the expiration or earlier termination of this Lease,
surrender the Premises to the Landlord in good condition, ordinary wear and tear
and casualty excepted. Any injury or damage to the Premises or Project, or the
appurtenances or fixtures thereof, caused by or resulting from the negligence or
willful misconduct of Tenant or Tenant's employees, servants, agents, invitees,
assignees, or subtenants shall be repaired or replaced by Tenant, or at Tenant's
option by Landlord at the reasonable expense of Tenant. If Tenant fails to
maintain the Premises or fails to repair or replace any damage to the Premises
or Project resulting from the negligence of Tenant, its employees, servants,
agents, invitees, assignees or subtenants and such failure persists for twenty
(20) days after notice from Landlord, Landlord may, but shall not be obligated
to cause such maintenance, repair or replacement to be done, as Landlord
reasonably deems necessary, and Tenant shall immediately pay to Landlord all
reasonable costs related thereto.
ARTICLE 9
9.01. LANDLORD'S INSURANCE. Landlord covenants and agrees that from
and after the date of this Lease, Landlord will carry and maintain the insurance
set forth in Section 9.01(a) and (b) of this article.
(a) Commercial general liability insurance covering the Building and
all common areas of the Project, but excluding the Premises, insuring against
claims for personal or bodily injury or death or property damage occurring upon,
in or about the Building or common areas of the Project to afford protection to
the limit of not less than $2,000,000.00 combined single limit in respect to
injury or death to any number of persons and property damage arising out of any
one (1) occurrence. This insurance coverage shall extend to, but will not
modify, any liability of Landlord arising out of the indemnities provided for in
this Lease.
(b) Landlord shall at all times during the Term hereof maintain in
effect a policy or policies of "special form" or "all risks" insurance covering
the Building (excluding property required to be insured by Tenant) in an amount
equal to 100% of the full replacement cost thereof, providing protection against
perils included within the standard Texas form of "special form" or "all risks"
insurance coverage, with no exclusions thereunder with respect to sprinkler
damage, vandalism and malicious mischief and with any such deductibles as
Landlord may from time to time determine.
Any insurance provided for in Subsections 9.01(a) and (b) above may be
effected by self-insurance or by a policy or policies of blanket insurance
covering additional items or locations or assureds, provided that the
requirements of Sections 9.01(a) and (b) are otherwise satisfied. Tenant shall
have no rights in any policy or policies maintained by Landlord.
9.02. TENANT'S INSURANCE. Tenant covenants and agrees that from and
after the date of delivery of the Premises from Landlord to Tenant, Tenant will
carry and maintain, at its sole cost and expense, the insurance set forth in
paragraphs (a), (b), (c) and (d) of this subsection. No policy shall be
cancellable or subject to reduction of coverage except after thirty (30) days'
prior written notice to Landlord.
(a) Commercial general liability insurance covering the Premises and
Tenant's use thereof against claims for personal or bodily injury or death or
property damage occurring upon, in or about the Premises to afford protection to
the limit of not less than $1,000,000.00, combined single limit, in respect to
injury or death to any number of persons and all property damage arising out of
any one (1) occurrence. The foregoing commercial general liability insurance
will include, without limitation, the following required endorsements, to wit:
(i) Landlord will be included as "additional insured" using an additional
insured endorsement form as may be applicable from time to time or at any time
during the Term of this Lease and acceptable to Landlord, without modification
(and under the commercial umbrella, if any); and (ii) a waiver of subrogation in
favor of Landlord using such form as may be applicable from time to time or at
any time during the Term of this Lease and acceptable to Landlord (and under the
commercial umbrella, if any). This insurance coverage shall extend to, but will
not modify, any liability of Tenant arising out of the indemnities provided for
in this Lease.
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(b) "Special form" or "all risks" insurance coverage covering all
fixtures, equipment and personalty located in the Premises, in an amount not
less than one hundred percent (100%) of the full replacement cost thereof, with
no exclusions permitted thereunder with respect to vandalism, malicious mischief
or sprinkler leakage.
(c) Workers' compensation insurance insuring against and satisfying
Tenant's obligations and liabilities under the workers' compensation laws of the
State of Texas.
(d) Employer's liability insurance in an amount not less than
$1,000,000.00.
All such insurance will be issued and underwritten by companies
reasonably acceptable to Landlord, duly licensed in the State of Texas, and will
contain endorsements that (a) such insurance may not lapse with respect to
Landlord or Property Manager or be canceled or amended with respect to Landlord
or Property Manager without the insurance company giving Landlord and Property
Manager at least thirty (30) days' prior written notice of such cancellation or
amendment, (b) Tenant will be solely responsible for payment of premiums, (c) in
the event of payment of any loss covered by such policy, Landlord or Landlord's
designees will be paid first by the insurance company for Landlord's loss and
(d) Tenant's insurance is primary in the event of overlapping coverage which may
be carried by Landlord.
Tenant shall deliver to Landlord duplicate originals of all policies of
insurance required by this Section or duly executed originals of the
certificates of such insurance (in form and content acceptable to Landlord)
evidencing in-force coverage, within ten (10) days prior to the commencement of
construction of Tenant's Improvements. Further, Tenant shall deliver to Landlord
renewals thereof at least thirty (30) days prior to the expiration of the
respective policy terms.
In no event shall Landlord be responsible for loss or damage with
respect to Tenant's personal property unless caused by Landlord's gross
negligence.
Any insurance provided for in Subsections 9.02(a) through (d) above may
be effected by self-insurance or by a policy or policies of blanket insurance
covering additional items or locations or assureds, provided that (i) the
requirements of such sections are otherwise satisfied, and (ii) Tenant shall
indemnify and hold Landlord harmless from and against any claims, costs,
expenses and liabilities that would otherwise be covered by the insurance
required under Section 9.02 if such insurance were in force. Except as provided
above, Landlord shall have no rights in any policy or policies maintained by
Tenant.
9.03. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives any
rights it may have against the other (including, but not limited to, a direct
action for damages) on account of any loss or damage occasioned to Landlord or
Tenant, as the case may be (whether or not such loss or damage is caused by the
fault, negligence or other tortious conduct, acts or omissions of Landlord or
Tenant or their respective officers, directors, employees, agents or invitees),
to their respective property, the Premises, its contents or to any other portion
of the Building or the Property arising from any risk covered by the current
Texas State Board of Insurance promulgated form of "special form" or "all risks"
insurance coverage required to be carried by Landlord and Tenant, respectively,
under Sections 9.01(b) and 9.02(b) above. If a party waiving rights under this
Section is carrying a fire and extended coverage insurance policy in the
promulgated form used in the State of Texas and an amendment to such promulgated
form is passed, such amendment shall be deemed not a part of such promulgated
form until it applies to the policy being carried by the waiving party. Without
in any way limiting the foregoing waivers and to the extent permitted by
applicable law, the parties hereto each, on behalf of their respective insurance
companies insuring the property of either Landlord or Tenant against any such
loss, waive any right of subrogation that Landlord or Tenant or their respective
insurers may have against the other party or their respective officers,
directors, employees, agents or invitees and all rights of their respective
insurance companies based upon an assignment from its insured. Each party to
this Lease agrees immediately to give to each such insurance company written
notification of the terms of the mutual waivers contained in this Section and to
have said insurance policies properly endorsed, if necessary, to prevent the
invalidation of said insurance coverage by reason of said waivers. The foregoing
waiver shall be effective whether or not the parties maintain the required
insurance.
9.04. INDEMNITY. Tenant will indemnify and hold Landlord and Landlord's
respective officers, directors, employees and agents (including, but not limited
to Landlord's property manager) harmless from all claims, demands, actions,
damages, loss, liabilities, judgments, costs and expenses, including without
limitation, attorney's fees and court costs (each a "Claim" and collectively the
"Claims") which (i) are suffered by, recovered from or asserted against
Landlord, (ii) are not paid by insurance carried by Tenant or Landlord (without
in any way affecting the requirements of or Landlord's rights under Sections
9.01 and 9.02 above and (iii) arise from or in connection with (a) the use or
occupancy of the Premises and/or any accident, injury or damage occurring in or
at the Premises or (b) any breach by Tenant of any representation or covenant in
this Lease; provided, however, such indemnification of Landlord by Tenant shall
not include any Claim waived by Landlord under Section 9.03 above, any Claim to
the extent caused by the gross negligence or willful misconduct of Landlord or
any Claim relating to hazardous or toxic materials except to the extent such
Claim arises out of a breach by Tenant of any of the provisions of Section 16.01
of this Lease.
Landlord will indemnify and hold Tenant and Tenant's respective
officers, directors, employees and agents harmless from all Claims which are
suffered by, recovered from or asserted against Tenant and which are not paid by
proceeds of insurance carried by Landlord or Tenant and which arise from or in
connection with (i) the use of the common areas of the Project and/or any
accident, injury or damage occurring in or on the Common Areas solely as a
result of Landlord's gross negligence or (ii) any breach by Landlord of any
representation or covenant in this Lease;
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provided, however, such indemnification of Tenant by Landlord shall not include
any Claim waived by Tenant under Section 9.03 above, any Claim to the extent
caused by the negligence or willful misconduct of Tenant or any Claim relating
to hazardous or toxic materials except to the extent such Claim arises out of a
breach by Landlord of any of the provisions of Section 16.01 of this Lease.
ARTICLE 10
10.01. CASUALTY. If the Premises or Project, or any portion of either,
shall be damaged by fire or other casualty covered by the insurance carried by
Landlord hereunder, and the cost of repairing such damage shall not be greater
than twenty percent (20%) of the then full replacement cost thereof, then,
subject to the following provisions of this Article, Landlord shall repair the
Premises and/or Project.
If the Premises or Project shall be damaged (a) by fire or other
casualty not covered by insurance carried by Landlord hereunder, (b) by fire or
other casualty covered by insurance carried by Landlord hereunder and Landlord's
mortgagee requires that such insurance proceeds be used to retire the mortgage
debt, or (c) to an extent greater than twenty percent (20%) of the then full
replacement cost thereof, then Landlord shall have the option to either (i)
repair or reconstruct the same to substantially the same condition as
immediately prior to such fire or other casualty, or (ii) terminate this Lease
by so notifying Tenant within sixty (60) days after the date of such fire or
other casualty, such termination to be effective as of the date of such notice.
In the event Landlord shall elect to repair or reconstruct in accordance with
subclause (i) of this Section, Landlord shall so notify Tenant in writing within
sixty (60) days after the date of such casualty. In the event Landlord shall be
obligated to repair or reconstruct or shall have elected to repair or
reconstruct, then such repair or reconstruction shall be completed by Landlord
within one hundred eighty (180) days after the casualty if the damage was not
greater that thirty percent (30%) and two hundred forty (240) days after the
casualty if the damage was greater than fifty percent (50%) (subject to Tenant
Delays and delays caused by force majeure). In the event Landlord fails to
complete any repair or reconstruction within the foregoing time periods, Tenant
shall have the option to terminate this Lease by so notifying Landlord with such
termination to be effective as of Tenant's notice. Furthermore, notwithstanding
anything to the contrary contained herein, if the Premises or the Project should
be so damaged by fire or other casualty such that the damage cannot, in
Landlord's reasonable opinion, be repaired within two hundred forty (240) days
after such casualty, then Landlord shall notify Tenant of same (the "Major
Damage Notice" ) whereupon either Landlord or Tenant may terminate this Lease by
delivering written notice to the other party within thirty (30) days after
receipt of the Major Damage Notice.
The Rent required to be paid hereunder shall be abated in proportion to
the portions of the Premises, if any, which are rendered untenantable by fire or
other casualty hereunder until repairs of the Premises are completed, or if the
Premises are not repaired, until the termination date hereunder. Other than such
Rent abatement, no damages, compensation or claim shall be payable by Landlord
for loss of the use of the whole or any part of the Premises, Tenant's personal
property, or any inconvenience, loss of business, or annoyance arising from any
such repair and reconstruction unless caused by the gross negligence or willful
misconduct of Landlord.
If the damage results from default or negligence of Tenant, its agents,
employees, licensees or invitees, then Tenant shall not be entitled to any
abatement or reduction of any Rent or other sums due hereunder. If this Lease is
terminated as provided in (c)(ii) above, all Rent shall be apportioned and paid
up to the termination date. Landlord shall not be required to repair or replace
any furniture, furnishings or other personal property which Tenant may be
entitled to remove from the Premises or any property constructed and installed
by or for Tenant in the Premises.
10.02. END OF TERM CASUALTY. Notwithstanding anything to the contrary
in this Article 10, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises or the Project when the damage resulting
from any casualty covered under this Article 10 occurs during the last eighteen
(18) months of the Term or any extension thereof.
ARTICLE 11
11.01. CONDEMNATION. If all or substantially all of the Premises shall
be taken by virtue of eminent domain or for any public or quasi-public use or
purpose, this Lease and the estate hereby granted shall terminate on the date
the condemning authority takes possession. If only a part of the Premises is so
taken, or if a portion of the Project not including the Premises is taken, this
Lease and the estate hereby granted shall, at the election of Landlord, either
(i) terminate on the date the condemning authority takes possession by
Landlord's giving notice thereof to Tenant within thirty (30) days after the
date of such taking, or (ii) continue in full force and effect as to that part
of the Premises not so taken and the Base Rent shall be reduced (from and after
the date of such taking of possession) in the proportion that the number of
square feet of the Premises so taken, if any, bears to the total number of
square feet contained in the Premises.
11.02. CONDEMNATION AWARD. Landlord shall be entitled to the whole of
any and all awards which may be paid or made in connection with any such taking.
As long as it does not diminish the amount of Landlord's award
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hereunder, Tenant shall have the right to assert a claim for and recover from
the condemning authority, but not from Landlord, such compensation as may be
awarded on account of Tenant's moving and relocation expenses and depreciation
to and loss of Tenant's movable personal property.
ARTICLE 12
12.01. ACCESS. Without being deemed guilty of an eviction of Tenant and
without abatement of Rent, Landlord or its authorized agents shall have the
right to enter the Premises, subject to Tenant's security requirement, upon
reasonable notice, to inspect the Premises, to show the Premises to prospective
lenders, purchasers or tenants (if within the last six (6) months of the Term)
and to fulfill Landlord's obligations or exercise its rights under this Lease.
Tenant hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises and any other loss occasioned thereby unless caused by the
negligence or willful misconduct of Landlord. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to unlock
the doors to and within the Premises, excluding Tenant's vaults and safes.
Landlord shall have the right to use any and all reasonable means which Landlord
may deem proper to enter the Premises in an emergency without liability for such
entry.
ARTICLE 13
13.01. SUBORDINATION. Provided that Tenant receives a non-disturbance
agreement in a form reasonably acceptable to Tenant from the Underlying Party
(hereinafter defined), this Lease is and shall be subject and subordinate to any
and all ground or similar leases affecting the Project, all mortgages which may
now or hereafter encumber or affect the Project and to all renewals,
modifications, consolidations, replacements and extensions of any such leases
and/or mortgages; provided, however, that at the option of any Underlying Party,
this Lease shall be superior to the lease or mortgage of such Underlying Party.
The provisions of this Section 13.01 shall be self-operative and shall require
no further consent or agreement requested by any such landlord or mortgagee in
connection with this Section 13.01, Tenant shall, however, execute promptly any
appropriate certificate or instrument evidencing same that Landlord may request.
As used in this Lease, the term "Underlying Party" shall mean the holder of the
Landlord's interest under any ground or similar lease and/or the mortgagee or
purchaser at foreclosure with respect to any mortgage. Tenant agrees that any
Underlying Party may unilaterally subordinate its mortgage or lease to this
Lease at any time by filing a notice of such subordination in the Official
Public Records of Real Property of the County where the Building is located.
13.02. ATTORNMENT. In the event of the termination of any ground or
similar lease affecting the Project or the enforcement by the trustee or the
beneficiary under any mortgage or deed of trust of remedies provided by law or
by such mortgage or deed of trust, Tenant will, upon request of any person or
party succeeding to the interest of Landlord as the result of such termination
or enforcement, automatically become the Tenant of such successor in interest
without change in the terms or other provisions of this Lease; provided,
however, that such successor in interest shall not be bound by (a) any payment
of Rent for more than one (1) month in advance. Upon request by any such
successor in interest, Tenant shall execute and deliver within ten (10) days of
receipt an instrument or instruments confirming the attornment provided for
herein. The failure by Tenant to execute such instrument(s) shall be deemed an
event of Default hereunder.
13.03. QUIET ENJOYMENT. Tenant, upon paying the Rent and keeping and
performing all of the conditions and covenants herein contained, shall and may
peaceably and quietly enjoy the Premises for the Term, subject to all applicable
laws and ordinances, applicable insurance requirements and regulations, and the
provisions of this Lease.
ARTICLE 14
14.01. ASSIGNMENT. Tenant shall not assign or in any manner transfer
this Lease or any estate or interest herein, or sublet the Premises or any part
thereof, or grant any license, concession or other right of occupancy of any
portion of the Premises without the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed or conditioned. If Tenant desires
at any time to enter into an assignment of this Lease or a sublease of the
Premises or any portion thereof, Tenant shall give written notice to Landlord of
its desire to do so, which notice shall contain (i) the name of the proposed
assignee or subtenant, (ii) the nature of the proposed assignee's or subtenant's
business to be carried on in the Premises, (iii) the terms and provisions of the
proposed assignment or sublease, and (iv) and such other information as Landlord
may reasonably request concerning the proposed assignee or subtenant. Landlord
shall give Tenant notice of either its consent or its denial of consent to the
proposed assignment or sublease within ten (10) days. If Tenant is a
corporation, partnership or other entity, and if at any time during the term of
this Lease or any renewal or extension thereof, the person or persons who own a
majority of either the outstanding voting interest or all outstanding ownership
interests of Tenant at the time of execution of this Lease cease to own a
majority of such interest (except as a result of transfers by devise or
descent), the loss of a majority of such interest shall be deemed an assignment
of this Lease by Tenant and therefore subject in all respects to the provisions
of this Section 14.01. The previous sentence
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shall not apply, however, if Tenant is a corporation and at the time of the
execution of this Lease the outstanding voting shares of capital stock of Tenant
are listed on a recognized security exchange or over the counter market.
Notwithstanding anything to the contrary contained herein, Tenant shall have the
right without Landlord's consent: (a) to assign or convey this Lease or any
interest hereunder, to one or more Permitted Assignees (as defined below); (b)
to sublet the Premises, or any portion thereof, to one or more Permitted
Assignees; and (c) to permit the use of the Premises, or any portion thereof, by
one or more Permitted Assignees. As used herein, the term "Permitted Assignee"
shall mean: (i) any entity of which Tenant is a subsidiary (on any level); (ii)
any entity which is a subsidiary of Tenant (on any level); (iii) any entity with
which Tenant is owned or commonly controlled; (iv) any entity with which Tenant
is merged or consolidated; (v) any entity which is merged or consolidated with
Tenant; (vi) any entity which acquires all or substantially all of Tenant's
assets.
In the event, however, that such written consent of Landlord is granted
or is not required, if the rent due and payable by a sublessee under any such
permitted sublease (or a combination of the rent payable under such sublease
plus any bonus or other consideration therefor or incident thereto) exceeds the
hereinabove provided Rent payable under this Lease or if with respect to a
permitted assignment, permitted license or other transfer by Tenant permitted by
Landlord, the consideration payable to Tenant by the assignee, licensee or other
transferee exceeds the Rent payable under this Lease, then Tenant shall be bound
and obligated to pay Landlord fifty percent (50%) of net profits of all such
excess rental and other excess consideration within ten (10) days following
receipt thereof by Tenant from such sublessee, assignee, licensee or other
transferee, as the case might be. Tenant shall, despite any permitted assignment
or sublease, remain directly and primarily liable for the performance of all of
the covenants, duties, and obligations of Tenant hereunder and Landlord shall be
permitted to enforce the provisions of this Lease against Tenant or any assignee
or sublessee without demand upon or proceeding in any way against any other
person.
14.02. CONSENT. Consent by Landlord to a particular assignment or
sublease shall not be deemed a consent to any other or subsequent transaction.
If this Lease is assigned or if the Premises or any portion thereof are
subleased without the permission of Landlord, then Landlord may nevertheless
collect rent from the assignee or sublessee and apply the net amount collected
to the Rent payable hereunder, but no such transaction or collection of rent or
application thereof by Landlord shall be deemed a waiver of any provision hereof
or a release of Tenant from the performance by Tenant of its obligations
hereunder.
14.03. TRANSFER BY LANDLORD. In the event of the transfer and
assignment by Landlord of its interest in this Lease and in the Project to a
person expressly assuming Landlord's obligations under this Lease, Landlord
shall thereby be released from any further obligations hereunder, and Tenant
agrees to look solely to such successor in interest of the Landlord for
performance of such obligations. Any security given by Tenant to secure
performance of Tenant's obligations hereunder may be assigned and transferred by
Landlord to such successor in interest, and Landlord shall thereby be discharged
of any further obligation relating thereto.
ARTICLE 15
15.01. DEFAULT BY TENANT. Each of the following shall constitute a
"Default" by Tenant:
(a) The failure of Tenant to pay the Base Rent, any other installment
of Rent, or any part thereof when due and the continuance of such failure for
ten (10) days after receipt of written notice from Landlord; provided, however,
Landlord shall not be required to give such ten (10) day notice, and Tenant
shall not be entitled to same, more than two (2) times during any calendar year,
and any such subsequent failure during such calendar year shall be a Default
upon the occurrence thereof without any notice whatsoever to Tenant; or
(b) Tenant shall fail to fulfill or perform, in whole or in part, any
of its obligations under this Lease (other than the payment of Rent) and such
failure or non-performance shall continue for a period of thirty (30) days after
written notice thereof has been given by Landlord to Tenant, provided that if
such obligation cannot reasonably be performed within thirty (30) days, then
Tenant shall have such time as is reasonably necessary to effect such
performance if Tenant commences performance within such thirty (30) day period
and diligently prosecutes the same; or
(c) The entry of a decree or order by a court having jurisdiction
adjudging Tenant or any guarantor to be bankrupt or insolvent or approving as
properly filed a petition seeking reorganization of Tenant or such guarantor
under the National Bankruptcy Act, or any other similar applicable Federal or
State law, or a decree or order of a court having jurisdiction for the
appointment of a receiver or liquidator or a trustee or assignee in bankruptcy
or insolvency of Tenant or such guarantor or its property or for the winding up
or liquidation of its affairs; or Tenant or any guarantor shall institute
proceedings to be adjudicated a voluntary bankruptcy or shall consent to the
filing of any bankruptcy, reorganization, receivership or other proceeding
against Tenant or such guarantor, or any such proceedings shall be instituted
against Tenant or any guarantor and the same shall not be vacated within thirty
(30) days after the same are commenced; or
(d) Tenant shall make an assignment for the benefit of Tenant's
creditors or admit in writing Tenant's inability to
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pay the debts of Tenant generally as they may become due; or
(e) Tenant shall fail to vacate the Premises upon the expiration or
termination of this Lease; or
(f) If Tenant is a corporation or limited partnership, Tenant fails to
maintain its right to do business in the State of Texas or fails to pay any
applicable annual franchise taxes as and when same become finally due and
payable; or
(g) If Tenant is a corporation or partnership, Tenant dissolves or
liquidates or otherwise fails to maintain its corporate or partnership
structure, as applicable.
15.02. RIGHTS UPON DEFAULT BY TENANT.
(a) This Lease and the Term and estate hereby granted and the demise
hereby made are subject to the limitation that if and whenever there shall occur
any event of Default, as enumerated above, Landlord may, at Landlord's option,
without any notice or demand whatsoever (any such notice and demand being
expressly waived by Tenant) and without judicial process, except as specified
herein or as required by law, in addition to any other remedy or right given
hereunder or by law or equity do any one or more of the following:
(1) Terminate this Lease by written notice to Tenant, in which event
Tenant shall immediately surrender possession of the Premises to
Landlord;
(2) Terminate Tenant's right to possession of the Premises under this
Lease without terminating the Lease itself, by written notice to
Tenant, in which event Tenant shall immediately surrender possession of
the Premises to Landlord;
(3) Enter upon and take possession of the Premises and expel or remove
Tenant and any other occupant therefrom, with or without having
terminated this Lease;
(4) Alter locks and other security devices at the Premises so that
Tenant will not have access to the Premises with or without having
terminated this Lease or Tenant's right to possession under the Lease
(provided, that Landlord's rights under this Subsection 15.02(a)(4) may
only be exercised in the case of a monetary default hereunder);
(5) In the event of any Default described in subsection (b) of Section
15.01, Landlord shall have the right to enter upon the Premises by
lawful means and do whatever Tenant is obligated to do under the terms
of this Lease; and Tenant agrees to reimburse Landlord on demand for
any expenses which Landlord may reasonably incur in thus effecting
compliance with Tenant's obligations under this Lease, and Tenant
further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action (excluding Landlord's negligence
and willful misconduct).
(b) It is hereby expressly stipulated by Landlord and Tenant that any
of the above listed actions including, without limitation, termination of this
Lease, termination of Tenant's right to possession, and re-entry by Landlord,
will not affect the obligations of Tenant for the unexpired Term of this Lease,
including the obligations to pay unaccrued monthly Rent and other charges
provided in this Lease for the remaining portion of the Term of the Lease.
(c) Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the Premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord. No authorized alteration of locks or other security devices and no
permitted removal or other exercise of dominion by Landlord over the property of
Tenant or others at the Premises shall be deemed unauthorized or constitute a
conversion. All claims for damages by reason of such re-entry and/or
repossession and/or alteration of locks or other security devices are hereby
waived, as are all claims for damages by reason of any distress warrant,
forcible detainer proceedings, sequestration proceedings or other legal process
(in each instance excluding Landlord's negligence willful misconduct).
Tenant agrees that any re-entry by Landlord may be pursuant to a
judgment obtained in forcible detainer proceedings or other legal proceedings or
without the necessity for any legal proceedings, as Landlord may elect, and
Landlord shall not be liable in trespass or otherwise.
(d) In the event Landlord elects to terminate this Lease by reason of
an event of Default, then notwithstanding such termination, the Tenant shall be
liable for and shall pay to the Landlord, at the address specified in Section
1.01(a) above, the sum of all Rent accrued to the date of such termination,
plus, as damages, the cost of recovering, reletting and remodeling the Premises,
and an amount equal to the total of the Rent provided in this Lease for the
remaining portion of the Term of the Lease (had such Term not been terminated by
Landlord prior to the Expiration Date stated in Section 3.01), less the
reasonable rental value of the Premises for such period, such amount to be
discounted to present value at the rate of six percent (6%) per annum.
In the event Landlord elects to terminate this Lease by reason of an
event of Default, in lieu of exercising the right of Landlord under the
preceding paragraph, Landlord may instead hold Tenant liable for all Rent
accrued to the date of such termination, plus such Rent as would otherwise have
been required to be paid by Tenant to Landlord during the period following
termination of the Term measured from the date of such termination by Landlord
until the Expiration Date stated in Section 3.01 (had Landlord not elected to
terminate the Lease on account of such event of Default)
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diminished by any net sums thereafter received by Landlord through reletting the
Premises during said period (after deducting expenses incurred by Landlord as
provided in Section 15.03 hereof). Actions to collect amounts due by Tenant as
provided for in this paragraph may be brought from time to time by Landlord
during the aforesaid period, on one or more occasions, without the necessity of
Landlord's waiting until expiration of such period; and in no event shall Tenant
be entitled to any excess of rent obtained by reletting over and above the Rent
provided for in this Lease. If Landlord elects to exercise the remedy prescribed
in this paragraph, this election shall in no way prejudice Landlord's right at
any time hereafter to cancel said election in favor of the remedy prescribed in
the preceding paragraph.
(e) In the event that Landlord elects to repossess the Premises without
terminating the Lease, then Tenant shall be liable for and shall pay to Landlord
at the address specified in Section 1.01(a) above, all Rent accrued to the date
of such repossession, plus Rent required to be paid by Tenant to Landlord during
the remainder of the Term until the Expiration Date of the Term as stated in
Section 3.01, diminished by any net sums thereafter received by Landlord through
reletting the Premises during said period (after deducting expenses incurred by
Landlord as provided in Section 15.03). Actions to collect amounts due by Tenant
as provided in this paragraph may be brought from time to time by Landlord
during the aforesaid period, on one or more occasions, without the necessity of
Landlord's waiting until expiration of the Term and in no event shall Tenant be
entitled to any excess of any rent obtained by reletting over and above the Rent
provided for in this Lease.
(f) Notwithstanding anything contained or implied herein to the
contrary, Tenant has not waived, shall not be deemed to have waived, and shall
be entitled to all of the rights and remedies of a tenant under Chapter 93 of
the Texas Property Code. Landlord shall comply with all common law and statutory
duties to mitigate Landlord's damages; provided, however, Landlord shall be
entitled to lease other available space in the Building prior to re-letting the
Premises, and in no event shall Landlord be obligated to re-let the Premises at
a rental rate less than the rate then being charged for comparable space in the
Building.
15.03. EXPENSE OF REPOSSESSION. It is further agreed that, in addition
to payments required pursuant to Section 15.02 above, Tenant shall compensate
Landlord for all reasonable expenses incurred by Landlord in repossession
(including among other expenses, the total amount of any increase in insurance
premiums caused by the vacancy of the Premises), and all reasonable expenses
incurred by Landlord in reletting (including among other expenses, repairs,
remodeling, replacements, advertisements and brokerage fees).
15.04. CUMULATIVE REMEDIES; WAIVER OR RELEASE. Landlord may restrain or
enjoin any breach or threatened breach of any covenant, duty or obligation of
Tenant herein contained without the necessity of proving the inadequacy of any
legal remedy or irreparable harm. The remedies of Landlord hereunder shall be
deemed cumulative and not exclusive of each other. No action, omission or
commission by Landlord, including specifically, the failure to exercise any
right, remedy or recourse, shall be deemed a waiver or release of the same. A
waiver or release shall exist and be effective only as set forth in a written
document executed by Landlord, and then only to the extent recited therein. A
waiver or release with reference to any one event shall not be construed as
continuing as to, or as a bar to, or as a waiver or a release of, any right,
remedy or recourse as to any other or subsequent event.
15.05. ATTORNEYS' FEES. In the event of any legal action or proceeding
brought by either party against the other arising out of this Lease, the
prevailing party in such action shall be entitled to recover from the
non-prevailing party therein reasonable attorneys' fees and costs incurred in
such action (including, without limitation, all costs of appeal) and such amount
shall be included in any judgment rendered in such proceeding.
15.06. FINANCIAL STATEMENTS. Tenant warrants and represents that (i)
all financial statements, operating statements or other financial data at any
time given to Landlord by or on behalf of Tenant and any guarantor are, or will
be, as of their respective dates, true and correct in all material respects and
do not (or will not) omit any material liability, direct or contingent; and (ii)
there have been no material changes between the respective dates thereof and the
date of this Lease in any such financial statements, operating statements or
other financial data given to Landlord prior to the date hereof by or on behalf
of Tenant or any guarantor. A breach of any of the foregoing warranties or
representations shall, at the election of Landlord, be deemed a Default
hereunder.
15.07. LANDLORD'S CONTRACTUAL SECURITY INTEREST. Intentionally Deleted.
15.08. USE AND STORAGE OF PERSONAL PROPERTY. In the event that Landlord
shall have taken possession of the Premises pursuant to the authority herein
granted, then Landlord shall have the right to remove from the Premises in a
commercially reasonable manner all or any portion of such furniture, fixtures,
equipment and other property located thereon and place same in storage at any
premises within the county where the Building is located, including premises
owned by Landlord or an affiliate of Landlord; and in such event, Tenant shall
be liable to Landlord for costs reasonably incurred by Landlord in connection
with such removal and storage and shall indemnify and hold Landlord harmless
from all loss, damage, cost, expense and liability in connection with such
removal and storage (excluding loss caused by Landlord's gross negligence or
willful misconduct). Landlord shall also have the right to relinquish possession
of all or any portion of such furniture, fixtures, equipment and other property
to any person ("Claimant") claiming to be entitled to possession thereof who
presents to Landlord a copy of any instrument represented to Landlord by
Claimant to have been executed by Tenant (or any predecessor of Tenant) granting
Claimant the right under various circumstances to take possession of such
furniture, fixtures, equipment or other property, without the
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necessity on the part of Landlord to inquire into the authenticity of said
instrument copy or Tenant's (or Tenant's predecessor's) signature thereon and
without the necessity of Landlord's making any nature of investigation or
inquiry as to the validity of the factual or legal basis upon which Claimant
purports to act; and Tenant agrees to indemnify and hold Landlord harmless from
all cost, expense, loss, damage and liability incident to Landlord's
relinquishment of possession of all or any portion of such furniture, fixtures,
equipment or other property to Claimant (excluding loss caused by Landlord's
gross negligence or willful misconduct). The rights of Landlord herein stated
shall be in addition to any and all other rights which Landlord has or may
hereafter have at law or in equity; and Tenant stipulates and agrees that the
rights herein granted Landlord are commercially reasonable.
15.09. DEFAULT BY LANDLORD. Landlord shall be in default under this
Lease if Landlord fails to perform any of its obligations hereunder and said
failure continues for a period of thirty (30) days after Tenant delivers written
notice thereof to Landlord (to each of the addresses required by this Section)
and each mortgagee who has a lien against any portion of the Property and whose
name and address has been provided to Tenant, provided that if such failure
cannot reasonably be cured within said thirty (30) day period, Landlord shall
not be in default hereunder if the curative action is commenced within said
thirty (30) day period and is thereafter diligently pursued until cured. Any
notice of a failure to perform by Landlord shall be sent to Landlord at the
addresses and to the attention of the parties set forth in Section 1.01(a). Any
notice of a failure to perform by Landlord not sent to Landlord at all addresses
and/or to the attention of all parties required under this Section and to each
mortgagee who is entitled to notice or not sent in compliance with Section 17.05
below shall be of no force or effect. In the event of a default by Landlord,
after all cure periods, Tenant shall be entitled to remedy such default and
offset from Rent the reasonable out-of-pocket expenses actually incurred by
Tenant in so doing.
ARTICLE 16
16.01. HAZARDOUS WASTE. Tenant hereby represents and warrants to
Landlord the following:
(a) No toxic or hazardous substances or wastes, pollutants or
contaminants (including, without limitation, asbestos, urea formaldehyde, the
group of organic compounds known as polychlorinated biphenyls, petroleum
products including gasoline, fuel oil, crude oil and various constituents of
such products, radon, and any hazardous substance as defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
USC 9601-9657, as amended ("CERCLA") (collectively, "Environmental Pollutants")
will be generated, treated, stored, released or disposed of, or otherwise
placed, deposited in or located on the Premises or Project by Tenant or any of
its agents, employees or contractors, and no activity shall be undertaken on the
Premises or Project by Tenant or any of its agents, employees or contractors
that would cause or contribute to (i) the Premises to become a generation,
treatment, storage or disposal facility within the meaning of, or otherwise
bring the Premises within the ambit of the Resource Conservation and Recovery
Act of 1976 ("RCRA"), 42 USC 6901 et. seq., or any similar state law or local
ordinance, (ii) a release or threatened release of toxic or hazardous wastes or
substances, pollutants or contaminants, from the Premises or Project within the
meaning of, or otherwise result in liability in connection with the Premises
within the ambit of CERCLA, or any similar state law or local ordinance, or
(iii) the discharge of pollutants or effluents into any water source or system,
the dredging or filling of any waters, or the discharge into the air of any
emissions, that would require a permit under the Federal Water Pollution
Control Act, 33 USC 1251 et. seq., or the Clean Air Act, 42 USC 7401 et. seq.
or any similar state law or local ordinance. The foregoing does not preclude
Tenant's operation of its art department on the Premises, but only so long as
such activities comply with applicable environmental laws.
(b) Tenant agrees to indemnify and hold Landlord harmless from and
against and to reimburse Landlord with respect to, any and all claims, demands,
causes of action, loss, damage, liabilities, costs and expenses (including
attorneys' fees and court costs) of any and every kind or character, known or
unknown, fixed or contingent, asserted against or incurred by Landlord at any
time and from time to time by reason of or arising out of the breach of any
representation or warranty contained in Section 16.01(a) above. Landlord shall
have the right at Tenant's expense to periodically inspect, take samples for
testing and otherwise investigate the Premises for the presence of hazardous or
toxic materials.
(c) All representations and warranties contained in this Article 16
shall survive the expiration or termination of this Lease.
16.02. HAZARDOUS WASTE. Landlord hereby represents and warrants to
Tenant the following:
(a) No toxic or hazardous substances or wastes, pollutants or
contaminants (including, without limitation, asbestos, urea formaldehyde, the
group of organic compounds known as polychlorinated biphenyls, petroleum
products including gasoline, fuel oil, crude oil and various constituents of
such products, radon, and any hazardous substance as defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
USC 9601-9657, as amended ("CERCLA") (collectively, "Environmental Pollutants")
will be generated, treated, stored, released or disposed of, or otherwise
placed, deposited in or located on the Premises or Project by Landlord or any of
its agents, employees or contractors, and no activity shall be undertaken on the
Premises or Project by Landlord or any of its agents, employees or contractors
that would cause or contribute to (i) the Premises to become a generation,
treatment, storage or disposal facility within the meaning of, or otherwise
bring the Premises within the ambit of the Resource Conservation and
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Recovery Act of 1976 ("RCRA"), 42 USC 6901 et. seq., or any similar state law
or local ordinance, (ii) a release or threatened release of toxic or hazardous
wastes or substances, pollutants or contaminants, from the Premises or Project
within the meaning of, or otherwise result in liability in connection with the
Premises within the ambit of CERCLA, or any similar state law or local
ordinance, or (iii) the discharge of pollutants or effluents into any water
source or system, the dredging or filling of any waters, or the discharge into
the air of any emissions, that would require a permit under the Federal Water
Pollution Control Act, 33 USC 1251 et. seq., or the Clean Air Act, 42 USC 7401
et. seq. or any similar state law or local ordinance.
(b) Landlord agrees to indemnify and hold Tenant harmless from and
against and to reimburse Landlord with respect to, any and all claims, demands,
causes of action, loss, damage, liabilities, costs and expenses (including
attorneys' fees and court costs) of any and every kind or character, known or
unknown, fixed or contingent, asserted against or incurred by Tenant at any time
and from time to time by reason of or arising out of the breach of any
representation or warranty contained in Section 16.01(a) above. Landlord shall
have the right at Tenant's expense to periodically inspect, take samples for
testing and otherwise investigate the Premises for the presence of hazardous or
toxic materials.
(c) All representations and warranties contained in this Article 16
shall survive the expiration or termination of this Lease.
ARTICLE 17
17.01. SUBSTITUTE PREMISES. Intentionally Deleted.
17.02. ESTOPPEL LETTERS. Tenant agrees, periodically, to execute and
acknowledge, within ten (10) days after Landlord's request, a certificate
stating whether this Lease is in full force and effect, whether any amendments
or modifications exist, whether there are any defaults hereunder, and any such
other related information as may be reasonably requested. Any such certificate
may be relied upon by any ground lessor, prospective purchaser, secured party,
mortgagee or any beneficiary under any mortgage, deed of trust on the Building
or the Land or any part thereof or interest of Landlord therein to which such
certificate is addressed.
17.03. HOLDOVER. If Tenant shall remain in possession of the Premises
after the expiration or earlier termination of this Lease, Tenant will be deemed
to be a tenant at sufferance and shall be subject to immediate eviction and
removal and shall pay for each month or partial month of holdover period as rent
an amount equal to one hundred fifty percent (150%) of the prevailing then
actual rental rate for the Premises on the date of such expiration or
termination. The remaining in possession by Tenant or the acceptance by Landlord
of the payment of said rent shall not be construed as an extension or renewal of
this Lease unless extended by Landlord pursuant to the preceding sentence. The
rental payable to Landlord under this Section shall not be deemed to be in lieu
of any damages or other remedy to which Landlord may be entitled by virtue of
Tenant's holding over. In no event shall Tenant ever be liable to Landlord for
consequential or punitive damages as a result of Tenant's holdover.
17.04. SURRENDER. Upon the expiration or earlier termination of the
Lease or upon the exercise by Landlord of its right to re-enter the Premises
without termination of this Lease, Tenant shall peacefully quit and surrender
the Premises in good order and condition, excepting ordinary wear and tear, but
subject to Sections 8.01 and 8.02 hereof.
17.05. NOTICE. Any notice or communication required or permitted in
this Lease shall be given in writing, sent by (i) personal delivery, (ii)
expedited delivery service with proof of delivery, (iii) United States
registered or certified mail, return receipt requested or (iv) prepaid telegram
(provided that such telegram is confirmed by expedited delivery service or by
mail in the manner previously described), addressed as provided in
Section1.01(a) or to such other address or to the attention of such other person
as shall be designated from time to time in writing by the applicable party and
sent in accordance herewith. Notice also may be given by telex or fax, provided
each such transmission is confirmed (and such confirmation is supported by
documented evidence) as received and further provided a telex or fax number, as
the case may be, is set forth in Section 1.01(a). Any such notice or
communication shall be deemed to have been delivered, whether actually received
or not, when deposited in the US Mail, postage paid, certified or return receipt
requested at the address and in the manner provided herein, or any such notice
or communication shall have been deemed to have been given as of the date so
delivered and actually received at the address and in the manner provided herein
in the case of personal delivery, telegram, telex or fax.
17.06. RULES AND REGULATIONS. Tenant, as well as any assignee or
sublessee approved by Landlord, will comply with the Rules and Regulations of
the Project adopted by Landlord, which are set forth in Exhibit "C" attached
hereto and made a part hereof for all purposes. Landlord shall have the right to
change such Rules and Regulations or to amend them in any reasonable manner for
the safety, care and cleanliness of the Project, and the Premises, and for
preservation of good order therein, all of which changes and amendments will be
sent by Landlord to Tenant in writing and shall be thereafter binding upon,
carried out and observed by Tenant. Tenant shall further be responsible for the
compliance with such Rules and Regulations by the employees, servants, agents
and invitees of Tenant. Such Rules and Regulations shall be consistently applied
against all tenants.
17.07. LANDLORD'S LIABILITY. If Tenant shall recover a money judgment
against Landlord, such judgment shall be satisfied only out of the right, title
and interest of Landlord in the Property as the same may then be encumbered and
Landlord shall not be liable for any deficiency, it being agreed that Landlord
shall never be personally liable for any such judgment. If Landlord is found to
be in default hereunder by reason of its failure to give a consent that it is
required
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to give hereunder, Tenant's sole remedy will be an action for specific
performance or injunction. The foregoing sentence shall in no event be construed
as mandatorily requiring Landlord to give consents under this Lease. In no event
shall Landlord be liable to Tenant for consequential or special damages by
reason of a failure to perform (or a default) by Landlord hereunder or
otherwise. In no event shall Tenant have the right to levy execution against any
property of Landlord other than its interest in the Property as hereinbefore
expressly provided.
17.08. WAIVER OF CONSUMER RIGHTS. Tenant hereby waives its rights under
the Texas Deceptive Trade Practices - Consumer Protection Act, Section 17.41 et.
seq. of the Texas Business and Commerce Code, a law that gives consumers special
rights and protections. After consultation with an attorney/legal counsel of its
own selection, Tenant voluntarily consents to this waiver. Tenant covenants and
warrants that such attorney/legal counsel was not directly or indirectly
identified, suggested or selected by Landlord or agent of Landlord.
17.09. AMERICANS WITH DISABILITIES ACT AND TEXAS ARCHITECTURAL BARRIERS
ACT.
(a) As used herein, "Disability Acts" shall mean the Americans with
Disabilities Act (Public Law (July 26, 1990)) and the Texas Architectural
Barriers Act (Article 9102, Tex. Rev. Civ. St. (1991)) and any other similar
federal, state or local laws applicable to the Building and the Premises,
respectively (herein, collectively, the "Disability Acts").
(b) Tenant agrees to cause the Premises to comply with all requirements
of the Disability Acts. Tenant agrees to indemnify and hold Landlord harmless
from any and all expenses, liabilities, costs or damages suffered by Landlord as
a result of additional obligations which may be imposed on the Building or the
Property under any of the Disability Acts by virtue of Tenant's operations
and/or occupancy. Tenant acknowledges that it will be wholly responsible for any
accommodations or alterations which need to be made to the Premises to
accommodate disabled employees, customers and invitees of Tenant. No provision
in this Lease should be construed in any manner as permitting, consenting to or
authorizing Tenant to violate requirements under any of the Disability Acts and
any provision of the Lease which could arguably be construed as authorizing a
violation of any of the Disability Acts shall be interpreted in a manner which
permits compliance with such Disability Acts and is hereby amended to permit
such compliance.
(c) Landlord agrees to cause the restrooms, parking lots, parking
garage, lobbies and other public or common areas of the Project to comply with
all requirements of the Disability Acts. Landlord agrees to indemnify and hold
Tenant harmless from any and all expenses, liabilities, costs or damages
suffered by Tenant as a result of Landlord's failure to so perform under this
Section 17.09.
17.10. INABILITY TO PERFORM. If, by reason of inability reasonably to
obtain and utilize labor, materials, equipment, or supplies, or by reason of
circumstances directly or indirectly the result of any state of war or national
or local emergency, or by reason of any laws, rules, orders, regulations,
action, non-action, or requirements of any governmental authority now or
hereafter in force, or by reason of strikes or riots, or by reason of accidents
in, damage to, or the making of repairs, replacements, or improvements to the
Project or the Premises, or any of the equipment of either, or by the reason of
any other cause beyond the reasonable control of Landlord ("force majeure"),
Landlord shall be unable to perform or shall be delayed in the performance of
any obligation hereunder, then this Lease and the obligation of Tenant to pay
the Base Rent or additional items of Rent and to perform and comply with all of
the other covenants and agreements hereunder shall in no manner be affected or
impaired, and such nonperformance or delay in performance by Landlord shall not
give rise to any claim against Landlord for damages or constitute a total or
partial eviction, constructive or otherwise. Landlord shall exercise due
diligence in undertaking to remedy such inability to perform or delay in
performance with all reasonable dispatch, but shall not be required to adjust a
labor dispute against its will.
17.11. TENANT AUTHORIZATION. If Tenant signs as a corporation, each of
the persons executing this Lease on behalf of Tenant represents and warrants
that Tenant is a duly organized and existing corporation, that Tenant has and is
qualified to do business in Texas, that the corporation has full right and
authority to enter into this Lease, and that all persons signing on behalf of
the corporation were authorized to do so by appropriate corporate actions. If
Tenant is a general partnership, limited partnership, trust, or other legal
entity, each individual executing this Lease on behalf of said entity represents
and warrants that he or she is duly authorized to execute this Lease on behalf
of such entity and in accordance with such entity's governing instruments, and
that this Lease is binding upon such entity. Upon the Landlord's request, Tenant
shall furnish Landlord with proper proof of due authorization for Tenant's
execution of this Lease as Landlord shall require.
17.12. BROKER. Tenant warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker named in of Section 1.01 (n) and that it knows of no
other real estate brokers or agents who are or might be entitled to a commission
in connection with this Lease. Tenant agrees to indemnify and hold harmless
Landlord from and against any liability or claim, whether meritorious or not,
arising from Tenant's actions. Landlord has agreed to pay the fees of the broker
(but only the broker) named in Section 1.01(n) to the extent that Landlord has
agreed to do so pursuant to a written agreement with such broker.
17.13. MEMORANDUM OF LEASE. Without the prior written consent of
Landlord (which may be granted or withheld in Landlord's sole discretion),
Tenant shall not record this Lease or a memorandum or other instrument with
respect to this Lease.
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17.14. PARKING. "Exhibit "F" attached hereto, sets forth the agreements
between Landlord and Tenant relating to the parking garage. The parking areas
for the garage and for surface parking shall be designated for automobile
parking on a first come, first serve non-exclusive basis for all Property
tenants (including Tenant) and their respective employees, customers, invitees
and visitors. Parking and delivery areas for all vehicles shall be in accordance
with parking regulations established from time to time by Landlord, with which
Tenant agrees to conform. Tenant shall only permit parking of automobiles by its
employees, customers and agents in appropriate designated parking areas. Tenant
covenants that at all times during the term of this Lease Tenant shall not use
in excess of four (4) garage and surface parking spaces for each one thousand
(1,000) square feet in the Premises for Tenant's employees, visitors and
invitees.
17.15. OTHER TAXES. Tenant shall be liable for all taxes levied or
assessed against personal property, furniture or fixtures placed by Tenant on
the Premises. If such taxes for which Tenant is liable are levied or assessed
against Landlord or Landlord's property and if Landlord elects to pay the same,
or if the assessed value of the Project is increased by the inclusion of
personal property, furniture or fixtures, placed by Tenant on the Premises, and
Landlord elects to pay the taxes based on such increase, Tenant shall pay to
Landlord within thirty (30) days of demand, that part of such taxes for which
Tenant is primarily liable hereunder. Tenant shall be liable for any and all
sales, use or other taxes levied in connection with the Premises and Tenant's
parking.
17.16. JOINT AND SEVERAL LIABILITY. If there is more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and several. If
there is a guarantor of the obligations hereunder imposed upon Tenant, there
shall be a joint and several obligation of Tenant and such guarantor, and
Landlord shall not be required to first proceed against Tenant before proceeding
against such guarantor, nor shall any such guarantor be released from its
guaranty for any reason whatsoever.
17.17. ACCEPTANCE BY LANDLORD. The acceptance by Landlord as evidenced
by the execution of this Lease by its duly authorized representative is subject
to the condition precedent of obtaining written approval of the terms and
provisions of this Lease by any financial institution possessing the right to
approve the form and content of each lease at the Building. In the event
Landlord is unable to obtain the required written approval from any financial
institution, this Lease shall become null and void ab initio and shall have no
further legal force and effect.
17.18. TIME OF ESSENCE. Time is of the essence of this Lease and all of
its provisions in which performance is a factor.
17.19. ENTIRE AGREEMENT. This Lease, including the Exhibits attached
hereto (which Exhibits are hereby incorporated herein and shall constitute a
portion hereof), contains the entire agreement between Landlord and Tenant with
respect to the subject matter hereof.
17.20. AMENDMENT. Any agreement hereafter made between Landlord and
Tenant shall be ineffective to modify, release or otherwise affect this Lease,
in whole or in part, unless such agreement is in writing and signed by the party
to be bound thereby.
17.21. SEVERABILITY. If any term or provision of this Lease shall, to
any extent, be held invalid or unenforceable by a final judgment of a court of
competent jurisdiction, the remainder of this Lease shall not be affected
thereby.
17.22. SUCCESSORS. Subject to the limitations and conditions set forth
elsewhere herein, this Lease shall bind and inure to the benefit of the
respective heirs, legal representatives, successors, and assigns of the parties
hereto. All rights, powers, privileges, immunities, and duties of Landlord under
this Lease, including, but not limited to, any notices required or permitted to
be delivered by Landlord to Tenant hereunder, may, at Landlord's option, be
exercised or performed by Landlord's agent or attorney.
17.23. CAPTIONS. The captions in this Lease are inserted only as a
matter of convenience and for reference only and they in no way define, limit,
or describe the scope of this Lease or the intent of any provisions hereof.
17.24. NUMBER AND GENDER. All genders used in this Lease shall include
the other genders, the singular shall include the plural, and the plural shall
include the singular, whenever and as often as may be appropriate.
17.25. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas.
17.26. RIGHTS RESERVED TO LANDLORD. Landlord, in addition to all other
rights which it may possess, hereby expressly reserves the following rights
exercisable from time to time, subject to the other provisions of this Lease;
(a) To change the name of the Building.
(b) To install and maintain signs on the exterior and interior of the
Building, except in the Premises.
(c) To prescribe the location and style of the suite number and
identification sign or lettering for the Premises occupied by Tenant, except on
floors where Tenant is the only tenant.
(d) To retain at all times, and to use in appropriate instances, pass
keys to the leased Premises occupied by Tenant.
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(e) To grant to anyone the right to conduct any lawful, reputable
business or render any service in the Building, whether or not it is the same as
or similar to the use expressly permitted to Tenant by Section 1.01(e) hereof.
(f) To exhibit the leased Premises during the last 12 months of the
Term at reasonable hours, and upon reasonable notice to Tenant, and to decorate,
remodel, repair, alter or otherwise prepare the Premises for reoccupancy at any
time after Tenant vacates or abandons the Leased Premises.
(g) To have access for Landlord to any mail chutes according to the
rules of the United States Postal Service.
(h) To require all persons entering or leaving the Building during such
hours as Landlord may from time to time reasonably determine to identify
themselves to watchmen (by registration or otherwise), and to establish their
right to enter or leave in accordance with the provisions of the applicable
Building Rules and Regulations. Landlord shall not be liable in damages for any
error with respect to admission to or eviction or exclusion from the Building of
any person. In case of fire, invasion, insurrection, mob, riot, civil disorder,
public excitement, hazardous condition or other commotion, or the threat
thereof, Landlord reserves the right to limit or prevent access to the Building
during the continuance of the same, shut down elevator service, activate
elevator emergency controls, or otherwise take such action or preventive
measures deemed necessary by Landlord for the safety of tenants or other
occupants of the Building or the protection of the Building and the property in
the Building. Tenant agrees to fully cooperate in any reasonable safety program
developed by Landlord.
(i) To control and prevent access to common areas and other non-general
public areas pursuant to the provisions of the applicable Building Rules and
Regulations.
(j) Provided that reasonable access to the Premises shall be maintained
and the business of Tenant shall not be unreasonably interfered with or
disrupted unreasonably, Landlord reserves the right to relocate, enlarge, reduce
or change lobbies, exits or entrances in or to the Building and to decorate and
to make, at Landlord's own expense (except to the extent same constitutes
Operating Expenses), repairs, alterations, additions and improvements,
structural or otherwise, in or to the Building or any part thereof, and any
adjacent building, land, street or alley, including for the purpose of
connection with or entrance into or use of the Building in conjunction with any
adjoining or adjacent building or buildings, now existing or hereafter
constructed, and may for such purposes erect scaffolding and other structures
reasonably required by the character of the work to be performed, and in that
connection Landlord may temporarily close public entry ways, other public
spaces, stairways or corridors and interrupt or temporarily suspend any services
or facilities agreed to be furnished by Landlord, all without the same
constituting an eviction of Tenant in whole or in part and without abatement of
Rent by reason of loss or interruption of the business of Tenant or otherwise
and without relieving Tenant from the performance of any of Tenant's obligations
under this Lease. Landlord may at its option make any repairs, alterations,
improvements and additions in and about the Building and the Premises during
ordinary business hours and if Tenant desires to have such work done during
other than business hours and Landlord consents to such change, Tenant shall pay
all REASONABLE overtime and additional expenses resulting therefrom.
(k) To designate and approve, prior to installation, all types of
window shades, blinds, drapes, awnings, and similar equipment, and to control
all internal lighting that may be visible from the exterior of the Building.
17.27 VISIBLE AREAS CLAUSE. Tenant agrees to keep any visible portion
of the Premises (the "Visible Area") in a neat, clean and attractive condition
at all times. Tenant shall cause the walls in the Visible Area to be painted or
covered with wall coverings, and the interior of the Visible Area shall be
tastefully furnished, as determined by Landlord in its sole and absolute
discretion.
17.28 NO PRESUMPTION AGAINST DRAFTER. Landlord and Tenant understand,
agree and acknowledge that: (i) this Lease has been freely negotiated by both
parties; and (ii) that in any controversy, dispute, or contest over the meaning,
interpretation, validity, or enforceability of this Lease or any of its terms or
conditions, there shall be no inference, presumption or conclusion drawn
whatsoever against either party by virtue of that party having drafted this
Lease or any portion thereof.
17.29 EXAMINATION OF LEASE. Submission by Landlord of this instrument
to Tenant for examination or signature does not constitute a reservation of or
option for lease. This Lease will be effective as a lease or otherwise only upon
execution by and delivery to both Landlord and Tenant.
17.30 DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as singular. If more
than one person is named as Tenant, the obligations of such persons are joint
and several. The headings and titles to the articles, sections and subsections
of this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.
17.31 NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of
light, air or view by any structure which may be erected on the Project or lands
adjacent to the Project shall in no way affect this Lease or impose any
liability on Landlord (even if Landlord is the adjacent land owner).
17.32 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold
harmless agreement contained herein shall survive the expiration or termination
of this Lease.
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IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as
of the day and year first above written.
<TABLE>
<S> <C>
LANDLORD: 520 Partners, Ltd., TENANT: Home Interiors & Gifts, Inc.
a Texas Limited Partnership
By: SF Realty, Inc.
Its: General Partner
By: /s/ JIM KIRCHHOFF By: /s/ DONALD J. CARTER, JR.
- -------------------------- --------------------------------
Name: Jim Kirchhoff Name: Donald J. Carter, Jr.
- -------------------------- --------------------------------
Title: Director of Leasing Title: Chief Executive Officer
- -------------------------- --------------------------------
</TABLE>
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EXHIBIT "A"
FLOOR PLAN
(PAGE 1 OF 3)
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EXHIBIT A
FLOOR PLAN
(PAGE 2 OF 3)
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EXHIBIT A
FLOOR PLAN
(PAGE 3OF 3)
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EXHIBIT "B"
LEGAL DESCRIPTION
Lot 1-R, Block A Granite Tower at The Centre, City
of Farmers Branch, County of Dallas, State of Texas.
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EXHIBIT "C"
RULES AND REGULATIONS
1. The sidewalks, walks, plaza entries, corridors, concourses, ramps,
staircases, escalators and elevators of the Project shall not be obstructed or
used by Tenant, or the employees, agents, servants, visitors or licenses of
Tenant for any purpose other than ingress and egress to and from the Premises.
No bicycle or motorcycle shall be brought into the Building or kept on the
Premises without the prior written consent of Landlord.
2. No freight, furniture or bulky matter of any description will be
received into the Project or carried into the elevators except in such a manner,
during such hours and using such elevators and passageways as may be approved by
Landlord, and then only upon having been scheduled in advance. Any hand trucks,
carryalls, or similar equipment used for the delivery or receipt of merchandise
or equipment shall be equipped with rubber tires, side guards and such other
safeguards as Landlord shall require.
3. Landlord shall have the right to prescribe the weight, position and
manner of installation of safes or other heavy equipment which shall, if
considered necessary by Landlord, be installed in a manner which shall insure
satisfactory weight distribution. All damage done to the Project by reason of a
safe or any other article of Tenant's office equipment being on the Premises
shall be repaired at the expense of Tenant. The time, routing and manner of
moving safes or other heavy equipment shall be subject to prior approval by
Landlord.
4. Only persons authorized by Landlord will be permitted to furnish
newspapers, towels, barbering, shoe shining, janitorial services, floor
polishing and other similar services and concessions to Tenant, and only at
hours and under regulations fixed by Landlord.
5. Tenant, or the employees, agents, servants, visitors or licensees of
Tenant, shall not at any time leave, place or discard any rubbish, paper,
articles or objects of any kind whatsoever outside the doors of the Premises or
in the corridors, stairways or passageways of the Project.
6. Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's opinion, tends to impair the reputation of the Project or
its desirability for offices and, upon written notice from Landlord, Tenant will
refrain from or discontinue such advertising.
7. Tenant shall not place, or cause or allow to be placed, any sign,
placard, picture, advertisement, notice or lettering whatsoever, in, about or on
the exterior of the Premises, Building or Project except in and at such places
as may be designated by Landlord and consented to by Landlord in writing. Any
such sign, placard, advertisement, picture, notice or lettering so placed may be
removed by Landlord without notice to and at the expense of Tenant. All
lettering and graphics on corridor doors shall conform to the Building Standard
prescribed by Landlord. No trademark shall be displayed in any event.
8. Canvassing, soliciting or peddling in the Building and/or Project is
prohibited, and Tenant shall cooperate to prevent same.
9. Landlord shall have the right to exclude any person from the Project
other than during customary business hours as set forth in the Lease, and any
person in the Project will be subject to identification by employees and agents
of Landlord. All persons in or entering the Project shall be required to comply
with the security policies of the Project. If Tenant desires any additional
security service for the Premises, Tenant shall have the right (with the advance
written consent of Landlord) to obtain such additional service at Tenant's sole
cost and expense. Tenant shall keep doors to unattended areas locked and shall
otherwise exercise reasonable precautions to protect property from theft, loss
or damage. Landlord shall not be responsible for the theft, loss or damage of
any property or for any error with regard to the exclusion from or admission to
the Project of any person. In case of invasion, mob, riot or public excitement,
Landlord reserves the right to prevent access to the Project during the
continuance of same by closing the doors or taking other measures for the safety
of the tenants and protection of the Project and property or persons therein.
10. Tenant shall not do any cooking (other than warming in a microwave
oven) or conduct any restaurant or cafeteria for the sale or service of food or
beverages to its employees or to others. Tenant may, however, operate a coffee
bar and vending machines for drinks and snacks by and for its employees.
12. Tenant shall not bring or permit to be brought or kept in or on the
Premises or Project any inflammable, combustible, corrosive, caustic, poisonous,
or explosive substance, or cause or permit any odors to permeate in or emanate
from the Premises, or permit or suffer the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the Project
by reason of light, radiation, magnetism, noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business in the Project.
The foregoing does not preclude Tenant's operation of its art department on the
Premises, but only so long as such activities comply with applicable
environmental laws.
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13. No additional locks or bolts of any kind shall be placed on any
door in the Project or the Premises and no lock on any door therein shall be
changed or altered in any respect. Landlord shall furnish two keys for each lock
on exterior doors to the Premises and shall, on Tenant's request and at Tenant's
expense, provide additional duplicate keys. Tenant shall not make duplicate
keys. All keys shall be returned to Landlord upon the termination of this Lease,
and Tenant shall give to Landlord explanations of the combinations of all safes,
vaults and combination locks remaining with the Premises. Landlord may at all
times keep a pass key to the Premises. All entrance doors to the Premises shall
be left closed at all times and left locked when the Premises are not in use.
Landlord agrees to furnish to Tenant, at Landlord's expense, two (2) CardKeys
for access to the Building during such times as the Building is not open to the
public. Upon written request from Tenant, or other parties authorized by Tenant,
Landlord will furnish additional CardKeys to Tenant at Tenant's expense. Should
any CardKeys be lost or stolen, Tenant will immediately notify Landlord and
Landlord will issue replacement CardKeys with a different computer code number.
Such replacement CardKeys will be at Tenant's expense.
14. Tenant shall give immediate notice to Landlord in case of theft,
unauthorized solicitation or accident in the Premises or in the Project or of
defects therein or in any fixtures or equipment, or of any known emergency in
the Project.
15. Tenant shall not use the Premises or permit the Premises to be used
for photographic, multilith or multigraph reproductions, except in connection
with its own business and not as a service for others without Landlord's prior
permission.
16. Tenant shall not use or permit any portion of the Premises to be
used as an office for a public stenographer or typist, offset printing, the sale
of liquor or tobacco, a barber or manicure shop, an employment bureau, a labor
union office, a doctor's or dentist's office, a dance or music studio, any type
of school, or for any use other than those specifically granted in this Lease.
17. Tenant shall not advertise for laborers giving the Premises as an
address, nor pay such laborers at a location in the Premises.
18. The requirements of Tenant will be attended to only upon
application of Landlord in the Building or at such other address as may be
designated by Landlord in the Lease. Employees of Landlord shall not perform any
work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
19. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Business machines and mechanical and electrical
equipment belonging to Tenant which cause noise, vibration, electrical or
magnetic interference, or any other nuisance that may be transmitted to the
structure or other portions of the Project or to the Premises to such a degree
as to be objectionable to Landlord or which interfere with the use or enjoyment
by other tenants of their premises or the public portions of the Project shall
be placed and maintained by Tenant, at Tenant's expense, in settings of cork,
rubber, spring type, or other vibration eliminators sufficient to eliminate
noise or vibration.
20. No awning, draperies, shutters or other interior or exterior window
coverings that are visible from the exterior of the Building or from the
exterior of the Premises within the Building may be installed by Tenant.
21. Tenant shall not place, install or operate within the Premises or
any other part of the Project any engine, stove, or machinery, or conduct
mechanical operations therein, without the written consent of Landlord.
22. No portion of the Premises or any part of the Project shall at any
time be used or occupied as sleeping or lodging quarters.
23. Tenant shall at all times keep the Premises neat and orderly.
24. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the tenant who or whose employees or invitees shall have
caused it.
25. Landlord reserves the right to exclude or expel from the Project
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the Rules and Regulations of the Project.
26. Normal business hours shall be deemed to be 7:00 a.m. through 7:00
p.m. on weekdays and 8:00 a.m. through 1:00 p.m. on Saturdays, exclusive of
holidays. Holidays shall, for purposes of this Lease, be deemed to be New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Day after
Thanksgiving, Christmas Day and any other holidays commonly observed by
landlords of comparable buildings in the market area of the Project.
27. Landlord reserves the right, without the approval of Tenant, to
rescind, add to and amend any rules or regulations, to add new rules and
regulations, and to waive any rules or regulations with respect to any tenant or
tenants, provided, that these Rules are uniformly applied against all tenants.
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28. Tenant shall use no other method of heating or cooling than that
supplied by Landlord.
29. Tenant shall comply with all local and federal codes and
ordinances.
30. Tenant and its agents, employees and invitees shall observe and
comply with the driving and parking signs and markers on the Project grounds and
surrounding areas.
31. No animals or birds shall be brought to or kept in or about the
Project.
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EXHIBIT "D"
WORK LETTER
1. Plans.
1.1 Space Plan. On or before September 6, 1999, Tenant's designated space
planner, at Tenant's expense, shall prepare and deliver to Landlord a space plan
for the Premises showing, regardless of the quantities of such items, the
location of all partitions and doors and the lay-out of the Premises
(hereinafter referred to as "Space Plan"), Landlord will reasonably approve or
disapprove in writing the space plan within three (3) business days after
receipt from Tenant and if disapproved, Landlord shall provide Tenant and
Tenant's space planner with specific reasons for disapproval. The extent to
which Landlord shall be able to disprove items in the space plan shall be
limited to elements affecting load-bearing or corridor walls, Building systems
(mechanical and electrical), items visible from the exterior of the Building,
and items visible from common or public areas within the Building. If Landlord
fails to approve or disapprove the space plan on or before the end of such three
(3) business day period, Landlord shall be deemed to have approved the last
submitted space plan.
1.2 Compliance With Disability Acts. Tenant shall promptly provide Landlord and
Tenant's space planner and/or architect, as applicable, with all information
needed to cause the construction of Tenant's Improvements to be completed such
that Tenant, the Premises and Tenant's Improvements (as constructed) will be in
compliance with The Disability Acts. Tenant shall indemnify and hold harmless
Landlord from and against any and all claims, liabilities and expenses
(including, without limitation reasonable attorneys' fees and expenses) incurred
by or asserted against Landlord by reason of or in connection with any violation
of the Disability Acts by Tenant and/or Tenant's Improvements or the Premises
not being in compliance with The Disability Acts. The foregoing indemnity shall
not include any claims, liabilities or expenses (including reasonable attorneys'
fees and expenses) arising out of the negligence of Landlord or Landlord's
employees, agents or contractors.
1.3 Construction Plans. Upon Landlord's approval of the Space Plan, Tenant's
space planner and engineer, at Tenant's expense, will prepare construction plans
(such construction plans, when approved, and all changes and amendments thereto
agreed to by Landlord and Tenant in writing, are herein called the "Construction
Plans") for all of Tenant's improvements requested pursuant to the Space Plan
(all improvements required by the Construction Plans are herein called "Tenant's
Improvements"), including complete detail and finish drawings for partitions,
doors, reflected ceiling, telephone outlets, electrical switches and outlets and
Building standard heating, ventilation and air conditioning equipment and
controls. Tenant shall separately contract with BL&P Engineering or another
third party reasonably approved by Landlord, for all mechanical, electrical and
plumbing drawings and design to be incorporated in such construction plans.
Within three (3) business days after construction plans are delivered to
Landlord, Landlord shall approve (which approval shall not be unreasonably
withheld so long as the plans do not interfere with the Building's systems to
provide service to any other Tenant in the Building and the materials utilized
in connection with Tenant's Improvements shall be compatible with the design,
architectural integrity and character of the Building) or disapprove same in
writing and if disapproved, Landlord shall provide Tenant and Tenant's space
planner and engineer specific reasons for disapproval. The extent to which
Landlord shall be able to disprove items in the Construction Plan shall be
limited to elements affecting load-bearing or corridor walls, Building systems
(mechanical and electrical), items visible from the exterior of the Building and
items visible from common or public areas with the BUILDING. The foregoing
process shall continue until the construction plans are approved by Landlord;
provided that if Landlord fails to respond in any three (3) business day period,
Landlord shall be deemed to have approved the last submitted construction plans.
1.4 Changes to Approved Plans. If any redrawing or re-drafting of either the
Space Plan or the Construction Plans is necessitated by Tenant's requested
changes (all of which shall be subject to Landlord's reasonable approval), the
expense of any such re-drawing or re-drafting required in connection therewith
and the expense of any work and improvements necessitated by such re-drawing or
re-drafting will be at Tenant's expense.
1.5 Coordination of Planners and Designers. If Tenant shall arrange for interior
design services, whether with Tenant's space planner or any other planner or
designer, it shall be Tenant's responsibility to cause necessary coordination of
its agents' efforts with Landlord's agents to ensure that no delays are caused
by Tenant or its agents or contractors to either the planning or construction of
the Tenant's Improvements.
2. Construction and Costs of Tenant's Improvements
2.1 Construction Obligation and Finish Allowance. The condition of the Premises
prior to construction of Tenant Improvements shall be in "Shell Condition", free
from any debris and in a broom clean condition. Shell Condition for the purposes
hereof consists of the structural parts of the Building, the roof thereof,
concrete floors, the exterior walls including exterior glass, the exterior
parking lot and garage with no Tenant Improvements installed, however, Landlord
shall, at Landlord's expense, furnish and install the improvements shown on
Exhibit "D-1". Pursuant to a separate agreement, Tenant shall retain The
Staubach Company (hereinafter "TSC" ) as Tenant's interior construction manager
("Construction Manager") to represent Tenant with respect to all aspects of
Tenant's Improvements. Tenant shall cause TSC to cooperate fully with Landlord's
Construction Manager (hereinafter "LCM") in the expeditious review and approval
of all Space Plans and Construction Plans and in all phases of the construction
process. TSC shall review and monitor on behalf of TENANT the construction of
the Tenant Improvements described in the Construction Plans in a good and
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workmanlike manner. Tenant shall have the option in its sole discretion to
utilize Landlord's building standard doors, frames and hardware at Landlord's
actual cost. LCM shall manage the construction of the work in a good and
workmanlike manner and in connection therewith, shall perform certain services,
including, without limitation: (a) budgeting; (b) scheduling; (c) preparation of
bid invitation and summary of bids; (d) preparation of construction contract;
(e) management of construction process to meet Tenant objectives; (f) review and
process of contractor and subcontractor payment applications; (g) process change
orders; (h) attend weekly construction meetings; (i) deliver as-built documents
to Tenant. Upon approval by Landlord and Tenant of all of the completed
Construction Plans, the LCM and TSC will submit the completed Construction Plans
for pricing to the contractor (or contractors selected by Tenant subject to
Landlord's approval, which shall not be unreasonably withheld) ["Bidding
Contractor(s)]. Upon receipt of the bids from the Bidding Contractor(s), Tenant
shall resolve changes to the Construction Plans necessary to obtain a building
permit, achieve cost savings or otherwise coordinate with the Bidding Contractor
selected by Tenant as the "Tenant Contractor" as evidenced by an AIA contract
between Landlord and Tenant Contractor (and such changes shall be subject to
Landlord's review and approval, which approval shall not be unreasonably
withheld and shall be deemed given if not objected to within two (2) business
days of receipt of the request). The construction contract shall be between the
Tenant Contractor and Landlord and the costs of Tenant Improvements thereunder
shall not include costs for bonds, utility costs during construction, repairs
required for code performance of existing conditions, repair/corrections to
existing conditions to meet industry standards or work to common areas. Landlord
shall provide Tenant with an allowance of $2,001,753.00, or $27.00 per rentable
square foot (the "Finish Allowance"). which Finish Allowance shall be expended
for Tenant's Improvements, including both hard costs (construction costs) and
soft costs (design fees), along with moving expenses, telecom and cabling costs
and other expenses related to the construction of Tenant's Improvements,
including, without limitation, the costs of installing signage, supplemental
HVAC systems, satellite/antenna equipment and security systems. The Finish
Allowance shall be disbursed by Landlord, from time to time, for payment of the
contract sum required to be paid to the Tenant Contractor engaged to construct
Tenant's Improvements (the "Contract Sum") and the fees of the preparer of the
Construction Plans, and any other provider assisting in the design, construction
and relocation process (the foregoing costs are collectively referred to as the
"Permitted Costs"), upon delivery to Landlord of appropriate invoices, lien
waivers and similar documents. There shall be no construction management fee
paid by Tenant to Landlord's Construction Manager. Any unused Finish Allowance
will be paid or credited to Tenant in cash within thirty (30) days following
Substantial Completion at Tenant's election.
2.2 Excess Costs. If the sum of the Contract Sum exceeds the Finish Allowance,
then Tenant shall promptly pay Landlord all such excess costs ('Excess Costs")
within ten (10) business days after notification that such amount is due the
contractor(s). Tenant shall be responsible for direct payment of any designer
and vendors costs which are in excess of the Finish Allowance. Failure by Tenant
to timely tender to Landlord the full payment shall permit Landlord to stop all
work until the payment is received. All sums due Landlord under this Section 2.2
shall be considered Rent under the terms of this Lease and nonpayment shall
constitute a default under the Lease and entitle Landlord to any and all
remedies specified in this Lease. In the event the Finish Allowance exceeds the
Permitted Costs, Tenant shall receive 100% of the excess thirty (30) days
following commencement of the Lease. It is understood that Tenant will not be
required to pay any Excess Cost until all of the Finish Allowance is exhausted,
in that Tenant is not making payments pro rata with Landlord.
Notwithstanding anything to the contrary contained herein, Tenant may,
at Tenant's option, elect to reduce such Excess Costs by requesting that
Landlord pay up to five dollars ($5.00) per rentable square foot of the Premises
(the "Excess Allowance") and reimburse Landlord for such Excess Allowance in
equal monthly amounts amortized over the Term of this Lease at an interest rate
of ten percent (10%) per annum. In such event, Tenant shall provide Landlord
with written notice of Tenant's election at least thirty (30) days prior to
exhaustion of the Finish Allowance and provided further, Landlord and Tenant
shall, within ten (10) days after Tenant's election as aforesaid enter into a
separate agreement which agreement shall so state the amount so amortized,
payment dates and amounts due thereunder.
2.3 Liens Arising from Excess Costs. Tenant agrees to keep the Premises free
from any liens arising out of nonpayment of Excess Costs. In the event that any
such lien is filed and Tenant, within thirty (30) days following such filing
fails to cause same to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other remedies provided herein and
by law, the right, but not the obligation, to cause the same to be released by
such means as it in its sole discretion deems proper, including payment of or
defense against the claim giving rise to such lien. All sums paid by Landlord in
connection therewith shall constitute Rent under the Lease and a demand
obligation of Tenant to Landlord and such obligation shall bear interest at the
rate of eighteen percent (18%) per annum from the date of payment by Landlord
until the date paid by Tenant.
2.4. Delays. Delays in the completion of construction of Tenant's Improvements
attributable to actual delays caused by (a) the failure of Tenant or TSC to
promptly furnish information, input or other matters during the construction of
Tenant's Improvements; (b) changes by Tenant to the Approved Plans referenced in
paragraph 1.4; (c) materials selected by Tenant who's delivery and installation
exceed Project schedule; (d) errors and omissions of Tenant's architects; or (e)
the failure of the Construction Plans to be completed and approved in writing by
Landlord and Tenant on or before September 20, 1999, shall constitute "Tenant
Delays" (herein so called). All other delays, except for delays resulting from
force majeure, shall be considered Landlord Delays. In the event that Tenant's
Improvements are not Substantially Complete by the Commencement Date as set
forth in Article 1.01(g), then the Commencement Date shall be amended to be the
Adjusted Substantial Completion Date (hereinafter defined) and the Expiration
Date as set forth in Article 1.01(h) shall be adjusted forward by the same
number of days as is the Commencement Date, so that the term of the Lease will
be the term set forth in Article 1.01(f). The Adjusted Substantial Completion
Date shall be the date
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Tenant's Improvements are Substantially Complete, adjusted backward, however, by
one day for each day of Tenant Delays, if any.
2.5. Substantial Completion and Punch List. The terms "Substantial
Completion" and "Substantially Complete," as applicable, shall mean
when Tenant's Improvements are sufficiently completed in accordance
with the Construction Plans so that Tenant can reasonably use the
Premises for the Permitted Use as set forth in Article 6 and shall
include (a) receipt of all government and regulatory approvals
necessary to legally occupy and use the Premises and (b) all work
substantially conforms with the Construction Plans, except for minor
"punchlist items". When Landlord considers Tenant's Improvements to be
Substantially Complete, Landlord will notify Tenant and within two (2)
business days thereafter, Landlord's representative and Tenant's
representative shall conduct a walk-through of the Premises and
identify any necessary touch-up work, repairs and minor completion
items as are necessary for final completion of Tenant's Improvements.
Neither Landlord's representative nor Tenant's representative shall
unreasonably withhold his or her agreement on punch list items.
Landlord will diligently use commercially reasonable efforts to cause
the contractor to complete all punch list items within thirty (30) days
after agreement thereof.
2.6 Tenant's Contractors. If Tenant should desire to enter the Premises or
authorize its agent to do so prior to the Commencement Date of the
Lease, to perform approved work not requested of the Landlord, Landlord
shall permit such entry upon, and subject to, the following terms and
conditions:
(a) Tenant, its contractors, workmen, mechanics, engineers, space
planners or such others as may enter the Premises
(collectively, "Tenant's Contractors"), shall work in harmony
with and do not in any way disturb or interfere with
Landlord's space planners, architects, engineers, contractors,
workmen, mechanics or other agents or independent contractors
in the performance of their work (collectively, "Landlord's
Contractors"), it being understood and agreed that if entry of
Tenant or Tenant's Contractors would cause, has caused or is
causing a material disturbance to Landlord or Landlord's
Contractors, then Landlord may, with notice, refuse admittance
to Tenant or Tenant's Contractors causing such disturbance;
and
(b) Tenant, Tenant's Contractors and other agents shall provide
Landlord sufficient evidence that each is covered under such
Worker's Compensation, public liability and property damage
insurance as Landlord may reasonably request for its
protection.
Landlord shall not be liable for any injury, loss or damage to any of Tenant's
installations or decorations made prior to the Commencement Date and not
installed by Landlord (excluding Landlord's gross negligence and/or willful
misconduct). Tenant shall indemnify and hold harmless Landlord and Landlord's
Contractors from and against any and all costs, expenses, claims, liabilities
and causes of action arising out of or in connection with work performed in the
Premises by or on behalf of Tenant (but excluding work performed by Landlord or
Landlord's Contractors or Landlord's or its Contractor's negligence or willful
misconduct). Landlord is not responsible for the function and maintenance of
Tenant's Improvements which are different than Landlord's standard improvements
at the Property or improvements, equipment, cabinets or fixtures not installed
by Landlord. Such entry by Tenant and Tenant's Contractors pursuant to this
Section 5 shall be deemed to be under all of the terms, covenants, provisions
and conditions of the Lease except the covenant to pay Rent. Landlord shall
indemnify and hold harmless Tenant and Tenant's contractors from and against any
and all costs, expenses, claims, liabilities and causes of action arising out of
or in connection with work performed in the Premises by or on behalf of Landlord
(but excluding work performed by Tenant or Tenant's contractors or Tenant's or
its contractor's negligence or willful misconduct).
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EXHIBIT D-1
BUILDING SHELL IMPROVEMENTS
Landlord shall, at Landlord's expense, furnish and install the following
building standard improvements in accordance with all applicable governmental
laws and regulations as follows:
1. Building standard ceiling grid (2 x 4).
2. Building standard parabolic light fixtures (up to one fixture per 80
usable square feet).
3. Building standard ceiling tile.
4. Building standard horizontal mini blinds on all perimeter windows.
5. Building standard sprinkler system and heads. Tenant to pay for height
adjustment and relocation/additions if required by code.
6. Building standard air conditioning main ducts up to and including
variable air volume (VAV) and fan-powered mixing boxes. Tenant to pay
for all ducts and devices downstream from main boxes (i.e. flexible
ducts, diffusers, return-air grills, etc.).
7. Building standard restrooms.
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EXHIBIT "E"
FORM OF
ACCEPTANCE OF PREMISES MEMORANDUM
This Acceptance of Premises Memorandum is being executed pursuant to that
certain Lease Agreement (the "Lease') dated the ________________ day of
_______________, 1999 between 520 Partners, Ltd. ("Landlord") and Home Interiors
& Gifts, Inc. ("Tenant"), pursuant to which Landlord leased to Tenant and Tenant
leased from Landlord certain space in the office building located at 4055 Valley
View Lane in Dallas, Texas (the "Building"). Landlord and Tenant hereby agree
that:
1. Except for the Punch List Items (herein so called, as shown on the
attached Punch List), Landlord has fully completed the Tenant
Improvements and all other construction work required under the terms
of the Lease and the Work Letter attached thereto.
2. The Premises are tenantable, Landlord has no further obligation for
construction (except with respect to Punch List Items) and Tenant
acknowledges that the Building, the Premises and Tenant's Improvements
are satisfactory in all respects (latent defects excepted), except for
the Punch List Items and are suitable for the Permitted Use.
3. The Commencement Date of the Lease is the _________________ day of
_________________, 1999. If the date set forth in Section 1.01(g)of the
Lease is different than the date set forth in the preceding sentence,
then Section 1.01(g) of the Lease is hereby amended to be the
Commencement Date set forth in the preceding sentence.
4. The Expiration Date of the Lease is the __________________ day of
__________________ 20__. If the date set forth in Section 1.01(h) of
the Lease is different than the date set forth in the preceding
sentence, then Section 1.01(h) of the Lease is hereby amended to be the
Expiration Date set forth in the preceding sentence.
5. Tenant acknowledges receipt of the current Rules and Regulations for
the Building.
6. Tenant represents to Landlord that Tenant has obtained a Certificate of
Occupancy covering the Premises.
7. All capitalized terms not defined herein shall have the meaning
assigned to them in the Lease.
Agreed and Executed this ______________ day of _________________________, 1999.
LANDLORD
520 Partners, Ltd.
By: Granite Properties, Inc.
Its: General Partner
By:
---------------------------------
Name: James Kirchhoff
Title: Director of Leasing
TENANT
Home Interiors & Gifts, Inc.
By:
---------------------------------
Name: Donald J. Carter, Jr.
---------------------------------
Title: Chief Executive Officer
---------------------------------
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EXHIBIT "F"
PARKING GARAGE
1. Tenant shall pay Landlord the parking charges in such amount as set
forth in Section 1.01(d) of this Lease (hereinafter the "Parking Rent"). The
Parking Rent shall be payable in accordance with the policies established by
Landlord (or its agent) from time to time for payment of Parking Rent in such
garage. Tenant shall indemnify and hold harmless Landlord from and against all
claims, losses, liabilities, damages, costs and expenses (including, but not
limited to, attorneys' fees and court costs) arising or alleged to arise out of
Tenant's use of any such parking spaces unless caused by Landlord's negligence
and/or willful misconduct. Except as otherwise provided for in this Lease,
Tenant shall have no further rights to (a) any parking permit not taken at the
beginning of the original Term or (b) any parking permit taken at the beginning
of the original Term and thereafter released by Tenant or terminated by Landlord
for failure to pay Parking Rent or to comply with the other terms and conditions
for the leasing of such parking permit imposed by Landlord. Upon the proper
termination of this Lease, Tenant's rights to the parking permits then being
leased to Tenant hereunder shall terminate. In the event any of the above
parking spaces are or become unavailable at any time or from time to time
throughout the Term, whether due to casualty or any other cause, the Lease shall
continue in full force and effect, Tenant shall receive an abatement of Parking
Rent for those parking spaces rendered unavailable, which abatement shall
continue until such time as said parking spaces, or substitutes therefor, again
become available, and Landlord shall use its commercially reasonable efforts to
provide comparable substitute parking spaces for those spaces rendered
unavailable.
2. Tenant agrees to comply with all reasonable rules and regulations
now or hereafter established by Landlord relating to the use of the garage by
contract parking patrons. A condition of any parking shall be compliance by the
parking patron with garage rules and regulations, including any sticker or other
identification system established by Landlord. The following rules and
regulations are in effect until notice is given to Tenant of any change.
Landlord reserves the right to modify the following rules and regulations and/or
adopt such other reasonable and nondiscriminatory rules and regulations for the
garage as Landlord deems necessary for the operation of the garage. Landlord may
refuse to permit any person who violates the rules to park in the garage, and
any violation of the rules shall subject the car to removal.
RULES AND REGULATIONS
1. Cars must be parked entirely within the stall lines painted on
the floor.
2. All directional signs and arrows must be observed.
3. The speed limit shall be 5 miles per hour.
4. Parking is prohibited:
(a) in areas not striped for parking
(b) in aisles
(c) where "No Parking" signs are posted
(d) in cross hatched areas
(e) in such other areas as may be designated by Landlord
or Landlord's agent(s).
(f) in Visitor, Delivery, Handicapped or other specially
designated parking areas
5. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of the Landlord and shall not be
transferable. There will be a replacement charge payable by Tenant equal to the
amount posted from time to time by Landlord for loss of any magnetic parking
card or parking sticker.
6. Garage managers or attendants are not authorized to make or allow
any exceptions to these Rules and Regulations.
7. Every parker is required to park and lock his own car. All
responsibility for damage to cars or persons is assumed by the parker.
8. No intermediate or full-size cars shall be parked in parking spaces
limited to compact cars.
9. All motorcycles/motorized bicycles are to be parked in the
designated motorcycle area, and will be removed from the property if not in the
designated area.
Failure to promptly pay the Parking Rent required hereunder or
persistent failure on the part of Tenant or Tenant's designated parkers to
observe the rules and regulations above shall give Landlord the right to
terminate Tenant's right to use the parking areas. No such termination shall
create any liability on Landlord or be deemed to interfere with Tenant's right
to quiet possession of the Premises.
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RIDER 1
TENANT'S RIGHT OF FIRST REFUSAL
A. For purposes of this Rider 1, the area within the Building described on
Schedule A attached to this Rider is hereinafter referred to as the
"ROFR Space". Prior to leasing any of the ROFR Space to a party other
than Tenant or the currently existing tenant of such ROFR Space,
Landlord shall deliver to Tenant a written statement ("Statement")
which shall reflect the basic terms upon which Landlord is then
intending to lease all or a portion of the ROFR Space to a prospective
tenant (the portion of the ROFR Space that is the subject of such
Statement is hereinafter referred to as the "Subject ROFR Space"), such
as rent, term, finish allowances, tenant inducements and the
description of the Subject ROFR Space. Tenant shall have seven (7) days
after receipt of the Statement within which to notify Landlord in
writing that it desires to lease the Subject ROFR Space upon the terms
and conditions contained in the Statement provided, however, (I) if
Tenant notifies Landlord of its election to lease the Subject ROFR
Space within two (2) years after the Commencement Date, Tenant shall
lease the Subject ROFR Space (which shall thereafter be part of the
Premises) for the number of months remaining for the Term of this
Lease, and upon the same terms and conditions set forth for the
original Premises (including the same Base Rent payable for the
original Premises during the remainder of the Primary Term, except that
(i) the Finish Allowance of $27.00 per square feet payable by Landlord
shall be reduced in direct proportion to the number of months remaining
on the Term as of Landlord's estimated delivery date of the Subject
ROFR Space to Tenant (ii) Tenant shall be entitled to four (4) parking
spaces for each one thousand (4:1000) rentable square feet of such ROFR
Space being added to the Premises, of which seventy-two percent (72%)
shall be located in the Parking Garage and the remainder shall be
located on the surface lot (all such parking space shall be at no cost
to Tenant), and (iii) if Tenant notifies Landlord of its election to
lease the Subject ROFR Space after the second (2nd) anniversary of the
Commencement Date but prior to the fifth (5th) anniversary of the
Commencement Date, Tenant shall lease the Subject ROFR Space upon the
same terms set forth in (I) immediately preceding, except that the rate
of Base Rent, the amount of the Finish Allowance and other allowances
shall be based upon the then current market conditions for comparable
office space in comparable buildings in the LBJ/North Dallas market,
taking into account all relevant factors Failure by Tenant to notify
Landlord within such seven (7) day period shall be deemed an election
by Tenant not to lease the Subject ROFR Space and Landlord shall
thereafter have the right to lease such subject ROFR Space upon
substantially the same terms described in the Statement to a third
party. In the event Landlord does not enter into a lease with respect
to such subject ROFR Space within one hundred eighty days (180) after
the date of the Statement, Tenant's rights under this Rider 1 shall
automatically be reinstated with respect to said ROFR Space. In the
event Landlord intends to enter into a lease which materially differs
from the Statement delivered to Tenant, Tenant shall have the right to
lease the ROFR Space on such materially different terms.
B. Notwithstanding any provision or inference in this Rider to the
contrary, Tenant's rights under this Rider 1 shall expire and be of no
further force or effect upon the earlier of (i) the expiration or
earlier termination of the Primary Term of this Lease or (ii) the
existence of a Default by Tenant under this Lease at the time that
Tenant is entitled to exercise its rights under this Rider 1, or (iii)
the failure at such time of Tenant to occupy at least one and one-half
(1 1/2) floors in the Building.
C. Tenant acknowledges that the ROFR Space on floor 8 is subject to
certain expansion rights, right of first refusal and other rights in
favor of Carreker-Antinori, Inc. pursuant to a lease agreement between
Landlord and Carrker-Antinori (the "Carreker-Antinori Lease"), and the
ROFR Space on floor 4 is subject to certain right of first refusal and
other rights in favor of Great-West Life and Annuity Insurance Company
and Purchasing Management International Company pursuant to a lease
agreement between Landlord and Great-West Life Insurance Company (the
"Great-West Life Lease") and a lease agreement between Landlord and
Purchasing Management International Company ( the "Purchasing
Management Lease"). Accordingly, notwithstanding anything contained
herein to the contrary, Landlord and Tenant acknowledge that all of
Tenant's rights under this Rider 1 are subject to and subordinate to
all rights and obligations set forth in the Carrker-Antinori Lease, the
Great West Life Lease and the Purchasing Management Lease.
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SCHEDULE A
(PAGE 1 OF 3)
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SCHEDULE A
(PAGE 2 OF 3)
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SCHEDULE A
(PAGE 3 OF 3)
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RIDER 2
RENEWAL OPTION
1. If, and only if, on the Expiration Date and the date Tenant notifies
Landlord of its intention to renew the term of this Lease (as provided
below), (i) a Default has not been declared and is continuing under
this Lease, (ii) Tenant or a Permitted Assignee then occupies at least
one and one-half (1 1/2) floors of the original Premises and (iii) this
Lease is in full force and effect, then Tenant, but not any assignee or
subtenant of Tenant other than affiliate, shall have and may exercise
an option to renew this Lease for two (2) additional term of five ( 5 )
years (the "Renewal Term") upon the same terms and conditions contained
in this Lease with the exceptions that (x) this Lease shall not be
further available for renewal and (y) the rental for the Renewal Term
shall be the "Renewal Rental Rate". The Renewal Rental Rate is hereby
defined to mean the then prevailing rents (including, without
limitation, those similar to the Basic Annual Rent and Additional Rent)
Payable by renewal tenants having a credit standing substantially
similar to that of Tenant, for properties of equivalent quality, size,
utility and location as the Premises, including any additions thereto,
located within the area described below and leased for a renewal term
approximately equal to the Renewal Term. The Renewal Rental Rate will
take into consideration the tenant inducements offered in the renewal
transactions considered by Landlord in determining the Renewal Rental
Rate.
2. If Tenant desires to renew this Lease, Tenant must notify Landlord in
writing of its desire to consider renewing on or before the date which
is at least nine (9) months but no more than twelve (12) months prior
to the Expiration Date. Landlord shall, within the next sixty (60)
days, notify Tenant in writing of Landlord's determination of the
Renewal Rental Rate and Tenant shall, within the next twenty (20) days
following receipt of Landlord's determination of the Renewal Rental
Rate, notify Landlord in writing of Tenant's acceptance or rejection of
Landlord's determination of the Renewal Rental Rate. If Tenant timely
notifies Landlord of Tenant's acceptance of Landlord's determination of
the Renewal Rental Rate, this Lease shall be extended as provided
herein and Landlord and Tenant shall enter into an amendment to this
Lease to reflect the extension of the term and changes in Rent in
accordance with this Rider. If Tenant timely notifies Landlord in
writing of Tenant's rejection of Landlord's determination of the
Renewal Rental Rate, Tenant shall deliver with such notification
Tenant's determination of the Renewal Rental Rate and Landlord and
Tenant shall, within the next ten (10) days, negotiate in good faith to
determine the Renewal Rental Rate. If Tenant does not notify Landlord
in writing of Tenant's acceptance or rejection of Landlord's
determination of the Renewal Rental Rate within the aforementioned
twenty (20) day period, this Lease shall end on the Expiration Date,
unless within such twenty (20) day period Tenant elects to have the
Renewal Rental Rate determined as follows:
(a) Within fourteen (14) days after Landlord's receipt of Tenant's
rejection notice, the parties shall select as an arbitrator an
independent MAI appraiser with at lease five (5) years experience in
appraising office space in Dallas, Texas (the "Arbitrator").
(b) Each party shall submit to the Arbitrator its determination of the
Renewal Rental Rate.
(c) Within fourteen (14) days of submission of the matter to the
Arbitrator, the Arbitrator shall determine the Renewal Rental Rate by
choosing whichever of the determinations submitted is more accurate
(the Arbitrator shall not substitute its own determination).
(d) Tenant shall have three (3) days after The Arbitrator's
determination to accept or reject the determination. In the event
Tenant accepts such determination, then this Lease shall be amended as
provided for above and of the Renewal Rental Rate shall be binding. as
determined by the Arbitrator. If Tenant should reject such Arbitrator's
determination, then this Lease shall end on the Expiration Date. The
fees and costs of the Arbitrator shall be borne equally by the parties.
3. The area with respect to which the Renewal Rental Rate will be
determined is the LBJ/North Dallas market.
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RIDER 3
EXPANSION OPTION
A. For purposes of this Rider 3, the area of the Building described on
Schedule B attached to this Rider is hereinafter referred to as the
"Expansion Space".
Subject to the remaining provisions of this Rider 3, Tenant shall have
the option and the right (the "Expansion Option") to lease all, but not
less than all, of the Expansion Space consisting of 11,055 rentable
square feet. Tenant must exercise the Expansion Option, if at all, by
delivering written notice to Landlord (the "Expansion Notice") on or
before January 1, 2004. If Tenant timely exercises the Expansion Option
with regard to the Expansion Space, Landlord and Tenant will in good
faith negotiate and enter into an amendment to this Lease within thirty
(30) days of Tenant's delivery of the Expansion Notice reflecting the
addition of the Expansion Space to the Premises with a Commencement
Date of December 1, 2004, provided, however, (i) the rate of Base Rent,
the amount of Finish Allowance and other allowances shall be based on
the then market conditions for comparable office space in comparable
buildings in the LBJ/North Dallas market taking into account all
relevant factors such as condition and size of the Expansion Space,
length of term, creditworthiness of Tenant, basis for payment of
operating expenses and all other relevant factors (ii) Tenant shall be
entitled to four (4) parking spaces for each one thousand (4:1000)
rentable square feet of such Expansion Space being added to the
Premises, of which seventy-two percent (72%) shall be located in the
Parking Garage and the remainder shall be located on the surface lot
(all such parking space shall be at no cost to Tenant), and in the
event that Landlord is unable to timely deliver the Expansion Space due
to the holding over of the existing tenant thereof, then the
Commencement Date of the Expansion Space shall be delayed until the
date that the Expansion Space is delivered to Tenant.
B. Notwithstanding anything to the contrary contained herein, all rights
and obligations under this Rider 3 shall automatically terminate upon
the earlier to occur of (i) failure by Tenant to timely exercise such
Expansion Notice on or before January 1, 2004; (ii) failure by Landlord
and Tenant to enter into a lease amendment for such Expansion Space
within thirty (30) days of Tenant's delivery of the Expansion Notice to
Landlord as a result of Tenant, or (iii) the existence of a Default by
Tenant under this Lease at the time that Tenant is entitled to exercise
its rights under this Rider 3, or (iv) the failure at such time of
Tenant to occupy at least one and one-half (1 1/2) floors in the
Building or (v) the earlier termination of this Lease.
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SCHEDULE B
Home Interiors & Gifts, Inc.
Granite Tower at The Centre, 8/17/1999
43
<PAGE> 47
RIDER 4
CAP ON CERTAIN OPERATING EXPENSES
For the purpose of determining Additional Rent, Operating Expenses (exclusive of
the Non-Capped Operating Expenses, as hereinafter defined) for any calendar year
shall not be increased over the amount of Operating Expenses (exclusive of
Non-Capped Operating Expenses) during the Base Year by more than seven percent (
7%) per year. It is understood and agreed that there shall be no cap on
Non-Capped Operating Expenses, which are hereby defined to mean all Utility
Expenses, Real Estate Taxes and Insurance Premiums. In addition, Tenant shall
receive the full benefit of any tax abatements granted during the Term of this
Lease to Landlord for the Building by the City of Farmers Branch or any other
taxing authority.
Home Interiors & Gifts, Inc.
Granite Tower at The Centre, 8/17/1999
44
<PAGE> 48
RIDER 5
SIGNAGE
Landlord hereby grants Tenant the right (at Tenant's expense) to install its
name and logo on a non-exclusive basis on Landlord's existing monument sign at
the front of the Building. Subject to the approval of all applicable
governmental authorities, Landlord further grants Tenant the right (at Tenant's
expense) to install an additional monument sign at the front of Building at a
location reasonably acceptable to Landlord for the display of Tenant's name and
logo on an exclusive basis.
Additionally, Landlord hereby grants Tenant the right, (at Tenant's expense), to
display Tenant's name and corporate emblem, on the highest level of the exterior
portion of the Building facade at a location to be reasonably approved by
Landlord, subject to signage location rights, hereintofore granted to Carreker,
which rights Tenant may attempt to purchase directly from Carreker (such
purchase may include an exchange of Tenant's signage rights under this second
paragraph of Rider 5 with Carreker). Landlord's consent shall not be required or
necessary for such purchase or exchange or the terms thereof. In the event that
(i) Tenant does not acquire Carreker's signage rights, and (ii) Carreker's
signage rights are hereafter no longer in effect then Tenant shall have the
option (at Tenant's expense) (such option to be exercised within fifteen (15)
days after Landlord's notice to Tenant thereof) to display Tenant's name and
corporate emblem on the exterior of the Building facade above the tenth floor,
however, Tenant recognizes that such building signage right above the tenth
floor is subject to building signage rights hereintofore granted in favor of the
Carreker-Antinori Lease. Landlord reserves the right to approve style, type of
construction, color size and location of any such sign. Landlord's approval
shall be submitted to Tenant in writing after receipt by Landlord of Tenant's
request accompanied by drawings, schematics and site location for said signage
together with any applicable plans and specifications for review. Installation
shall be subject to: (i) Tenant's receipt of all necessary governmental permits
and approvals, (ii) Landlord's written consent as provided above and (iii)
supervision by Landlord of installation. Notwithstanding the foregoing, in no
event shall Tenant be entitled to exterior building signage at more than one
level of the Building.
Tenant agrees to maintain such signage during the Term of this Lease and remove
such exterior signage installed by Tenant at Tenant's sole cost and expense when
the Premises are vacated or the Lease Term is terminated or otherwise, canceled
and to restore the exterior of the Building to the original condition,
reasonable wear and tear accepted. Any subletting or assignment other than to an
Permitted Assignee shall terminate Tenant's signage rights contained herein.
Tenant shall have the rights contained herein only so long as Tenant and/or any
Permitted Assignee) occupy at least one and one-half (1 1/2) floors of the
Building.
Home Interiors & Gifts, Inc.
Granite Tower at The Centre, 8/17/1999
45
<PAGE> 1
EXHIBIT 10.23
[RAPISTAN SYSTEMS LOGO]
December 14, 1999
MANNESMANN DEMATIC RAPISTAN CORP. ("RAPISTAN SYSTEMS") WITH OFFICES LOCATED
AT: 8600 W. Royal Lane, Suite 100 A
Irving, TX 75063
SUBMITS THIS PROPOSAL TO: EQUIPMENT TO BE INSTALLED AT:
HOME INTERIORS & GIFTS, INC. HOME INTERIORS & GIFTS, INC.
4550 Spring Valley Road Carrollton, TX
Dallas, TX 75244
This PROPOSAL consists of the following documents:
1. Sales Agreement No. 56-5879 Rev B., including General Terms and Conditions
(Exhibit A)
2. This Proposal, Tabs 1 through 7 and Pages 1 through 34.
3. Rapistan Systems drawings: Other Documents: None
In the event of conflict between any documents, the document first listed above
shall govern all documents listed below it.
All of the information in the Proposal is confidential and has been prepared for
Home Interiors' use solely in considering the purchase of the equipment
described. Transmission of all or any part of this information to others or Home
Interiors' use for any other purpose is unauthorized without Rapistan Systems'
prior written consent. All Rapistan Systems specifications and drawings will
remain the property of Rapistan Systems and are subject to recall at any time.
Copyright, Mannesmann Dematic Rapistan Corp., 1999. The contents of this
Proposal may not be reproduced without the express written permission of
Rapistan Systems Corp.
THIS PROPOSAL SUBMITTED BY:
/s/ BRAD BIJONOWSKI SALES ENGINEER 972-929-7700
- ------------------------ ---------------------------- ----------------------
BRAD BIJONOWSKI TITLE PHONE
/s/ ROYAL SMITH GENERAL MANAGER 972-929-7700
- ------------------------ ---------------------------- ----------------------
ROYAL SMITH TITLE PHONE
This Proposal will remain valid through December 23, 1999. In the event this
Proposal is not accepted prior to this date, then the price, schedule, and other
portions of this Proposal could be subject to change.
<PAGE> 2
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
INTRODUCTION
Rapistan Systems is pleased to present this Proposal to provide a RapidPICK
Paperless Picking System for Home Interiors' Facility in Carrollton, TX.
PROPOSAL CONTENT
DESCRIPTION OF RapidPICK SYSTEM: This section describes the system's physical
layout, control system architecture, hardware features and provides a detailed
Description of Operation for key operating features of the RapidPICK System
being proposed.
EQUIPMENT SPECIFICATIONS: This section provides a list of the individual
components and the quantities of each being proposed for the system, along with
a description of the major operator interfaced components.
PARAMETERS: The section specifies what will be provided in terms of engineering,
installation, training, manuals, testing and warranty by Rapistan Systems, as
well as defines project responsibilities to be provide by Purchaser.
CLARIFICATIONS AND EXCEPTIONS: This section notes all clarifications and
exceptions to Purchaser's bid request and specifications.
CONTRACT TERMS: These sections define the proposed project schedule, quoted
prices, and proposed Terms and Conditions.
SALES AGREEMENT: Sales agreement between Purchaser and Mannesmann Dematic
Rapistan Corp.
<PAGE> 3
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF RAPIDPICK SYSTEM
ABBREVIATIONS AND DEFINITIONS
The following list of abbreviations and definitions will be used through the
following Proposal.
BayCOLOR LED device used to indicate zone boundaries
by changing color, red or green, and
indicates Picks in a bay by flashing.
Host Purchaser's computer that gathers order data
from their stores and/or Purchasers.
MaxiPICK 4D Four digit red LED display device used to
indicate pick quantities and their status,
and for acknowledgment at the pick location.
Operator Person supervising and monitoring the
RapidPICK System console.
Order A group of line items required to supply
goods to a Purchaser.
Picker Person performing order picking.
Remote Terminal Non-PC terminal, with monitor and
keyboard, remotely located and used to
perform system functions, view order and
picker status and request report printing.
SKU Stock Keeping Unit.
SubCONTROLLER Unit which controls and monitors all
activity in specified zones. Communicates
with SystemCONTROLLER and picking devices.
SystemCONTROLLER UNIX based computer from which all functions
are controlled.
Tethered Scanner A hand held barcode scanner directly
connected to the operating system by
communication cable.
<PAGE> 4
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF RAPIDPICK SYSTEM
CONTINUED
UPS Uninterruptable Power Supply used to provide
power to the picking system and its
components in the event of power failure
within the facility.
ZonePANEL Display Panel used to show order status,
zone status, prompt various picking
activities, perform diagnostics on system,
and act as a redundant picking device.
PHYSICAL FACILITY
Pick To Light System
The proposed Pick-to-Light System is to be installed in (2) mirrored pods of (2)
three-level pick modules. A total of (1412) pick slot locations will be covered
by pick displays in a total of (20) case flow rack bays and (706) pallet bays.
All pallet and flow rack is supplied by others.
The RapidPICK System will utilize three conveyors: one (1) powered takeaway and
two (2) gravity flankers. The powered takeaway conveyor will include right angle
power transfers for zone routing onto the appropriate gravity conveyor. The
cartons will serpentine all three levels of two (2) modules before traveling to
a dunnage and sealing area.
The Case Flow rack will be arranged in groups of bays, with every zone having
one ZonePANEL and one tethered scanner. The ZonePANEL is positioned at the
beginning of every zone, allowing for the indication of order status. Every
other Rack Bay has a BayCOLOR in the center of the shelf at eye level. The
BayCOLOR will indicate the zone boundaries by displaying different colors for
adjacent zones, and will flash to identify that there are picks within a bay.
The Pallet Rack will be arranged in groups of bays, with every zone having one
ZonePANEL and one tethered scanner at each end, for forward and reverse picking.
The Pick Device for the Pallet Location will be located on the cross member
above the pallet.
BAY FACE CONFIGURATIONS
The bay layout will vary according to the type of pick. Typical carton flow and
pallet flow configurations are shown, along with the required quantity of
devices.
DESCRIPTION OF RAPIDPICK SYSTEM
<PAGE> 5
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
CONTINUED
[TYPICAL CARTON FLOW RACK CONFIGURATION CHART]
TYPICAL CARTON FLOW RACK CONFIGURATION
Device Quantity per Bay # of Bays Total
MaxiPICK 4D 24 (TYP) 20 456
<PAGE> 6
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF RAPIDPICK SYSTEM
CONTINUED
[TYPICAL PALLET RACK CONFIGURATION GRAPH]
TYPICAL PALLET RACK CONFIGURATION
Device Quantity per Bay # of Bays Total
MaxiPICK 4D 2 706 1412
OVERALL SYSTEM
Device Pallet Location Carton Location Total
MaxiPICK 4D 1412 456 1868
SYSTEM ARCHITECTURE AND LAYOUT
RapidPICK is managed by the SystemCONTROLLER, which is linked to distributed
intelligent SubCONTROLLER devices via the RP2NET communication system to ensure
a real-time response for all processes. There is a dedicated system console,
keyboard and report printer attached to the SystemCONTROLLER for all user
initiated functions.
DESCRIPTION OF RAPIDPICK SYSTEM
<PAGE> 7
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
CONTINUED
SubCONTROLLERs monitor and control all the activities for specified sections of
the system, under the direction of the SystemCONTROLLER. The section of the
system managed by a single SubCONTROLLER is referred to as a physical zone. Each
SubCONTROLLER is capable of controlling multiple logical zones.
<PAGE> 8
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
The following sections highlight key system operating components of the proposed
RapidPICK system.
SYSTEM OVERVIEW
Pick Modules
Orders for picking are downloaded from the WMS to the RapidPICK SystemCONTROLLER
in waves. Waves are predetermined by the WMS based on cubing of the shipping
trucks. Each wave is approximately 1/4 of a load for 10 of the 20 available
trucks. The WMS will divide all orders into the two mirrored picking pods,
keeping picking volume approximately equal.
A picker will induct an order by pushing the next button on the zone display and
scanning a unique bar code (by others), which is placed on a shipping carton.
This marries the picking carton to the order number. Once an order has been
accepted for picking in a zone, the BayCOLOR in each bay of that zone will flash
to show activity. Note: the BayCOLOR will always be lit as either red or green,
alternating from zone to zone, providing a definition of zone boundaries. Where
there are active picks in the zone, the slot display devices will be lit. The
MaxiPICK 4D devices will show the pick quantity for each item.
Orders will start in the candle area, where a picker will pick to a special
candle box (exact dimensions to be determined). The picker will be directed to
the appropriate items by the pick to light system. Once all picks are completed
in this zone, the picker will either pass the carton on to the next zone, or, if
the carton is full, onto the take away conveyor. The picker in the last zone of
a picking area will release the carton to the powered take away conveyor, where
the system will transport it to the next appropriate zone.
As a carton becomes full, the picker will close out the carton, send the carton
out of the picking area, induct a new carton for the order and continue picking.
The contents of this completed carton are now married to the order number by the
unique bar code.
As a carton of an order is received into a subsequent picking area, the label on
the carton is scanned by the picker, which lights the required picks in the
zone. If there are no picks in this zone, the zone display will acknowledge
this, and the picker will pass the carton into the next zone.
If there is not adequate product to fill an order, two approaches can be taken.
The picker can either suspend the order and place the carton underneath the
gravity
<PAGE> 9
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
CONTINUED
flanker to be filled later, or the quantity can be decremented on the slot
display and the order can be shipped short. All items and quantities are sent to
the WMS upon carton close out.
Packing and Shipping
Completed cartons are serpentined through all three levels of both modules in a
picking pod. Once out of the modules, the cartons are conveyed to a dunnage and
sealing station. The operator will scan the unique bar code id on the carton
(scanner and required computer hardware by others), and the WMS will print a
shipping label and packing list. The shipping label, which contains a sort
destination, will be secured on top of the box. The packing list will be placed
inside the box, along with dunnage, by others. The carton will then be manually
pushed into a carton sealer, also by others, and conveyed to the shipping
sorter. The shipping sorter will divert the carton down to the appropriate truck
and send a confirmation to the WMS for manifesting.
DATA BASE RESPONSIBILITIES (WMS)
Host Responsibilities
Purchaser's Host Computer is responsible for creating the order files necessary
for the picking operation. It is the responsibility of the Host system to
maintain the SKU to slot location data base.
Download/Upload of Orders
The Host interface to the RapidPICK System will be through an Ethernet
connection using TCP/IP and FTP. The Host interface is the responsibility of the
Purchaser. The Host system will download order picking instructions to the
RapidPICK System. At a minimum, these instructions will include the order
number, each slot location number and the quantity to be picked from that slot.
Pick transaction details are uploaded from the RapidPICK System upon carton
close-out or completion of an order. These uploads will include carton content
data. Short pick data will be uploaded at completion of an order.
<PAGE> 10
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
CONTINUED
RapidPICK System PickMAP
The RapidPICK System will light locations for the pick operation by matching the
pick slot location name in the order file with the position of a display device
in the pick module. This information is held in the PickMAP.
The primary purpose of the PickMAP is to associate the location names with the
physical wiring of the RapidPICK System. Other relationships, such as the
relationship of bays to zones and the sequence in which the devices are to be
lit, are also in the PickMAP.
RapidPICK System Zone Maps
To evenly distribute the picking work load to multiple pickers, the system is
divided into work zones. These work zones are identified to the pickers in two
ways. First the zone number is displayed on the ZonePANEL(s) corresponding to
the zone. Second the BayCOLOR devices of each bay shows the boundary of the
zones by displaying in different colors (primarily in red or green). Adjacent
bays of the same color are in the same zone.
Depending on picking volume or number of pickers available, the zone map can be
changed via the system monitor menu screen. This can be done by choosing one of
the pre-defined zone maps or by creating a new zone map to cover a special
condition. The RapidPICK System allows for an unlimited number of zone maps to
exist, but it is recommended that no more than 50 zone maps ever be in existence
at one time.
Changing of the zone map requires the system to be stopped and restarted for the
new map to take effect. This means all orders active in a zone must be completed
before the change is made to the map. It is advisable to re-scan an order into
the zone it was just completed in to be sure no picks are missed. This is
extremely important because the new zone could include additional downstream
bays.
Label Printing
All carton labels are printed by the WMS.
The unique Carton label will be applied to the order carton by the induction
operator before the order can be inducted into a pick zone.
DESCRIPTION OF OPERATION
<PAGE> 11
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
CONTINUED
A shipping label will be applied to the shipping carton at the dunnage and
sealing area.
MANAGEMENT TOOLS AND REPORTS
The RapidPICK2 user interface is a color text based screen with pull down menus
and function key support. Function keys are used to access specific functions,
based on what is currently selected on screen (context sensitive).
There are two levels of password protection that can be assigned to critical
functions such as order deletion, if required.
Start/Stop
The Start/Stop pull down menu provides options to start and stop the entire
system, run End-of-Day processing, manual pick an order, stop and start
individual processes and display general operation system information.
Start All
Start all of the processes in the RapidPICK2 System.
Shutdown All
Shuts down all of the processes in the RapidPICK2 System.
End-of-Day Processing
End-of-Day processing clears all picked cartons from the system database,
resets statistics and productivity counters, clears logs and otherwise cleans up
the system for use in the next shift. Time taken to process can vary widely
depending on the type of configuration options used and the volume of data in
the database.
End-of-Day processing will be automated to occur at a pre-defined time during a
non-operational period. It can also be configured to produce certain reports
automatically.
The End-of-Day process will be configured as follows;
o Shutdown controllers
DESCRIPTION OF OPERATION
CONTINUED
<PAGE> 12
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
End-of-Day Processing (cont.)
o Reset statistics and productivity counters
o Clear system log files
o Delete upload System Acknowledgement files
o Delete completed orders
o Delete all orders older than a pre-set number of days
o Restart the system after completion
Maintenance
Provides the facility to manually shut down individual processes and restart
them individually. All processes can also be started fresh (i.e. initialized
without retaining previous picking information) from the Maintenance menu or
individually started fresh.
Others
Displays general operating system information.
Inquires
The Inquires pull down menu provides a number of inquire screens which can be
used to track the progress of a carton, as well as display system log files for
diagnostic purposes.
Order Status
Displays a `drill down' order number list, which can be used to show the
current diverting/picking progress of the order as well as the last divert point
which the order was seen.
Orders which haven't been started (un-started picks) maybe selected from the
list and deleted manually by the system supervisor.
Find Order
Provides the same features as the Order Status menu option, however the
operator is prompted to key in the specific order number rather than search a
list.
DESCRIPTION OF OPERATION
CONTINUED
<PAGE> 13
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
System Log
The System Log provides an audit trail of RapidPICK2 activities including any
exceptions that may require action. The contents of this file can be viewed at
any time by selecting a menu key.
Comms Log
The Comms Log provides an audit trail of RapidPICK2 communications activities
including any exceptions that may require action. The contents of this file can
be viewed at any time by selecting a menu key.
Reports
The Reports pull down menu provides a number of reports that can be printed on
the attached report printer. Typical reports include order picking, location
statistics, deleted orders, completed orders and shorted picks.
Note: Statistic based reports are only current for the shift in which they are
generated (i.e. once End-of-Day processing is run the statistics are reset for
the next shift).
Following are examples of the reports that may be used to monitor picking
activity and statistics. Period statistics, for example, day, month and year are
updated when statistics are cleared during End-of-Day processing.
Order Picking Summary by Zone
Prints a report showing the work throughput during the current shift on a per
zone basis.
Order Picking Summary by Picker
Prints a report showing the work throughput and productivity during the current
shift on a picker basis. Any pickers that have logged on during the shift will
be included in the report.
DESCRIPTION OF OPERATION
CONTINUED
<PAGE> 14
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
Location Statistics
Prints a report showing the hits/picks on a location basis, based on the work
processed during the current shift.
The following is a typical representation of this report:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
***** LOCATION STATISTICS *****
Location Hits Picks
================================================================================
<S> <C> <C>
A20-10-A05 43 4312
B10-15-B02 23 432
B10-17-C03 123 4322
B20-20-A04 43 4321
================================================================================
- --------------------------------------------------------------------------------
</TABLE>
Deleted Orders
Prints a list of all orders that were manually deleted during the last shift.
Information is lost after running End-of-Day processing.
The following is a typical representation of this report:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
***** DELETED ORDER REPORT *****
Printed: 10:30:12pm 10/04/97
14:11 Jun26 Order 001041895 successfully deleted from the system
================================================================================
- --------------------------------------------------------------------------------
Completed Order
Prints a list of all orders that have been picked prior to running End-of-Day
processing.
The following is a typical representation of this report:
DESCRIPTION OF OPERATION
CONTINUED
<PAGE> 15
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
***** COMPLETED ORDER SUMMARY *****
Carton Received Started Completed
======================================================================================
<S> <C> <C> <C>
001042093 6:58:17pm 06/24/97 10:32:08am 06/26/97 10:52:46am 06/26/97
001042096 6:58:17pm 06/24/97 9:04:16am 06/26/97 10:41:08am 06/26/97
001042122 6:58:18pm 06/24/97 9:20:05am 06/26/97 10:46:08am 06/26/97
SHORT: Zone 13 Location A20-10-A05 Required: 2 Picked: 0
======================================================================================
- --------------------------------------------------------------------------------------
</TABLE>
Shorted Orders
Prints a list of all orders that were short picked during prior to running
End-of-Day processing.
The following is a typical representation of this report:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
***** COMPLETED ORDERS SUMMARY *****
Carton Received Started Completed
===========================================================================================================
<S> <C> <C> <C> <C>
001042122 8:57:12am 10/04/97 9:30:12am 10/04/97 10:46:12am 10/04/97
SHORT: Zone 2 Location: A10-10-A05 Required: 20 Picked: 12
SHORT: Zone 2 Location: A10-09-C02 Required: 10 Picked: 0
635273128 9:00:32am 10/04/97 9:30:40am 10/04/97 1:12:32pm 10/04/97
SHORT: Zone 1 Location: A10-10-A05 Required: 2 Picked: 1
SHORT: Zone 4 Location: A10-09-C02 Required: 5 Picked: 0
SHORT: Zone 6 Location: B10-14-B06 Required: 10 Picked: 0
321434991 9:00:33am 10/04/97 9:30:45am 10/04/97 11:32:05am 10/04/97
SHORT: Zone 4 Location: A10-10-A05 Required: 4 Picked: 0
SHORT: Zone 5 Location: A10-09-C02 Required: 7 Picked: 4
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Order Summary Report
Prints a totaled report showing the number of orders received, picked, short
picked, etc. prior to running End-of-Day.
The following is a typical representation of this report:
<PAGE> 16
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
***** ORDER SUMMARY *****
Order
================================================================================
<S> <C>
Last cleared: 6:48pm 06/25
RECEIVED
Total: 285
Today: 113
Since last cleared: 113
UNRELEASED: 0
RELEASED
Total: 134
Today: 113
Since last cleared: 113
STARTED 1
PICKED
Total: 150
Today: 150
Since last cleared: 150
================================================================================
- --------------------------------------------------------------------------------
</TABLE>
Incomplete Order Summary
Prints a list of all orders that have been inducted into a zone and still has
picks remaining.
The following is a typical representation of this report:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
***** INCOMPLETE CARTON SUMMARY *****
Order Received Last Accessed Scheduled Diverts Diverts Remaining
12345 12345
========================================================================================================
<S> <C> <C> <C> <C>
001041895 7:34:24am 7:59:32am ---XX -----
06/25/97 06/25/97
========================================================================================================
- --------------------------------------------------------------------------------------------------------
</TABLE>
Un-started Orders Summary
Prints a list of all orders which have not been inducted into a zone.
The following is a typical representation of this report:
<PAGE> 17
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
***** UNSTARTED ORDER SUMMARY *****
Order Received Last Accessed Scheduled Diverts Diverts Remaining
12345 12345
===========================================================================================================
<S> <C> <C> <C> <C>
001041895 7:34:24am 06/25/97 7:59:32am 06/25/97 --X-X --X--
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Per Picker Report
Prints a report showing the work throughput and productivity for a picker.
The following is a typical representation of this report:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
***** ORDER PICKING SUMMARY BY PICKING TEAM *****
Team Logon Total Orders Total Hits Total Picks Hits Ave. Time/
Name Time Orders Per Hr Hits Per Hr Picks Per Hr Per Order Order
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One 10:12:43 321 32 432 43 3213 321 40 .58
Two 10:22:23 312 30 4324 420 16403 1592 23 2.40
Three 3:12:43 32 10 54 18 4343 1447 32 1.45
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
</TABLE>
This report can be generated using any one of the following time requirements:
1) Current Shift Picker - This is information accumulated since the last EOD
operation has taken affect.
2) Current Day Picker - This is any information that has accumulated since
midnight. If EOD was ran after midnight for the previous day, this report
will contain the information that was generated by EOD and the Current
Shift Information.
3) Current Month Picker - This is all the information that has accumulated
since midnight on the first day of the month.
4) Current Year Picker - This is all the information that has accumulated
since midnight on the first day of the year.
5) Any Day Picker - This is the current day picker information for any
specified day.
6) Any Month Picker - This is the entire month picking summary for any given
month.
7) Any Year Picker - This is the entire years picking summary for any given
year.
<PAGE> 18
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
CONTINUED
Per Zone Report
Prints a report showing the work throughput and productivity for a zone.
The following is a typical representation of this report:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
***** ORDER PICKING SUMMARY BY PICKING TEAM *****
Picking Total Hits Total Picks
Period Hits Per Hr Picks Per Hr
=========================================================================================
<S> <C> <C> <C> <C> <C>
Zone 1 2:01:34 125 61 486 239
Zone 2 1:04:51 43 39 157 145
Zone 3 0:00:00 0 0 0 0
=========================================================================================
- ------------------------------------------------------------------------------------------
</TABLE>
This report can be generated using any one of the following time requirements:
1) Current Shift Zone - This is information accumulated since the last EOD
operation has taken affect.
2) Current Day Zone - This is any information that has accumulated since
midnight. If EOD was ran after midnight for the previous day, this report
will contain the information that was generated by EOD and the Current
Shift Information.
3) Current Month Zone - This is all the information that has accumulated since
midnight on the first day of the month.
4) Current Year Zone - This is all the information that has accumulated since
midnight on the first day of the year.
5) Any Day Zone - This is the current day picker information for any specified
day.
6) Any Month Zone - This is the entire month picking summary for any given
month.
7) Any Year Zone - This is the entire years picking summary for any given
year.
System Status display
The System Status is displayed at the bottom of the screen. It shows the status
of the RapidPICK2 software controllers, the number of carton in the system, the
file system usage and any zone errors.
<PAGE> 19
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
RAPIDPICK SYSTEM EQUIPMENT SPECIFICATION
SYSTEM HARDWARE LIST
<TABLE>
<CAPTION>
HARDWARE: SYSTEM QTY. RECOMMENDED SPARES QTY.
<S> <C> <C>
SystemCONTROLLER 1 1
SubCONTROLLER 16 2
Fiber Link 16 2
ZonePANEL 2D 200 15
MaxiPICK 4D 1868 100
BayCOLOR 216 20
Daughterboard 216 20
PowerSPLICE 137 10
RP2NET Interface Card 1 1
Report Printer 1 0
Modem (SystemCONTROLLER) 1 0
Marquees 36 0
Tethered Scanner 200 10
Uninterruptable Power Source 8 0
Slot Display Cables 1 Lot N/A
P-TAP 200 15
Aluminum Ducting & Capping (feet) 6300 0
12 VAC Fuses 706 70
120 VAC Fuses 32 4
"As-Built" Documentation 1 Lot N/A
</TABLE>
<PAGE> 20
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
HARDWARE SPECIFICATIONS
This section defines the hardware to be used, the number of units of each type
and the location of each. It also describes the electrical requirements for the
proposed system.
SYSTEMCONTROLLER
The proposed RapidPICK System incorporates a single SystemCONTROLLER which is
linked to Purchaser's Host/WMS computer system. Communications between the two
computers will be over a Purchaser provided 10BaseT Ethernet system using TCP/IP
with FTP. The SystemCONTROLLER will include a modem which allows for remote
monitoring of the system, and an uninterruptable power supply to allow for
orderly shutdown of the system operation in the event of power failure. The
SystemCONTROLLER will be a UNIX based Compaq Pentium computer with dual hard
drives.
SUBCONTROLLER
[GRAPHIC]
To distribute processing and increase system performance, (16) SubCONTROLLERs
are used within the system. They buffer data and transactions effecting an
orderly flow of information within the network. Each SubCONTROLLER is connected
to the local devices through a fiber optic link. The design of this link
isolates upper level equipment from static and other electrical discharge that
may occur at the picking faces. The SubCONTROLLER and its supporting devices are
installed in a Nema 1 enclosure.
<PAGE> 21
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
SUBCONTROLLER PANEL
[GRAPHIC]
<PAGE> 22
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
FIBER LINK
[GRAPHIC]
ZONEPANEL
[GRAPHIC]
The system is organized into zones. Every zone will have a ZonePANEL to provide
important information to the picker. The ZonePANEL will display: zone number,
order number, and number of lines to be picked. The ZonePANEL provides direct
scanner interface to the RapidPICK System for entering orders into zones for the
picking process.
P-TAP
[GRAPHIC]
<PAGE> 23
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
SLOT DISPLAYS
All pick slot locations within the RapidPICK system will have a light to
indicate when a location requires a pick. Multiple types of devices have been
chosen based on product movement and type of system operation. These devices are
referred to as slot displays. The slot displays clip into a specially designed
rigid aluminum rail that is mounted to the face of the storage equipment. All
wiring is concealed and protected by the ducting and its cover.
MaxiPICK 4D
[GRAPHIC]
MaxiPICK device that consists of a red four (4) digit LED display, red LED
indicator light, "OK" acknowledgment button, "Action" button and two (2)
decrement buttons. The unit is used to indicate and acknowledge picks, and allow
the picker to perform certain operational functions. The MaxiPICK 4D is also
used to drive BayCOLOR devices. The maximum number of slot display device which
can be driven by a single MaxiPICK 4D is sixty (60).
BAYCOLOR
[GRAPHIC]
A BayCOLOR device consists of a five light LED array capable of displaying in
different colors. There is one BayCOLOR per bay. They indicate the zone
boundaries by displaying a different color for each zone. When a pick is
required in the zone, the unit flashes. The BayCOLOR is driven by a MaxiPICK 4D
device in the bay.
POWERSPLICE
[GRAPHIC]
The PowerSPLICE is used throughout the system to boost the power to the MaxiPICK
and secondary devices.
<PAGE> 24
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
MODEM
The SystemCONTROLLER is equipped with an external modem to allow service access
by Rapistan Systems' engineering and technical support personnel.
DUCTING
[GRAPHIC]
The aluminum duct is a rigid aluminum extrusion that is used for mounting
various MaxiPICK devices. It can be mounted by screwing onto a mounting bracket
or shelf face. A plastic duct cover is used to fill in the space between duct
mounted devices. The duct cover protects these devices from dirt, mechanical
abuse and electrical noise.
UNINTERRUPTABLE POWER SUPPLY (UPS)
Uninterruptable power supplies are provided in the system to prevent the lost of
operating date in case of building power interruption. These units monitor their
power source, if a loss of power is detected they switch to their internal
battery power. The UPS unit used for the SystemCONTROLLER will also send a
signal to the SystemCONTROLLER when a loss of building power is detected. The
SystemCONTROLLER will run a controlled shutdown procedure, shutting itself down
to prevent the loss of data.
TETHERED SCANNER
One Tethered Hand Held Scanner is provided per ZonePANEL.
<PAGE> 25
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
RAPIDPICK SYSTEM PARAMETERS
PROJECT MANAGEMENT
The project will be assigned to an experienced Rapistan Systems' Project Manager
who will function as Purchaser's primary contact for all contractual issues
related to the project.
SYSTEM ENGINEERING
System Engineering for this project will be handled by a team of engineers
consisting of one or more Project Engineers and Software Engineers.
Controls Project Engineer
Each project will be assigned to a Lead Project Engineer from the Pick-to-Light
Controls Group who will have primary responsibility for the form, fit and
function of the system. Additional engineers will be assigned accordingly.
Software Engineer
Each project will be assigned to a Lead Software Engineer who will have
responsibility to work with the Lead Project Engineer to select the correct
Computer hardware and software, and to set-up, configure and test that hardware
and software to meet the requirements of the project. Additional engineers will
be assigned accordingly.
SITE CONDITION PRIOR TO START OF INSTALLATION
Installation of building, mezzanines, platforms, conveyor, pallet racks, case
flow racks, and static shelving is to be completed in the area of the RapidPICK
System installation prior to start of RapidPICK System installation. The area
around the RapidPICK installation must be a safe environment free of
construction hazards.
ETHERNET SYSTEM REQUIREMENTS
The Purchaser is responsible for providing a dedicated and isolated TCP/IP
Ethernet network segment (10/100baseT) with intelligent hub and all drops
necessary for Pick to Light printers, computers, terminals, etc. All
connectivity hardware and software on the Host is the responsibility of the
Purchaser. The interface point will be the connector on the end of the Ethernet
cabling with a 10baseT connector. This connection point must be within 3'-0" of
the usage point.
<PAGE> 26
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
RAPIDPICK SYSTEM PARAMETERS
CONTINUED
MODEM LINE
The Purchaser is responsible for providing a dedicated analog modem line for
Rapistan support for a period of one year after start of beneficial use of the
system for software warranty.
POWER SUPPLY FOR UPS PROTECTED PORTION OF SYSTEM
Purchaser will provide 110 VAC power drops at agreed locations for Rapistan
Systems' UPS units from which Rapistan Systems will distribute the power to the
Pick-to-Light control system.
ELECTRICAL OUTLETS FOR SYSTEM
Purchaser will provide 110 VAC duplex outlets at agreed locations for RapidPICK
peripheral equipment. This will include Remote terminals.
RACKS AND SHELVING
The RapidPICK System will be installed on the flow racks provided by the
Purchaser. Typical bay configuration drawings have been included within this
Proposal. Installation of the flow racks and shelving to be completed before
schedule start date for installation of the RapidPICK System.
SLOT LOCATION NAMING CONVENTION
Purchaser will provide specifications for the finalized physical locations and
naming convention of pick slots within the system a minimum of four (4) weeks
after receipt of order.
SLOT LOCATION BARCODES
Purchaser will install barcode labels for each individual SKU location.
OPERATION AND MAINTENANCE MANUALS
Rapistan Systems will provide three (3) copies each of the Operation and
Maintenance Manual for the system. These manuals will form the guide for
operator and maintenance training.
<PAGE> 27
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
RAPIDPICK SYSTEM PARAMETERS
CONTINUED
OPERATOR TRAINING
Focus is on operational procedures and safe and proper use of the installed
system.
MAINTENANCE TRAINING
Training designed for Purchaser maintenance personnel. Topics include
troubleshooting, parts removal, parts replacement, service intervals and
documentation familiarization.
SOFTWARE TRAINING
Topics include system start-up and power down, diagnostics, console use,
peripherals, trouble shooting and error handling. This training is normally
conducted during system integration and field installation. Designed for systems
supervisor and technical personnel.
SOFTWARE DATA FOR TESTING
Purchaser will provide Rapistan Systems with the required data to begin system
software testing a minimum of six (6) weeks prior to the commencement of on-site
project installation.
SYSTEM ACCEPTANCE TESTING
Upon completion of the installation, tests will be performed to assure that the
system operates in accordance with the Detailed Functional Specification as
agreed to by Purchaser and Rapistan Systems. Any discrepancies between the
system operation and the Detailed Functional Specifications will be corrected by
Rapistan Systems or its designated agent. It is also a requirement of the
acceptance test that all software be completed, tested and documented. Purchaser
will provide test materials and operating personnel as required to operate the
system during the test periods. Test materials will include sample product, pick
cartons, and test labels.
WARRANTY
For warranty of Rapistan Systems' supplied System Hardware and Software, refer
to General Terms and Conditions (Exhibit "A" of this Proposal), item No. 2.
<PAGE> 28
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
RAPIDPICK SYSTEM PARAMETERS
CONTINUED
YEAR 2000 COMPLIANCE WARRANTY
The Rapistan manufactured software and hardware provided to purchaser, along
with all integrated third party certified software and hardware, for this
project is designed to be used prior to, during and after the calendar year 2000
A.D. and will operate during each such period without error relating to date
data. This system, when used in conjunction with other information technology
systems, will accurately process date data provided the other systems also
furnish Year 2000 Compliant date data.
EMERGENCY SERVICE
For a period of 90 days, beginning at start of warranty, Rapistan Systems'
Emergency Telephone Service is available 24 hours per day, 7 days per week, at
no charge. Your call will be referred to and promptly handled by experienced
Rapistan Systems Technicians who will attempt to quickly resolve the problem
through phone discussions and modem support.
Should troubleshooting efforts by Rapistan Systems Technicians determine that
assistance by Engineering is required, Rapistan Systems will respond in a timely
(best effort) manner between the hours of 7:45 AM and 4:45 PM Eastern Time
Monday through Friday. 24 Hour extended support programs are available at
additional cost.
After 90 days, Emergency Telephone Service will be provided on a time and
material basis (minimum one hour charge) or purchased as part of an extended
support program.
Rapistan Systems Emergency On-Site Service is available on a best effort
response and on a time and expense basis.
MAINTENANCE
Maintenance of the installed system is the responsibility of the Purchaser upon
start of the warranty period. Rapistan Systems offers a Preventive Maintenance
program at an additional cost.
<PAGE> 29
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
CLARIFICATIONS AND EXCEPTIONS
RAPIDPICK SYSTEM TECHNICAL CLARIFICATIONS AND EXCEPTIONS
1. The interface between the Host/WMS and the Rapid PICK2 System is via
FTP over TCP/IP and is the Purchaser's responsibility to provide.
2. The Purchaser must provide the LAN networking equipment and cabling
with drops with the appropriate connectors for direct connection to
Rapistan's RP2 SystemCONTROLLER.
<PAGE> 30
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
SCHEDULE
<PAGE> 31
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
PRICE:
The price for the performance of Rapistan Systems work described in this
Proposal is as follows:
<TABLE>
<S> <C>
RapidPICK2 System Investment (Includes Zone Routing Software)...... $640,110.00
Pick To Light Spare Parts.......................................... $ 25,855.00
Freight............................................................ $ 3,000.00
PICK TO LIGHT INVESTMENT........................................... $668,965.00
Estimated taxes at 8.25%........................................... $ 55,190.00
TOTAL INVESTMENT................................................... $724,155.00
</TABLE>
<PAGE> 32
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
PAYMENT TERMS:
Rapistan Systems agrees to submit invoices and Home Interiors agrees to pay
invoices in accordance with the terms and conditions of the agreement and the
invoice and payment schedule shown below. All payments shall be made at the
address indicated on Rapistan Systems' invoice.
A late payment charge of prime plus two percent will be added to any amount not
received by Rapistan Systems on or before the invoice payment date indicated on
the payment schedule. Where this rate exceeds a maximum rate permitted by
applicable law, the permissible rate will apply.
In connection with Rapistan Systems' obligation to install the Equipment, the
final invoice, per the invoice and payment schedule, may be held as retainer.
Home Interiors will pay the retainer amount within 15 days after Rapistan
Systems' completion of the installation, testing of the equipment, acceptance of
the equipment and goods by Purchaser, and delivery to Purchaser of (a) duly
executed unconditional waivers of mechanics' and materialmens' liens from
Rapistan Systems and every supplier of work, material, goods or services in
connection with the equipment, (b) originals of any and all warranties
associated with the equipment and goods, (c) originals of any and all user
guides and manuals and owner's manuals associated with the equipment and goods,
and (d) an affidavit of Rapistan Systems listing all persons who supplied,
manufactured, and/or installed the equipment and goods (collectively,
"Installation Commissioning"). However, should there be a dispute about the
completion of the Installation Commissioning, then Home Interiors shall inform
Rapistan Systems of any claimed defects in the Equipment and the amount
necessary to correct claimed defects will be mutually determined in writing.
Home Interiors will then pay the final invoice less the determined amount. Home
Interiors will pay the remaining retainer upon correction by Rapistan Systems of
any defects in the Equipment as mutually determined.
<PAGE> 33
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
Invoices and payment will be forwarded to provide for receipt by the appropriate
party on the date shown.
<TABLE>
<CAPTION>
DATE PAYMENT
INVOICE RECEIVED BY
INVOICE DATE INVOICE DESCRIPTION VALUE AMOUNT RAPISTAN SYSTEMS
- ------------ ------------------- ----- ------ ----------------
<S> <C> <C> <C> <C>
12-17-99 Down Payment 25% $167,241.00 Upon Written Notification to
proceed
01-01-00 Engineering Complete
All Equipment In Mfg. 15% $100,345.00 Net 15 days
02-01-00 Equipment Shipped 35% $234,138.00 Net 15 days
03-01-00 Installation Complete 15% $100,345.00 Net 15 days
06-01-00 Retainer 10% $ 66,896.00 Net 15 days after Installation
-----------
Commissioning
TOTAL $668,965.00
</TABLE>
<PAGE> 34
Home Interiors [RAPISTAN SYSTEMS LOGO]
56-5879 Rev. B
December 14, 1999
This Sales Agreement, hereinafter called "Agreement", made by and between Home
Interiors & Gifts, Inc., 4550 Spring Valley Rd., Dallas, TX 75244, hereinafter
called "Home Interiors" and Mannesmann Dematic Rapistan Corp., 8600 W. Royal
Lane, Suite 100 A, Irving, TX 75063, hereinafter called "Rapistan Systems",
constitutes Agreement of the parties as follows:
1. Rapistan Systems agrees to sell to Home Interiors and Home
Interiors agrees to purchase from Rapistan Systems, the equipment
and any services described in Rapistan Systems Proposal No.
56-5879 Rev. B, dated December 14, 1999, Tabs 1 through 7 and
Pages 1 through 34 for the price set forth in the Proposal and on
the terms and conditions of Exhibit A.
2. This Agreement constitutes the entire agreement between the
parties and no oral or other representation shall prevail,
notwithstanding any other terms and conditions of any order
submitted by Home Interiors. Any changes, modifications, or
additions to this Agreement are binding and enforceable only if
made in writing and signed by both parties.
Approved and Executed By:
HOME INTERIORS & GIFTS, INC. MANNESMANN DEMATIC RAPISTAN CORP.
/s/ BETTINA SIMON /s/ ROYAL SMITH
- ------------------------------------------- ---------------------------------
Signature Signature
Vice President, General Counsel & Secretary General Manager
- ------------------------------------------- ---------------------------------
Title Title
December 15, 1999 December 15, 1999
- ------------------------------------------- ---------------------------------
Date Date
<PAGE> 1
December 14, 1999
EXHIBIT 10.24
[RAPISTAN LOGO]
MANNESMANN DEMATIC RAPISTAN CORP. ("RAPISTAN SYSTEMS") WITH OFFICES LOCATED
AT: 8600 W. Royal Lane, Suite 100 A
Irving, TX 75063
SUBMITS THIS PROPOSAL TO: EQUIPMENT TO BE INSTALLED AT:
HOME INTERIORS & GIFTS HOME INTERIORS & GIFTS
4550 Spring Valley Road Carrollton, TX
Dallas, TX 75244
This PROPOSAL consists of the following documents:
1. Sales Agreement No. 56-5898 Rev. B, including General Terms and Conditions
(Exhibit A)
2. This Proposal, Tabs 1 through 8 and Pages 1 through 22.
3. Rapistan Systems drawings: P565738Q010G Rev 4, P565738L010 Rev 4,
P565738L011 Rev 4: Dated 11/3/99.
4. Other documents: None
In the event of conflict between any documents, the document first listed above
shall govern all documents listed below it.
All of the information in the Proposal is confidential and has been prepared for
Home Interiors' use solely in considering the purchase of the equipment
described. Transmission of all or any part of this information to others or Home
Interiors' use for any other purpose is unauthorized without Rapistan Systems'
prior written consent. All Rapistan Systems specifications and drawings will
remain the property of Rapistan Systems and are subject to recall at any time.
Copyright, Mannesmann Dematic Rapistan Corp., 1999. The contents of this
Proposal may not be reproduced without the express written permission of
Rapistan Systems.
THIS PROPOSAL SUBMITTED BY:
/s/ BRAD BIJONOWSKI SALES ENGINEER 972-929-7700
- --------------------------- ------------------------ ------------
BRAD BIJONOWSKI TITLE PHONE
/s/ ROYAL SMITH GENERAL MANAGER 972-929-7700
- --------------------------- ------------------------ ------------
ROYAL SMITH TITLE PHONE
This Proposal will remain valid through December 23, 1999. In the event this
Proposal is not accepted prior to this date, then the price, schedule, and other
portions of this Proposal could be subject to change.
<PAGE> 2
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
PROPOSAL CONTENT
This Proposal covers a Material Storage System encompassing four (4) three level
pick modules, pallet track, carton flow rack, appropriate decking and safety
handrail, installation and commissioning and is summarized as follows:
MECHANICAL DESIGN- The refinement of layout drawings submitted with this
Proposal, preparation of installation drawings, design of nonstandard equipment
components and the integration of the standard and nonstandard equipment into an
operational system.
MECHANICAL INSTALLATION- Installation of all rack and rack accessories specified
within the proposal. Receiving, unloading, rigging and placement of rack will be
performed by Rapistan Systems.
2
<PAGE> 3
MATERIALS TO BE HANDLED
The equipment will convey materials having the dimensions, weights, shapes,
surfaces and other characteristics, as set forth in this section. The equipment
will have the mechanical capability to convey such materials at the rates
specified in this section.
The items to be conveyed will have the following physical properties:
<TABLE>
<CAPTION>
Length Width Height Weight
------ ----- ------ ------
<S> <C> <C> <C> <C>
Minimum 8" 4" 2" 2 lbs.
Maximum 28" 20" 30" 50 lbs.
Pallet 48" 40" 70" 2000 lbs.
</TABLE>
Please note that the length dimension shown above will be the dimension parallel
to product flow and the height dimension shown above will be the dimension
perpendicular to the conveying surface when the product(s) are initially placed
on the conveying equipment.
The materials to be conveyed must be in a condition to permit proper conveyance.
The bottom surface of the materials to be conveyed which is in contact with the
conveyor must be firm and flat, free of distortion, and of sufficient strength
to support its own weight.
The equipment has been designed to handle the rates listed below. The ability to
obtain these rates is predicated on Home Interiors' equipment and personnel
being able to feed and unload product to meet these rates.
Items which will not convey well are those with the following characteristics:
A. Uneven bottoms, soft bottoms or bottoms with banding or strapping.
B. Open or improperly sealed containers.
C. Imperfections in the form of the conveyed product.
D. Side or bottom which has concave or convex distortion.
E. Protrusions on the sides or bottom.
F. Uneven weight distribution or shifting center of gravity.
3
<PAGE> 4
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
MECHANICAL EQUIPMENT
PICK MODULES (QTY 4)
o 1412 Total Pallet Facings.
o 216 Total Pallet Returns.
o Deck Construction:3/4" T & G Plywood with 0.05" Poly Coating.
o Pallet flow rails have staggered wheels on 2" centers.
o Safety deck is provided for the first 54" of each elevated level.
o Load calculations based on 1997 RMI Standards.
o First elevation has 2'-0" gap for future trash line.
o Eight (8) stairwells total for both Pods.
o Additional angle steel to mount pick to light system.
PALLET FLOW LANES (FULL CASE SLAPPER LINE)
o 74 Six (6) deep pallet flow lanes (2 tracks per pallet).
o 12 Pallet Returns.
o Pallet flow rails have staggered wheels on 2" centers.
o Pallet lanes include brakes.
4
<PAGE> 5
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
MECHANICAL INSTALLATION STANDARDS
General
The proper mechanical installation is vital for the equipment to operate as
described in this Proposal. These installation standards show the importance
that Rapistan Systems places on quality installation.
Installation Standards
1. General:
The following standards, where applicable, will be used as guidelines by
Rapistan Systems installation superintendents and Rapistan installation
subcontractors.
2. Dimensional Reference Points:
a. The path of each conveyor in the system will be determined by
establishing a reference point at each end of the conveyor from which
the centerline of the conveyor will be established. The practice of
measuring from column line or building walls to each point of support
will not be followed.
3. Level and Elevations:
a. Conveyors will be installed in accordance with the elevations shown on
the layout drawing(s).
b. After the first elevation is established, the elevation of all other
points will be related to this first point. The practice of
dimensioning elevations from the floor at each point of support will
not be followed. When the floor level changes significantly, such as
the system going to an upper or lower floor, or into another building
or room, a new elevation will be established from the floor at that
point. This new elevation will then become the reference for subsequent
elevations.
4. Standards for Floor Mounting:
a. Anchoring will be accomplished by drilling into the floor and inserting
a suitable anchor bolt.
b. Intermediate stands will be anchored with 3/8" diameter minimum
bolts--one in each support assembly.
5
<PAGE> 6
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
MECHANICAL INSTALLATION STANDARDS
CONTINUED
c. Support stands for drives will be anchored with 1/2" diameter
bolts--two per support assembly and four per drive.
d. Explosive type anchors will not be used. Adhesive rubberized belt
mounting pads will be used only when specified.
5. Ceiling Supported Equipment:
a. Hanging procedures for concrete and masonry construction:
(1) Explosive type anchors will not be used.
(2) Each hanger will be anchored with a minimum of four bolts, two per
upright, using minimum 1/2" diameter bolts.
(3) Anchoring will be accomplished by drilling into the concrete
ceiling and inserting suitable bolt anchors.
(4) Consistency of concrete must be considered and if soft spots are
encountered, anchor heads of sufficient length to distribute the
load will be used.
(5) Anchoring to masonry walls will be accomplished by drilling
through the wall and applying a through bolt with back-up plate(s)
to which the wall bracket is fastened.
(6) Equipment may be supported from concrete walls through suitable
bolts and anchors or by bolting through the wall, if the condition
of the wall or the degree of imposed load dictates.
b. Hanging Procedures for Open Building Steel:
(1) Welding of auxiliary steel (stringers or headers) to building
steel will be prohibited, unless otherwise approved Home
Interiors.
(2) Drilling and bolting to building steel will be done only with Home
Interiors' written permission.
6
<PAGE> 7
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
MECHANICAL INSTALLATION STANDARDS
CONTINUED
(3) All vertical field welds will be accomplished through the
"vertical up" method. Exception: Welding of light gauges (sheet
metal).
(4) Horizontal stringers will be securely clamped to building steel.
(5) Headers when used for short spans between building steel, such as
between roof purlins, will be securely clamped to building steel.
Headers when used between stringers may be welded to the stringers
or suitable angle clips will connect the header to the stringer.
(6) Support steel or wall brackets may be clamped to the columns
either by clamping to the flanges or by clamping to the entire
beam using through-bolts which will clamp suitable angles to
opposite flanges of the building column.
6. Field Painting
a. All exposed field steel, unless otherwise specified, will be touch
painted to match the painted finish of the equipment. This includes
hangers, headers, special supports, braces, etc.
b. All painted equipment surfaces that have been damaged during the
erection process will be touched up.
7
<PAGE> 8
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
INSTALLATION COMMISSIONING
The Installation Commissioning of the equipment covered by this Proposal can
best be defined as being the final adjustments and run in of the installed
equipment required for its proper operation. The need for Installation
Commissioning is inherent, since the individual components of equipment covered
by this Proposal are installed together at the installation site to operate as a
whole.
When the mechanical and/or electrical installation is included as part of this
Proposal, Rapistan Systems will furnish the necessary Installation Commissioning
for the portion of installation Rapistan Systems assumes. In those instances
where Home Interiors furnishes the mechanical and/or electrical installation,
Home Interiors will provide the Installation Commissioning for that portion of
the installation.
During the commissioning phase, it is necessary to load the equipment with the
materials to be handled, which provides the means of detecting those areas
requiring adjustments. Home Interiors will provide the materials to be handled
and the labor for loading and unloading the equipment during the commissioning
phase.
The installation of this system includes the Acceptance Procedure as outlined on
the following pages. The Installation Commissioning will be considered complete
upon completion of the Acceptance Procedure.
8
<PAGE> 9
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
ACCEPTANCE PROCEDURE
PURPOSE: To demonstrate the conveyor system is installed and operates as
described in this Proposal.
Rapistan Systems Activity Prior to Acceptance:
a. Verify that the equipment operates properly and all preliminary adjustments
are complete.
b. Verify that the equipment is installed in accordance with the drawings.
c. Notify Home Interiors five (5) days prior to the planned Acceptance
Procedure.
Home Interiors' Activity Prior to Acceptance:
a. Provide qualified maintenance and operating personnel.
b. Provide the product specified in this Proposal in adequate quantities to
conduct the Acceptance Procedure.
c. Provide an authorized representative to accept the portion of the equipment
subject to the Acceptance Procedure.
Equipment Acceptance:
a. Conducted under Rapistan Systems supervision with Home Interiors'
designated personnel observing.
b. Home Interiors will provide loading and removal of product, as required.
c. Load capacities, clearances and aisle spacing will be verified.
d. Items requiring additional work will be listed so that corrections can be
made with minimal delay prior to starting Phase II.
e. It should be recognized that during this acceptance phase, it is likely
that adjustments will be required. Any defect in material or workmanship
will be remedied by Rapistan Systems as expeditiously as possible without
cost to Home Interiors.
9
<PAGE> 10
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
ACCEPTANCE PROCEDURE
CONTINUED
f. Rapistan Systems' Project Manager, or his designate, will be on site during
this time for the purpose of monitoring results and to provide assistance
as conditions dictate.
After completion of the Acceptance Procedure, Rapistan Systems' Project Manager
will furnish to Home Interiors a letter which will indicate the following:
a. The Acceptance Procedure has been completed.
b. Confirmation of the start of the warranty period.
c. Final payment requisition date.
10
<PAGE> 11
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
PARAMETERS
GENERAL
1. Outside purchased equipment will be the manufacturer's standard finish.
2. Rapistan Systems will provide one set of as-built system drawings upon
completion of the project.
3. Rapistan Systems offers no warranties or representations, nor assumes any
obligations with regard to Home Interiors' existing equipment which
Rapistan Systems agrees to modify and/or incorporate in the proposed
conveyor system. However, any modification made by Rapistan Systems to such
equipment will be performed in a workmanlike manner and will not alter the
basic operation of the equipment as originally manufactured.
Additionally, Home Interiors assumes full responsibility for the use and
operation of existing equipment, including compliance with any federal,
state or local laws, codes and regulations. Home Interiors also agrees to
indemnify Rapistan Systems for all expenses, claims and costs of any nature
(including attorney's fees and costs of litigation) arising out of or
resulting from the use or operation of existing equipment.
4. This Proposal is presented as a total package and, with the exception of
any proposed options, must be purchased as such.
5. Home Interiors will approve Rapistan Systems drawings within two weeks
after Rapistan Systems' submittal in order that the project schedule can be
maintained without delay.
6. Manual assistance may be required to initiate and/or maintain the flow of
product on gravity conveyor(s). It is understood that due to the inherent
characteristics of gravity conveyor, free flow of product may not occur at
all times.
7. Rapistan Systems in no event shall be liable for incidental or
consequential damages (including loss of profits).
11
<PAGE> 12
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
SITE CONDITIONS
In order for Rapistan Systems to perform its work at the installation site, Home
Interiors will provide:
1. The project coordination involving all contractors employed by Home
Interiors, as required, to assure work is completed in accordance with the
project schedule.
2. A work site to permit installation and operation of the equipment, as
required by the Project Schedule.
3. A work site in a watertight condition and free of debris or obstructions
other than those caused by Rapistan Systems.
4. A clear path for the ingress to and the egress from the installation site
for Rapistan Systems personnel and equipment.
5. Unless otherwise agreed to, an open and clear area above and below the
equipment to be installed overhead.
6. The necessary access roads and cleared dock areas suitable for receiving
and unloading the equipment. Rapistan Systems will advise the approximate
arrival time of delivery trucks.
7. A secure, safe, dry, convenient and adequate storage area for Rapistan
Systems equipment, tools, and materials used on the site. Adequate working
space will also be provided for Rapistan Systems' installation crew.
8. All necessary federal, state, and local government licenses or permits.
9. Suitable lunchroom and lavatory facilities for Rapistan Systems'
installation crew while on the job site.
10. Suitable electric service, lighting, compressed air, water, and heat as may
be required for installation, test, and operation of the equipment. Voltage
supplies may not vary more than plus or minus 8% during installation and
may not vary more than plus or minus 5% for permanent power. The frequency
variation may not exceed plus or minus 1% at all times. Electrical service
of 110V, 20
12
<PAGE> 13
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
SITE CONDITIONS (CONT.)
amperes on 100 foot centers and 460V, 3 phase, 100 amperes on 200 foot
centers will be required for installation tools. The minimum lighting
requirement shall be not less than 10 foot candles as measured at the
location where the work is actually performed.
11. A building with adequate structural strength to support the load of the
equipment, materials being handled, guarding, and all other loads being
imposed upon the structure in accordance with all applicable federal, state
and local laws, codes and regulations.
12. Any building alterations, removal of obstructions, enclosures, floor
openings, wall openings, fire doors and similar requirements in accordance
with all applicable federal, state and local laws, codes and regulations.
13. Excavations, drainage, piling, foundations, masonry and concrete work,
concrete lining, steel and other building materials necessary to the
installation of the equipment.
14. All area guarding necessary to protect personnel and conveyor equipment,
i.e. warning signs, hand rails, barriers, netting, floor markings, etc.
15. Guarding to protect the equipment from damage by fork trucks.
16. Full service maintenance of the equipment commencing with Home Interiors'
operation of the equipment or any part thereof.
17. All equipment and services required of Home Interiors under this Proposal
in a timely manner and in accordance with the Project Schedule so that
Rapistan Systems can commission the equipment without delay. Any delays
could cause an escalation to the contract price and/or a delay to the
Project Schedule.
18. Suitable devices for the safe maintenance servicing of elevated equipment
where catwalks, mezzanines or similar means of access are not provided.
These devices could include man lifts, platform ladders or similar devices.
13
<PAGE> 14
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
MECHANICAL AND ELECTRICAL INSTALLATION
1. The mechanical installation of the equipment, unless otherwise specified,
will be provided by Rapistan Systems.
2. Installation is based on utilizing non-union labor on a straight time,
first shift basis, with work occurring during normal working hours (8 am to
5 pm), Monday through Friday, excluding holidays.
3. Rapistan Systems will receive, unload and move the equipment to the
assigned storage area. Rapistan Systems will move equipment from storage to
the installation area.
4. Home Interiors will permit Rapistan Systems and/or Rapistan Systems
subcontractors to burn and weld at the installation site.
5. The installation is to be performed in accordance with the Project
Schedule. Any change in the Project Schedule may involve an adjustment to
the contract price.
6. Any costs for refurbishing or repairing existing equipment, if required,
will be in addition to the Proposal price. Any deficiencies found during
the inspection, removal or reinstallation of the existing equipment by
Rapistan Systems will be promptly reported to Home Interiors. When directed
by Home Interiors, Rapistan Systems will perform this additional work under
a Change Order in accordance with Article 6 of the General Terms and
Conditions under Exhibit A.
14
<PAGE> 15
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
CLARIFICATIONS AND EXCEPTIONS
1. There are no provisions made for lighting or sprinklers in this proposal.
2. No consideration has been made regarding floor thickness and special
footing or base plate requirements.
3. No seismic approvals or permits are included in this proposal.
4. No tear or relocation of existing rack or structure is included in this
proposal.
15
<PAGE> 16
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
POST ORDER SERVICES
SYSTEMS ENGINEERING DESIGN COORDINATION- A detailed system Project Schedule
Matrix will be prepared immediately upon signing of the Agreement. This matrix
outlines the required activities and the expected timing related to the
activities.
PROJECT MANAGEMENT- A Rapistan Systems project manager will be assigned to this
project and will maintain close liaison with Home Interiors' representative(s).
The success of the proposed system is dependent upon close cooperation in the
areas of system requirements, design, and project implementation.
INSTALLATION COMMISSIONING AND THE SYSTEM ACCEPTANCE PROCEDURE- The Installation
Commissioning and System Acceptance Procedure will be performed on a planned and
scheduled basis as described within this Proposal.
16
<PAGE> 17
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
MUTUAL COMMITMENT TO SAFETY
It is recognized that accidents can be reduced by following safe practices in
the design, construction, installation, operation, and maintenance of the
equipment. Therefore, in a mutual effort to minimize the possibility of
accidents, the parties agree as follows:
1. Rapistan Systems will furnish equipment designed, manufactured and
installed under the guidance of the appropriate ANSI/ASME Standards.
Likewise, Home Interiors will apply appropriate ANSI/ASME Standards as they
incorporate user instructions into their operations, and will enforce these
operating standards and instructions. In particular, Home Interiors will
place into standard operating procedure those instructions contained within
those Conveyor Safety Guidelines and Principles, Form 5100 (1990), which
Rapistan Systems will supply.
2. When Rapistan Systems provides on-site installation services, Rapistan
Systems will provide operational and maintenance instructions and training
prior to the completion of Installation Commissioning. Rapistan Systems
will provide the appropriate operational and maintenance personnel for such
instructions and training. Also, Home Interiors will retain a record of
attendees.
3. Home Interiors will maintain a dress code which requires all personnel
around the equipment to wear hair protection (or short hair), snug fitting
clothes and heavy duty work shoes. The wearing of tennis shoes, baggy
cuffs, neckties, jewelry and similar apparel will not be permitted. Hard
hats will be worn where personnel could be subjected to injury because of
obstructions or falling objects.
4. Home Interiors will provide man lifts, platforms or similar devices for the
safe maintenance servicing of elevated equipment where catwalks, platforms
or similar means of access are not provided.
17
<PAGE> 18
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
SCHEDULE
18
<PAGE> 19
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
PRICE:
The price for the performance of Rapistan Systems work described in this
Proposal is as follows:
INTERLAKE
FOUR (4) PICK MODULES & PALLET TRACK IN FULL CASE SLAPPER LINE
<TABLE>
<S> <C>
Includes Equipment, Project Management, Mechanical Installation,
Steel and Labor to Mount PTL Hardware to Pick
Module Structure and Freight.........................................$839,799.00
Estimated Taxes.......................................................$69,283.00
TOTAL SYSTEM INVESTMENT..............................................$909,082.00
</TABLE>
Note: The above price includes the following items per Interlake's proposal.
1. Twelve (12) pallet return lanes in the full case slapper area.
2. Sixteen (16) isolated barriers.
3. Additional material and labor to raise slapper line pallet lanes 3".
Estimated cost to Rapistan Systems of $8,480.00. No additional cost to
Home Interiors and Gifts for these three items.
19
<PAGE> 20
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
PAYMENT TERMS:
Rapistan Systems agrees to submit invoices and Home Interiors agrees to pay
invoices in accordance with the terms and conditions of the agreement and the
invoice and payment schedule shown below. All payments shall be made at the
address indicated on Rapistan Systems' invoice.
A late payment charge of prime plus two percent will be added to any amount not
received by Rapistan Systems on or before the invoice payment date indicated on
the payment schedule. Where this rate exceeds a maximum rate permitted by
applicable law, the permissible rate will apply.
In connection with Rapistan Systems' obligation to install the Equipment, the
final invoice, per the invoice and payment schedule, may be held as retainer.
Home Interiors will pay the retainer amount within 15 days after Rapistan
Systems' completion of the installation, testing of the equipment, acceptance of
the equipment and goods by Purchaser, and delivery to Purchaser of (a) duly
executed unconditional waivers of mechanics' and materialmens' liens from
Rapistan Systems and every supplier of work, material, goods or services in
connection with the equipment, (b) originals of any and all warranties
associated with the equipment and goods, (c) originals of any and all user
guides and manuals and owner's manuals associated with the equipment and goods,
and (d) an affidavit of Rapistan Systems listing all persons who supplied,
manufactured, and/or installed the equipment and goods (collectively,
"Installation Commissioning"). However, should there be a dispute about the
completion of the Installation Commissioning, then Home Interiors shall inform
Rapistan Systems of any claimed defects in the Equipment and the amount
necessary to correct claimed defects will be mutually determined in writing.
Home Interiors will then pay the final invoice less the determined amount. Home
Interiors will pay the remaining retainer upon correction by Rapistan Systems of
any defects in the Equipment as mutually determined.
20
<PAGE> 21
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
Invoices and payment will be forwarded to provide for receipt by the appropriate
party on the date shown.
<TABLE>
<CAPTION>
DATE PAYMENT
INVOICE RECEIVED BY
INVOICE DATE INVOICE DESCRIPTION VALUE AMOUNT RAPISTAN SYSTEMS
- ------------ ------------------- ----- ------ ----------------
<S> <C> <C> <C> <C>
12-17-99 Down Payment 25% $209,950.00 Upon Written Notification to
proceed
01-01-00 Engineering Complete
All Equipment In Mfg 15% $125,970.00 Net 15 days
02-01-00 Equipment Shipped 20% $167,960.00 Net 15 days
03-01-00 Progressive Billing 15% $125,970.00 Net 15 days
04-01-00 Installation Complete 10% $125,970.00 Net 15 days
06-01-00 Retainer 10% $ 83,979.00 Net 15 days after Installation
----------- Commissioning
TOTAL $839,799.00
</TABLE>
21
<PAGE> 22
Home Interiors & Gifts [RAPISTAN LOGO]
56-5898 Rev. B
December 14, 1999
This Sales Agreement, hereinafter called "Agreement", made by and between Home
Interiors & Gifts, 4560 Spring Valley Rd., Dallas, TX 75244 hereinafter called
"Home Interiors" and Mannesmann Dematic Rapistan Corp., 8600 W. Royal Lane,
Suite 100 A, Irving, TX 75063, hereinafter called "Rapistan Systems",
constitutes Agreement of the parties as follows:
1. Rapistan Systems agrees to sell to Home Interiors and Home Interiors
agrees to purchase from Rapistan Systems, the equipment and any
services described in Rapistan Systems Proposal No. 56-5898 Rev. B,
dated December 14, 1999, Tabs 1 through 8 and pages 1 through 22 for
the price set forth in the Proposal and on the terms and conditions of
Exhibit A.
2. This Agreement constitutes the entire agreement between the parties
and no oral or other representation shall prevail, notwithstanding any
other terms and conditions of any order submitted by Home Interiors.
Any changes, modifications, or additions to this Agreement are binding
and enforceable only if made in writing and signed by both parties.
Approved and Executed By:
HOME INTERIORS & GIFTS MANNESMANN DEMATIC RAPISTAN CORP.
/s/ BETTINA SIMON /s/ ROYAL SMITH
- ------------------------------- ----------------------------------
Signature Signature
Vice President, General Counsel
& Secretary General Manager
- ------------------------------- ----------------------------------
Title Title
December 15, 1999 December 15, 1999
- ------------------------------- ----------------------------------
Date Date
22
<PAGE> 1
EXHIBIT 10.25
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MANNESMANN DEMATIC RAPISTAN CORP. ("RAPISTAN SYSTEMS") WITH OFFICES LOCATED
AT: 8600 W. Royal Lane, Suite 100 A
Irving, TX 75063
SUBMITS THIS PROPOSAL TO: EQUIPMENT TO BE INSTALLED AT:
HOME INTERIORS & GIFTS, HOME INTERIORS & GIFTS, INC.
4550 Spring Valley Road Carrollton, TX
Dallas, TX 75244
This PROPOSAL consists of the following documents:
1. Sales Agreement No. 56-5738 Rev. B, including General Terms and Conditions
(Exhibit A)
2. This Proposal, Tabs 1 through 9 and Pages 1 through 59. Rapistan Systems
drawings: P565738Q010G, Rev. 4, P565738 L010, Rev. 4 L011, Rev 4, L012,
Rev. 4, L013, Rev. 4, dated 11/3/99
4. Other documents: None
In the event of conflict between any documents, the document first listed above
shall govern all documents listed below it.
All of the information in the Proposal is confidential and has been prepared for
Home Interiors' use solely in considering the purchase of the equipment
described. Transmission of all or any part of this information to others or Home
Interiors' use for any other purpose is unauthorized without Rapistan Systems'
prior written consent. All Rapistan Systems specifications and drawings will
remain the property of Rapistan Systems and are subject to recall at any time.
Copyright, Mannesmann Dematic Rapistan Corp., 1999. The contents of this
Proposal may not be reproduced without the express written permission of
Rapistan Systems.
THIS PROPOSAL SUBMITTED BY:
/s/ BRAD BIJONOWSKI SALES ENGINEER 972-929-7700
- -------------------------- ------------------ -------------------
BRAD BIJONOWSKI TITLE PHONE
/s/ ROYAL SMITH GENERAL MANAGER 972-929-7700
- -------------------------- ------------------ -------------------
ROYAL SMITH TITLE PHONE
This Proposal will remain valid through December 23, 1999. In the event this
Proposal is not accepted prior to this date, then the price, schedule, and other
portions of this Proposal could be subject to change.
<PAGE> 2
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PROPOSAL CONTENT
This Proposal covers a Turnkey Material Handling System encompassing conveyor
equipment, controls, field wiring, installation, commissioning and training for
Home Interiors new Carrollton Distribution Center.
SCOPE OF WORK:
The following elements are included in this proposal:
o Carton conveying system
o Sortation support structure
o Primary and back-up air compressor and piping
o Safety netting under specific conveyor sections
o Scanning systems for zone routing and sorting
o Gravity Best-Flex expandable conveyors for truck loading
o Coordination with EXE and selected rack vendor
o RapidVIEW - graphical systems monitor
The following items have not been included in this proposal and will be the
responsibility of Home Interiors & Gifts.
o Overall building construction
o Seismic approvals or building permits
o Lighting systems
o Sprinkler systems
o Fork trucks
o Dunnage machines
o Carton sealers
o Reserve (back-stock) pallet rack
o Pick module rack system
o Pallet track in "Slapper Line" area
o Empty carton conveyor system
o Baler or trash compactor
o Pick to Light system (see Rapistan proposal #56-5879)
o Printers and labels
o Scanners and required computer hardware at dunnage stations
MECHANICAL DESIGN: The refinement of layout drawings submitted with this
Proposal, preparation of installation drawings, including air piping diagrams;
design of nonstandard equipment components and the integration of the standard
and nonstandard equipment into an operational system.
2
<PAGE> 3
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PROPOSAL CONTENT
CONTINUED
CONTROL DESIGN: The development of control scheme, selection of control
components, preparation of schematic wiring diagrams and preparation of detailed
descriptions of operations.
MANUFACTURE AND SUPPLY OF MECHANICAL AND ELECTRICAL EQUIPMENT: Supplied as
outlined in the Lists of Equipment.
MECHANICAL INSTALLATION: Installation of all conveyors and conveyor accessories
specified within the Proposal. Receiving, unloading, rigging and placement of
conveyors will be performed by Rapistan Systems.
FIELD WIRING: Field wiring of all conveyors and conveyor accessories specified
within this Proposal. This includes setting the control cabinets, connecting the
power and control wiring from these cabinets to the conveyors and remote control
devices and mounting the control devices. Home Interiors will provide wiring
from the power source to the control cabinet(s).
3
<PAGE> 4
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MATERIALS TO BE HANDLED
The equipment will convey materials having the dimensions, weights, shapes,
surfaces and other characteristics, as set forth in this section. The equipment
will have the mechanical capability to convey such materials at the rates
specified in this section.
The items to be conveyed will have the following physical properties:
<TABLE>
<CAPTION>
Length Width Height Weight
<S> <C> <C> <C> <C>
Minimum 8" 4" 2" 2 lbs.
Maximum 28" 20" 30" 50 lbs.
Shipping Carton 25.5" 15.5" 20" 5-50 lbs.
(Design Length)
</TABLE>
Please note that the length dimension shown above will be the dimension parallel
to product flow and the height dimension shown above will be the dimension
perpendicular to the conveying surface when the product(s) are initially placed
on the conveying equipment.
The materials to be conveyed must be in a condition to permit proper conveyance.
The bottom surface of the materials to be conveyed which is in contact with the
conveyor must be firm and flat, free of distortion, and of sufficient strength
to support its own weight.
The equipment has been designed to handle the rates listed below. The ability to
obtain these rates is predicated on Home Interiors' equipment and personnel
being able to feed and unload product to meet these rates.
Items which will not convey well are those with the following characteristics:
A. Uneven bottoms, soft bottoms or bottoms with banding or strapping.
B. Open or improperly sealed containers.
C. Imperfections in the form of the conveyed product.
D. Side or bottom which has concave or convex distortion.
E. Protrusions on the sides or bottom.
F. Uneven weight distribution or shifting center of gravity.
4
<PAGE> 5
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MATERIALS TO BE HANDLED
CONTINUED
Rates
It is Rapistan Systems' responsibility to provide conveyor equipment that is
mechanically capable of conveying the following rates through the system. It is
Home Interiors' responsibility to provide personnel to operate the equipment
necessary to attain the above rate.
Product Flow Rate
Product flow rates are defined as the number of items that are able to pass by a
given point in a fixed unit of time.
Rates given are defined as peak (maximum) and are based on "design product
length".
<TABLE>
<CAPTION>
================ ================== ======================= =============== ===================================
DESIGN RATE
LOCATION DRAWING NO. PRODUCT LENGTH ITEM/MIN. COMMENTS
================ ================== ======================= =============== ===================================
<S> <C> <C> <C> <C>
A P565738Q010F 25.5 15 Picking Pod Exit
- ---------------- ------------------ ----------------------- --------------- -----------------------------------
B P565738Q010F 25.5 7.5 To Packing (Dunnage Taping)
- ---------------- ------------------ ----------------------- --------------- -----------------------------------
C P565738Q010F 25.5 30 Packing to Sort Merge
- ---------------- ------------------ ----------------------- --------------- -----------------------------------
D P565738Q010F 25.5 25 Full Case to Sort Merge
- ---------------- ------------------ ----------------------- --------------- -----------------------------------
E P565738Q010F 25.5 80 Sort Induction
================ ================== ======================= =============== ===================================
</TABLE>
NOTE: All rates were developed using data gathered and evaluated by Tompkins
Associates, Inc..
5
<PAGE> 6
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MATERIALS TO BE HANDLED
CONTINUED
Sortation - Servo-Induction
The sortation system selected requires product to be inducted with a
pre-determined gap from trailing edge of product to leading edge of next
product. Rate will be variable with longer product having rate less than design
rate and shorter product having a rate greater than design rate.
Rate will be tested with cartons of design length and will be defined as the
quantity of sortable product (as defined in the Materials to be Handled section
of this Proposal) presented to the sortation machine, divided by the length of
time the system can deliver a continuous supply of product from one or more
conveyor lines.
For purposes of testing and acceptance, sortation rate will consider "Line Full
to Recirculation" and "No-Reads to Reject" as successfully sorted.
6
<PAGE> 7
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
The equipment will perform as described when properly operated, maintained and
managed by Home Interiors. Please refer to Rapistan Systems drawing(s)
referenced on Page 1 of this Proposal while reviewing the following description
of operation.
Unit Control Identification
Units: RA-1000 through RG-50030
Control Panel: CC-1, CC-2, CC-3, ISC-01, RSC-01
Start-Up Procedure (Typical)
When the main disconnect switch is turned to the "On" position, the conveyors
are energized from "Start" pushbutton(s) mounted on the main control panel(s).
When a "Start" pushbutton is depressed, a start-up warning horn sounds for ten
(10) seconds prior to any equipment movement to warn personnel to stand clear of
the equipment. When the horn stops sounding, the equipment will be energized.
Emergency Stop Procedure (Typical)
- ------------------------
Manually actuated emergency stops have been provided at various points along the
conveyor system to de-energize the conveyors if an emergency occurs. The
emergency stop pushbutton is "Push to Stop" and "Pull to Reset". The emergency
stop pullcords are "Pull to Stop" and must be reset manually at the actuated
switch. When actuated, the emergency stops are maintained contact-manual reset
and will remain in the actuated position until reset. When the problem has been
cleared, the actuated stop must be reset and the conveyor equipment must be
restarted at the control panel(s) as previously described.
7
<PAGE> 8
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
CONTINUED
Accumulation Flow Control (Typical)
In each area where a surge accumulation conveyor may be loaded with product by
another conveyor, a photo electric controller with time delay relay is included
to stop the preceding conveyor(s) or activate an air operated stop when the
accumulation conveyor is fully loaded and the controller is blocked for a preset
time. When the accumulation conveyor is allowed to begin discharging its load,
the controller will be cleared indicating that space is again available on the
accumulation conveyor. When this occurs the stopped conveyor(s) will be
restarted automatically or the air-operated stop will be lowered.
System Overview
The system has four major physical components: two (2) picking "pods", dunnage
and taping area, full case "slapper line" and a high-speed sorter.
The pods consist of two (2), three level pick modules that are configured for
two deep pallet flow rack and carton flow (pick modules are by others), to
minimize picking travel for the slowest moving items. The pods also have
designated slots for input of empty shipping cartons and removal of empty
pallets. A powered conveyor serpentines from the lower level, through two (2)
upper levels. Cartons are zone routed through two sets of diverts on each
picking level, which serves to divide each level into four (4) physical zones.
Cartons continue out of the module and decline to the lower level of the second
module in the pod, to serpentine up through the second and third levels of the
second module. The serpentine through both modules of a pod allows the pickers
to more completely fill the containers as the pick and pass operation passes all
of the SKU facings in the stock assortment.
If there are candles in an order, the order will start in the candle area. The
picker will utilize a special candle box that is smaller than the standard
shipping container (specific dimensions to be determined). This container will
hold six (6) candles. If there are not six candles left to pick, a picker may
choose to open a large shipping container to pack the remaining candles. Either
carton, if not completely full, will be diverted into the next appropriate zone.
When product will no longer fit into the current carton, it will be closed out
(see Pick to Light description), and a new carton will be married to the current
order.
All cartons exiting the picking pods are conveyed to dunnage and taping
stations. A packing operator will manually transfer cartons onto a ball transfer
table for handling. The unique bar code will be scanned and a carton contents
list and shipping label will be printed (scanners, printers and labels are by
others).
8
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
DESCRIPTION OF OPERATION
CONTINUED
The operator will apply the carton contents list to the inside, the shipping
label to the top, and fill the carton with air bag packaging protection (dunnage
provided by others). Cartons are then manually placed onto an accumulation
conveyor feeding automatic, self indexing, carton sealers (carton sealers are by
others). Sealed cartons are conveyed out of the dunnage and taping area, merged
onto a live roller take away and accumulated before a saw-tooth merge, for
induction to the sorter.
A "slapper line" for the fastest moving items is provided to pick full cases
using labels directly applied to the top. Cases from this area are conveyed
directly to the saw-tooth merge, as no dunnage or sealing is required. The pick
labels, printed by the WMS system, will serve as both shipping label and sort
destination identification.
Cartons and cases are sorted to one of 21 diverts. There is one divert for the
UPS marshalling area. It will also serve as a "no read" line should a read error
be encountered. The other 20 diverts serve individual shipping doors. Each
divert is equipped with an accumulation conveyor at the sorter level, a decline
belt and a gravity extendible loading conveyor. The system will verify
successful diverts and provide case counts by sort lane for upload to the host
system.
Picking waves, planned by the WMS, will utilize 10 of the 20 available doors at
a time. Waves will alternate between every other door in order to keep
transition times minimal, and to allow the truck loaders to staff according to
volume. For a more detailed description of picking waves, see Rapistan Systems'
Pick to Light Proposal #56-5879.
9
<PAGE> 10
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
LIST OF MECHANICAL EQUIPMENT
<TABLE>
<CAPTION>
APPROX. SPEED
UNIT NO. DESCRIPTION LENGTH WIDTH (FPM) MOTOR
- -------- ----------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C>>
COMMENTS
</TABLE>
To be engineered
10
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
11
<PAGE> 12
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
LIST OF ELECTRICAL EQUIPMENT
Controls, motors, and other equipment supplied by Rapistan Systems will be
designed to operate from a supply of 60 hertz, 3 phase power, at a nominal level
of 480 volts, with a voltage variation not exceeding plus or minus 5% of
nominal.
The following electrical equipment will be included:
(3) Prewired, pretested electrical control cabinet, NEMA-12, with the
following equipment mounted and wired to terminal blocks:
3 Disconnect switch with flange mounted handle
36 Group motor fuses
3 Control transformer, 115 volt
173 Starter(s), IEC, non-reversing
24 Starter(s), IEC, reversing
198 Motor protector, IEC
18 Pushbutton(s), door mounted
9 Indicating light(s), door mounted
12 Relay(s) in enclosure for interlock
2 Programmable controller
89 Input and output modules with racks
The following electrical device(s) will be furnished loose and are to be mounted
and wired in the field:
198 Combination motor starter/disconnect(s)
198 Motor disconnect switch(s)
17 Warning horn(s)
292 Photo control(s) with mounting bracket(s)
29 Limit switch(s) with actuator(s)
66 Emergency stop pull cord switch(s)
7 Start/stop pushbutton station(s)
29 Beacon(s)
The following computer hardware will be included for the RapidVIEW2 graphical
systems monitor
1 Deskpro EN M4300/CDS P2-350 64 MB 6.4GB 512K 24X NT 4.0
1 Sutherland-Schultz PLC interface
1 S700 17" Compaq 1600X1200 75 HZ
1 USP APC SU700XLNET - 700VA (includes data cable)
1 Iomega Jaz Internal 2GB Ultra SCSI Drive
1 Microsoft Windows NT Resource Kit
28
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
LIST OF ELECTRICAL EQUIPMENT
CONTINUED
1 DHX Drive/Win NTCyberlogics Driver for Sutherland Schultz
1 Winzip
1 Diskeeper
1 Norton Anti-Virus
1 Ghost Software
1 Microsoft Office for NT
1 PCAnywhere @ NT
1 Laser Printer 11100XI
1 Printer Cable
1 US Robotics Sportswear 56k V90 External Voice FAX Modem
1 10' Null Modem Cable DB25M - DB9F
1 2-Port serial I/O board
1 Soundblaster board
1 Speaker, Pair
1 3.5" diskettes (10-pack)
1 Iomega 3 Pack 2 GB Tapes
1 Printer paper
1 Miscellaneous Connectors and Supplies
1 Ice Station Environmental Enclosure with A/C (IS60)
29
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
LIST OF ELECTRICAL EQUIPMENT
CONTINUED
The following services will be included:
1. Schematic wiring diagram
2. Bill of materials
3. Panel layout
4. Physical equipment layout
5. Sequence of Operations
6. Field trip by engineer to commission
7. Spare parts list
8. Field wiring
NOTES: 1. Motor Voltage: 480 volt, 3 phase, 60 Hertz
2. Control Voltage: 115 volt, 1 phase, 60 Hertz
3. Field mounted control enclosures to be NEMA-12 or better.
4. The control cabinet will be painted with a standard gray primer
for the exterior with a white interior.
30
<PAGE> 15
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MECHANICAL INSTALLATION STANDARDS
General
The proper mechanical installation is vital for the equipment to operate as
described in this Proposal. These installation standards show the importance
that Rapistan Systems places on quality installation.
Installation Standards
1. General:
The following standards, where applicable, will be used as guidelines by
Rapistan Systems installation superintendents and Rapistan installation
subcontractors.
2. Dimensional Reference Points:
a. The path of each conveyor in the system will be determined by
establishing a reference point at each end of the conveyor from which
the centerline of the conveyor will be established. The practice of
measuring from column line or building walls to each point of support
will not be followed.
3. Level and Elevations:
a. Conveyors will be installed in accordance with the elevations shown on
the layout drawing(s).
b. After the first elevation is established, the elevation of all other
points will be related to this first point. The practice of
dimensioning elevations from the floor at each point of support will
not be followed. When the floor level changes significantly, such as
the system going to an upper or lower floor, or into another building
or room, a new elevation will be established from the floor at that
point. This new elevation will then become the reference for
subsequent elevations.
4. Standards for Floor Mounting:
a. Anchoring will be accomplished by drilling into the floor and
inserting a suitable anchor bolt.
b. Intermediate stands will be anchored with 3/8" diameter minimum
bolts--one in each support assembly.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MECHANICAL INSTALLATION STANDARDS
CONTINUED
c. Support stands for drives will be anchored with 1/2" diameter
bolts--two per support assembly and four per drive.
d. Explosive type anchors will not be used. Adhesive rubberized belt
mounting pads will be used only when specified.
5. Ceiling Supported Equipment:
a. Hanging procedures for concrete and masonry construction:
(1) Explosive type anchors will not be used.
(2) Each hanger will be anchored with a minimum of four bolts, two
per upright, using minimum 1/2" diameter bolts.
(3) Anchoring will be accomplished by drilling into the concrete
ceiling and inserting suitable bolt anchors.
(4) Consistency of concrete must be considered and if soft spots are
encountered, anchor heads of sufficient length to distribute the
load will be used.
(5) Anchoring to masonry walls will be accomplished by drilling
through the wall and applying a through bolt with back-up
plate(s) to which the wall bracket is fastened.
(6) Equipment may be supported from concrete walls through suitable
bolts and anchors or by bolting through the wall, if the
condition of the wall or the degree of imposed load dictates.
b. Hanging Procedures for Open Building Steel:
(1) Welding of auxiliary steel (stringers or headers) to building
steel will be prohibited, unless otherwise approved Home
Interiors.
(2) Drilling and bolting to building steel will be done only with
Home Interiors' written permission.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MECHANICAL INSTALLATION STANDARDS
CONTINUED
(3) All vertical field welds will be accomplished through the
"vertical up" method. Exception: Welding of light gauges (sheet
metal).
(4) Horizontal stringers will be securely clamped to building steel.
(5) Headers when used for short spans between building steel, such as
between roof purlins, will be securely clamped to building steel.
Headers when used between stringers may be welded to the
stringers or suitable angle clips will connect the header to the
stringer.
(6) Support steel or wall brackets may be clamped to the columns
either by clamping to the flanges or by clamping to the entire
beam using through-bolts which will clamp suitable angles to
opposite flanges of the building column.
6. Field Painting
a. All exposed field steel, unless otherwise specified, will be touch
painted to match the painted finish of the equipment. This includes
hangers, headers, special supports, braces, etc.
b. All painted equipment surfaces that have been damaged during the
erection process will be touched up.
33
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
ELECTRICAL INSTALLATION STANDARDS
General
The proper electrical installation is vital for the equipment to operate as
described in this Proposal. These installation standards show the importance
that Rapistan Systems places on quality installation.
Installation Standards
1. General:
a. The following standards, where applicable, will be used as guidelines
by Rapistan Systems installation superintendents and Rapistan Systems
installation subcontractors.
2. Electrical Codes:
a. Electrical work will conform with the national, state and local
electrical codes.
3. General Wiring Requirements:
a. Color of Insulation
(1) BLACK - Line, load and AC or DC circuits above 150 volts.
(2) RED- AC control circuits, 150 volts and lower.
(3) BLUE - DC control circuits, 150 volts and lower.
(4) YELLOW - Interlock control circuits wired from external power
source.
(5) GREEN (with or without yellow strip) - Equipment grounding
conductors.
(6) WHITE - Neutral circuit conductors.
b. Insulation for all wires will be 600 volt, unless otherwise specified.
c. Wire numbers will carry the same color consistently.
d. All single conductor control wiring will be #14 THHN or THWN stranded
wire, unless otherwise specified.
e. The minimum size motor wiring will be #12 THHN or THWN stranded wire.
34
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
ELECTRICAL INSTALLATION STANDARDS
CONTINUED
f. Field wiring entering a control cabinet or a control console will tie
to a terminal strip. Likewise, internal components will also tie to a
terminal strip. External wiring entering a control cabinet will be
tie-wrapped and formed inside the control cabinet. (Terminal strip in
control cabinets with Programmable Controllers may be located on
controller I/O housings.)
4. Splicing Regulations:
a. When three or less conductors are spliced, a "Scotchlock" or
equivalent wire nut connector will be provided.
b. Splices in junction boxes will be marked with "Brady" markers or an
equivalent marker.
c. Terminal connections at control devices or control centers will be
marked with "Brady" markers or an equivalent marker.
d. Splices will not be allowed in conduit.
e. Splices are allowed in wireway and troughs if cover is removable.
5. Conduit Requirements:
a. Conduit will be thinwall EMT unless otherwise specified.
b. Conduit fittings will be compression type.
c. Conduit will be installed in a good workmanship like manner.
(1) Conduits on or near conveyor equipment will be mounted clear from
mechanical and electrical adjustable brackets, screws, etc.
(2) Conduit will not be attached to guard rails.
(3) Conduit will normally run parallel or perpendicular to conveyor
or building structure.
35
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
ELECTRICAL INSTALLATION STANDARDS
CONTINUED
(4) Conduit will normally be exposed on the building structure or on
conveyor equipment.
d. Conduits entering a cabinet, console, junction box, or wireway will be
provided with an insulated bushing.
6. Junction Boxes, Wireways, etc.:
a. Junction boxes will be large enough to avoid pressure on splices and
wire insulation when junction box is closed.
b. Under normal conditions, a maximum of ten (10) splices will be
allowed in a junction box. When more than ten (10) splices are
necessary, terminal strips will be provided as required, or box size
will be increased.
c. Junction boxes, conduit fittings, termination boxes, and wireways will
be general purpose, unless otherwise specified.
d. Wireways are used for the ease of adding or deleting control wires
when large numbers of control wires are required for complex control
situations.
7. Miscellaneous Requirements:
a. All limit switches, photo control units, motors, or any other device
which may require movement or adjustment, will be attached with U.L.
approved liquid-tight flexible conduit. Flexible conduit will not
exceed 6'-0" in length and will provide for a minimum of 6" adjustment
of control device in either direction from its original position.
b. All photo eyes and limit switches will be bolted with hex bolts and
hex nuts. Photos and limit switches will be aligned for proper
operation.
c. Control cabinets will be NEMA-12 dust tight cabinets, surface mounted,
unless otherwise specified.
d. Cutting, floor slotting, and holes drilled during the electrical
installation will be properly patched.
36
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
INSTALLATION COMMISSIONING
The Installation Commissioning of the equipment covered by this Proposal can
best be defined as being the final adjustments and run in of the installed
equipment required for its proper operation. The need for Installation
Commissioning is inherent, since the individual components of equipment covered
by this Proposal are installed together at the installation site to operate as a
whole.
When the mechanical and/or electrical installation is included as part of this
Proposal, Rapistan Systems will furnish the necessary Installation Commissioning
for the portion of installation Rapistan Systems assumes. In those instances
where Home Interiors furnishes the mechanical and/or electrical installation,
Home Interiors will provide the Installation Commissioning for that portion of
the installation.
During the commissioning phase, it is necessary to load the equipment with the
materials to be handled, which provides the means of detecting those areas
requiring adjustments. Home Interiors will provide the materials to be handled
and the labor for loading and unloading the equipment during the commissioning
phase.
The installation of this system includes the Acceptance Procedure as outlined on
the following pages. The Installation Commissioning will be considered complete
upon completion of the Acceptance Procedure.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
ACCEPTANCE PROCEDURE
PURPOSE: To demonstrate the conveyor system is installed and operates as
described in this Proposal.
Rapistan Systems Activity Prior to Acceptance:
a. Verify that the equipment operates properly and all preliminary adjustments
are complete.
b. Verify that the equipment is installed in accordance with the drawings.
c. Notify Home Interiors five days prior to the planned Phase I Acceptance
Procedure.
Home Interiors' Activity Prior to Acceptance:
a. Provide qualified maintenance and operating personnel.
b. Provide the product specified in this Proposal in adequate quantities to
conduct the Acceptance Procedure.
c. Provide an authorized representative to accept the portion of the equipment
subject to the Acceptance Procedure.
Phase I - Equipment Acceptance:
a. Conducted under Rapistan Systems supervision with Home Interiors'
designated personnel observing.
b. Home Interiors will provide loading and removal of product, as required.
c. Requires the operation of each portion of the system for short time
periods. A total time of eight hours is provided for Phase I.
d. Demonstrate the ability of each mechanical and electrical function to
handle the product at the rates specified in this Proposal.
e. Demonstrate the ability of mechanical and electrical equipment to function
in an integrated manner, as described in the "Description of Operation".
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
ACCEPTANCE PROCEDURE
CONTINUED
f. Items requiring additional work will be listed so that corrections can be
made with minimal delay prior to starting Phase II.
Phase II - Operational Acceptance:
a. Conducted under actual or simulated working conditions with Home Interiors'
supervision, operational and maintenance personnel operating the system.
b. Duration: one day, single shift.
c. It should be recognized that during this acceptance phase, it is likely
that adjustments will be required and malfunctions or failures may occur.
Any defect in material or workmanship will be remedied by Rapistan Systems
as expeditiously as possible without cost to Home Interiors.
d. It should be recognized that during this operational acceptance period, it
may not be possible for the mechanized system to function at normal
operating levels. This can be due to conditions beyond Rapistan Systems'
control and related to the unavailability of product, skills of
maintenance and operation people, or the status of supporting logistics.
Such conditions will have to be taken into account in evaluating the Phase
II results.
e. Rapistan Systems' Project Manager, or his designate, will be on site
during this time for the purpose of monitoring results and to provide
assistance as conditions dictate.
After completion of the Acceptance Procedure, Rapistan Systems' Project Manager
will furnish to Home Interiors a letter which will indicate the following:
a. The Acceptance Procedure has been completed.
b. Confirmation of the start of the warranty period.
c. Final payment requisition date.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PARAMETERS
GENERAL
1. Rapistan Systems' standard equipment will be furnished with a dark green
powder coat or galvanized steel finish. Special fabricated equipment will
be furnished with a dark green powder coat. Outside purchased equipment
will be the manufacturer's standard finish.
2. Rapistan Systems will furnish the air schematic drawing(s) for air-operated
devices. Rapistan Systems will furnish a properly sized air compressor for
the proposed system and filter-regulator units as required.
3. Rapistan Systems will provide three sets of Operation and Maintenance
Manuals for Home Interiors.
4. Rapistan Systems will provide one set of as-built system drawings upon
completion of the project.
5. A recommended spare parts list for the equipment under this Proposal will
be furnished to Home Interiors prior to Installation Commissioning. This
will allow Home Interiors to select and purchase spare parts prior to
start-up. This list will include the following:
A. Item number
B. Item description
C. Manufacturer
D. Part number
E. Price
F. Lead time
G. Recommended inventory quantity
6. Only those work stations, catwalks, platforms or crossovers specified in
this Proposal are included.
7. The equipment is designed to operate in one (1) direction only.
40
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
GENERAL (CONT.)
8. This Proposal is presented as a total package and, with the exception of
any proposed options, must be purchased as such.
9. All conveyor widths indicated on the Mechanical Equipment List in this
Proposal are overall widths (outside to outside of conveyor beds).
10. Rapistan Systems will provide drip pans under all motors furnished with
gear reducers.
11. Home Interiors will approve Rapistan Systems drawings within two weeks
after Rapistan Systems' submittal in order that the project schedule can be
maintained without delay.
12. Manual assistance may be required to initiate and/or maintain the flow of
product on gravity conveyor(s). It is understood that due to the inherent
characteristics of gravity conveyor, free flow of product may not occur at
all times.
13. Rapistan Systems in no event shall be liable for incidental or
consequential damages (including loss of profits).
14. Side and Top Scanning Bar Code Specification: At this time no label sample
has been provided by Home Interiors. The scanning system and related
pricing for this Proposal is based on the following bar code criteria and
system operational requirements.
If these criteria cannot be met and the final label design varies from
these criteria, scanning system hardware, software, controls and
operational requirements may be affected which, in turn, may effect a
change in the price.
Labels will be placed on the side and top of the product.
The bar code scanning equipment included in the scope of this Proposal is
based on the following bar code label specifications:
o Up to 20 Digit Code 128 Subset C, Numeric
o Symbology that meets code 128 A.I.M. specification USS 128 standards.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
GENERAL (CONT.)
o Width of the narrow bar and space between bars to be a minimum of
.020" (or 20 Mil).
o Wide to narrow bar ratio to be 2:1.
o The label must be printed with a carbon based ink. Reflectance per
A.I.M. specification 128 standards.
o The code must be printed on the label blank to allow at least a 1/4"
white zone around the entire perimeter of the bar code.
o It is the Home Interiors' responsibility to place the label on the
product in a manner that suits the application.
In both side and top scanning applications, the label must be placed on the
product so that the 1/4" white zone surrounding the "Bar Code" is
completely visible to the scanner. For side scanning applications, the bar
code must also be within the first 6" of the leading edge of the product
and be in ladder orientation +/-15(Degree) from perpendicular to the
conveying surface.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
SITE CONDITIONS
In order for Rapistan Systems to perform its work at the installation site, Home
Interiors will provide:
1. The project coordination involving all contractors employed by Home
Interiors, as required, to assure work is completed in accordance with the
project schedule.
2. A work site to permit installation and operation of the equipment, as
required by the Project Schedule.
3. A work site in a watertight condition and free of debris or obstructions
other than those caused by Rapistan Systems.
4. A clear path for the ingress to and the egress from the installation site
for Rapistan Systems personnel and equipment.
5. Unless otherwise agreed to, an open and clear area above and below the
equipment to be installed overhead.
6. The necessary access roads and cleared dock areas suitable for receiving
and unloading the equipment. Rapistan Systems will advise the approximate
arrival time of delivery trucks.
7. A secure, safe, dry, convenient and adequate storage area for Rapistan
Systems equipment, tools, and materials used on the site. Adequate working
space will also be provided for Rapistan Systems' installation crew.
8. All necessary federal, state, and local government licenses or permits.
9. Suitable lunchroom and lavatory facilities for Rapistan Systems'
installation crew while on the job site.
10. Suitable electric service, lighting, compressed air, water, and heat as may
be required for installation, test, and operation of the equipment. Voltage
supplies may not vary more than plus or minus 8% during installation and
may not vary more than plus or minus 5% for permanent power. The frequency
variation may not exceed plus or minus 1% at all times. Electrical service
of 110V, 20 amperes on 100 foot centers and 460V, 3 phase, 100 amperes on
200 foot centers will be required for installation tools. The minimum
lighting requirement
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
SITE CONDITIONS (CONT.)
shall be not less than 10 foot candles as measured at the location where
the work is actually performed.
11. A building with adequate structural strength to support the load of the
equipment, materials being handled, guarding, and all other loads being
imposed upon the structure in accordance with all applicable federal, state
and local laws, codes and regulations.
12. Any building alterations, removal of obstructions, enclosures, floor
openings, wall openings, fire doors and similar requirements in accordance
with all applicable federal, state and local laws, codes and regulations.
13. Excavations, drainage, piling, foundations, masonry and concrete work,
concrete lining, steel and other building materials necessary to the
installation of the equipment.
14. All area guarding necessary to protect personnel and conveyor equipment,
i.e. warning signs, hand rails, barriers, netting, floor markings, etc.
15. Guarding to protect the equipment from damage by fork trucks.
16. Any mechanical and electrical interface with peripheral equipment, process
control, or process supplies, not specifically included in this Proposal.
17. An electrical power supply line within 10'-0" from each control cabinet
furnished by Rapistan Systems.
18. The product for running and testing the conveyor equipment during the
installation period. Also, Home Interiors will have fork truck and
personnel available, as required, to bring product from its final
destination back to its loading point during the installation testing
phase.
19. Appropriate operational and maintenance personnel to receive on-the-job
operational and maintenance instructions from Rapistan Systems prior to
completion of the work required by this Proposal.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
SITE CONDITIONS (CONT.)
20. Full service maintenance of the equipment commencing with Home Interiors'
operation of the equipment or any part thereof.
21. All equipment and services required of Home Interiors under this Proposal
in a timely manner and in accordance with the Project Schedule so that
Rapistan Systems can commission the equipment without delay. Any delays
could cause an escalation to the contract price and/or a delay to the
Project Schedule.
22. Suitable devices for the safe maintenance servicing of elevated equipment
where catwalks, mezzanines or similar means of access are not provided.
These devices could include man lifts, platform ladders or similar devices.
45
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PARAMETERS
CONTINUED
MECHANICAL AND ELECTRICAL INSTALLATION
1. The mechanical installation of the conveyor equipment will be provided by
Rapistan Systems.
2. The field wiring installation of the conveyor equipment will be provided by
Rapistan Systems.
3. Installation is based on utilizing non-union labor on a straight time,
first shift basis, with work occurring during normal working hours (8 am to
5 pm), Monday through Friday, excluding holidays.
4. Rapistan Systems will receive, unload and move the equipment to the
assigned storage area. Rapistan Systems will move equipment from storage to
the installation area.
5. Home Interiors will permit Rapistan Systems and/or Rapistan Systems
subcontractors to burn and weld at the installation site.
6. The installation is to be performed in accordance with the Project
Schedule. Any change in the Project Schedule may involve an adjustment to
the contract price.
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HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
CLARIFICATIONS
1. This proposal is based on the ability to ceiling hang certain conveyor
sections. Rapistan Systems will provide point load drawings for all ceiling
hung conveyor. It is Home Interiors' responsibility to obtain all necessary
permits and approvals. If the existing ceiling structure is found to be
inadequate to support conveyor loading, alternate support methods may
require a change to the contract price.
2. No seismic approvals or permits are included in this proposal. Permits will
be provide by Rapistan on a time and material basis.
3. This proposal includes conveyor for pick modules only. Rack structure,
decking and flow tracks must be purchased separately.
4. It is Home Interiors' responsibility to provide 460V, 3-phase, 60 Hz power
with isolated ground connection from the power source to within 10 feet of
Rapistan control cabinets. Rapistan will provide wiring from our control
panels to all field devices.
5. Direct dial, analog telephone lines, at locations specified by Rapistan
Systems, will be required for modem startup and troubleshooting assistance.
Alternate voice lines are recommended for troubleshooting and diagnostic
purposes.
6. All automatic scanners, required for zone routing cartons within the pick
modules, are included in this proposal.
7. An air compressor, sized appropriately for the proposed conveyor system,
backup compressor and all required air piping, is included in this
proposal.
8. Safety netting has been provided under conveyor sections between the pick
modules and dunnage area for protection against falling product. Once the
cartons have been sealed, it is assumed that conveyor guardrail will
provide adequate protection.
9. Highway fork truck guarding is not provided in this proposal.
10. Dunnage stations will consist of a gravity gate for personnel access and a
ball transfer table for product handling. Any required computer stations,
empty carton shelving or materials storage must be provided by others.
11. Communication to the WMS, via ethernet connection, will be the
responsibility of Home Interiors.
12. Tapers to be purchased by others will have self metering devices.
47
<PAGE> 32
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
YEAR 2000 READINESS DISCLOSURE
The Rapistan manufactured software and hardware provided to Home Interiors,
along with all integrated third party certified software and hardware, for this
project is designed to be used prior to, during, and after the calendar year
2000 A.D. and will operate during each such time period without error relating
to date data. This system, when used in conjunction with other information
technology systems, will accurately process date data provided the other systems
also furnish Year 2000 Compliant date data.
48
<PAGE> 33
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
POST ORDER SERVICES
SYSTEMS ENGINEERING DESIGN COORDINATION- A detailed system Project Schedule
Matrix will be prepared immediately upon signing of the Agreement. This matrix
outlines the required activities and the expected timing related to the
activities.
PROJECT MANAGEMENT- A Rapistan Systems project manager will be assigned to this
project and will maintain close liaison with Home Interiors' representative(s).
The success of the proposed system is dependent upon close cooperation in the
areas of system requirements, design, and project implementation.
SYSTEM START-UP: Rapistan Systems will supply adequate personnel for
commissioning the system prior to system start-up with operational and
maintenance training taking place during this period.
SYSTEM MAINTENANCE- Operation and Maintenance Manuals will be provided and will
include part identification, recommended spare parts lists, safety precautions
and recommended maintenance procedures.
INSTALLATION COMMISSIONING AND THE SYSTEM ACCEPTANCE PROCEDURE- The Installation
Commissioning and System Acceptance Procedure will be performed on a planned and
scheduled basis as described within this Proposal.
49
<PAGE> 34
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
MUTUAL COMMITMENT TO SAFETY
It is recognized that accidents can be reduced by following safe practices in
the design, construction, installation, operation, and maintenance of the
equipment. Therefore, in a mutual effort to minimize the possibility of
accidents, the parties agree as follows:
1. Rapistan Systems will furnish equipment designed, manufactured and
installed under the guidance of the appropriate ANSI/ASME Standards.
Likewise, Home Interiors will apply appropriate ANSI/ASME Standards as they
incorporate user instructions into their operations, and will enforce these
operating standards and instructions. In particular, Home Interiors will
place into standard operating procedure those instructions contained within
those Conveyor Safety Guidelines and Principles, Form 5100 (1990), which
Rapistan Systems will supply.
2. When Rapistan Systems provides on-site installation services, Rapistan
Systems will provide operational and maintenance instructions and training
prior to the completion of Installation Commissioning. Home Interiors will
provide the appropriate operational and maintenance personnel for such
instruction and training. Also, Home Interiors will retain a record of
attendees.
3. Rapistan Systems will provide written instructions relating to the safe use
of the equipment. These materials will include such items as manuals,
safety instructions, posters, user instructions, etc. Home Interiors will
make such instructions available on a continuous basis to its operational
and maintenance personnel.
4. Home Interiors will periodically conduct safety programs, as required, to
keep its operational and maintenance personnel, including new hires,
constantly knowledgeable with respect to the safe use of the equipment.
5. Home Interiors will maintain a dress code which requires all personnel
around the equipment to wear hair protection (or short hair), snug fitting
clothes and heavy duty work shoes. The wearing of tennis shoes, baggy
cuffs, neckties, jewelry and similar apparel will not be permitted. Hard
hats will be worn where personnel could be subjected to injury because of
obstructions or falling objects.
6. Home Interiors will provide man lifts, platforms or similar devices for the
safe maintenance servicing of elevated equipment where catwalks, platforms
or similar means of access are not provided.
50
<PAGE> 35
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
AN IMPORTANT NOTE TO HOME INTERIORS
OSHA LOCKOUT/TAGOUT RULES
On August 28, 1989, the U.S. Department of Labor amended the Occupational Safety
and Health Standards to incorporate lockout/tagout requirements. This new
standard applies to most employers and covers, among other things, "the
servicing and maintenance of machines and equipment in which the unexpected
energization or start-up of the machines or equipment ... could cause injury to
employees." The standard states that servicing and maintenance covers various
workplace activities including "lubrication, cleaning or unjamming of machines
or equipment ... where the employee may be exposed to the unexpected
energization or start-up of the equipment."
In Rapistan Systems' opinion, this standard applies to most workplaces utilizing
powered conveyor. Rapistan Systems is bringing this to the attention of Home
Interiors in the event Home Interiors is not aware of the standard. Rapistan
Systems urges Home Interiors to review the applicability and requirements of the
standard with respect to Home Interiors' facilities. In general, the standard
requires employers to establish an ongoing program of control procedures and
employee training (regardless of training provided by the equipment vendor at
the time of sale) to ensure that equipment is rendered inoperative before any
servicing or maintenance is performed.
The referenced standard may be found at 29 CFR Part 1910, Section 1910.147; it
was published in the Federal Register, Volume 54, No. 169 on September 1, 1989.
Also, copies may be requested from the Rapistan Systems Contracts Administration
Department.
51
<PAGE> 36
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
Another Rapistan Systems Service...
RAPISTAN SYSTEMS CUSTOMER SERVICE
SOFTWARE AND PARTS AND SERVICE
CALL: (800) 530-9153
(24 HOURS A DAY - 7 DAYS A WEEK)
WARRANTY
For Warranty of Rapistan Systems supplied Computer Hardware/Software, refer to
General Terms and Conditions (Exhibit A), Item #2.
EMERGENCY SERVICE
Our Emergency Service is designed to give you special assistance 7 Days a week.
Your call will be promptly handled by experienced technicians who will attempt
to quickly resolve the problem through phone discussion. In the event the
problem cannot be resolved over the phone, your authorization is all that is
necessary for the prompt dispatch of our personnel to your site.
Rapistan Systems warranties any contractually delivered software to be free from
defects in workmanship for a period of one year, starting from the point of The
Customer Corporation acceptance or the start of beneficial usage, whichever
occurs first. Should any problems arise, Rapistan Systems will address them in a
timely manner, either by telephone and modem, or by physical presence on site.
52
<PAGE> 37
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
SOFTWARE WARRANTY AND SOFTWARE EMERGENCY SERVICE
For Warranty of Software and Software Emergency Service supplied by Rapistan
Systems, refer to the General Terms and Conditions (Exhibit A), Item # 2.
Computer Hardware Warranty
For computer equipment supplied by Rapistan Systems, Rapistan Systems supplies a
one year computer hardware service warranty. This warranty covers computer
hardware for a period of one year from the date of the start of the warranty
period. This warranty only covers the Rapistan Systems provided computer
hardware identified above in this Description of Operation. The computer
equipment specified is suited for an environmentally controlled office
environment and unless the environmental enclosure option is selected, this
warranty is null and void for failures which are attributed to the environment
they are located within. The computer hardware service warranty covers
next-business day response to problems, from 8 a.m. - 5 p.m. Eastern Standard
Time, Monday through Friday.
Rapistan Systems does not warrant and is not responsible for any equipment
warranties for computer equipment supplied by The Customer Corporation and used
in the Rapistan Systems system. The Customer Corporation will be responsible for
all equipment warranties under those circumstances, including any equipment
problems detected while the equipment is being used for development at Rapistan
Systems.
Extended Computer Hardware Service Warranty Option
You may purchase an extended computer hardware service warranty to extend your
warranty period past the one year that Rapistan Systems provides. The extended
warranty is available for the computer hardware and selected equipment supplied
by Rapistan Systems. This provides the Customer the ability to have the computer
hardware and selected equipment warranted for additional year(s) after
expiration of the one year of standard computer hardware warranty provided by
Rapistan Systems.
As in the standard computer hardware service warranty, this warranty option only
covers the Rapistan Systems provided computer hardware identified above in this
Description of Operation.
52
<PAGE> 38
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
SCHEDULE
54
<PAGE> 39
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PRICING:
The price for the performance of Rapistan Systems work described in this
Proposal is as follows:
<TABLE>
<S> <C>
Mechanical equipment..............................................$2,606,206.00
Project management & engineering....................................$212,243.00
Electrical controls & engineering...................................$740,563.00
Mechanical installation.............................................$667,780.00
Electrical installation.............................................$474,428.00
Freight............................................................ $136,250.00
</TABLE>
BASE SYSTEM PRICE.........................................$4,837,470.00
Option 1: RapidVIEW(2) - Maintenance database serves as a centralized system to
organize facility maintenance and spare parts inventory. See
appendix "D" for further details...........................$35,685.00
Accept____________________ Decline__________X___________
Option 2: Additional RapidVIEW(2) workstation, with environmental enclosure
.............................................................$14,935.00
Accept____________________ Decline___________X__________
Option 3: Deduct to remove two (2) downlines to shipping doors....($48,020.00)
Includes engineering, equipment, installation and freight.
Accept__________X__________ Decline__________X___________
Option 4: Deduct to remove spiral belt curves and replace with
Decline belts.......................................($45,640.00)
Accept____________________ Decline__________X___________
55
<PAGE> 40
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PRICING (CONT'D):
Option 5: Deduct to relocate last shipping downline and shorten sorter and
platform approximately 15'.............................. ($27,423.00)
Accept________X___________ Decline_____________________
Option 6: Deduct to remove (2) RS200 divert
modules..................................................($41,570.00)
Accept________X___________ Decline_____________________
Option 7: Add critical spare parts for conveyor system..............$100,000.00
Accept________X___________ Decline_____________________
Option 8: Deduct Rapistan Systems discount if all three projects are purchased
.........................................................($52,750.00)
Accept________X___________ Decline_____________________
CONVEYOR SYSTEM PRICE.............................................$4,767,707.00
Estimated Taxes at 8.25%........................................$393,336.00
TOTAL CONVEYOR INVESTMENT.........................................$5,161,043.00
56
<PAGE> 41
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
PAYMENT TERMS:
Rapistan Systems agrees to submit invoices and Home Interiors agrees to pay
invoices in accordance with the terms and conditions of the agreement and the
invoice and payment schedule shown below. All payments shall be made at the
address indicated on Rapistan Systems' invoice.
A late payment charge of prime plus two percent will be added to any amount not
received by Rapistan Systems on or before the invoice payment date indicated on
the payment schedule. Where this rate exceeds a maximum rate permitted by
applicable law, the permissible rate will apply.
In connection with Rapistan Systems' obligation to install the Equipment, the
final invoice, per the invoice and payment schedule, may be held as retainer.
Home Interiors will pay the retainer amount within 15 days after Rapistan
Systems' completion of the installation, testing of the equipment, acceptance of
the equipment and goods by Purchaser, and delivery to Purchaser of (a) duly
executed unconditional waivers of mechanics' and materialmens' liens from
Rapistan Systems and every supplier of work, material, goods or services in
connection with the equipment, (b) originals of any and all warranties
associated with the equipment and goods, (c) originals of any and all user
guides and manuals and owner's manuals associated with the equipment and goods,
and (d) an affidavit of Rapistan Systems listing all persons who supplied,
manufactured, and/or installed the equipment and goods (collectively,
"Installation Commissioning"). However, should there be a dispute about the
completion of the Installation Commissioning, then Home Interiors shall inform
Rapistan Systems of any claimed defects in the Equipment and the amount
necessary to correct claimed defects will be mutually determined in writing.
Home Interiors will then pay the final invoice less the determined amount. Home
Interiors will pay the remaining retainer upon correction by Rapistan Systems of
any defects in the Equipment as mutually determined.
57
<PAGE> 42
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
Invoices and payment will be forwarded to provide for receipt by the appropriate
party on the date shown.
<TABLE>
<CAPTION>
DATE PAYMENT
INVOICE RECEIVED BY
INVOICE DATE INVOICE DESCRIPTION VALUE AMOUNT RAPISTAN SYSTEMS
------------ ------------------- ----- ------------- ----------------------------
<S> <C> <C> <C> <C>
12-17-99 Down Payment 25% $1,191,927.00 Upon Written Notification to
proceed
01-01-00 Engineering Complete
All Equipment In Mfg. 15% $ 715,156.00 Net 15 days
02-01-00 Equipment Shipped 20% $ 953,540.00 Net 15 days
03-01-00 Progressive Billing 10% $ 476,771.00 Net 15 days
04-01-00 Progressive Billing 10% $ 476,771.00 Net 15 days
05-01-00 Installation Complete 10% $ 476,771.00 Net 15 days
06-01-00 Retainer 10% $ 476,771.00 Net 15 days after Installation
------------- Commissioning
TOTAL $4,767,707.00
</TABLE>
58
<PAGE> 43
HOME INTERIORS [RAPISTAN SYSTEM]
56-5738 Rev. B
December 14, 1999
This Sales Agreement, hereinafter called "Agreement", made by and between Home
Interiors & Gifts, Inc., 4550 Spring Valley Road, Dallas, TX 75244, hereinafter
called "Home Interiors" and Mannesmann Dematic Rapistan Corp., 8600 W. Royal
Lane, Suite 100 A, Irving, TX 75063, hereinafter called "Rapistan Systems",
constitutes Agreement of the parties as follows:
1. Rapistan Systems agrees to sell to Home Interiors and Home Interiors
agrees to purchase from Rapistan Systems, the equipment and any
services described in Rapistan Systems Proposal No. 56-5738 Rev. B,
dated December 14, 1999, Tabs 1 through 9 and pages 1 through 59 for
the price set forth in the Proposal and on the terms and conditions of
Exhibit A.
2. This Agreement constitutes the entire agreement between the parties
and no oral or other representation shall prevail, notwithstanding any
other terms and conditions of any order submitted by Home Interiors.
Any changes, modifications, or additions to this Agreement are binding
and enforceable only if made in writing and signed by both parties.
Approved and Executed By:
HOME INTERIORS & GIFTS, INC. MANNESMANN DEMATIC RAPISTAN CORP.
/s/ BETTINA SIMMON /s/ ROYAL SMITH
- ------------------------------- --------------------------------
Signature Signature
Vice President, General Counsel
& Secretary General Manager
- ------------------------------- --------------------------------
Title Title
December 15, 1999 December 15, 1999
- ------------------------------- --------------------------------
Date Date
59
<PAGE> 1
EXHIBIT 10.26
PURCHASE AND SALE AGREEMENT
(1400 LAVON STREET, MCKINNEY, COLLIN COUNTY, TEXAS)
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into by
and between HOMCO, INC., a Texas corporation ("Seller") and DONALD J. CARTER,
JR. ("Purchaser"), effective as of the Effective Date provided for in SECTION
19.11. below.
For and in consideration of the mutual promises contained herein,
Seller and Purchaser agree as follows:
ARTICLE 1.
AGREEMENT OF SALE AND PURCHASE
1.1. PROPERTY. Subject to the terms and conditions of this Agreement,
Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from
Seller, that certain 15.3-acre tract of real property situated in Collin County,
Texas, described on Exhibit A attached hereto and hereby made a part hereof (the
"Land"), together with any buildings, structures, appurtenances and improvements
located on the Land (such buildings and all other improvements located on the
Land being herein referred to as the "Improvements") and all rights and
appurtenances pertaining to the Land and the Improvements, including, without
limitation, any and all rights of Seller in and to all oil, gas and mineral
rights relating to the Land, all roads, alleys, easements, streets and ways
adjacent to the Land, strips and gores and rights of ingress and egress thereto.
The Land and Improvements as well as all Seller's rights and appurtenances
pertaining thereto described above are hereinafter collectively referred to as
the "Property." The legal description of the Land shown on the Survey
(hereinafter defined) shall be substituted for the description of the Land set
forth on Exhibit A upon its approval by Seller, Purchaser and the Title Company
(hereinafter defined) and such legal description shall be utilized for the
conveyance of the Property from Seller to Purchaser.
ARTICLE 2.
PURCHASE PRICE
2.1. AMOUNT. The purchase price (the "Purchase Price") for the Property
is Three Million Seven Hundred Twenty-Seven Thousand Three Hundred Eighty and
No/100 Dollars ($3,727,380.00) and shall be payable in the manner set forth in
SECTION 2.2. below.
2.2. METHOD OF PAYMENT. The entire Purchase Price shall be paid by
Purchaser's delivering cash, a cashier's check or another form of current,
collected federal funds in that amount to the Title Company (hereinafter
defined) for disbursement by it to Seller or for Seller's account at the Closing
(hereinafter defined).
2.3. EARNEST MONEY DEPOSIT. Within three (3) business days after the
date this Agreement is executed by both Seller and Purchaser, Purchaser shall
deliver to the offices of
<PAGE> 2
Republic Title of Texas, Inc., to the attention of Leslie Wheeler, 2626 Howell
Street, 10th Floor, Dallas, Texas 75204-4064, telephone number: (214) 855-8888,
telecopy number: (214) 855-8852 (the "Title Company"), as agent for First
American Title Insurance Company, a deposit of Ten Thousand and No/l00 Dollars
($10,000.00) in cash (the "Earnest Money Deposit"). In the event Purchaser does
not deposit the Earnest Money Deposit with the Title Company on or prior to the
date designated in the preceding sentence, this Agreement shall automatically
terminate and the parties hereto shall have no further rights, duties or
obligations one to the other hereunder. In the event Purchaser does not
terminate this Agreement prior to the expiration of the Review Period (defined
in SECTION 8.1.) then the Earnest Money Deposit shall be nonrefundable to
Purchaser except in the event of the default of Seller under the terms hereof.
The Title Company shall hold the Earnest Money Deposit as escrow agent and shall
invest the Earnest Money Deposit in such interest bearing investments as
Purchaser shall reasonably designate from time to time which mature no later
than the earlier of (a) the date on which the Closing hereunder is scheduled (at
the time such investment is made) to be held or (b) the date (if it is then
determinable) on which the Earnest Money Deposit will be required to be
delivered to either Purchaser or Seller pursuant to the provisions of this
Agreement. All such interest earned thereon shall be deemed to constitute a
portion of the Earnest Money Deposit and shall be added thereto. At Closing, or
upon the occurrence of a default under this Agreement, the Title Company shall
deliver the Earnest Money Deposit to the party entitled to it in accordance with
the other terms of this Agreement.
2.4. INDEPENDENT CONTRACT CONSIDERATION. In addition to the Earnest
Money Deposit, Purchaser shall deliver to Seller on the Effective Date a check
in the amount of One Hundred and No/l00 Dollars ($100.00) (the "Independent
Contract Consideration"), which amount the parties bargained for and agreed to
as consideration for Seller's execution and delivery of this Agreement. This
Independent Contract Consideration is in addition to and independent of any
other consideration or payment provided in this Agreement, is non-refundable
under any circumstances, and shall be retained by Seller notwithstanding any
other provision of this Agreement.
ARTICLE 3.
THE DEED AND BILL OF SALE
3.1. THE DEED. At the Closing, Seller shall convey the Property to
Purchaser by special warranty deed in the form of Exhibit B attached hereto (the
"Deed").
3.2. DEED PROVISIONS. The Deed shall convey the Property to Purchaser
subject only to the Permitted Exceptions as defined in SECTION 9.4. below.
3.3. BILL OF SALE. The Bill of Sale shall convey to Purchaser, without
recourse to or warranty by Seller, all rights of Seller in and to the fixtures,
equipment and other tangible personal property attached to, installed in or used
solely in connection with the Property (other than those trade fixtures and
items of equipment and tangible personal property removed or identified for
removal by Seller before Closing). The Bill of Sale shall also assign, to the
extent assignable and without recourse to or warranty by Seller, all rights of
Seller in and to any
2
<PAGE> 3
warranties, guaranties and service contracts in effect on the Closing Date (as
herein defined) relating to the tangible personal property to be sold or to the
Improvements. The Bill of Sale shall be in the form of Exhibit C attached
hereto.
3.4. AS IS TRANSACTION. TO INDUCE SELLER TO ENTER INTO THIS AGREEMENT,
PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY SET FORTH
IN THIS AGREEMENT, AND EXCEPT FOR SELLER'S WARRANTY OF TITLE IN SELLER'S SPECIAL
WARRANTY DEED, THE PROPERTY SHALL BE CONVEYED AND TRANSFERRED TO PURCHASER "AS
IS, WHERE IS, AND WITH ANY AND ALL FAULTS AND PATENT AND LATENT DEFECTS," AND
SELLER HAS NOT MADE, DOES NOT MAKE, AND SPECIFICALLY DISCLAIMS ANY
REPRESENTATION, PROMISE, COVENANT, AGREEMENT, GUARANTY OR WARRANTY OF ANY KIND
OR CHARACTER, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW, AS TO THE
MERCHANTABILITY, QUANTITY, QUALITY, CONDITION, SUITABILITY, HABITABILITY, OR
FITNESS OF THE PROPERTY FOR ANY PURPOSE WHATSOEVER, INCLUDING WITHOUT
LIMITATION, ANY REPRESENTATION REGARDING SOIL CONDITIONS, AVAILABILITY OF
UTILITIES, DRAINAGE, ZONING LAWS, ENVIRONMENTAL LAWS, OR ANY OTHER FEDERAL,
STATE OR LOCAL STATUTES, CODES, REGULATIONS OR ORDINANCES. PURCHASER ALSO
ACKNOWLEDGES AND AGREES THAT THE PROVISIONS IN THIS AGREEMENT FOR PURCHASER'S
INSPECTION AND INVESTIGATION OF THE PROPERTY ARE ADEQUATE TO ENABLE PURCHASER TO
MAKE PURCHASER'S OWN DETERMINATION WITH RESPECT TO THE SUITABILITY OR FITNESS OF
THE PROPERTY, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO SOIL CONDITIONS,
AVAILABILITY OF UTILITIES, DRAINAGE, ZONING LAWS, ENVIRONMENTAL LAWS, AND ANY
OTHER FEDERAL, STATE OR LOCAL STATUTES, CODES REGULATIONS OR ORDINANCES.
PURCHASER ACKNOWLEDGES THAT THE DISCLAIMERS, AGREEMENTS AND OTHER STATEMENTS SET
FORTH IN THIS PARAGRAPH ARE AN INTEGRAL PORTION OF THIS AGREEMENT AND THAT
SELLER WOULD NOT AGREE TO SELL THE PROPERTY TO PURCHASER FOR THE PURCHASE PRICE
WITHOUT THE DISCLAIMERS, AGREEMENTS AND OTHER STATEMENTS SET FORTH IN THIS
PARAGRAPH. PURCHASER FURTHER ACKNOWLEDGES THAT PURCHASER IS NOT IN A DISPARATE
BARGAINING POSITION WITH RESPECT TO SELLER. THE PROVISIONS CONTAINED IN THIS
PARAGRAPH SHALL SURVIVE THE CLOSING HEREUNDER AND THE DELIVERY FROM SELLER TO
PURCHASER OF THE SPECIAL WARRANTY DEED.
ARTICLE 4.
THE CLOSING
The closing of the transaction contemplated by this Agreement (the
"Closing") shall be at the offices of the Title Company and shall be held at
10:00 a.m., on a date selected by Seller and reasonably acceptable to Purchaser
(the "Closing Date") falling between Monday, May 15, 2000, and Friday, May 26,
2000, unless Purchaser and Seller mutually agree to an earlier Closing,
3
<PAGE> 4
which agreement must be in writing and signed by the party against whom it is
sought to be enforced. Upon completion of the Closing, Seller shall deliver
possession of the Property to Purchaser in "As-Is" condition.
ARTICLE 5.
CLOSING PRORATIONS
5.1. The following amounts or items shall be prorated, credited or
added to the Purchase Price at the Closing as appropriate, and except to the
extent otherwise provided herein, shall adjust the Purchase Price at Closing:
(a) Taxes. At Closing, all state, county and municipal ad valorem
taxes, assessments and similar charges with respect to the Property for the year
in which the Closing is consummated will be prorated as of the Closing Date
based upon taxes, assessments and charges for such year, or if said ad valorem
tax amounts for such year are not available, upon the ad valorem taxes for the
previous year. Upon receipt of the tax bill for the Property for the year in
which the Closing is consummated, the parties agree to prorate the taxes based
on such bill and to adjust between themselves any differences between such bill
and the previous year's tax bill.
(b) Assessments. If, as of the Closing Date, the Property or any part
thereof shall be or shall have been affected by any assessment or assessments,
other than assessments for taxes on the Property for any years prior to the year
Closing is consummated, which are or may become payable in installments, such
assessments falling due after Closing shall be paid in full by Seller at
Closing.
(c) Utility Charges, Etc. Utility charges, maintenance costs, insurance
premiums and other expenses of operating the Property shall be apportioned
between Seller and Purchaser at the Closing as of 11:59 p.m. of the day
preceding the date of Closing, such that credits and charges equitably
attributable to all days preceding the date of Closing shall be allocated to
Seller, and that credits and charges equitably attributable to all days from and
after the date of Closing shall be allocated to Purchaser. Effective as of the
Closing Date, Purchaser shall obtain its own insurance covering the Property,
and shall change all utilities to its name and make all new utility deposits.
The foregoing proration provisions shall survive Closing.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
6.1. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Seller
represents and warrants to Purchaser as of the Effective Date and as of the
Closing Date that:
4
<PAGE> 5
(a) Seller has all power and authority legally necessary to enter into
this Agreement, execute and deliver the Closing documents and sell and convey
the Property to Purchaser in accordance with the terms of this Agreement.
(b) Seller is not a "foreign person" as defined in Section 1445(f)(3)
of the Internal Revenue Code as amended from time to time and at Closing Seller
shall furnish Purchaser an Affidavit confirming the same in the form attached
hereto as Exhibit D.
(c) Seller will transfer to Purchaser at the Closing, fee simple title
to the Property, subject only to the Permitted Exceptions.
(d) There are no unrecorded liens or Uniform Commercial Code liens
against any of the Property, but if it is determined that such liens do exist,
they shall be satisfied at Closing out of the Purchase Price.
(e) To the best of Seller's actual knowledge, during the period of
Seller's ownership of the Property, no Hazardous Materials have been generated,
processed, collected, treated, emitted, discharged, disposed or transported on,
under, in, above, to or from the Property. As used herein, the term "Hazardous
Materials" means (i) asbestos requiring abatement, removal, encapsulation,
treatment or other handling pursuant to any Applicable Environmental Laws
(hereinafter defined), (ii) polychlorinated byphenyls (more commonly known as
"PCB's"), (iii) storage tanks, whether above ground or below ground, in need of
abatement, removal, repair, treatment, or other handling in order that the same
shall comply with Applicable Environmental Laws, (iv) any wastes, chemicals,
substances or other materials, the generation, processing, collection, storage,
treatment, release, emission, discharge, disposal or transportation of which is
prohibited on, under, in, above, to or from the Property by any Applicable
Environmental Laws, (v) any wastes, chemicals, substances or other materials
present on or being released, emitted or discharged from the Property in
quantities sufficient to require reporting under any Applicable Environmental
Laws and (vi) any other wastes, chemicals, substances or materials which,
pursuant to any Applicable Environmental Laws, require notification to be
provided to any Governmental Authority (hereinafter defined), in their
generation, processing, collection, storage, treatment, disposal or
transportation. As used herein, the term "Governmental Authority" shall mean the
United States of America, the State of Texas, the County of Collin, the City of
McKinney or any other political subdivision in which the Property is located,
and any other political subdivision, department, commission, board, agency,
authority or instrumentality exercising jurisdiction over Seller or the
Property. As used herein, the term "Applicable Environmental Laws" shall mean
any and all valid and applicable federal, state or local laws, rules or
regulations in effect at the time in question, protecting the environment,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Federal Water Pollution Control Act, the Clean Air Act, as amended,
the Clean Water Act, as amended, the Hazardous and Solid Waste Amendments of
1984, as amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Texas Natural Resources Code, the Texas Hazardous
Substances Spill and Control Act, as amended, the Texas Water Code and the Texas
Solid Waste Disposal Act, and the regulations adopted and promulgated pursuant
thereto. Seller is unaware as to whether or not that any Hazardous Materials
were generated, processed, collected, treated,
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emitted, discharged, disposed or transported on, under, in, above, to or from
the Property during the period prior to Seller's ownership of the Property.
(f) Seller may have provided, or may provide prior to Closing, to
Purchaser documents prepared by third parties relating to the operations or
condition of the Property, including, without limitation, reports, analyses,
plans, surveys and specifications (the "Third Party Documents").
As used in this Agreement, "Seller's actual knowledge" or words of like
import shall mean the current actual knowledge of Jim Livingston, based on an
examination of his books and records, but without any duty of further inquiry or
investigation of any kind.
PURCHASER HEREBY ACKNOWLEDGES THAT SELLER HAS NOT MADE AND DOES NOT
MAKE ANY WARRANTY OR REPRESENTATION REGARDING THE TRUTH OR ACCURACY OF THE THIRD
PARTY DOCUMENTS OR THE SOURCE THEREOF AND SELLER SPECIFICALLY DISCLAIMS ANY
PRINCIPAL/AGENCY RELATIONSHIP BETWEEN SELLER AND THE AUTHOR OR SOURCE OF ANY
CONSTITUENT REPORT OR DOCUMENT OF THE THIRD PARTY DOCUMENTS. SELLER HAS NOT
UNDERTAKEN ANY INDEPENDENT INVESTIGATION AS TO THE TRUTH OR ACCURACY OF THE
THIRD PARTY DOCUMENTS AND IS PROVIDING THE THIRD PARTY DOCUMENTS SOLELY AS AN
ACCOMMODATION TO PURCHASER; IN PERMITTING THE PERMITTED OUTSIDE PARTIES TO
REVIEW THE THIRD PARTY DOCUMENTS OR INFORMATION TO ASSIST PURCHASER, NO THIRD
PARTY BENEFITS RELATIONSHIPS OF ANY KIND, EITHER EXPRESS OR IMPLIED, HAVE BEEN
OFFERED, INTENDED OR CREATED BY SELLER AND ANY SUCH CLAIMS ARE EXPRESSLY
REJECTED BY SELLER AND WAIVED BY PURCHASER AND THE PERMITTED OUTSIDE PARTIES.
THE PROVISIONS CONTAINED IN THIS PARAGRAPH SHALL SURVIVE THE CLOSING HEREUNDER
AND THE DELIVERY FROM SELLER TO PURCHASER OF THE SPECIAL WARRANTY DEED.
6.2. PURCHASER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Purchaser
represents and warrants to Effective Date and as of the Closing Date that:
(a) Purchaser has the full right, power, and authority to purchase the
Property from Seller as provided in this Agreement and to carry out Purchaser's
obligations under this Agreement, and all requisite action necessary to
authorize Purchaser to enter into this Agreement and to carry out Purchaser's
obligations hereunder has been accomplished or will be accomplished on or before
Closing.
(b) As of the Effective Date, Purchaser has been hereby advised in
writing that Purchaser should have an abstract covering the Property examined by
an attorney of Purchaser's own selection or that Purchaser should be furnished
with or obtain a policy of title insurance.
(c) Purchaser is not subject to any legal or administrative proceeding,
debt structure or other agreement which would prevent Purchaser's full and
timely performance of its obligations hereunder.
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(d) Purchaser acknowledges that any and all of the Third Party
Documents are proprietary and confidential in nature and have been or will be
delivered to Purchaser solely to assist Purchaser in determining the feasibility
of purchasing the Property. Purchaser agrees not to disclose any of the Third
Party Documents, or any of the provisions, terms or conditions thereof, to any
party outside of Purchaser's organization except as to its attorneys,
accountants, lenders or investors (collectively, the "Permitted Outside
Parties"). Purchaser further agrees that within its organization, or as to the
Permitted Outside Parties, the Third Party Documents shall be disclosed and
exhibited only to those persons within Purchaser's organization or the Permitted
Outside Parties who are responsible for determining the feasibility of
Purchaser's acquisition of the Property.
(e) In the event the transaction contemplated by this Agreement is not
consummated for any reason, except for Seller's default, Purchaser shall
promptly deliver to Seller copies of (but no propriety rights in) all available
reports and studies (other than appraisals) relating to the Property in its
possession or in the possession of its agents, consultants or employees,
including, without limitation, any and all (i) environmental reports, (ii)
market studies, (iii) site plans, plats and related engineering, (iv) prospect
lists, (v) soil reports, (vi) architectural renderings, drawings and/or
elevations, and (vii) Third Party Documents, including any copies thereof made
by Purchaser or at Purchaser's direction.
ARTICLE 7.
SELLER'S COVENANTS
In addition to Seller's other covenants and obligations contained in
this Agreement, Seller agrees as follows:
7.1. PROPERTY RECORDS. Seller shall deliver to Purchaser, on or before
five (5) days after the Effective Date, copies of (a) all tax bills relating to
the Property, including, but not limited to, ad valorem, rental and special
assessments for the preceding two (2) calendar years; (b) utility documents
relating to the Property, if any, for the preceding two (2) calendar years; (c)
any and all information regarding any condemnation notices, proceedings and/or
awards received by Seller affecting the Property; (d) any endangered species
letters received by Seller pertaining to the Property; and (e) any and all other
information reasonably requested by Purchaser relating to Seller's use and
occupancy of the Property.
7.2. PLANS AND STUDIES. Seller, at its expense, shall deliver to
Purchaser, on or before five (5) days after the Effective Date, copies of (but
no propriety rights in) all surveys, plats, site plans, engineering studies,
topographical surveys, environmental studies and other plans, specifications and
studies relating to all or any part of the Property which are in Seller's
possession.
7.3. NO ENCUMBRANCES. Seller agrees to neither grant, suffer, commit
nor permit any easements or encumbrances upon any part of the Property between
the Effective Date of this Agreement and the Closing or termination of this
Agreement, except such easements or encumbrances as shall be released on or
before Closing.
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ARTICLE 8.
CONDITIONS
8.1. PURCHASER'S REVIEW PERIOD. Purchaser shall have a period of time
commencing upon the Effective Date and ending upon the day which is thirty (30)
days after the Effective Date (the "Review Period") during which to inspect the
Property, the status of title to the Property, any books and records of Seller
relating to the ownership or operation of the Property, and to perform any
appraisals, surveys, studies and analysis desired by Purchaser relating to the
status of title to the Property and the environmental condition of the Property.
If, prior to the expiration of the Review Period, Purchaser determines that the
Property or the status of title to the Property is not suitable for its
purposes, Purchaser may terminate this Agreement by providing written notice of
termination to Seller prior to the expiration of the Review Period. If Purchaser
terminates this Agreement before the end of the Review Period in strict
accordance with its right to terminate set forth in the preceding sentence, then
the Earnest Money Deposit shall be immediately refunded to Purchaser without
deduction or offset. Should Purchaser fail to terminate this Agreement in
accordance with the provisions of this SECTION 8.1. prior to the expiration of
the Review Period, the Earnest Money Deposit shall be nonrefundable to Purchaser
except in the event of a default by Seller under the terms hereof.
8.2. PURCHASER'S TESTING RIGHTS AND INDEMNITY. During the Review
Period, Purchaser, its agents, contractors, employees and representatives, shall
have the right to enter the Property at all reasonable times in order to inspect
the Property; provided that (i) all such work shall be at Purchaser's risk and
expense, and (ii) copies of all such reports (except appraisals), audits,
studies and analyses shall be forwarded to Seller without recourse or warranty
to Purchaser. Purchaser shall not undertake any destructive testing without
Seller's prior written consent. Purchaser agrees to indemnify Seller and hold
Seller harmless from and against all injury, damage, loss, cost and expense,
including costs of repairing damage to the Property and costs of defending
claims arising out of the exercise of Purchaser's testing and inspection rights
accorded by this SECTION 8.2. This indemnity obligation shall survive
termination of this Agreement. At Seller's election Purchaser shall immediately
restore the Property to substantially its original condition if changed due to
the tests and inspections performed by Purchaser.
ARTICLE 9.
TITLE AND SURVEY
9.1. TITLE COMMITMENT DELIVERY. Within ten (10) days after the
Effective Date of this Agreement, Seller shall obtain and cause to be delivered
to Seller: (a) a current Commitment for an Owner's Policy of Title Insurance or
preliminary title report covering the Property (the "Title Commitment") issued
by the Title Company, whereby the Title Company commits to issue to Purchaser
its Owner's Policy of Title Insurance in accordance with this Agreement; and (b)
true and legible copies of all instruments listed or referred to as exceptions
on the Title Commitment (collectively, the "Exception Documents").
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9.2. TITLE COMMITMENT FEATURES. The Title Commitment shall describe the
Property (and such legal description as modified by the Survey (hereinafter
defined) shall, after approval of the Survey by Purchaser and Seller, be
automatically incorporated as the description of the Property into this
Agreement and shall be used as such in all Closing documents), list Purchaser as
the proposed insured and show the Purchase Price as the policy amount.
9.3. SURVEY. Within ten (10) days after the Effective Date of this
Agreement, Seller shall obtain and cause to be delivered to Seller and Purchaser
an on-the-ground, as-built survey of the Land and Improvements (the "Survey"),
prepared and certified as to all matters shown thereon by a registered surveyor
in compliance with the standards of a Category 1-A, Condition II survey, as
specified in the latest edition of the Manual of Practice for Land Surveying of
Texas published by the Texas Surveyor's Association.
9.4. TITLE REVIEW. All title encumbrances or exceptions which are
referred to or listed in Schedule B of the Title Commitment, or are shown on the
Survey, and to which Purchaser does not object in a written notice given to
Seller on or before the period of time (the "Objection Period") expiring fifteen
(15) days after the date on which Purchaser has received the last to be received
of the Title Commitment, the Exception Documents and the Survey, shall be deemed
to be exceptions (the "Permitted Exceptions") which are permitted to be included
as exceptions to title both in Seller's Deed to Purchaser and in the Owner's
Policy of Title Insurance required by SECTION 10.1.(E) below. With regard to
matters to which Purchaser does object in a written notice given to Seller
before the end of the Objection Period, Seller shall have a period of time
expiring ten (10) days after the date Seller has received Purchaser's written
objection notice ("Seller's Curative Period") within which Seller may (but shall
have no obligation) to cure such written objections. Seller shall have the
right, but no obligation, to cure any matters to which Purchaser objects. If
Seller fails to cure any such objections within Seller's Curative Period, then
Purchaser, as its sole and exclusive remedy, shall have the right to terminate
this Agreement by written notice delivered to Seller and the Title Company prior
to the expiration of the Review Period, whereupon all of the Earnest Money
Deposit shall be returned to Purchaser, or Purchaser, at its election may waive
in writing any such objections and proceed to Closing without reduction in the
Purchase Price in which event such written objections shall be Permitted
Exceptions.
ARTICLE 10.
THE CLOSING
10.1. SELLER'S CLOSING OBLIGATIONS. At the Closing, Seller shall cause
the following documents, certificates and items to be furnished to Purchaser:
(a) The Deed in the form required by ARTICLE 3. above, duly executed
and acknowledged by Seller.
(b) Evidence of payment, satisfaction and discharge of any and all
outstanding liens (other than the statutory lien for taxes not yet due and
payable) and other assessments, mortgages, security interests or other
encumbrances securing the payment of any indebtedness secured by the Property.
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(c) The Bill of Sale and Assignment in the form required by ARTICLE 3.
above, duly executed by Seller.
(d) The Affidavit described in SECTION 6.1.(B).
(e) An Owner's Policy of Title Insurance covering the Property issued
by the Title Company in accordance with the terms of this Agreement insuring
Purchaser's title in the amount of the Purchase Price.
(f) Tax Certificates.
(g) Evidence reasonably satisfactory to Purchaser and the Title Company
of Seller's and Seller's closing representative's power and authority to
consummate the transactions provided for in this Agreement.
(h) Any additional documents that the Title Company considers
reasonably necessary to consummate this transaction.
10.2. PURCHASER'S CLOSING OBLIGATIONS. Subject to Seller's performing
its obligations under SECTION 10.1. above, at the Closing, Purchaser shall:
(a) Pay the Purchase Price pursuant to the provisions of SECTION 2.2.
above.
(b) Evidence reasonably satisfactory to Seller and the Title Company of
Purchaser's and Purchaser's closing representative's power and authority to
consummate the transactions provided for in this Agreement.
(c) Any additional documents that the Title Company considers
reasonably necessary to consummate this transaction.
The Earnest Money Deposit shall be credited against the Purchase Price.
ARTICLE 11.
RISK OF LOSS; DAMAGE OR CONDEMNATION
The risk of loss resulting from any pending or threatened condemnation
or eminent domain proceeding which is commenced prior to Closing, and the risk
of loss to the Property due to any other cause, remains with Seller until
Closing. If, prior to the Closing, all or part of the Property shall be
destroyed, damaged or subjected to a bona fide threat of condemnation, eminent
domain or other proceeding, Seller shall so notify Purchaser, and Purchaser may
elect to (i) terminate this Agreement, in which event the Earnest Money Deposit
shall be returned to Purchaser, or (ii) Purchaser may declare this Agreement to
remain in full force and effect and at Closing, Seller shall assign, transfer
and set over to Purchaser all of the right, title and interest of Seller in and
to any awards and insurance proceeds or claims that have been or that may
thereafter be made for such taking or damage.
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ARTICLE 12.
DEFAULT, REMEDIES, AND DISPOSITION OF DEPOSIT
12.1. SELLER'S DEFAULT. If the transaction provided for herein is not
completed because of a default (willful or otherwise) by Seller then and in that
event the Earnest Money Deposit shall be immediately returned to Purchaser, and
Purchaser may as its sole and exclusive remedy either (i) terminate this
Agreement by written notice to Seller, or (ii) enforce specific performance.
Provided, however, that Purchaser's right to specific performance against Seller
shall be limited to the right to require Seller to convey only such title to the
Property as Seller may have, with no reduction in the Purchase Price.
12.2. PURCHASER'S DEFAULT. If the transaction provided for herein is
not completed because of a default (willful or otherwise) by Purchaser, Seller,
as its sole and exclusive remedy, may terminate this Agreement by giving written
notice, accompanied by Seller's sworn written statement to both Purchaser and
the Title Company that Purchaser is then in default under this Agreement and
Seller is not, and may have and receive the Earnest Money Deposit as liquidated
damages (such sum being agreed upon as reasonable liquidated damages, and not as
a penalty, because of the difficulty and inconvenience of ascertaining Seller's
actual damages). Provided, that if Purchaser duly exercises its option to
terminate this Agreement pursuant to SECTION 8.1. above before the end of the
Review Period, then all of the Earnest Money Deposit shall be promptly refunded
to Purchaser.
12.3. EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to a right herein granted, then the Earnest Money Deposit shall be disbursed to
Purchaser or Seller, as appropriate, and thereafter neither party shall have any
further rights or obligations hereunder, except with respect to obligations that
expressly survive such termination.
ARTICLE 13.
EXPENSES
13.1. SELLER'S PAYMENTS. At (or, at Seller's election, before) the
Closing Date, Seller shall pay:
(a) One-half (1/2) the costs of the Owner's Policy of Title Insurance
required hereby except that the costs of any additional premiums for
modification or deletion of standard exceptions, or endorsements to the Owner's
Policy of Title Insurance shall be at Purchaser's sole cost and expense;
(b) The fee for recording the Deed;
(c) One-half (1/2) of any escrow fee charged by the Title Company;
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(d) One-half (1/2) the costs associated with the Survey;
(e) All charges for Tax Certificates;
(f) Seller's own attorneys' fees;
(g) All of any special messenger, copy or other service charge made by
the Title Company for services requested by Seller or its representatives; and
(h) Any other customary costs and expenses not specifically provided
for herein and normally borne by a Seller of real property in the county in
which the Property is situated.
13.2. PURCHASER'S PAYMENTS. At (or at Purchaser's election before) the
Closing Date, Purchaser shall pay:
(a) One-half of any escrow fee charged by the Title Company;
(b) Purchaser's own attorneys' fees;
(c) One-half (1/2) the costs associated with the Survey;
(d) One-half (1/2) the costs of the Owner's Policy of Title Insurance
required hereby except that the costs of any additional premiums for
modification or deletion of standard exceptions, or endorsements to the Owner's
Policy of Title Insurance shall be at Purchaser's sole cost and expense;
(e) All of any special messenger, copy or other service charge made by
the Title Company for services requested by Purchaser or its representatives;
and
(f) All costs and expenses associated with the due diligence review of
the Property and any other customary costs and expenses borne by a Purchaser of
real property in the county in which the Property is situated.
ARTICLE 14.
REAL ESTATE BROKERAGE INDEMNITY
Seller does hereby agree to indemnify Purchaser against and hold
Purchaser harmless from any and all real estate commissions, claims for such
commissions or similar fees, including attorneys' fees incurred in any lawsuit
regarding such commissions or fees arising by, through or under Seller.
Purchaser does hereby agree to indemnify Seller against and hold Seller harmless
from any and all real estate commissions, claims for such commissions or similar
fees arising by, through or under Purchaser. In connection therewith, Purchaser
and Seller hereby represent and warrant to each other that neither such party,
their officers, employees and agents, have contracted for any such real estate
commissions, nor have they, without the knowledge of the other, contacted real
estate agents or brokers, nor have they, without the others knowledge, acted in
a manner so as to give rise to a claim for such real estate commissions or
similar fees.
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ARTICLE 15.
SURVIVAL
The representations and warranties of Purchaser and Seller contained in
this Agreement shall survive the Closing for a period of one (1) calendar year
and shall not be deemed merged into the Closing documents.
ARTICLE 16.
RIGHT OF ASSIGNMENT
Purchaser may assign its rights under this Agreement to a person or
entity which, directly or indirectly, controls, is controlled by or is under
common control with Purchaser, without the prior written consent of Seller.
Purchaser may not assign its rights under this Agreement to any other person or
entity without the prior written consent of Seller. Any person or entity to
which Purchaser assigns its rights under this Agreement shall execute and
deliver to Seller, contemporaneously with such assignment, a written assumption
agreement under which such assignee assumes all of the duties, obligations and
liabilities of Purchaser under this Agreement, states that the Earnest Money
Deposit has become the property of such assignee, and agrees to be bound by all
of the terms and provisions of this Agreement. Should Purchaser assign its
rights under this Agreement in the manner permitted hereby, upon delivery of
such assumption agreement to Seller, Purchaser shall be released from all
liability and obligations under this Agreement.
ARTICLE 17.
LITIGATION COSTS
Should either Seller or Purchaser bring legal proceedings permitted
hereunder against the other to enforce any provision of this Agreement, the
party in whose favor final judgment is entered by the Court in such proceedings
shall be entitled to recover against the other party the reasonable attorneys'
fees and expenses incurred by the prevailing party.
ARTICLE 18.
CONTINUATION OF MARKETING EFFORTS
Purchaser acknowledges that Seller will continue to market the Property
for sale to third parties while this Agreement is in effect. If Seller at any
time receives a bona fide offer to purchase the Property or any part thereof
from a third party offeror that Seller determines is preferable to the terms of
this Agreement (the "Third Party Offer"), Seller may subordinate Purchaser's
rights under this Agreement (as to the entire Property or the part thereof
included in the Third Party Offer) to the rights of such third party offeror (in
which event this Agreement will become a "back-up" contract), and may accept the
Third Party Offer unless Purchaser elects,
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within five (5) business days of its receipt of written notice that Seller has
received a Third Party Offer (the "Notice"), to amend this Agreement and
purchase the Property on the price and terms set forth in the Third Party Offer.
Seller's written notice to Purchaser of the Third Party Offer shall set forth
the price of the proposed sale, the identification of the proposed purchaser and
a description of the Property or part thereof proposed to be sold, and shall be
accompanied by a copy of the written document evidencing the Third Party Offer.
If Purchaser elects to purchase the Property (or part thereof included in the
Third Party Offer) on the price and terms set forth in the Third Party Offer,
Purchaser shall sign and deliver an amendment to this Agreement, prepared by
Seller's counsel in form reasonably satisfactory to Purchaser and Seller (the
"Amendment"), evidencing the same price and terms as set forth in the Third
Party Offer, except that the Closing Date and all interim deadlines for
performance set forth in this Agreement shall remain in effect, such that
Closing under this Agreement, as amended by the Amendment, occurs in any event
on or before May 26, 2000. If Purchaser does not elect to purchase the Property
(or part thereof included in the Third Party Offer) within five (5) business
days of its receipt of the Notice by delivering to Seller written notice of such
election, or does not sign and deliver the Amendment within five (5) business
days of its receipt of the Amendment, then Purchaser's rights under this
Agreement shall automatically become subordinate (as to the entire Property or
the part thereof included in the Third Party Offer), to the rights of the third
party offeror under the contract it enters into with Seller in accordance with
the Third Party Offer (i.e., this Agreement will become a "back-up" contract),
and Seller may sell the Property or part thereof included in the Third Party
Offer to the third party offeror free and clear of all claims of Purchaser under
this Agreement. The immediately preceding sentence is intended to be
self-operative and effective without the necessity of further action or approval
by any party. If Purchaser's rights under this Agreement are subordinated to the
rights of a third party offeror pursuant to this ARTICLE 18, and Seller
consummates the sale of the Property to such offeror as permitted by this
ARTICLE 18, the Earnest Money Deposit shall be returned to Purchaser and Seller
shall reimburse Purchaser for the actual and reasonable costs, including
reasonable attorneys' fees and expenses, incurred by Purchaser in connection
with its efforts to purchase of the Property. Purchaser agrees to provide
Seller, upon request, with reasonable documentation confirming (i) the
subordination of Purchaser's rights under this Agreement (i.e., that this
Agreement has become a "back-up" contract), and (ii) substantiating such costs.
ARTICLE 19.
MISCELLANEOUS
19.1. NOTICES. All notices, requests and other communications under
this Agreement shall be in writing and shall be sent via facsimile, delivered in
person, or sent by registered or certified mail, postage prepaid and return
receipt requested, addressed as follows:
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If intended for Seller:
Homco, Inc.
Attn: Bettina S. Simon, Vice President and General Counsel
4550 Spring Valley Road
Dallas, Texas 75244-3705
Telephone: 972-386-1084
Facsimile: 972-386-1106
with a copy to:
Weil, Gotshal & Manges LLP
Attn: Philip I. Danze, Esq.
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Telephone: 214/746-7716
Facsimile: 214/746-7777
If intended for Purchaser:
Mr. Donald J. Carter, Jr.
-------------------------------------------
-------------------------------------------
Telephone:
---------------------------------
Facsimile:
---------------------------------
with a copy to:
Munsch, Hardt, Kopf & Harr, P.C.
Attn: Lynn M. Collins, Jr., Esq.
1445 Ross Avenue
4000 Fountain Place
Dallas, TX 75202
Telephone: 214-855-7500
Facsimile: 214-855-7584
or at such other address, and to the attention of such other person, as any
party shall specify in a notice given as herein provided. Facsimile and personal
delivery of all notices shall always be effective with evidence of confirmation
of receipt, and all such notices, requests and other communications shall be
deemed to have been sufficiently given for all purposes hereof in the event of a
mailing in the manner specified herein, on a date three (3) days after the date
of the mailing thereof, whether or not the intended recipient of the notice
actually receives it.
19.2. SECTION 1031. Purchaser shall cooperate as reasonably requested
by Seller, at no cost to Purchaser, in connection with Seller's selling the
Property pursuant to a tax-deferred exchange qualifying under Section 1031 of
the Internal Revenue Code. Purchaser shall not be obligated to take title to any
replacement property or incur any cost or expense as part of such
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cooperation. Rather, the parties shall use an affiliate of the Title Company as
a qualified intermediary and an escrow arrangement reasonably approved by
Purchaser. Seller has or soon will have the exchange property under contract and
shall designated the Property as the sole and exclusive trade property for the
exchange transaction in accordance with ARTICLE 4. Seller also assumes
responsibility for filing necessary tax forms for the exchange.
19.3. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement embodies and
constitutes the entire understanding between the parties with respect to the
transactions contemplated herein, and all prior or contemporaneous agreements,
understandings, representations and statements (oral or written) are merged into
this Agreement. Neither this Agreement nor any provisions hereof may be waived,
modified, amended, discharged or terminated except by an instrument in writing
signed by the party against whom the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument.
19.4. APPLICABLE LAW AND VENUE. This Agreement is performable in Collin
County, Texas and shall be governed by and construed in accordance with the laws
of the State of Texas. Either Collin County, Texas or Dallas County, Texas shall
be a proper place of venue for all suits hereon.
19.5. CAPTIONS. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe, limit or affect
the scope or intent of this Agreement or any of its provisions.
19.6. BINDING EFFECT. This Agreement shall bind and benefit the parties
hereto and their respective successors and permitted assigns.
19.7. TIME OF THE ESSENCE. Time is of the essence of the performance of
Seller's and Purchaser's obligations hereunder.
19.8. EXHIBITS INCORPORATED. All Exhibits to this Agreement referred to
above are hereby incorporated in this Agreement at the respective places in it
where they are mentioned.
19.9. CONSTRUCTION. Purchaser and Seller acknowledge that each party
and its legal counsel have reviewed and revised this Agreement and that they
agree the normal rule of construction that any ambiguities are to be resolved
against the drafter shall not be employed in the interpretation of this
Agreement or any amendments or exhibits hereto.
19.10. TIME PERIODS. If the final day of any period of time set out in
any provision of this Agreement falls on Saturday or Sunday or on a legal
holiday under the laws of the State of Texas, then and in such an event, the
time of such period shall be extended to the next day which is not a Saturday,
Sunday or legal holiday.
19.11. OFFER; EFFECTIVE DATE. The submission of this Agreement to
Purchaser for its review and signature does not constitute an offer to sell the
Property to Purchaser on the terms set forth herein, but rather an invitation
for Purchaser to make an offer to Seller on these terms. Seller shall not be
bound by this Agreement until Seller has signed and delivered this Agreement to
Purchaser and the Title Company. The "Effective Date" of this Agreement shall be
the date
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the Title Company acknowledges that an original of this Agreement executed by
both Purchaser and Seller and the Earnest Money Deposit have been received by
the Title Company.
19.12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original; but all of such counterparts
shall together constitute but one and the same instrument.
19.13. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, such provisions
shall be fully severable; this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement; and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid or enforceable.
19.14. CONDITION PRECEDENT TO SELLER'S OBLIGATIONS. Purchaser
acknowledges that the approval of the Board of Directors of Seller to the
transactions described in this Agreement shall be a condition precedent to
Seller's obligations hereunder.
19.15. FURTHER ACTS. In addition to the acts recited in this Agreement
to be performed by Seller and Purchaser, Seller and Purchaser agree to perform,
or cause to be performed, on, before and after Closing any and all such further
acts as may be reasonably necessary to consummate the transactions contemplated
hereby.
19.16. CONFIDENTIALITY. By their execution hereof, Seller and
Purchaser, their respective agents, employees, officers, shareholders,
directors, successors, independent contractors and permitted assigns hereby
agree to maintain in strict confidentiality, all of the terms, provisions,
agreements and information contained in or referred to in this Agreement,
including any of the exhibits attached hereto and the results of any tests,
surveys, economic feasibility studies, environmental audits and other
information provided to or generated by Purchaser or Seller. The information to
be maintained in strict confidentiality pursuant to the preceding sentence shall
not be disclosed directly or indirectly to any person or entity without the
prior written consent and specific written approval of the other party hereto.
Notwithstanding the foregoing, information may be disclosed to title company
personnel, attorneys, accountants, prospective lenders and their counsel and
prospective equity participants and their counsel or as otherwise required by
law or court order.
17
<PAGE> 18
EXECUTED in multiple counterparts, each of which shall constitute an
original hereof for all purposes and be enforceable without production of or
accounting for the others, effective as of the Effective Date provided for in
SECTION 19.11. above.
SELLER:
HOMCO, INC.,
a Texas corporation
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Executed on , 2000
----------
PURCHASER:
-----------------------------------------
DONALD J. CARTER, JR.
Executed on , 2000
----------
18
<PAGE> 19
Fully executed counterpart original of this Agreement and the sum of
$10,000 cash Earnest Money Deposit received.
TITLE COMPANY:
REPUBLIC TITLE OF TEXAS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Executed on ___________________, 2000
(the "Effective Date" of this Agreement)
Exhibit A - Property Description
Exhibit B - Special Warranty Deed
Exhibit C - Bill of Sale
Exhibit D - Non-Foreign Status Affidavit
19
<PAGE> 20
EXHIBIT A
PROPERTY DESCRIPTION
Being Lot 1, in Block A, of HOMCO ADDITION, an Addition to the City of McKinney,
Collin County, Texas, according to the Map thereof recorded in Volume J, Page
824, of the Map Records of Collin County, Texas.
<PAGE> 21
EXHIBIT B
WHEN RECORDED RETURN TO:
SPECIAL WARRANTY DEED
STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF COLLIN )
THAT HOMCO, INC., a Texas corporation, whose address is 4550 Spring
Valley Road, Dallas, Texas 75244-3705 (herein referred to as "Grantor"), for and
in consideration of the sum of Ten and no/100 Dollars ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which consideration
are hereby acknowledged, has GRANTED, SOLD AND CONVEYED and by these presents
does GRANT, SELL and CONVEY unto DONALD J. CARTER, JR. (herein referred to as
"Grantee"), whose address is _______________________________________________,
the following described property:
Being that certain tract of real property situated in Collin County,
Texas, described on Exhibit A attached hereto and hereby made a part
hereof (the "Land"), together with any buildings, structures,
appurtenances and improvements located on the Land (such buildings and
all other improvements located on the Land being herein referred to as
the "Improvements") and all rights and appurtenances pertaining to the
Land and the Improvements, including, without limitation, any and all
rights of Seller in and to all oil, gas and mineral rights relating to
the Land, all roads, alleys, easements, streets and ways adjacent to
the Land, strips and gores and rights of ingress and egress thereto.
The Land and Improvements as well as all Seller's rights and
appurtenances pertaining thereto described above are hereinafter
collectively referred to as the "Property;" subject, however, to the
exceptions to title (the "Permitted Encumbrances") more particularly
set forth on Exhibit B attached hereto and fully made a part hereof by
reference for all purposes.
TO HAVE AND TO HOLD the above-described Property, subject to the
Permitted Encumbrances, together with all and singular the rights and
appurtenances thereto in any wise belonging to Grantor, unto the said Grantee,
its successors and assigns FOREVER, and Grantor does hereby bind itself and its
successors and assigns to WARRANT AND FOREVER DEFEND all and singular the
Property unto the said Grantee, its successors and assigns, against
<PAGE> 22
every person whomsoever, lawfully claiming or to claim the same or any part
thereof, by, through or under Grantor, but not otherwise.
Grantee assumes the payment of all ad valorem taxes and special
assessments pertaining to the Property for 2000 and subsequent years, there
having been a proper proration of ad valorem taxes for the current calendar year
between Grantor and Grantee.
EXECUTED effective the day of May, 2000.
------------
GRANTOR:
HOMCO, INC., a Texas corporation
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on May ___, 2000 by
___________________________, the ____________ of HOMCO, INC., a Texas
corporation, on behalf of such corporation.
Notary Public's Signature
(PERSONALIZED SEAL)
Grantee's Address for Tax Purposes:
- -----------------------------------
- -----------------------------------
2
<PAGE> 23
EXHIBIT A
Description of Property
[TO BE ATTACHED]
<PAGE> 24
EXHIBIT B
Permitted Encumbrances
[TO BE ATTACHED]
<PAGE> 25
EXHIBIT C
BILL OF SALE
Concurrently with the execution and delivery hereof, HOMCO, INC., a
Texas corporation ("Assignor"), is conveying to DONALD J. CARTER, JR.
("Assignee"), by Special Warranty Deed that certain tract of land, together with
the improvements consisting of the buildings located thereon (the "Property"),
lying and being situated in Collin County, Texas, being more particularly
described on Exhibit "A" attached hereto and made a part hereof for all
purposes.
It is the desire of Assignor to hereby assign, transfer and convey to
Assignee, without recourse to or warranty by Assignor, the equipment and other
tangible personal property attached to, installed in or used solely in
connection with the Property as of this date, and to the extent assignable all
rights of Assignor in and to any warranties, guaranties and service contracts
relating to such tangible personal property or the improvements on the Property
as of this date (all of such properties and assets being collectively called the
"Assigned Properties").
NOW, THEREFORE, in consideration of the receipt of Ten and No/100
Dollars ($10.00) and other good and valuable consideration in hand paid by
Assignee to Assignor, the receipt and sufficiency of which are hereby
acknowledged and confessed by Assignor, Assignor does hereby ASSIGN, TRANSFER,
SET OVER and DELIVER to Assignee, its successors and assigns, WITHOUT RECOURSE
TO OR WARRANTY BY ASSIGNOR, all of the Assigned Properties, including without
limitation of the generality of the foregoing, the following:
1. All rights of Assignor in and to the fixtures, equipment and other
tangible personal property attached to, installed in or used solely in
connection with the Property.
2. To the extent assignable, the rights and interests of Assignor in
and to, and existing under and by virtue of, any and all contracts to which
Assignor is now a party and which relate to the operation or maintenance of the
Property. Assignor hereby agrees to indemnify and hold Assignee harmless from
and against any and all losses (including reasonable attorneys' fees) incurred
by or asserted against Assignee as a result of claims brought against Assignee,
as Assignor's successor in interest to such service contracts, related to causes
of action arising from any acts or omissions of Assignor under such contracts
occurring prior to the date hereof. By its execution hereof, Assignee assumes
all obligations of Assignor under such contracts arising from and after the date
hereof and agrees to indemnify and hold Assignor harmless from and against any
and all losses (including reasonable attorneys' fees) incurred by or asserted
against Assignor as a result of any obligation assumed by Assignee accruing on
or after the date hereof.
3. All assignable warranties and guaranties (express or implied) issued
in connection with or arising out of (a) the purchase and repair of all
fixtures, equipment and tangible personal property owned by Assignor and
attached to and located in the Property, including but not limited to, (i) all
heating, air conditioning, plumbing and lighting fixtures and equipment, and
stoves, ovens, ranges, refrigerators, disposals, dishwashers and water heaters,
and (ii) carpeting,
<PAGE> 26
furniture and window draperies, or (b) the construction of any of the
improvements located in the Property. At the request of Assignee, the Assignor
shall execute such documents or instruments as may be reasonably requested by
Assignee to provide to the issuers of such warranties or guaranties in order to
evidence these assignments.
4. All proceeds payable pursuant to policies of insurance owned by
Assignor pertaining to the Property with respect to casualty losses occurring
prior to the date hereof.
TO HAVE AND TO HOLD the Assigned Properties unto Assignee, its
successors and assigns, forever.
Assignor hereby agrees to perform, execute and deliver or cause to be
performed, executed and delivered any and all such further acts and assurances
as Assignee may reasonably require to perfect Assignee's interest in the
properties hereby assigned.
Simultaneously with the execution and delivery of this Assignment,
Assignor has executed and delivered to Assignee the specific conveyances and
deeds described in the recitals hereof. Nothing herein contained shall be deemed
to limit or restrict the properties, assets and rights conveyed, assigned or
transferred to or acquired by Assignee by such specific conveyances and deeds.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed
the ____ day of May, 2000.
ASSIGNOR:
--------
HOMCO, INC., a Texas corporation
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
ASSIGNEE:
--------
-----------------------------------
DONALD J. CARTER, JR.
<PAGE> 27
EXHIBIT A
LEGAL DESCRIPTION
[TO BE ATTACHED]
<PAGE> 28
EXHIBIT D
CERTIFICATION OF NONFOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
(Purchaser) of a U.S. real property interest must withhold tax if the transferor
(Seller) is a foreign person. To inform the transferee (Purchaser) that
withholding tax is not required upon the disposition of a U.S. real property
interest, the undersigned Homco, Inc. hereby certifies the following:
1. Homco, Inc. is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. The U.S. tax identification number of Homco, Inc. is
_______________;
3. The office address of Homco, Inc. is 4550 Spring Valley Road,
Dallas, Texas 75244-3705. Homco, Inc. understands that this certification may be
disclosed to the Internal Revenue Service by transferee (Purchaser) and that any
false statement contained herein could be punished by fine, imprisonment, or
both.
Under the penalties of perjury the undersigned declares that he has
examined this certification and to the best of his knowledge and belief it is
true, correct and complete, and he further declares that he has authority to
sign this document on behalf of Homco, Inc.
EXECUTED effective the ____ day of May, 2000.
HOMCO, INC.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
SUBSCRIBED AND SWORN TO before me by _______________, __________ of
HOMCO, INC., a Texas corporation, on behalf of such corporation, on this _____
day of May, 2000, to certify which witness my hand and seal of office.
------------------------------------
Notary Public, State of Texas
Printed Name:
-----------------------
My commission expires:
- -------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Dallas Woodcraft, Inc. Texas
GIA, Inc. Nebraska
Homco, Inc. Texas
Homco de Mexico, S.A. de C.V. Mexico
Homco Puerto Rico, Inc. Delaware
Laredo Candle Company L.L.P. Texas
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 32,406
<SECURITIES> 0
<RECEIVABLES> 15,198
<ALLOWANCES> 1,313
<INVENTORY> 42,716
<CURRENT-ASSETS> 97,665
<PP&E> 65,271
<DEPRECIATION> 34,798
<TOTAL-ASSETS> 161,541
<CURRENT-LIABILITIES> 98,046
<BONDS> 0
0
0
<COMMON> 1,524
<OTHER-SE> (372,710)
<TOTAL-LIABILITY-AND-EQUITY> 161,541
<SALES> 503,344
<TOTAL-REVENUES> 503,344
<CGS> 240,390
<TOTAL-COSTS> 397,503
<OTHER-EXPENSES> (2,795)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,081
<INCOME-PRETAX> 64,555
<INCOME-TAX> 22,967
<INCOME-CONTINUING> 41,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,588
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
