UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________
FORM 10-K
/X/ ANNUAL REPORT Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee required)
/ / TRANSITION REPORT Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No fee required)
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For the fiscal year ended June 30, 1996
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Commission File No. 1-6485
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ACTION INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Pennsylvania
(State or other jurisdiction of incorporation or organization)
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25-0918682
(I.R.S. Employer Identification No.)
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460 Nixon Road, Cheswick, Pennsylvania 15024-1098
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code:
(412) 782-4800
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common stock, par value American Stock Exchange
$.10 per share
9% Convertible Subordinated
Debentures Due 1998
________________________________________________________________
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 report(s), 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.
-----
________________________________________________________________
As of October 17, 1996, the aggregate market value of the
Registrant's common stock held by nonaffiliates of Registrant was
approximately $6,468,100.
________________________________________________________________
The number of shares of the Registrant's common stock outstanding
at October 17, 1996 was 5,539,458.
________________________________________________________________
PART I
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ITEM 1. BUSINESS
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NOTE: References to a fiscal year in this Form 10-K are to Action
Industries, Inc.'s fiscal year ending for the five most recent fiscal
years on June 30, 1996, June 24, 1995, June 25, 1994, June 26, 1993, and
June 27, 1992. Unless otherwise indicated, information is presented for
continuing operations.
GENERAL DEVELOPMENTS IN THE BUSINESS - FIVE YEARS ENDED JUNE 30, 1996
Sale of Operating Assets. The Company has entered into an agreement to
sell its inventory and related intellectual property associated with its
Replenishment (Powerhouse) business (sold October 18, 1996), and pending
the approval of its shareholders, to also sell the inventories and
intellectual property related to its Promotional business on or about
mid to late December 1996 or early January 1997. If approved by the
shareholders and consummated, this transaction will result in the sale
of substantially all of the operating assets currently employed in the
Company's business. Assets remaining would be the Company's trade
receivables and several notes and other non-trade receivables relating
to prior asset dispositions and a prior sale/leaseback transaction.
With the assistance of its investment bankers, the Company is actively
exploring other strategic options available to it, including business
combinations with other operating businesses, in order to continue as an
operating concern and preserve all or a portion of its income tax net
operating loss carryforwards. The Company has had indications of
interest from third parties for a business combination of this type.
Discussions are in process with interested third parties, but such
discussions are preliminary and may not result in an agreement relating
to any such transaction.
The events which have led to the decision to sell the current operations
are described in the following paragraphs.
Organization and Business. The organization and business of Action
Industries, Inc. and its Subsidiaries (collectively, the "Company") have
undergone significant changes beginning in fiscal 1990 and continuing
through fiscal 1996 in connection with a major restructuring effort and
the Company's response to declining sales.
The Company has experienced declining sales in its traditional
promotional business each year since 1989. The Company implemented a
restructuring plan in 1990 including various activities intended to
return the Company to sales growth or stability and profitability. The
Company focused on its core business and sold or eliminated those
noncore business units and assets which were not profitable or were not
consistent with these objectives. Almost continuous downsizing efforts
have been made over the years since 1990 to reduce merchandise
inventories and the Company's reliance on working capital borrowings, and
to reduce personnel and other operating costs in order to compensate for
the decline in sales. The strategy has also encompassed reduction of
low margin business, including reduction of guaranteed sale business,
which has contributed to the decline in sales. While progress was made
initially and at other times over the years, the Company has not been
able to make sufficient progress overall to improve or even maintain its
position in the retail marketplace.
In fiscal 1995 the Company implemented plans to close its plastics
manufacturing facility and to sell its lamp business, consistent with
the focus on the core business. These transactions were completed in
August and September of 1995 respectively, and were recorded in the
financial statements as of June 24, 1995. The Company's retail store in
Holland, Michigan was closed in September 1995.
In September of 1995 the Company announced the resignation of R. Craig
Kirsch as its Chairman, President and Chief Executive Officer. T.
Ronald Casper was appointed Acting President and Chief Executive Officer
and Joel M. Berez was elected Chairman of the Board.
In fiscal year 1996 the Company agreed in principle to terminate the
lease on its headquarters office/warehouse facility (where it has been
the sole tenant) and to enter into a new lease as a tenant for
significantly reduced space in this facility in the form of office space
only. The Company has operated its business from public warehouses since
February of 1996. A new operating lease arrangement was signed in
October 1996. The new lease will eliminate the Company's substantial
commitment under the prior arrangement, which will materially reduce
(but not eliminate) the Company's future occupancy costs. In addition
the new arrangements are expected to provide the Company's landlord in
the facility with the ability to refinance or resell the property in
two to five years such that the Company could realize some or all of the
$2.3 million reduced principal portion of what was originally a $3.5
million note receivable due to the Company from its sale/leaseback of
the facility in 1991. This note has not been recorded as an asset in
the accompanying financial statements, as a result of the uncertainties
associated with its realization, both past and present.
In fiscal 1996 the decline in sales continued, principally due to
decreased sales to two of the Company's largest customers of fiscal 1995
(a $6.1 million decrease from $8.8 million in sales last year to $2.7
million in sales in the current year). Sales to three other customers
decreased $1.8 million as a result of those customers discontinuing
their businesses. In addition, approximately $1.5 million in sales to
customers in Mexico and Canada last year were not repeated in the
current year as a result of the impact of unfavorable currency exchange
rates. Replenishment (Powerhouse) sales decreased $2.8 million related
to new store setup business last year which was not repeated or replaced
in the current year, and reduced order fill rates related to the
Company's significant reduction in inventory levels in the current year.
In general, the Company's reduced inventory levels and capital
constraints limited inventory purchasing and resulted in reduced order
fill rates and the inability to introduce new programs. The
implementation of the strategy to reduce guaranteed sale business, which
is particularly applicable to the Company's seasonal Gift business, was
the major contributor to decreased Gift sales in fiscal 1995 and 1996 as
compared to 1994 and prior years. Many of the reasons for the
continuation in the decline in sales in fiscal 1996 are symptomatic of
the inability of the Company to maintain its past market position.
During fiscal 1996 continued declining sales and increasing operating
losses resulted in the Company aggressively accelerating its inventory
reduction plan, further downsizing of the operating infrastructure, and
the assessment that significant improvements in sales and profitability
were necessary in order to provide sufficient liquidity to continue to
operate the business.
In response to this assessment, the Company engaged an investment
banking firm to assist in identifying, analyzing and pursuing possible
strategic alternatives for potential business combinations involving
substantially all of the business, operating assets or stock of the
Company.
Working with its advisors, the Company determined that there was little
or no possibility of raising the additional debt and/or equity capital
that would be necessary to finance a turnaround or further restructuring
of the business. The Company and its advisors also determined that the
sale of the business in its entirety was not a viable strategic
alternative. The investment bankers located an opportunity to sell the
Company's inventory and intangible assets related to the operation of the
business. The Company has determined that this sale is in its best
interest in comparison to the continued operation of the business and
the anticipated losses which such continued operation would almost
assuredly bring. This sale is believed to be the only currently
available alternative to a liquidation of the business, and is
considered preferable to a liquidation.
Restructuring charges of $5.1 million were recorded in fiscal 1993,
including severance and other personnel costs associated with
downsizing, and the writeoff of inventories and computer software costs.
Also related to restructuring, the Company sold substantially all the
assets of Action Nicholson Color Company (ANC), a wholly-owned
subsidiary, in April of 1994. ANC has been reported as a discontinued
operation. Other restructuring activities have included the liquidation
of Action Tungsram, Inc., an affiliated company, and the sale/leaseback
of the Company's headquarters which was completed in fiscal 1991.
Further, the September 1995 sale of the lamp business and August
1995 closing of the plastics manufacturing operation were reported in
the financial statements for fiscal 1995.
DESCRIPTION OF BUSINESS AND MARKETING SEGMENT
The Company is the successor to a business which was founded in 1917 and
incorporated in 1946. In 1969 the Company first sold its common stock
in the public market. For more than thirty years the Company's
principal business has been the sale of comprehensive promotional
programs to retailers, including DOLLAR-AMA and others. More recently,
the Company introduced ACTION EXPRESS and POWER PALLET and other
similar programs designed to provide a broad range of value-oriented
products, programs, displays and services to meet the traditional
promotional objectives of the retailer and reduce the need for in-store
labor. The Company's focus has been on its core promotional business
consisting of two distinct business-marketing units designed to meet the
needs of both its retail customers and the consumer as follows:
1. "Core" Promotional Business, which concentrates on the
development of innovative promotional programs designed to
increase sales and profitability for the retail industry.
2. Replenishment (Powerhouse), which focuses on a "store within
a store" concept using a combination of promotional programs,
themed events, and other selected items.
The sale of the Company's lamp business in September of 1995
substantially eliminated the Specialty Products business, which had been
the Company's "Item" business, wherein proprietary branded lines of
merchandise were sold independent of any promotional programs.
The principal product categories sold by the Company have been
housewares (kitchenware, cleaning aids, food storage), plastic products
for the home, picture frames, toys, stationery, closet accessories,
health and beauty aids and the like.
In fiscal 1996 one of the Company's customers accounted for 18.2% of
consolidated net sales as a result of the merger of what had been two
separate customers which individually accounted for 9.2% and 9% of
consolidated net sales respectively. In fiscal 1995 one of these two
customers accounted for 11.6% of consolidated net sales. In fiscal 1994
another customer accounted for 15.3% of consolidated net sales.
Business with the 1994 large customer decreased significantly in fiscal
1995, as a result of the customer's narrowing its business with the
Company to smaller/older stores in fiscal 1995. The Company has several
large customers, however, which are significant to its business. In
fiscal 1996 the Company sold in excess of $1 million to each of 6
customers who, in the aggregate, accounted for 42% of consolidated net
sales. In fiscal 1995 the Company sold in excess of $1 million to
each of 11 customers who, in the aggregate, accounted for 48% of
consolidated net sales. In fiscal 1994 the Company sold in excess of $1
million to each of 19 customers who, in the aggregate, accounted for 57%
of consolidated net sales. The loss of large customers has had an
adverse effect on the Company.
There are no long-term arrangements or contracts which obligate any
customer to purchase from the Company. The Company generally receives
firm orders from its customers only a short time before shipment and
consequently has no significant dollar amount of backlog of firm orders.
In its promotional retail marketing programs (DOLLAR-AMA [registered
trademark], deep discount Gift promotions, ACTION EXPRESS [registered
trademark] and others), the Company sells selected assortments of its
products to retailing chains in various trading areas at different
times throughout the year, and generally furnishes promotional
advertising and display materials, sometimes including related newspaper
circulars and inserts for advertising the merchandise. While newspaper
circulars were a major part of the Company's programs in the past,
this activity has been decreasing for the last several years, to the
point where it has been utilized in only a small part of the Company's
business in recent years.
The Company sells these assortments of merchandise to its customers at
fixed percentage discounts from the retail prices at which the
merchandise is advertised for sale to the consumer, resulting in uniform
overall profitability to the Company's customers. The overall
profitability to the Company of the promotional programs depends upon
the aggregate costs of the various items included in the assortments.
Items have been added to or discontinued in the assortments from time to
time, based upon customer demand, retail sell-through and overall
profitability to the Company.
Promotional programs have been the principal marketing vehicle for the
Company's products. Promotional programs, which enhance sales volume
and store traffic as compared to the results which might be attained
independent of such programs, are the Company's primary area of
expertise. The Company believes all of the items in its merchandise
line are marketable independent of its promotional programs.
The Company's Gift program business has been seasonal to the Christmas
selling season. In recent years including fiscal 1996, approximately
50% to 70% of the Company's annual Gift volume has been sold in the
Company's second quarter (October, November and December). As a result,
commitments to purchase Gift inventories have been made early, in
advance of the selling season, and inventory levels have been more
difficult to adjust as sales volume has fluctuated. In addition, as the
mix of its customer base has changed in recent years to major drug store
and grocery store chains, the demand for guaranteed sales has increased.
In 1993 and 1994 approximately 50% of the Gift program was sold under
guaranteed sales terms. Significant execution problems and excessive
returns in 1993 resulted in planned reduction of the business in 1994.
While the problems of 1993 were overcome in 1994, the Gift program still
did not meet the Company's expectations and, as a result, the Company
offered a significantly reduced Gift program principally on a non-guaranteed
basis in fiscal 1995 and 1996.
PRODUCTS
The products sold by the Company consist of imported products,
Company-manufactured products, and products purchased from other United
States manufacturers and suppliers.
The breakdown of consolidated net sales by source is as follows:
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Imported Products 82% 72% 75%
Company-manufactured Plastics 7% 15% 17%
Domestic Products 11% 13% 8%
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Imported Products
Imported products consist of approximately 600 to 800 items. Most of
these items have been manufactured and packaged to the Company's
specifications under the Company's brand names. Imported products have
been purchased from various manufacturers in twenty countries, primarily
in the Far East and Europe.
The Company's importing activities have been subject to the effects of
inflation and fluctuations in the value of the U.S. dollar in relation
to other currencies, as well as various other economic and political
risks. It has been the Company's practice to purchase in U.S. dollars
wherever possible, and to evaluate these risks, as well as the cost and
availability of merchandise from all of its product sources, and to
change suppliers and countries of origin as necessary to meet its
purchasing objectives. While the Company considers its recent sources
of supply adequate for its operations and has generally been successful
at developing alternative sources of supply, there have not been
assurances that suitable merchandise from foreign countries would
continue to be available at satisfactory U.S. dollar prices.
Company-manufactured Plastics
Until August of 1995 the Company manufactured in its own plant (located
at its headquarters facility) more than 100 plastic housewares items,
such as wastebaskets, laundry baskets, pails, food storage containers,
tumblers, storage bins, and the like. As a result of declining sales
volume and a decreasing proportionate use of plastics in its existing
business, the Company closed its manufacturing facility, and made
arrangements to meet its needs for plastic products through outside
purchases from both domestic and import sources.
Products Purchased from Other United States Manufacturers and Suppliers
Domestically manufactured products purchased from others currently have
consisted of approximately 100 items sold in the Company's promotional
programs. As with its imported products, while the Company considers
its recent sources of supply adequate for its operations, there have not
been assurances that suitable merchandise from domestic manufacturers
would continue to be available to the Company at satisfactory prices.
COMPETITION
The business of importing and marketing the categories of merchandise
sold by the Company is highly competitive. While the Company has
experienced some competition from certain importers in terms of "direct
import" promotional programs, no competitor has been known to provide
the breadth of program selection and services which the Company has
provided. The Company however, has experienced competition from a large
number of firms, many of which have greater financial resources,
including large manufacturers selling branded promotional items, the
retailers' own internally developed promotional programs, wholesalers
and importers.
The Company's promotional programs, including Replenishment, which in
the fiscal year ended June 30, 1996 accounted for approximately 99.7% of
net sales, have been the Company's principal method of competing with
other suppliers of like merchandise to retail chains. The Company has
endeavored to provide a broad range of value-oriented products and
programs, as well as merchandising, point-of-sale displays and other
promotional support materials and services, in a unique fashion,
responsive to the retailers' needs. The success of the promotional
programs has been dependent on achievement of the goal of increasing
sales and enhancing gross margin contribution in the stores of the
Company's customers.
The Company believes it has been the leading independent marketer of
promotional programs to the retail trade. The Company's principal
competition in providing these programs often has come from its own
customers, most of whom have the capabilities to conduct promotional
programs internally. Building in-store sales and traffic and providing
the retailer with comprehensive, turnkey programs (including promotional
merchandise with consistent, reasonable profit margins for the retailer)
have been the Company's basis for competition with the internally
created promotions of its customers.
SEASONALITY
Fluctuations in sales of the Company's DOLLAR-AMA [registered trademark
and similar promotions from quarter to quarter reflect the cumulative
result of individual decisions made by various customers with regard to
the timing and placement of orders. Sales of the Company's Gift programs
have been seasonally highest in the Company's second fiscal quarter.
The December quarter has accounted for approximately 50% to 70% of the
annual volume for Gift sales during the last three fiscal years.
TRADEMARKS HELD, AND LICENSES AND FRANCHISES GRANTED
The Company's trademarks - DOLLAR-AMA [registered trademark], DOLLAR POWER
[registered trademark] and others - are recognized by consumers throughout
the United States, and represent the basic concepts under which the
Company's promotional programs have been sold. Trademarks are considered
to be an integral part of the ability to market promotional programs.
Trademark rights endure as long as they are in continued use in the
conduct of the business. All of the Company's trademarks are to be sold
in conjunction with the sale of assets of its Replenishment and
Promotional businesses.
In connection with the Company's promotional program sales, licenses to
use DOLLAR-AMA [registered trademark] and other trademarks have been
granted to customers' stores. The licenses have been granted at no
additional cost to the customer (the Company charges only for the
merchandise provided) for limited periods of time, usually one to two
weeks, during which the licensed stores advertise their sales of the
Company's merchandise.
EMPLOYEES
At October 15, 1996 the Company employed 40 regular employees and no
temporary employees. At October 15, 1995 it employed 169 regular
(including 70 represented by a labor union) and 25 temporary employees.
The decrease is due to the downsizing and outsourcing of distribution
operations and other work force reductions related to these and other
downsizing activities during the year.
ITEM 2. PROPERTIES
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The Company occupies the following facilities:
Headquarters. The Company's corporate headquarters are located in a
580,000-square foot building on a 43-acre tract of land in Harmar
Township, Pennsylvania (near Pittsburgh). The facility is leased from
Allegheny Capital Growth Limited Partnership. During the third quarter
of fiscal 1996, the Company moved all of its inventory and distribution
activities from this location to lower cost public warehouse facilities
described below. A substantial part of the facility is subleased to a
third party under a short-term arrangement. In October 1996 the Company
finalized the negotiation of and signed a new lease wherein the Company
will lease only 58,000 square feet of office space in the facility.
Other Distribution Facilities. The Company has occupied 330,000 square
feet at a public warehouse facility in Mt. Vernon Ohio , and 55,000
square feet at an additional distribution facility in Columbus, Ohio.
The facilities are occupied under short-term lease arrangements
permitting the Company to expand or contract its space to accommodate
the Company's fluctuating inventory and distribution volume. The
obligations under these leases are expected to be terminated in
conjunction with the sale of the inventory.
ITEM 3. LEGAL PROCEEDINGS
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The Company previously reported an adversary action against the Company
and some 50 other defendants, filed on August 16, 1994 by the Official
Committee of Unsecured Creditors of Phar-Mor, Inc. in the United States
Bankruptcy Court, Northern District of Ohio, and subsequently
transferred to the United States District Court for the Western District
of Pennsylvania. The Official Committee sought the recovery of
approximately $75 million (about $2.6 million in the case of Action
Industries) paid to the defendants for Phar-Mor shares tendered by them
in a July 1991 tender offer. The claim was based upon allegations that
at the time of the tender offer Phar-Mor was insolvent or had
unreasonably small capital, and, therefore, the transfers pursuant to
the tender offer constituted fraudulent conveyances. On August 22,
1995, summary judgment was entered in favor of the Company and the other
defendants. In September 1995, the Official Committee filed an appeal
of this decision. In October 1996 the U.S. Court of Appeals for the
Third Circuit affirmed the judgment of the District Court in favor of
the Company and the other defendants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
______________________________________________________________________
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
______________________________________________________________________
The names, ages, positions and business experience of the Company's
executive officers are set forth below.
Kenneth L. Campbell, 49. Mr. Campbell has served as Senior Vice
President, Finance and Chief Financial Officer since 1989. He has been
an executive officer of the Company since his employment in 1984.
T. Ronald Casper, 52. Mr. Casper was appointed as Acting President and
Chief Executive Officer on September 7, 1995. Since 1988, he has been
Managing Director of Cornerstone Capital Advisors, Ltd., a merchant
banking organization, of which he is a co-founding principal. Mr.
Casper serves under a contract between the Company and Cornerstone, and
is not an employee of the Company. He was a consultant to the Company,
reviewing its strategic plans, for about two months prior to his
appointment.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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The Company's common stock is traded on the American Stock Exchange
(trading symbol ACZ). The following table sets forth the high and low
sale prices of the stock during each quarter of the last two fiscal
years:
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1995
- ---------------- ----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <S> <C> <C>
First Quarter 1-1/4 9/16 First Quarter 2-1/2 2
Second Quarter 3/4 7/16 Second Quarter 2-5/16 1-5/8
Third Quarter 3/4 7/16 Third Quarter 2-1/8 1-5/16
Fourth Quarter 2-11/16 3/8 Fourth Quarter 1-1/2 15/16
</TABLE>
There are approximately 1,300 holders of record of the Company's common
stock, including brokers named on listings provided by clearing
agencies. It is estimated that these holders represent approximately
2,700 beneficial owners of the Company's stock.
The Company's Board of Directors has not declared cash dividends during
the last two fiscal years and has no present plans to do so.
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share amounts)
OPERATING RESULTS 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales $ 30,212 $ 45,088 $ 60,049 $ 76,684 $ 84,059
Cost of Products Sold 26,385 34,374 44,527 62,725 58,360
-----------------------------------------------------------
Gross Margin $ 3,827 $ 10,714 $ 15,522 $ 13,959 $ 25,699
Earnings (Loss) from Continuing Operations (a)(b) $ (12,899) $ (2,907) $ 128 $ (10,390) $ 5,557
-----------------------------------------------------------
Earnings (Loss) Per Share from Continuing
Operations (a) $ (2.33) $ (0.52) $ 0.02 $ (1.88) $ 0.97
Cash Dividends - - - - -
Weighted Average Shares Outstanding 5,539 5,539 5,561 5,539 5,738
-----------------------------------------------------------
BALANCE SHEET DATA
Total Assets $ 8,908 $ 39,546 $ 39,363 $ 56,873 $ 66,137
Long-Term Debt $ 115 $ 7,854 $ 8,487 $ 9,022 $ 9,427
===========================================================
(a) Losses for 1996 include $4,226,000 in costs and expenses due to the sale of assets and closing of a
warehouse. Losses for 1993 include $5,123,000 of restructuring costs. Net earnings for 1992 include
deferred income tax credits of $500,000.
(b) Excludes losses from discontinued operations in 1995 of $808,000 ($0.15 per share), in 1994 of $3,000,
in 1993 of $3,990,000 ($0.72 per share), and in 1992 of $1,697,000 ($0.30 per share).
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
______________________________________________________________________
OVERVIEW
NOTE: References to a fiscal year in this Form 10-K are to the
Company's fiscal year ended on the last Saturday of June prior to 1996,
and for fiscal year 1996, ending June 30, 1996. This Item 7 should be
read in conjunction with the Notes to Financial Statements and Item 1.
FINANCIAL CONDITION
The Company has experienced declining sales in its traditional
promotional business in recent years. In fiscal 1996 the decline in
sales continued, principally due to decreased sales to two of the
Company's largest customers of fiscal 1995 (a $6.1 million decrease from
$8.8 million in sales last year to $2.7 million in sales in the current
year). Sales to three other customers decreased $1.8 million as a
result of those customers discontinuing business. In addition,
approximately $1.5 million in sales to customers in Mexico and Canada
last year were not repeated in the current year as a result of the
impact of unfavorable currency exchange rates. Replenishment
(Powerhouse) sales decreased $2.8 million related to new store setup
business last year which was not repeated or replaced in the current
year, and reduced order fill rates related to the Company's significant
reduction in inventory levels in the current year. In general, the
Company's reduced inventory levels and capital constraints limited
inventory purchasing and resulted in reduced order fill rates and the
inability to introduce new programs. Further, the Company closed its
retail store in September 1995, which accounted for $600,000 in
decreased sales. The Company experienced lost sales opportunities in
both fiscal 1996 and 1995 as a result of its efforts to reduce low
margin and guaranteed sale business from the level of such business
experienced in 1993 and 1994.
The historical decline in sales is the result of many factors, including
a changing retail marketplace, the increasing complexity of the
promotional business itself, and strategic decisions to exit or downsize
unprofitable, higher risk product lines. Many of the reasons for the
continuation in the decline in sales in fiscal 1996 are symptomatic of
the inability of the Company to maintain its past market position.
These issues have led to management's decision to sell the inventory and
other assets of its Replenishment business and, subject to shareholder
approval, the inventory and other assets of its Promotional business.
The proceeds of the sales will be used to pay existing obligations and,
if an appropriate opportunity presents itself, to explore its other
strategic options, including possible business combinations with other
operating businesses. Substantial doubt exists as to the ability of the
Company to continue to exist as a going concern, unless a business
combination can be accomplished which provides additional capital.
LIQUIDITY AND CAPITAL RESOURCES
The major sources of cash during the 1996 fiscal year were significantly
reduced inventory levels (78% reduction) and collections on receivables.
Operating losses and repayment of current and long-term obligations were
the primary uses of cash. Working capital at June 30, 1996 was
$436,000, decreased from $12.8 million at June 24, 1995, largely related
to the lower level of sales in the current year and operating and other
losses. The Company will be required to continue to manage the timing
of payment of its obligations to deal with this impaired liquidity.
Cash and cash equivalents were $78,000 at June 30, 1996 as compared to
$567,000 at June 24, 1995. Cash balances fluctuate daily to meet
operating requirements.
Accounts receivable of $2.8 million at June 30, 1996 decreased from $9.9
million at June 24, 1995, as a result of decreased sales, particularly
in the month of June, and improved collections in the current year.
Inventories of $3.9 million decreased significantly compared to $18.1
million at June 24, 1995, related to the lower level of sales and the
Company's aggressive inventory reduction efforts in light of its capital
constraints, and inventory adjustments related to the sales of the
inventories and writeoffs associated with the termination of the
Company's operating business.
Aggregate borrowings (long-term debt and notes payable) decreased from
$18.0 million at June 24, 1995 to $3.2 million at June 30, 1996. This
decrease was primarily the result of elimination of the sale/leaseback
obligation as a result of finalizing the negotiations of a new lease,
and the repayment of borrowings with cash generated from the reduction
of inventories and receivables, net of cash used to fund operating
losses incurred. Letters of credit outstanding were $82,000 at June 30,
1996, significantly below $909,000 at June 24, 1995 reflecting
reductions in the Company's level of overseas purchases of inventory.
The Company's Credit Agreement provides for available credit of up to $10
million through June 30, 1997. Availability under the line is further
limited by the level of eligible accounts receivable and inventories.
At June 30, 1996 outstanding borrowings under the Credit Agreement were
$3.0 million and outstanding letters of credit were $82,000.
The Company did not meet the required levels of net worth and working
capital under the restrictive covenants of the Credit Agreement as of
June 30, 1996, and will not be able to meet these covenants
subsequently. The lender's remedies under such a default include the
right to demand repayment of the outstanding loan.
Assuming that the Company's lender will continue to provide credit, given
the defaults under the financial covenants, the Company believes that
the credit available under its existing borrowing arrangements, together
with funds from the sale of its inventories and other operating assets
(to which the Company's lender has consented) and from its operations in
the period prior to the completion of the sale, will be sufficient to
meet most or all of its near term operating needs for the remainder of
calendar year 1996. For the longer term, if the Company is to benefit
from the use of its tax net operating losses, it must reduce its cost
structure to a bare minimum to maintain sufficient liquidity and to
provide enough time to identify and close a transaction to acquire a
profitable operating business. Unless a business combination and/or a
source of additional capital can be achieved in the next few months,
there can be no assurance that the Company's capital resources will be
sufficient to meet its operating needs, in which case material adverse
consequences may result.
The Company's capital expenditures were $220,000 in fiscal 1996, all
under a project initiated in 1994 to replace its core information
systems computer hardware and software. No further capital expenditures
are planned.
RESULTS OF OPERATIONS
Fiscal 1996 Compared with Fiscal 1995
Net Sales. Aggregate net sales for fiscal 1996 were $30,212,000, a
decrease of $14,876,000 (33.0%) compared to $45,088,000 in the prior
year.
The decline in sales in fiscal 1996 was principally due to decreased
sales to two of the Company's largest customers of fiscal 1995 (a $6.1
million decrease from $8.8 million in sales last year to $2.7 million in
sales in the current year). Sales to three other customers decreased
$1.8 million as a result of those customers discontinuing business. In
addition, approximately $1.5 million in sales to customers in Mexico
and Canada last year were not repeated in the current year as a result
of the impact of unfavorable currency exchange rates. Replenishment
(Powerhouse) sales decreased $2.8 million related to new store setup
business last year which was not repeated or replaced in the current
year, and reduced order fill rates related to the Company's significant
reduction in inventory levels in the current year. The closing of the
Company's retail store in September 1995 accounted for $600,000 in
decreased sales. In general, the Company's reduced inventory levels and
capital constraints limited inventory purchasing and resulted in reduced
order fill rates and the inability to introduce new programs as planned.
Following is a comparison of net sales by type of program:
<TABLE>
<CAPTION>
NET SALES
Fiscal Year Ended Increase
June 30, 1996 June 24, 1995 (Decrease)
------------- ------------- ----------
<S> <C> <C> <C>
Dollar Days $21,047,000 $31,933,000 $(10,886,000)
Replenishment 6,778,000 9,560,000 (2,782,000)
----------- ----------- -------------
Core Promotional Business 27,825,000 41,493,000 (13,668,000)
Gift 2,302,000 2,122,000 180,000
Other 85,000 1,473,000 (1,388,000)
----------- ----------- -------------
$30,212,000 $45,088,000 $(14,876,000)
=========== =========== =============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit margins
(as a percentage of sales) decreased from 23.8% in fiscal 1995 to 12.7%
in the current year, principally due to higher than anticipated returns
on prior period guaranteed sales, including increased provisions for
returns on guaranteed sales outstanding at June 30, 1996. The Company
has also experienced lower gross margins related to its inventory
reduction program, as a result of the sale of certain merchandise at
reduced prices, and increased (as a percentage of sales) display and
other costs due to a decrease in the value of the merchandise included
per display fixture.
Operating Expenses. Operating expenses decreased from $12,461,000
(27.6% of sales) in fiscal 1995 to $10,462,000 (34.6% of sales) in
fiscal 1996. The decrease in costs was the result of the Company's
continuing cost reduction efforts. The increase in costs as a
percentage of net sales is due to the greater impact of fixed and
indirect costs on the lower level of sales, including executive search,
legal, and other corporate costs, as well as costs of the Company's
merchandise acquisition operation normally allocated to purchases which
were not fully absorbed in fiscal 1996 due to the limited purchasing
during the year.
Interest Expense. The increase of $146,000 was due to higher effective
interest rates and other borrowing costs. Average borrowing levels in
the current year were also higher as compared to average borrowings
attributed to continuing operations last year, resulting from increased
borrowings in the first half of the current year.
Other Income (Expense), Net. Other expense of $58,000 in fiscal 1996
represented miscellaneous items. The other income amount of $674,000 in
fiscal 1995 included a gain on the sale of property in Mt. Clemens,
Michigan (site of a previously discontinued operation) in the amount of
$950,000 and gains from the sale of plastic production equipment of
$296,000, net of the writedown of the estimated value of remaining
amounts due from the prior sale of Action Nicholson Color Company of
$518,000 and other miscellaneous items.
Costs and Expenses Due to Sale of Assets and Closing of Warehouse. As
a result of the sale of its operating assets and the resultant
termination of its operating business, the Company has taken charges in
the fiscal year ended June 30, 1996 for the estimated loss on the sale
of its inventories and intellectual property ($600,000), other
adjustments to reflect the net realizable value of inventory ($2.1
million)and other assets and liabilities($1.4 million).
Loss From Continuing Operations Before Income Taxes. The loss increased
from $2,907,000 in fiscal 1995 to $12,899,000 in fiscal 1996. The
increase of $9,992,000 reflects the combined effect of all the above.
Provision for Income Taxes. No income tax benefits were provided on the
losses in fiscal 1996 and 1995 because realization of such benefits
cannot be reasonably assured. Net operating loss carryforwards
available to offset future taxable income and thereby reduce future
income taxes payable in fiscal 1996 and beyond are approximately $34
million for income tax reporting purposes.
Loss From Continuing Operations. The increase of $9,992,000 reflects
the combined effect of all of the above.
Loss From Discontinued Operation. In fiscal 1995 the Company adopted a
plan to sell its lamp business, and completed the sale in September of
1995. Operating losses of $808,000 for fiscal 1995 were reclassified as
discontinued.
Net Loss. The increased loss of $9,184,000 reflects the combined effect
of all the above.
Fiscal 1995 Compared with Fiscal 1994
Net Sales. Aggregate net sales for fiscal 1995 were $45,088,000, a
decrease of $14,961,000 (24.9%) compared to $60,049,000 in fiscal 1994.
Sales to the Company's largest customer in 1994 decreased $9.5 million
in fiscal 1995 as a result of that customer's decision to use the
Company's programs in a limited manner in 1995. In addition, Gift
program sales decreased $6.4 million as a result of the Company's
decision to reduce the offering of this program in order to reduce
guaranteed sales.
The Company's sales volume has declined materially in each of the last
several years. It is the Company's belief that economic conditions and
other changes in the retail marketplace, along with increased ability on
the part of the Company's customers to create their own promotional
programs and a shifting customer base, have contributed to the decline
in sales volume.
Following is a comparison of net sales by type of program:
<TABLE>
<CAPTION>
NET SALES
Fiscal Year Ended Increase
June 24, 1995 June 25, 1994 (Decrease)
------------- ------------- ----------
<S> <C> <C> <C>
Dollar Days $31,933,000 $41,257,000 $ (9,324,000)
Replenishment 9,560,000 8,224,000 1,336,000
----------- ----------- -------------
Core Promotional Business 41,493,000 49,481,000 (7,988,000)
Gift 2,122,000 8,521,000 (6,399,000)
Other 1,473,000 2,047,000 (574,000)
----------- ----------- -------------
$45,088,000 $60,049,000 $(14,961,000)
=========== =========== =============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit margins
(as a percentage of sales) decreased from 25.8% in fiscal 1994 to 23.8%
in fiscal 1995, principally due to increased cost of merchandise sold in
core business programs, related primarily to the mix of programs sold
and increased plastic manufacturing costs related to the lower level of
production in 1995.
Operating Expenses. Operating expenses decreased from $13,245,000
(22.1% of sales) in fiscal 1994 to $12,461,000 (27.6% of sales) in
fiscal 1995. The increase in costs as a percentage of sales was
primarily the result of increased selling and merchandising costs
related to the development of programs for the future, and the lower
level of sales in 1995.
Interest Expense. The decrease of $238,000 was due to lower average
borrowing levels in fiscal 1995 net of increased interest rates and
other borrowing costs.
Other Income (Expense), Net. Other income of $674,000 in fiscal 1995
included a gain on the sale of property in Mt. Clemens Michigan (site of
a previously discontinued operation) in the amount of $950,000 and gains
from the sale of plastic production equipment of $296,000, net of the
writedown of the estimated value of remaining amounts due from the prior
sale of Action Nicholson Color Company of $518,000 and other
miscellaneous items. The fiscal 1994 income amount of $77,000 was
comprised of miscellaneous items.
Earnings (Loss) From Continuing Operations Before Income Taxes.
Earnings (Loss) decreased from earnings of $128,000 in fiscal 1994 to a
loss of $2,907,000 in fiscal 1995. The decrease of $3,035,000 reflects
the combined effect of all the above.
Provision for Income Taxes. No income tax benefits were provided on the
loss in fiscal year 1995 because realization of such benefits cannot be
reasonably assured. No income tax expense was provided on earnings in
fiscal year 1994, because previously unrecognized deferred income tax
benefits and net operating loss deductions from prior years were
available to offset income taxes on current earnings.
Earnings (Loss) From Continuing Operations. The decrease of $3,035,000
reflects the combined effect of all the above.
Loss From Discontinued Operation. In fiscal 1995 the Company adopted a
plan to sell its lamp business, and completed the sale in September of
1995. Operating losses of $808,000 for 1995 and $3,000 for 1994 were
reclassified.
Net Earnings (Loss). The decrease of $3,840,000 reflects the combined
effect of all the above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
______________________________________________________________________
See Index to Financial Statements and Financial Statement Schedules
included as part of Item 14 appearing on Page 33 of this Form 10-K
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
______________________________________________________________________
There are no disagreements between the Company and its independent
accountants concerning matters of accounting principles or practices or
financial statement disclosures.
PART III
______________________________________________________________________
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
______________________________________________________________________
Ernest S. Berez, who had been a Director of the Company since 1951 and
had served as Chairman of the Board from 1987 to 1990 resigned from the
Board in January 1996 for retirement purposes. With Mr. Berez's
departure, the Board of Directors is now comprised of six members
divided among three classes, one of which has three members, another has
two members and the third has one member. Each class of Directors
serves a three-year term.
One candidate, who has been nominated by the Board for election as a
director this year is identified below, along with the directors
continuing in office.
NOMINEE FOR A 3-YEAR TERM EXPIRING IN 1999:
Charles C. Cohen, 55. Mr. Cohen has served as a Director of the Company
since June 1991. He has been a Director of the law firm of Cohen &
Grigsby, P.C. since 1981 and Adjunct Professor of Securities Regulation
at the University of Pittsburgh School of Law since 1976. He also serves
on the Boards of Directors of Robroy Industries, Inc. and several civic
organizations. Mr. Cohen will resign from the three year term expiring
in 1997 which he is currently serving, in order to stand for election
to the class of directors which will become vacant upon the expiration
of Mr. Gold's term.
DIRECTORS CONTINUING IN OFFICE:
SERVING THE SECOND YEAR OF A 3-YEAR TERM EXPIRING IN 1998:
Joel M. Berez, 42. Mr. Berez has served as a Director of the Company
since 1983, and as Chairman since September 1995. He has been a
business consultant since May 1996. Prior to that he had served as
President and Chief Operating Officer of Digital Alchemy, Inc., a
producer of home education software from January 1995. He had
previously been employed by the Company from 1988 to 1995 and had served
in several executive positions, most recently Senior Vice President.
William B. Snow, 64. Mr. Snow has served as a Director of the Company
since August 1994. Since July 1994 he has served as Vice Chairman and
Chief Financial Officer of Movie Gallery, Inc., a video cassette and
retail sales and rental business. He had previously been Director,
Executive Vice President and Chief Financial Officer of Consolidated
Stores Corporation, a retailer in the "close-out" consumer goods industry
since 1985.
SERVING THE THIRD YEAR OF A 3-YEAR TERM EXPIRING IN 1997:
James H. Knowles, Jr., 56. Mr. Knowles has served as a Director of the
Company since November 1993. Having over ten years of experience in
the founding and management of venture capital firms, he is presently
President and Chief Executive Officer of Dragonswood, Inc., a venture
capital investment management company, where he has served since 1988.
David S. Shapira, 54. Mr. Shapira has served as a Director of the
Company since 1981. He has held various executive positions with Giant
Eagle, Inc. a retail supermarket chain, including Director, Chairman,
President and Chief Executive Officer since 1980. He also serves on
the Boards of Directors of Mellon Bank, N. A., Mellon Bank Corporation,
Equitable Resources, Inc. and Bell Telephone Company of Pennsylvania.
In August 1992, Phar-Mor, Inc. reported that it had been the victim of a
fraud and embezzlement scheme perpetrated by Phar-Mor executives whose
employment was immediately terminated. David S. Shapira, a Director of
the Company, was Director and Chief Executive Officer of Phar-Mor at the
time of discovery of the embezzlement. Company Director, Charles C. Cohen,
was also a Director of Phar-Mor at that time. On August 17, 1992,
Phar-Mor filed for protection under Chapter 11 of the United States
Bankruptcy Act. Mr. Shapira was an executive officer of Phar-Mor at the
time of filing.
COMPLETING A 3-YEAR TERM EXPIRING IN 1996:
Joel L. Gold, 55. Mr. Gold has served as a Director of the Company
since 1978. He has been Managing Director of Fechtor, Detwiler & Co.,
Inc., and investment banking company since April 1995. Prior to that,
he had served as Managing Director for Furman Selz, Incorporated, an
investment banking company from 1992 to 1995, and as Managing Director
for Bear, Stearns & Co., Inc., also an investment banking firm, from
1990 to 1992. He also serves on the Boards of Directors of Concord
Camera Corp., Life Medical Sciences, Inc. and Biomechanics Corporation
of America. Mr. Gold will not stand for election when his current term
expires.
COMPLIANCE WITH CERTAIN FILING REQUIREMENTS:
Directors and executive officers are required under Section 16(a) of the
Securities Exchange Act of 1934 to file reports concerning their
holdings and transactions in Company stock. All such reports for fiscal
year 1996 have been filed on a timely basis.
The information concerning executive officers required by Item 10 is
contained at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
______________________________________________________________________
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION FOR DIRECTORS: Directors who are employees of the Company,
as well as former employee Ernest S. Berez receive no additional
compensation for their services on the Board. For the fiscal year 1996
R. Craig Kirsch was a director until his resignation in September of
1995.
Compensation for nonemployee Directors includes an annual retainer of
$12,000 for Directors and $17,000 for the Chairman plus $1,000 for each
full Board meeting attended and $500 for each committee meeting attended
on a day other than the day of a full Board meeting. Upon appointment
to the Board, each of the present nonemployee Directors other than Mr.
Joel Berez, a former employee, was granted the option to purchase 7,500
shares of stock, pursuant to a Nonemployee Director Stock Option Plan
approved by the shareholders in 1991. In addition nonemployee Directors
received an annual stock option grant of 1,000 shares each in 1995. New
nonemployee Directors will receive an initial stock option grant of
4,000 shares.
Ernest S. Berez, former Director, Chairman and President of the Company,
is compensated under an agreement with the Company dated July 31, 1990
and amended July 31, 1991. Pursuant to that agreement, Mr. Berez
receives lifetime retirement benefits in the amount of $139,200
annually. If Mr. Berez's wife should survive him, she will receive
lifetime survivor benefits of one-half Mr. Berez's benefit amount.
COMPENSATION FOR EXECUTIVE OFFICERS: The following tables show, for the
last three fiscal years, all compensation received by each Chief
Executive Officer for fiscal year 1996, the two other executive officers
of the Company as of the end of fiscal year 1996, and one other
individual who served as an executive officer but left the employ of the
Company prior to the end of the fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-term
Compensation
Annual Compensation Awards
------------------- ------
Securities
Name and Underlying
Principal Fiscal Options/ All Other
Position Year Salary($) Bonus($) SARs (#) Compensation
- --------------------- ------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
T. Ronald Casper (1) 1996 0 0 0 $285,000
Nonemployee President 1995 0 0 0 0
and Chief Executive 1994 0 0 0 0
Officer
R. Craig Kirsch (2) 1996 243,437 0 0 0
Former Chairman, 1995 243,437 0 88,642 2,448
President and Chief 1994 243,437 0 0 2,875
Executive Officer
Robert I. Christian (3) 1996 125,000 15,000 0 0
Former Senior Vice 1995 125,000 30,000 175,000 340
President, Sales 1994 49,725 0 0 0
Kenneth L. Campbell 1996 118,690 0 0 0
Senior Vice President, 1995 118,690 0 20,000 522
Finance 1994 118,698 6,000 0 554
Robert P. Garrity (4) 1996 108,000 0 0 0
Senior Vice President, 1995 106,082 0 25,000 441
Operations 1994 20,000 0 20,000 0
</TABLE>
(1) Mr. Casper is not an employee of the Company. He serves as
President and Chief Executive Officer under a contract between the
Company and Cornerstone Capital, Ltd., a merchant banking firm of
which Mr. Casper is a principal. The amount shown for "All Other
Compensation" represents the fees paid to Cornerstone for the
services of Mr. Casper.
(2) During fiscal year 1995, Mr. Kirsch, who resigned from the Company
in September 1995, was granted an 88,462 share option which has
since expired and been canceled.
(3) During fiscal year 1995, Mr. Christian, who resigned from the
Company in May 1996, was granted 175,000 option shares which have
since expired and been canceled.
(4) During fiscal years 1994 and 1995 Mr. Garrity was granted 20,000
share and 25,000 share stock options which have since expired and
been canceled.
There were no Option/SAR Grants during the Company's fiscal year ended
June 30, 1996.
<TABLE>
<CAPTION>
AGGREGRATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at FY End at FY End ($)
Shares Acquired Value Exercisable/ Exercisable
Name on Excercise (#) Realized Unexercisable Unexercisable
- -------------------- ---------------- -------- ------------- -------------
<S> <C> <S> <C> <C>
Kenneth L. Campbell 0 NA 18,000 8,500
12,000 12,750
Robert P. Garrity 0 NA 13,000 5,313
32,000 21,250
Mr Garrity resigned from the Company on July 15, 1996. All of his options
expired October 15, 1996.
</TABLE>
EMPLOYMENT CONTRACTS
R. Craig Kirsch. Until his resignation on September 7, 1995, Mr. Kirsch
served under an employment agreement dated as of March 12, 1992. The
agreement provided for five years' employment with base compensation
subject to review of the compensation committee of the Board of
Directors, participation in any incentive compensation program
implemented by the Company and customary insurance benefits for
executives of the Company. Mr. Kirsch had stock options to purchase a
total of 288,462 shares of the Company's common stock; these were
canceled upon his resignation. The agreement provides for Mr. Kirsch's
covenant not to compete with the Company for two years following his
separation. Mr. Kirsch will receive separation benefits in the form of
salary continuation at an annual rate of $243,437 until the earliest
to occur of March 12, 1997, his employment with another firm, or his death.
Robert I. Christian. Until his resignation on May 26, 1996, Mr.
Christian served under an agreement of employment "at will." The
agreement provided for base compensation at $125,000 annually and
minimum bonus payments, subject to adjustment by the Company's Chief
Executive Officer, participation in the Company's stock option plan and
participation in the Company's group insurance benefits and retirement
plan. Mr. Christian had stock options to purchase a total of 175,000
shares of the Company's stock; these were canceled upon his resignation.
Robert P. Garrity. Until his resignation on July 15, 1996, Mr. Garrity
served under an employment agreement dated December of 1995. The
agreement provides for base compensation of $106,082 annually, subject
to adjustment by the Company's Chief Executive Officer, participation in
any bonus, incentive compensation and stock option plan for executives
of the Company and participation in the Company's group insurance
benefits and retirement plan. The agreement also provides for Mr.
Garrity's covenant not to compete with the Company for a period of two
years after his employment ends. Further, in the event of termination
of Mr. Garrity's employment, other than for cause, the agreement provides
for continued payment of Mr. Garrity's base salary and health care
benefits for a period of six months. Mr. Garrity will receive
separation benefits until January 15, 1997.
Kenneth L. Campbell. Mr. Campbell serves as an employee "at will." Mr.
Campbell has a severance arrangement with the Company which provides, in
the event of termination of Mr. Campbell's employment, other than for
cause, for continued payment of Mr. Campbell's base salary ($117,400
annually) and health care benefits for a period of six months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee during fiscal year 1996 were
Messrs. Gold, Knowles, Shapira, and until his resignation, Kirsch. Mr
Kirsch, who was a nonvoting member, was President and Chief Executive
Officer of the Company until his resignation in September 1995. Mr.
Shapira is a Director and executive officer of Giant Eagle, Inc. which
engaged in several arms-length business transactions with the Company
during the fiscal year. The Company sold merchandise to Giant Eagle in
the amount of $143,200 and paid Giant Eagle $1,000 in trade show booth
fees.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the policy of the compensation committee to compensate executive
officers of the Company under a pay plan with three components: base
salary, performance-based pay and equity ownership. The compensation
plan was developed in 1990 with the assistance and recommendations of
compensation consultants. Under this pay system, base salaries for
executives are set at or just below the market median for each position,
as determined from market survey information for companies with
comparable sales volume.
Performance-based compensation is paid pursuant to a plan implemented in
September 1990. The plan provides that a portion of the compensation
payable to each executive officer will be based upon the individual's
achievement of predetermined performance objectives and the Company's
attainment of overall performance objectives. The plan is a flexible
program in which performance objectives, which are individually
determined for each executive appropriate to his position, are
established each year by senior management. The aggregate amount
potentially payable to executives is determined by the Board of
Directors each year, based upon a percentage of the Company's profits.
The plan has been suspended for the last three fiscal years, as
management did not expect the Company to have the financial resources to
fund it.
The equity ownership portion of executive officer compensation is paid
in the form of stock options under a Stock Option Plan approved by the
shareholders and amended in 1995. Under this plan the Company earlier
granted options to executive officers and other managers for
approximately 820,000 shares. The number of option shares granted to
each individual is based upon the executive's position in the Company
and the relative potential for that position to affect the Company's
performance. The option price for each grant is the fair market value
at the date of grant. Executives have ten years from the date of grant
to exercise their options by paying the option price for the stock.
There were no stock option grants under the plan in fiscal 1996 as a
result of the Company's performance.
The compensation committee believes that this three-component pay system
for executive officers effectively balances the employee's need for
income security and the Company's need to maximize performance. The base
salary component provides the executive a reliable but moderate income
stream. The opportunity for any additional income exists only through
the performance-based compensation plan and the stock option plan, and
is available only by virtue of individual achievement and overall
Company performance.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
______________________________________________________________________
PRINCIPAL HOLDERS OF THE COMPANY'S COMMON STOCK
Security of Ownership of Management
The following table shows, as of October 17, 1996, the beneficial
ownership of the Company's common stock of each Director, each person who
served as Chief Executive Officer or acted in a similar capacity during
the fiscal year ended June 30, 1996 ("fiscal 1996"), each executive
officer of the Company during fiscal 1996 whose total annual salary and
bonus for fiscal 1996 was at least $100,000 and all the Directors and
Officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
-----------------------------------------
Sole Voting Shared
and Voting and Percent of
Investment Investment Shares
Name Power Power Total Outstanding
- --------------------- ----------- ---------- ----- -----------
<S> <C> <C> <C> <C> <C>
Ernest S. Berez 5,531 16,169 21,700 (1) *
Joel M. Berez 18,014 677,937 695,951 (2) 12.6%
Kenneth L. Campbell 20,352 0 20,352 (3) *
T. Ronald Casper 10,000 2,000 12,000 (4) *
Robert I. Christian 0 0 0 (5) -
Charles C. Cohen 12,750 0 12,750 (6) *
Robert P. Garrity 2,200 0 2,200 (7) *
Joel L. Gold 11,250 500 11,750 (8) *
R. Craig Kirsch 0 0 0 (9) -
James H. Knowles, Jr. 64,875 0 64,875 (10) 1.2%
David S. Shapira 7,750 28,302 36,052 (11) *
William B. Snow 4,000 0 4,000 (12) *
All directors and officers
as a group (15 persons) 178,321 730,523 908,844 (13) 16.3%
</TABLE>
* Represents less than 1% of the outstanding shares
(1) Amount includes 16,169 shares held by Mr. Ernest Berez's wife as to
which shares he disclaims beneficial interest. Mr. Ernest Berez
retired as a director in January of 1996.
(2) Amount includes 667,506 shares held in twelve trusts for which Mr.
Joel Berez is co-trustee but as to which he disclaims beneficial
ownership in 336,970 shares; and 10,431 shares held by Mr. Berez
jointly with his wife.
(3) Amount includes 19,000 shares which Mr. Campbell does not now own,
but has the right to acquire within 60 days under stock option
agreements.
(4) Amount includes 2,000 shares held by Mr. Casper's wife.
(5) Mr. Christian resigned from the Company in May of 1996.
(6) Amount includes 7,750 shares which Mr. Cohen does not now own, but
has the right to acquire within 60 days under stock option
agreements.
(7) Mr. Garrity resigned from the Company in July of 1996.
(8) Amount includes 7,750 shares which Mr. Gold does not now own, but
has the right to acquire within 60 days under stock option
agreements, and 500 shares held by Mr. Gold's wife.
(9) Mr. Kirsch resigned from the Company in September of 1995.
(10) Amount includes 5,875 shares which Mr. Knowles does not now own,
but has the right to acquire within 60 days under stock option
agreements.
(11) Amount includes 7,750 shares which Mr. Shapira does not now own,
but has the right to acquire within 60 days under stock option
agreements and 28,302 shares held in various trusts for which Mr.
Shapira is co-trustee.
(12) Amount includes 4,000 shares which Mr. Snow does not now own, but
has the right to acquire within 60 days under stock option
agreements.
(13) Amount includes 73,458 shares which the directors and officers do
not now own, but have the right to acquire within 60 days under
stock option agreements.
Security Ownership of Certain Others
The following table shows the beneficial ownership of the Company's
common stock of those persons, other than the persons named in the table
above, who are known by the Company to be beneficial owners of more than
5% of the Company's outstanding common stock.
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Shares
Name and Address Beneficial Ownership Outstanding
- ---------------- -------------------- -----------
<S> <C> <C> <C>
Steven H. Berez 673,400 (1) 12.2%
35 Sutton Road
Needham, MA 02192
Barry W. Blank 583,500 (2) 10.5%
3 Hanover Square
New York, NY 10004
</TABLE>
(1) Steven H. Berez's shareholdings include 5,698 shares as to which he
has sole voting and dispositive power, 196 shares as to which he
shares voting and dispositive power with his wife, and 667,506
shares held in twelve trusts as to which he shares voting and
dispositive power as co-trustee but as to which disclaims
beneficial ownership in 336,970 shares. The shares held by Mr.
Steven Berez as co-trustee are the same shares as those described
with respect to Mr. Joel Berez in footnote 2 under "Security
Ownership of Management."
(2) This amount excludes any shares which may be owned by Mr. Blank's
customers, in which he disclaims any beneficial or other interest
and over which he has no voting or dispositive power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
______________________________________________________________________
BUSINESS RELATIONSHIPS, TRANSACTIONS WITH MANAGEMENT AND INVOLVEMENT IN
LEGAL PROCEEDINGS:
During fiscal year 1996, the Company engaged in several arms-length
business transactions with Giant Eagle, Inc. The Company sold
merchandise to Giant Eagle in the amount of $143,200. David S. Shapira,
a Director of the Company, is Director, Chairman, President
and Chief Executive Officer of Giant Eagle.
PART IV
______________________________________________________________________
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
______________________________________________________________________
(a) The following documents are filed as part of this report:
Page
1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets at June 30, 1996
and June 24, 1995
Consolidated Statements of Operations for the years
ended June 30, 1996, June 24, 1995, and June 25, 1994
Consolidated Statements of Shareholders' Equity
for the years ended June 30, 1996, June 24, 1995,
and June 26, 1993
Consolidated Statements of Cash Flows for the years
ended June 24, 1995, June 25, 1994, and June 24, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
For the years ended June 30, 1996, June 24, 1995,
and June 25, 1994 (as required)
Schedule II - Valuation and Qualifying Accounts
______________________________________________________________________
Other schedules are omitted because they are not applicable or because
the required information is shown in the consolidated financial
statements or notes thereto.
3. Exhibits:
_______________________________________________________________________
Page
3.1 Articles of Incorporation, as amended, filed as
Exhibit 3.1 to 1994 Form 10-K and incorporated
herein by reference.
3.2 Bylaws, as amended, filed as Exhibit 3.2 to 1992
Form 10-K and incorporated herein by reference.
4.1 Amendment 2 to Form S-1 Registration Statement
(File No. 2-31014), filed April 1, 1969 and
incorporated herein by reference.
4.2 Amendment 1 to Form S-1 Registration Statement
(File No. 2-42809), filed January 26, 1972 and
incorporated herein by reference.
4.3 Amendment 1 to Form S-8 Registration Statement
(File No. 2-44531), filed October 15, 1972 and
incorporated herein by reference.
4.4 Amendment 4 to Form S-7 Registration Statement
(File No. 2-59334), filed September 21, 1977, and
Form of Indenture dated as of September 15, 1977,
filed as an Exhibit thereto, both incorporated
herein by reference. First Supplemental Indenture
dated as of May 15, 1982, filed September 23, 1983
and incorporated herein by reference.
4.5 Amendment 2 to Form S-2 Registration Statement
(File No. 2-81849), filed April 6, 1983, and Form
of Indenture dated as of April 1, 1983, filed as
Exhibit 4.2 thereto, both incorporated herein by
reference. Supplemental Indenture dated as of
August 31, 1983, filed as Exhibit 4.5 to 1984 Form
10-K and incorporated herein by reference.
4.6 Form S-8 Registration Statement No. 33-48361, filed
June 3, 1992 and incorporated herein by reference.
4.7 Form S-8 Registration Statement No. 33-48362, filed
June 3, 1992 and incorporated herein by reference.
10.1 Letter dated July 31, 1990 regarding employment and
retirement agreement of Ernest S. Berez, filed as
Exhibit 10.5 to 1990 Form 10-K and incorporated
herein by reference.
Exhibits (Continued):
_______________________________________________________________________
Page
10.2 Deferred Compensation arrangement, filed as Exhibit
10.2 to 1994 Form 10-K and incorporated herein by
reference.
10.3 Stock Option Plan, filed as Exhibit 10.10 to 1990
Form 10-K and incorporated herein by reference.
10.4 Nonemployee Director Stock Option Plan, filed
herein as Exhibit 10.10 to 1992 Form 10-K and
incorporated herein by reference.
10.5 Deferred Compensation Plan for Directors of Action
Industries, Inc., incorporated herein by reference.
10.6 Plan of Liquidation of Action Tungsram, Inc., dated
April 25, 1990, filed as Exhibit 10.12 to 1990 Form
10-K and incorporated herein by reference.
10.7 Addendum to Plan of Liquidation of Action Tungsram,
Inc., dated April 30, 1993, filed as Exhibit 10.24
to 1993 Form 10-K and incorporated herein by
reference.
10.8 Employment Agreement dated March 12, 1992 with R.
Craig Kirsch, filed as Exhibit 10.14 to 1992 Form
10-K and incorporated herein by reference.
10.9 Employment Agreement dated as of July 1, 1994 with
Ronald A. Gagnon, filed as Exhibit 10.11 to 1994
Form 10-K and incorporated herein by reference.
10.10 Employment Agreement dated December 15, 1993 with
Robert P. Garrity, incorporated herein by
reference.
10.11 Employment Agreement dated April 15, 1994 with
Robert I. Christian, incorporated herein by
reference.
10.12 Loan Agreement with Allegheny Capital Growth
Limited Partnership dated February 4, 1991, filed
as Exhibit 10.15 to 1991 Form 10-K and incorporated
herein by reference.
Exhibits (Continued):
______________________________________________________________________
Page
10.13 Lease Agreement and Restated Second Amendment to
Lease Agreement with Allegheny Capital Growth
Limited Partnership dated June 29, 1990 and
February 4, 1991, filed as Exhibit 10.16 to 1991
Form 10-K and incorporated herein by reference.
10.14 Loan and Security Agreement (and related
Agreements) dated January 20, 1994, filed as
Exhibit 10 to fiscal 1994 second quarter Form 10-Q
and incorporated herein by reference.
10.15 Amendments One, Two, Three and Four, dated May 27,
1994, November 11, 1994, December 9, 1994, and May
11, 1995, respectively, incorporated herein by
reference.
10.16 Asset Purchase Agreement and Bill of Sale,
Assignment and Assumption Agreement with Filmet
Color Laboratories, Inc., dated April 21, 1994,
filed as Exhibit 10.17 to 1994 Form 10-K and
incorporated herein by reference.
10.17 Purchase/Sale Agreement with Riverside Associates,
dated February 14, 1995, incorporated herein by
reference.
10.18 Remediation and Indemnification Agreement with
Riverside Associates, dated June 16, 1995,
incorporated herein by reference.
10.19 Asset Purchase Agreement with Kensington
Collection, Inc. dated September 18, 1995,
incorporated herein by reference.
10.20 Letter dated January 8, 1996 regarding Extension of
Employment Agreement dated December 15, 1993 of
Robert P. Garrity, including amendment and
restatement of severance arrangements, filed herein.
10.21 Letter dated January 8, 1996 regarding severance
arrangement of Kenneth L. Campbell, filed herein.
10.22 Settlement Agreement with Allegheny Capital Growth
Limited Partnership dated October 1, 1996, filed
herein.
Exhibits (Continued):
______________________________________________________________________
Page
10.23 Amended and Restated Lease Agreement with Allegheny
Capital Growth Limited Partnership dated October 1,
1996, filed herein.
10.24 Promissory Judgment Note with Allegheny Capital
Growth Limited Partnership dated October 1, 1996,
filed herein.
10.25 Supplemental Promissory Judgment Note with
Allegheny Capital Limited Partnership dated October
1, 1996, filed herein.
10.26 Asset Purchase Agreement with Mazel Company L.P.
dated October 1996, filed herein.
22 Subsidiaries of Registrant, filed as Exhibit 22 to
1993 Form 10-K and incorporated herein by
reference.
23 Consent of Independent Auditors, filed herein.
(b) Reports on Form 8-K:
The Company filed the following report on Form 8-K during the
fourth quarter of fiscal 1996:
May 17, 1996 - Report of the engagement of Parker/Hunter
Incorporated.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Action Industries, Inc.
We have audited the accompanying consolidated balance sheets of Action
Industries, Inc. and Subsidiaries as of June 30, 1996 and June 24, 1995,
and the consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended June 30,
1996, as listed in the accompanying index to financial statements Item
14(a). Our audits also included the financial statement schedule listed
in the index at 14(a). These financial statements and the schedule are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Action Industries, Inc. and Subsidiaries at June 30, 1996
and June 24, 1995, and the consolidated results of its operations and
cash flows for each of the three years in the period ended June 30, 1996
in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As more fully described in Note A to the consolidated financial
statements, the Company has entered into an agreement to sell all its
inventory and related intellectual property subject to the approval of
the Company's shareholders. Additionally, as described in Note D, the
Company has experienced recurring losses and is currently in violation
of its debt agreement with its lender. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding these matters are also described
in Note A. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of the assets or the amounts and classification of the
liabilities that may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
October 14, 1996
<TABLE>
<CAPTION>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, June 24,
1996 1995
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $78 $567
Trade accounts receivable, less allowances of $353 and $478 2,769 9,908
Inventories 3,928 18,133
Other current assets 671 1,111
------- -------
TOTAL CURRENT ASSETS 7,446 29,719
PROPERTY, PLANT AND EQUIPMENT 385 7,964
OTHER ASSETS
Note Receivable 850 1,200
Other 227 663
------- -------
$8,908 $39,546
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and acceptances payable $3,039 $10,162
Accounts payable 2,628 4,406
Accrued compensation 607 926
Other accrued liabilities 736 1,382
------- -------
TOTAL CURRENT LIABILITIES 7,010 16,876
LONG-TERM LIABILITIES
Financing obligation - sale/leaseback - 7,739
Long-term debt 115 115
Deferred compensation 1,554 1,688
------- -------
TOTAL LONG-TERM LIABILITIES 1,669 9,542
SHAREHOLDERS' EQUITY
Common stock, $0.10 par value;
authorized 20,000,000 shares; issued 7,187,428 shares 719 719
Capital in excess of par 25,498 25,498
Retained earnings (deficit) (14,414) (1,515)
------- -------
11,803 24,702
Less treasury shares, at cost 11,574 11,574
------- -------
TOTAL SHAREHOLDERS' EQUITY 229 13,128
------- -------
$8,908 $39,546
======= =======
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Year Ended
----------------------------------
June 30, June 24, June 25,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET SALES $30,212 $45,088 $60,049
COSTS AND EXPENSES
Cost of products sold 26,385 34,374 44,527
Operating expenses 10,462 12,461 13,245
Costs and expenses due to sale of
assets and closing of warehouse 4,226 - -
Interest expense 1,980 1,834 2,072
--------- --------- ---------
43,053 48,669 59,844
OTHER INCOME (EXPENSE), NET (58) 674 (77)
--------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (12,899) (2,907) 128
PROVISION FOR INCOME TAXES - - -
--------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (12,899) (2,907) 128
LOSS FROM DISCONTINUED OPERATIONS - (808) (3)
--------- --------- ---------
NET EARNINGS (LOSS) ($12,899) ($3,715) $125
========= ========= =========
EARNINGS (LOSS) PER SHARE
Continuing operations ($2.33) ($0.52) $0.02
Discontinued operations - (0.15) 0.00
--------- --------- ---------
NET EARNINGS (LOSS) PER SHARE ($2.33) ($0.67) $0.02
========= ========= =========
Weighted average shares outstanding 5,539 5,539 5,561
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except share amounts)
For the Years Ended June 30, 1996, June 24, 1995, and June 25, 1994
--------------------------------------------------------------------------------
Capital Retained
Common Stock In Excess Earnings Treasury Stock
Shares Amount of Par (Deficit) Shares Amount Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JUNE 26, 1993 7,187 $719 $25,498 $2,075 1,648 ($11,574) $16,718
Net Earnings - - - 125 - - 125
--------------------------------------------------------------------------------
BALANCE - JUNE 25, 1994 7,187 719 25,498 2,200 1,648 (11,574) 16,843
Net Loss - - - (3,715) - - (3,715)
--------------------------------------------------------------------------------
BALANCE - JUNE 24, 1995 7,187 719 25,498 (1,515) 1,648 (11,574) 13,128
Net Loss - - - (12,899) - - (12,899)
--------------------------------------------------------------------------------
BALANCE - JUNE 30, 1996 7,187 $719 $25,498 ($14,414) 1,648 ($11,574) $229
================================================================================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
----------------------------------
June 30, June 24, June 25,
1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings (loss) from continuing operations ($12,899) ($2,907) $128
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 762 1,055 1,248
Provision (credit) for doubtful accounts (125) (656) 873
Non-cash provision for inventory losses 1,851 - -
Cash used in discontinued operations - (290) (367)
Changes in operating assets and liabilities:
Trade accounts receivable 7,264 (390) 7,178
Inventories 12,354 (549) 6,203
Other current assets 440 76 1,953
Accounts payable and accrued expenses (2,743) 132 (5,193)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,904 (3,529) 12,023
========= ========= =========
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (220) (759) (127)
--------- --------- ---------
NET CASH USED IN INVESTMENT ACTIVITIES (220) (759) (127)
========= ========= =========
FINANCING ACTIVITIES:
Notes and acceptances payable (7,123) 4,723 (11,001)
Payment of deferred compensation (134) (324) (602)
Principal payments on long-term obligations (786) (633) (535)
Other, net 870 289 312
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,173) 4,055 (11,826)
========= ========= =========
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (489) (233) 70
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 567 800 730
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $78 $567 $800
========= ========= =========
The completion of new lease on the Company's headquarters facility resulted in a noncash credit for the
elimination of the sale/leaseback obligation of $6.9 million and a non-cash charge of $6.2 million for
the net book value of the leased property including land, building and certain equipment.
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
___________________________________________________________________
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year: References to a fiscal year in these financial
statements are to the Company's fiscal year ending for the three
most recent fiscal years on June 30, 1996, June 24, 1995 and June
25, 1994.
Basis of Presentation: In October 1996 the Company entered into an
agreement to sell its inventory and related intellectual property
associated with its Replenishment (Powerhouse) business and
Promotional business. The Powerhouse-related assets are to be sold
promptly. Powerhouse inventories were approximately $570,000 at
the date the agreement was signed. The Company's Promotional-related
assets have been sold subject to the approval of the
Company's shareholders. The assets to be sold represent
substantially all of the operating assets currently employed in the
Company's business. Trade accounts receivable are to be retained,
as well as non-operating notes and other receivables from prior
sales of the Company's headquarters facility and certain business
units. Upon completion of the sales described above, all of the
Company's current operations will have been sold.
Also in October 1996 the Company finalized negotiations and signed
a new lease arrangement for its headquarters facility. The new
lease obligates the Company for rent of approximately $100,000 per
year for a five year period under an operating lease. This lease
agreement, in conjunction with the physical departure from the
warehouse space in the facility, results in the elimination of the
previously reported capital lease obligation for the facility.
The accompanying financial statements include the historical
results of operations of the Company's Promotional and Replenishment
businesses. Valuation adjustments have been made to the historical
cost basis of the Company's inventories, property and equipment and
any other assets impacted by the sale of the Company's current
operations, to value these assets at estimated net realizable value
and to reflect the abandonment or sale of certain fixed assets no
longer used to support operations. The valuation of the assets and
liabilities are based on management estimates and assumptions as of
the date of issuance of the financial statements. Actual
realization of the assets and settlement of the liabilities could
be higher or lower than the estimated amounts.
Principles of Consolidation: The consolidated financial statements
include the accounts of Action Industries, Inc. and its
wholly-owned subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated. Until
September of 1995, the Company operated a lamp business as
Kensington Lamp Company, a wholly-owned subsidiary (KLC). The
business and certain assets of KLC were sold in September of 1995,
a fiscal 1995 event for financial reporting purposes. The lamp
business has been reported as a discontinued operation. Action
Nicholson Color Company (ANC), a wholly-owned subsidiary, was sold
in April of 1994. ANC was held for sale as of June 26, 1993, and
has been reported as a discontinued operation.
Financial Instruments: Cash and cash equivalents, accounts and
notes receivable, and accounts and notes payable are carried at
cost, which approximated their fair value at June 30, 1996 and June
24, 1995.
Inventories: Inventories are valued at the lower of first-in,
first-out (FIFO) cost or market. Market valuation is based on
known or estimated sales value.
Property, Plant and Equipment: Property, plant and equipment is
carried at cost. Elimination of the capitalized lease on the
Company's headquarters facility and the sale of the Company's
operations have resulted in the sale or devaluation of
substantially all of the Company's property, plant and equipment as
of June 30, 1996. The remaining book value is comprised of
computer equipment and office furniture and fixtures in continuing
use.
Historically, the Company has provided for depreciation (including
amortization of assets held under capital leases) over the
estimated useful lives or lease terms of the assets, principally on
the straight-line method. Estimated useful lives used in providing
for depreciation have been 20-40 years for buildings and 3-15 years
for machinery and equipment.
Property, plant and equipment is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ - $ 521
Buildings - 7,965
Machinery and equipment 5,981 21,833
-------- ---------
5,981 30,319
(Less allowances) (5,596) (22,355)
-------- ---------
$ 385 $ 7,964
======== =========
</TABLE>
Income Taxes: The Company accounts for income tax expense and
liabilities under the liability method. Deferred income taxes are
provided for temporary differences between financial and income tax
reporting, relating principally to restructuring charges, reserves
for losses on investments and other assets, depreciation and
deferred compensation.
Employees' Retirement Plans: The Company has defined contribution
retirement plans covering substantially all of its employees. The
plans provide for defined contributions based on eligible
employees' compensation. It is the policy to fund retirement plan
costs accrued.
Revenue Recognition: The Company recognizes revenue from the sale
of merchandise at the time of shipment to its customers. In the
case of sales where the customer has the right to return unsold
goods (guaranteed sales), revenue recognized is reduced for
estimated returns, based on historical experience.
Interest Allocation: The Company has allocated interest to
discontinued operations based on the receivables and inventories
used in such operations.
Impact of Recently Issued Accounting Standards: The Company has
not adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed
Of" (SFAS No. 121). Management does not believe that the adoption
of SFAS No. 121 will have a material impact on the Company's
financial position or results of operations. The ultimate recovery
of the carrying value of the remaining long-lived assets will
depend on the results of the Company's efforts to accomplish a
business combination with an operating business.
The Company has not adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). SFAS No. 123 establishes financial accounting and
reporting standards for stock-based compensation plans. This
Standard is optional, and the Company is permitted to continue to
account for its plans under previous accounting standards. The
Company does not expect to adopt the recognition provisions of the
new accounting standard, and consequently, the future adoption of
SFAS No. 123 will not have an impact on the Company's results of
operations.
NOTE B -- SALE OF OPERATING ASSETS
The purchase price for the sale of the Company's Promotional
inventory and related intellectual property will not be determined
until after the process of obtaining shareholder approval is
completed, which is expected to be in December of 1996. The
purchase price will equal 63.3% of the cost of the inventory sold
plus a cash payment of $100,000. The proceeds of the sale are
estimated at approximately $1 million to $1.5 million, and will be
used to repay debt under the Company's credit arrangements and trade
payables. The estimated loss on the sale (approximately $600,000)
has been recorded in the accompanying financial statements. In
addition, the Company has incurred additional inventory losses of
approximately $1.8 million related to the sales of all current
operations, including excess quantities and other obsolete
inventories, primarily display materials; unabsorbed acquisition
costs related to the Company's low level of purchasing in 1996 and
the writeoff of unamortized display costs. These losses have been
recorded as a reduction in the value of inventory in the
accompanying financial statements.
The Company, with the help of its advisors, is actively exploring
other strategic options available to it, including business
combinations with other operating businesses in order to continue
as an operating concern and preserve all or a portion of its income
tax net operating loss carryforwards. The Company has received
indications of interest from third parties, and has been engaged in
specific discussions relating to such a transaction with interested
parties. Such discussions are preliminary and may not result in an
agreement relating to any such transaction, and the Company may not
be able to maintain sufficient capital to continue the pursuit of
such transactions. The issues discussed above and those discussed
in Note D regarding the status of the Company's credit facilities
raise substantial doubt about the ability of the Company to
continue as a going concern.
NOTE C -- DISCONTINUED OPERATIONS
Kensington Lamp Company: The Company owns 100% of the common stock
of Kensington Lamp Company (KLC), now inactive, but formerly an
assembler of lead crystal and other table lamps. The Company sold
certain of the assets and the business to KLC management in
September of 1995. Terms of the sale included retention of
accounts receivable by the Company, assumption of inventory-related
accounts payable by the buyer, and an interest bearing note secured
by a second mortgage on inventories and receivables, payable over
a 42 month period which began November 1, 1995. As of June 30,
1996 the amount receivable under the note was $1,299,900.
The estimated realizable value from the sale was included in other
current assets and other long-term assets in the accompanying
balance sheet as of June 24, 1995 as if the sale had taken place in
the year ended June 24, 1995. The statement of operations for
1994 was restated to reflect KLC as a discontinued operation.
Total sales for KLC were $10.1 million for 1995 and $9.3 million
for 1994.
Interest allocated to KLC in the accompanying statement of
operations was $334,000 in fiscal 1995 and $283,000 in fiscal 1994.
Action Nicholson Color Company: The Company owns 100% of the
common stock of Action Nicholson Color Company (ANC), now inactive,
but formerly a producer of color separations. The Company sold the
assets and the business of ANC in April of 1994. Terms of the sale
included a cash payment at closing and future payments based on
sales of the business over the three years subsequent to April
1994. The estimated net realizable value of the future payments
($125,000 as of June 30, 1996) is included in the accompanying
balance sheet.
NOTE D -- LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt outstanding at June 30, 1996 and June 24, 1995
consisted of $115,000 in 9% Convertible Subordinated Debentures,
due in 1998. There are no current maturities of long-term debt.
Convertible Subordinated Debentures: The Debentures may be
converted into common stock at a price of $9.87 per share at any
time prior to maturity. If conversion does not occur, the Company
is required to redeem the Debentures on the maturity date, April 1,
1998. The Debentures may be redeemed early, at the Company's
option, upon payment of a premium. The sale of substantially all
of the Company's operating assets in a transaction requiring
shareholder approval may require redemption of the Debentures at
the time the sale is completed.
Credit Facilities: The Company's Credit Agreement provides for
available credit of up to $10 million through June 30, 1997.
Availability under the credit line is further limited by the level
of eligible accounts receivable and inventories. Interest is
payable at 3.5% over the prime rate of interest.
Borrowings are used for short-term financing under notes payable
and to back up letters of credit issued against purchases of
imported merchandise. Borrowings are secured by substantially all
of the Company's assets, including its cash balances, accounts
receivable, inventories, and property, plant and equipment.
Short-term borrowings against the credit lines ranged from a high
of $12.4 million to a low of $2.5 million during the 1996 fiscal
year. At June 30, 1996 the unused borrowing capacity based on the
borrowing formula in the agreement was $1.5 million. During the
year ended June 24, 1995, borrowings ranged from a high of $14.6
million to a low of $4.6 million.
The Company did not meet the required levels of net worth and
working capital under the restrictive covenants of its Credit
Agreement as of June 30, 1996, and will not be able to meet these
covenants subsequently. The lender's remedies under such a default
include the right to demand repayment of the outstanding loan.
Maturities of Debt: There are no maturities of long-term debt for
the five fiscal years subsequent to 1996, with the exception of the
Convertible Subordinated Debentures due April 1, 1998 ($115,000).
Interest paid was $2,067,000 during the year ended June 30, 1996,
$2,098,000 in 1995, and $2,585,000 in 1994.
NOTE E -- SALE/LEASEBACK
In 1991 the Company refinanced its headquarters facility under a
sale/leaseback arrangement. The facility was sold for $14 million,
$3.5 million of which was in the form of an interest bearing note
receivable. $10.5 million was received in cash. The transaction
was accounted for as a financing, wherein the property remained on
the books and continued to be depreciated. A financing obligation
representing the proceeds was recorded, and was reduced based on
payments under the lease.
The sale/leaseback financing obligation was eliminated in October
of 1996 when the Company completed negotiations and agreed to an
operating lease on the office space in the facility (which space
represents approximately 10% of the total space in the facility).
In connection with the settlement of the sale/leaseback obligation,
the note receivable was reduced to $2.3 million from the original
$3.5 million, and the note will not bear interest until 1998. An
unrelated third party has leased the entire warehouse portion of
the space from the Company's landlord. As a result of the Company's
vacating the warehouse facilities during March and April of 1996
and the signing of a new operating lease, the capitalized lease
obligation was eliminated from the financial statements as of June
30, 1996. The note receivable has not been recorded in the
financial statements because realization of the note continues to
be uncertain. Upon sale or refinancing of the property the
landlord is obligated to repay the note. Such repayment will be
reported as income when received.
The original sale/leaseback (under which the Company has been the
sole tenant) had a lease term of twelve years for the office and
eight years for the warehouse (beginning in April 1991) and
required minimum annual rental payments of approximately $1.9
million per year through 1999 and lesser payments thereafter.
The new lease requires minimum annual rental payments of $100,000
per year for the five year period beginning November 1, 1996. The
Company's office space requirements are currently less than the
space rented under the new lease. The Company and its landlord are
actively seeking prospective tenants to relieve the Company of some
or all of its obligations under the lease. Termination of the
original sale/leaseback lease resulted in elimination of the
capitalized lease obligation ($6.9 million at June 30, 1996) from
the balance sheet, offset by the elimination of the land, building
and certain equipment directly related to the facility with an
aggregate net book value of approximately $6.2 million. In
addition, the Company incurred significant costs associated with
vacating the facility, including severance ($200,000), idle
facilities rent and utilities (approximately $300,000), and other
costs including moving and inventory transfer costs and inventory
losses.
NOTE F -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying value of assets and liabilities
for financial reporting purposes and the amounts reported for
income tax purposes. Significant components of the Company's
deferred income tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Assets:
Deferred tax benefits associated
with losses provided for
restructuring, discontinued
operations and other asset
valuation allowances $ 6,093,200 $ 4,085,000
Deferred gain on sale/leaseback - 1,865,000
Net operating loss carryforwards 13,869,000 7,480,000
Alternative minimum tax credit 805,000 805,000
----------- -----------
20,767,200 14,235,000
Deferred Tax Liabilities:
Excess tax depreciation over book 567,600 1,454,000
Change from LIFO to FIFO 513,600 1,027,000
----------- -----------
1,081,200 2,481,000
----------- -----------
Net deferred tax asset 19,686,000 11,754,000
Valuation allowance 19,686,000 11,754,000
----------- -----------
NET DEFERRED TAX ASSET REPORTED $ 0 $ 0
=========== ===========
</TABLE>
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate (34.0)% (34.0)% 34.0 %
Deferred tax charge (credit) - - -
Effect of net operating loss carry-
forward and valuation allowance 34.0 % 34.0 % (34.0)%
State income tax, net of
Federal benefit - - -
Other - - -
------- ------- -------
Effective income tax rate 0.0 % 0.0 % 0.0 %
======= ======= =======
</TABLE>
The Company has net operating loss carryforwards available for
income tax reporting purposes of approximately $34 million expiring
in 2008 through 2011 which, upon recognition, based on current tax
rates, could result in future tax benefits of approximately $13.8
million. The Company made no tax payments during the years ended
June 30, 1996, June 24, 1995 and June 25, 1994.
NOTE G -- EMPLOYEES' RETIREMENT PLANS
Contributions under the Company's retirement plans were $75,000 in
1996, $123,000 in 1995 and $133,000 in 1994. Contributions were
for employees subject to a collective bargaining agreement, which
provides for such contributions at a rate of 6% of eligible
compensation. All employees eligible for contributions under the
collective bargaining agreement were terminated prior to June 30,
1996.
NOTE H -- OTHER INCOME (EXPENSE), NET
Other income (expense) consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Gain on sale of equipment $ - $ 296 $ -
Gain on sale of property - 950 -
Writedown of remaining estimated
realizable of Action Nicholson (200) (518) -
Interest income - - -
Gain on sale of other assets 208 - -
Other income (expense), net (66) (54) (77)
------ ------ -----
$ (58) $ 674 $(77)
====== ====== =====
</TABLE>
NOTE I -- LEASES
The Company leases office space and equipment under noncancelable
operating leases. Future minimum lease payments under operating
leases (including the new facility leases referred to in Note E
above are $338,000 in 1997; $287,000 in 1998; $215,000 in 1999;
$100,000 in 2000 and $100,000 in 2001. Currently there are no
leases with payments due beyond 2001. Rent expense under
operating leases (excluding the sale/leaseback transaction which
was a capital lease) amounted to $280,000 in 1996, $855,000 in
1995, and $905,000 in 1994.
NOTE J -- COMMITMENTS AND CONTINGENCIES
Commitments as of June 30, 1996 for outstanding letters of credit
for merchandise purchases were $82,000.
The Company owned property located in Mt. Clemens, Michigan, the
book value of which was previously written off. The Company sold
the property in June of 1995. Certain necessary environmental
cleanup procedures will be completed by the buyer of the property
under the terms of the sale.
Creditors of Phar-Mor, Inc. previously filed a claim against the
Company (and other shareholders and former shareholders of Phar-Mor)
to recover certain proceeds (approximately $2.6 million)
received by the Company in connection with a Phar-Mor tender offer
in fiscal 1992 for part of the Company's investment in the common
stock of Phar-Mor. The claim has been denied by summary judgment,
with no repayment required of the Company. An appeal of the denial
was filed by the Creditors in September 1995. In October of 1996
the summary judgment was affirmed by the appeals court.
NOTE K -- SEGMENT INFORMATION AND CREDIT CONCENTRATION
The Company has operated in one market segment - sales to
retailers. Substantially all of the Company's accounts receivable
are from retailers. The Company's credit arrangements with its
customers are generally unsecured. Credit loss experience has been
in line with the expectations of management.
Substantially all operations have been located in the United
States. Export sales were less than 10% of net sales.
During fiscal 1996 one entity accounted for 18.2% of the Company's
consolidated net sales, as a result of the merger of two customers
which accounted for 9.9% and 9.2% respectively. One customer
accounted for 11.6% of consolidated net sales in 1995 and one
customer accounted for 15.3% of consolidated net sales in 1994.
The Company has had several large customers which have been
significant to its business. In the fiscal year ended June 30,
1996 the Company sold in excess of $1 million to each of six
customers who, in the aggregate, accounted for 42% of net sales.
In the fiscal year ended June 24, 1995 the Company sold in excess
of $1 million to each of eleven customers who, in the aggregate
accounted for 48% of net sales. The loss of large customers has
had an adverse effect on the Company.
NOTE L -- STOCK OPTION PLANS
The Company has adopted Stock Option Plans which provide for the
granting of stock options to certain key employees and directors.
The Plans reserve 1,055,300 shares of common stock. Options are
granted at no less than fair market value of the shares at the date
of grant. Option activity for 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Options outstanding at
beginning of year 863,731 739,600 597,075
Granted - 332,900 204,500
Exercised - - -
Canceled (670,531) (208,769) (61,975)
--------- --------- --------
Outstanding at end of year 193,200 863,731 739,600
========= ========= ========
Option price range $1.00 $1.00 $1.63
at end of year to to to
$5.38 $6.25 $6.25
Exercisable at end of year 117,300 378,800 295,000
======= ======= =======
</TABLE>
NOTE M -- UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following table summarizes the reported results of continuing
operations for each quarterly period in fiscal 1996 and 1995. The
quarterly results for 1995 were restated from the amounts
previously reported to reflect the discontinuance of the Company's
lamp assembly business. Amounts shown are stated in thousands of
dollars, except per share data.
<TABLE>
<CAPTION>
CONTINUING OPERATIONS
------------------------------------------
Cost of Earnings
Net Products Earnings (Loss)
Quarter Ended Sales Sold (Loss) Per Share
- ------------- ----- ---- ------ ---------
1996
<C> <C> <C> <C> <C>
September 30, 1995 $ 9,180 $ 7,165 $ (1,203) $(0.22)
December 31, 1995 9,899 8,225 (1,471) (0.27)
March 31, 1996 5,455 4,937 (2,365) (0.43)
June 30, 1996 5,678 6,058 (7,860) (1.42)
------- ------- ---------
$30,212 $26,385 $(12,899) $(2.33)
======= ======= ========= =======
1995
September 24, 1994 $11,035 $ 7,846 $ (119) $(0.02)
December 24, 1994 16,494 12,467 ( 9) 0.00
March 25, 1995 6,201 4,770 (1,709) (0.31)
June 24, 1995 11,358 9,291 (1,070) (0.19)
------- ------- --------- -------
$45,088 $34,374 $ (2,907) $(0.52)
======= ======= ========= =======
</TABLE>
The fourth quarter of the fiscal year ended June 30, 1996 includes
accounting adjustments to reflect the loss on the sale of the
Company's inventories and intellectual property ($600,000),
inventory adjustments of approximately $2 million related to the
sales of all current operations, including excess quantities and
other obsolete inventories, primarily display materials; unabsorbed
acquisition costs related to the Company's low level of purchasing
in 1996 and the writeoff of unamortized display costs. Other
assets were written down $400,000.
<TABLE>
<CAPTION>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Additions
-----------------------
Charged to
Balance at Charged to Other Balance at
Beginning Cost or Accounts Deductions End
Description of Period Expenses (Describe) (Describe) of Period
- --------------------------------------- --------- -------- ---------- ---------- ---------
Year ended June 25, 1994
<S> <C> <C> <C> <C> <S> <C>
Estimated future costs of discontinued
operation $421 $ - $ - ($304) (b) $117
Allowance for Doubtful Accounts 1,578 873 - (1,317) (a) 1,134
Restructure reserve:
Inventory 715 - - (234) (c) 481
Property, plant and equipment - - - - -
---------------------------------------------------------------------
$2,714 $873 $0 ($1,855) $1,732
=====================================================================
Year ended June 24, 1995
Estimated future costs of discontinued
operation $117 $ - $ - ($117) (b) $0
Allowance for Doubtful Accounts 1,134 298 - (954) (a) 478
Restructure reserve:
Inventory 481 - - (481) (c) 0
Property, plant and equipment - - - - 0
---------------------------------------------------------------------
$1,732 $298 $0 ($1,552) $478
=====================================================================
Year ended June 30, 1996
Allowance for Doubtful Accounts $478 $96 $ - ($221) (a) $353
=====================================================================
(a) Doubtful accounts charged off as uncollectible, net of recoveries and claims (primarily reserved in
prior years).
(b) Charges related to the discontinued business reserved previously.
(c) Inventory disposals.
</TABLE>
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.
ACTION INDUSTRIES, INC.
(Registrant)
Date: October 23, 1996 By /s/T. Ronald Casper
------------------------
T. Ronald Casper
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Name Title Date
/s/T. Ronald Casper President and October 23, 1996
- ------------------------- Chief Executive Officer
T. Ronald Casper
/s/Kenneth L. Campbell Senior Vice President, October 23, 1996
- ------------------------- Finance (Principal
Kenneth L. Campbell Financial and Accounting
Officer)
/s/Joel M. Berez Chairman of the Board October 23, 1996
- -------------------------
Joel M. Berez
- ------------------------- Director October 23, 1996
Charles C. Cohen
- ------------------------- Director October 23, 1996
Joel L. Gold
/s/James H. Knowles, Jr. Director October 23, 1996
- -------------------------
James H. Knowles, Jr.
/s/David S. Shapira Director October 23, 1996
- -------------------------
David S. Shapira
/s/William B. Snow Director October 23, 1996
- -------------------------
William B. Snow
EXHIBIT 10.20
- -------------
January 8, 1996
Mr. Robert P. Garrity
20 Alexander Place
Pittsburgh, Pennsylvania 15243
Re: Employment Agreement Dated December 15, 1993
Dear Bob:
This letter is in reference to the Employment Agreement dated
December 15, 1993 between Action Industries, Inc. (the "Company")
and you. This will confirm our mutual understanding that the
Employment Period (as defined in Section 1 of the Employment
Agreement) shall be extended from January 3, 1996 until January 3,
1997 and that Section 6.3 of the Employment Agreement is hereby
amended and restated in its entirety to read as follows:
6.3 Without Cause. In the event Executive's employment is
terminated by the Company prior to the expiration of the
Employment Period, other than for cause, the Company shall
continue to provide to Executive (or Executive's estate in the
event of Executives's death subsequent to termination) the
following: (I) the base salary set forth in Section 3.1 for a
six-month period following the date of such termination,
payable monthly; (ii) continuation of health care benefits
during such six-month period, provided that Executive
continues to make timely payment to the Company for his
portion of the premium for the health care benefit he selected
and (iii) continuation during such six-month period of all
other employee benefits made available to Executive by the
Company as of the date of such termination. No compensation
other than that specifically provided above shall be payable
on account of any such termination.
Please indicate your agreement with the foregoing amendments to the
Employment Agreement by executing two copies of this letter and
returning one fully signed copy hereof to the undersigned,
whereupon this letter shall be a binding agreement between you and
the Company.
Very truly yours,
ACTION INDUSTRIES, INC.
By T. RONALD CASPER
--------------------
T. Ronald Casper
President
TRC/pap
ACKNOWLEDGED AND AGREED:
ROBERT P. GARRITY
- ---------------------
Robert P. Garrity
EXHIBIT 10.21
- -------------
January 8, 1996
Mr. Kenneth L. Campbell
c/o Action Industries, Inc.
460 Nixon Road
Cheswick, Pennsylvania 15024
Re: Severance Arrangement
Dear Ken:
This letter sets forth certain severance benefits to which you will
be entitled in the event your employment with Action Industries,
Inc. (the "Company") is terminated without cause. If your
employment is terminated by the Company other than for cause, the
Company will provide you with the following: (I) the base salary
that you are paid by the Company on the date of such termination
for a six-month period following the date of such termination,
payable monthly; (ii) continuation of health care benefits during
such six-month period, provided you continue to make timely payment
to the Company for your portion of the premium for the health care
benefit you selected and (iii) continuation during such six-month
period of all other employee benefits made available to you by the
Company as of the date of such termination. It shall be a
condition to the Company's obligation to make such severance
benefits available to you that in connection with any such
termination of your employment you execute and deliver a Separation
Agreement and General Release satisfactory to the Company
containing provisions similar to those set forth in Paragraphs 3
through 10 of the form of Separation Agreement and General Release
attached hereto as Annex A. No compensation other than that
specifically provided above shall be payable on account of such
termination of your employment without cause.
As used herein, the term "for cause" means a termination of your
employment by the Company because of:
(a) your gross negligence, willful misconduct, or gross neglect of
duty; or
(b) any criminal act by you or any conduct by you involving fraud
or constituting bad faith by you in dealing with or on behalf
of the Company.
The sole purpose of this letter is to provide you with the above
severance arrangements. Nothing herein is intended to create an
employment agreement between the Company and you or to provide you
with any severance if your employment is terminated for cause.
Very truly yours,
ACTION INDUSTRIES, INC.
By T. RONALD CASPER
---------------------
T. Ronald Casper
President
TRC/pap
Attachment
ACKNOWLEDGED AND AGREED:
K. L. CAMPBELL 1/23/96
- -------------------------
Kenneth L. Campbell
ANNEX A
SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement and General Release ("Agreement"), is made
[DATE AGREEMENT IS GIVEN TO EMPLOYEE] by and between [NAME], an
individual ("Employee"), and ACTION INDUSTRIES, INC., its
affiliates, subsidiaries, divisions and related companies
("Action").
In consideration of the covenants undertaken and the releases
contained in this Agreement, Employee and Action agree as follows:
1. Employee acknowledges that he is an "at will" employee whose
employment is terminated as of [DATE].
2. In consideration of Employee's covenants below, Action shall
provide Employee with the following:
a. Severance benefits in the form of continued base salary
payments for a period of [NUMBER] weeks (or until
Employee's death if sooner), less normal tax withholding
and deductions, payable on Action's regular pay cycle;
and
b. Health care benefits under Action's health care plan
through [DATE], provided that Employee continues the
payment of his contribution to his health care benefit
cost through payroll deduction.
3. Employee authorizes Action to deduct from his severance
benefit checks the full amount of any monies owed to Action,
including any travel advances, business credit card charges,
petty cash advances, and the like, which remain unreconciled
with appropriate business expense receipts.
4. Employee agrees not to disclose or utilize any confidential or
proprietary information of Action learned by Employee during
the course of his employment with Action.
5. Employee, on behalf of himself and his dependents, heirs,
executors, administators, assigns and successors, and each of
them, hereby fully releases and discharges Action, its
affiliates, subsidiaries, divisions and related companies, and
the officers, directors, employees, agents, and predecessors,
successors and assigns of each entity from any and all claims,
causes of action, suits, debts, wages, demands, rights, liens,
agreements and contracts whatsoever (except for Action's
obligations under this Agreement), particularly any claims
relating to or concerning the employment relationship or
Employee's separation from employment with Action, whether
under federal, state or local law or common law principles of
similar effect, whether in law or in equity, and whether know
or unknown, which Employee may have had or may now have
against Action, including, but not limited to: any and all
claims based upon the breach of any implied covenant of good
faith and fair dealing, age discrimination (under the Age
Discrimination in Employment Act of 1967 or other comparable
laws), handicap discrimination, racial discrimination, sexual
discrimination, wrongful discharge, the breach of any
employment contracts (express or implied, oral or written),
defamation, fraud, misrepresentation and negligence.
6. Employee and Action agree not to disclose the terms of this
Agreement to anyone, except as set forth below:
a. Employee may discuss the Agreement with members of his
immediate family, provided each member agrees in advance
not to discuss it with anyone outside the immediate
family. Employee is advised to discuss this Agreement
with a lawyer before executing it.
b. Action shall be permitted to discuss this Agreement with
only those individuals necessarily involved in this
matter.
7. Employee shall have [21 DAYS IN THE CASE OF AN ISOLATED
SEPARATION] [45 DAYS IN THE CASE OF A GROUP SEPARATION] from
the above date to consider this Agreement fully and to discuss
it with this attorney before signing it. Further, Employee
shall be entitled to revoke this Agreement within 7 days after
signing it. Accordingly, severance payments shall begin no
sooner than the eighth day following Employee's execution of
the Agreement.
By signing this Agreement, Employee acknowledges and certifies
that his execution of the Agreement is a knowing and voluntary
act, which will permanently and irrevocably sever his
employment relationship with Action and preclude any later
action against Action, other than to enforce its terms.
8. Employee and Action acknowledge and agree that this Agreement
is not and shall not be construed to be an admission that
either has acted wrongfully, in violation of any federal,
state or local laws or inconsistently with any duty owed.
9. Each provision of this Agreement is intended to be severable.
If any term or provision is held to be invalid, void or
unenforceable by a court or tribunal of competent jurisdiction
for any reason whatsovever, the ruling shall not affect the
validity of the remainder of this Agreement.
10. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
Signed, with the intent to be legally bound,
Dated:
---------------------- ------------------------
[NAME]
Dated:
---------------------- ACTION INDUSTRIES, INC.
By:
--------------------
Title:
------------------
EXHIBIT 10.22
- -------------
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Agreement"), is made as of
October 1, 1996, by and between ACTION INDUSTRIES, INC. ("Action"),
a Pennsylvania corporation and ALLEGHENY CAPITAL GROWTH LIMITED
PARTNERSHIP (formerly, Allegheny Industrial Park, L.P.), a Delaware
limited partnership (the "Partnership").
Background
The parties hereto entered into a sale and leaseback
arrangement pursuant to which Action sold to the Partnership and
simultaneously leased back from the Partnership certain real
property, improvements and personalty located in Harmar Township,
Pennsylvania (the "Property") and, in connection therewith, Action
lent the Partnership $13,900,000.00 to purchase the Property as
evidenced by a Promissory Note in said amount dated June 29, 1990
(the "$13,900,000.00 Note"). Concurrently with delivery of the
$13,900,000.00 Note and transfer of the Property, the Partnership
leased the Property back to Action pursuant to a Lease (the "Lease
Agreement") also dated June 29, 1990. On or about March 26, 1991,
the Partnership repaid the $13,900,000.00 Note but a portion of
said $13,900,000.00 Note, namely, $3,500,000.00, was repaid with
the proceeds of a loan in the amount of $3,500,000.00 made by
Action to the Partnership and evidenced by the Partnership's Note
(the "Original Note") to Action in the amount of $3,500,000.00
dated March 26, 1991. Action agreed to make the $3,500,000.00 loan
evidenced by the Original Note pursuant to a Loan Agreement dated
February 1991 (the "Existing Loan Agreement"), which superseded two
prior loan agreements relating to the same general subject, one
dated August 14, 1990 (the "First Loan Agreement") and one dated
January 31, 1991 (the "Second Loan Agreement"). The Lease
Agreement was amended in connection with the First Loan Agreement,
all pursuant to a First Amendment to Lease Agreement dated August
14, 1990 (the "First Lease Amendment"). The Lease Agreement was
further amended in connection with the Second Loan Agreement by a
Second Amendment to Lease dated January 31, 1991 (the "Second Lease
Amendment") and was still further amended in connection with the
Existing Loan Agreement, all pursuant to a Restated Second
Amendment to Lease Agreement dated February 4, 1991 (the "Restated
Second Amendment") (the Lease Agreement as amended by the First
Lease Amendment, the Second Lease Amendment and the Restated Second
Amendment is hereinafter collectively referred to as the "Current
Lease").
The Original Note had a stated maturity date of March 26,
1995. The Partnership has alleged that the maturity date of the
Original Note was extended and did not pay off the principal
outstanding as of March 26, 1995. Action disputes that the
maturity date of the Original Note was ever extended. Action has
alleged the amount of rent due under the Current Lease was modified
after March 26, 1995 and also has claimed a right to offset all or
a portion of the remaining rent due under the Current Lease against
amounts due under the Original Note. The Partnership has alleged
that the rent provisions of the Current Lease were not modified and
has claimed that Action is in default of the Current Lease by
virtue of its failure to pay the full rent due under the Current
Lease and has alleged that Action has no right to offset said
unpaid portions of the rent against the Original Note.
Action currently subleases a portion of the Warehouse Space
(as defined in the Current Lease) to Executive Warehouse, Inc.
("EWI") pursuant to a sublease dated February 19, 1996 (the "EWI
Sublease"). EWI and the Partnership intend to execute a new lease
for the entire Warehouse Space (the "EWI Lease"). The date on
which the EWI Lease becomes effective is hereinafter referred to as
the "Effective Date".
To resolve their differences, the parties have agreed, among
other things, to (a) amend and restate the Current Lease by
executing and delivering an Amended and Restated Lease Agreement in
the form of Exhibit A hereto (the "New Lease") and (b) cancel the
Original Note, and terminate the obligations of the parties under
the Existing Loan Agreement, upon delivery to Action of an executed
Promissory Judgment Note in the form of Exhibit B hereto (the "New
Note") and an executed Supplemental Promissory Judgment Note in the
form of Exhibit C hereto (the "Supplemental Note").
This Agreement, the New Lease, the New Note and the
Supplemental Note (together with such other agreements, documents
and instruments, if any, as may be contemplated hereby or thereby,
the "Transaction Documents") are inter-related and are given to
resolve differences relating to the Current Lease and the Original
Lease and arise out of the same transaction.
Terms
NOW THEREFORE, in consideration of the mutual promises
contained herein, and intending to be legally bound, the parties
hereto agree as follows:
1. Execution and Delivery of Transaction Documents.
Concurrently with its execution and delivery hereof (a) Action will
execute and deliver to the Partnership the New Lease and will
deliver to its counsel, in escrow, the Original Note and (b) the
Partnership will execute and deliver to Action the New Lease, the
New Note and the Supplemental Note. The New Lease, the New Note
and the Supplemental Note will become effective by their own terms
on the Effective Date without further action by the parties. Upon
the occurrence of the Effective Date, Action's counsel shall
deliver to the Partnership the Original Note marked "Canceled."
2. Effect of Transaction Documents Becoming Effective.
Upon the Effective Date, the Current Lease, the Original Note and
the Existing Loan Agreement shall all be deemed to have been
terminated (and, in the case of the Original Note, canceled,
irrespective of whether it has been delivered to the Partnership)
and neither party shall have any further liability thereunder,
except for, in the case of Action, obligations and liabilities
arising or accruing under the Current Lease on or before the
Effective Date or which survive the expiration of the Current Lease
(other than liabilities consisting of, or arising out of, Action's
failure to pay Annual Office Rent or Annual Warehouse Rent
thereunder in an aggregate amount of more than $97,000 per month).
3. Representations and Warranties of Action. Action
represents and warrants to the Partnership as follows as of the
date hereof and as of the Effective Date:
(a) Organization and Good Standing. Action is a
corporation duly organized and validly existing under the laws of
the Commonwealth of Pennsylvania.
(b) Corporate Power and Authority. Action has the
requisite corporate power and corporate authority to (i) own its
properties and conduct its business as presently conducted and (ii)
make, execute, deliver and perform the Transaction Documents to
which it is a party.
(c) Due Authorization; Enforceability. The execution,
delivery and performance of the Transaction Documents to which it
is a party have been duly authorized by all necessary corporate
action on the part of Action, and constitute, or when executed and
delivered will constitute, the legal, valid and binding obligations
of Action, enforceable against it in accordance with their
respective terms except as limited by bankruptcy, insolvency and
other laws which affect the enforcement of creditors' rights and by
general equitable principles. Except for the consent of Foothill
Capital Corporation, which consent has been obtained, no consent or
authorization by any third party is required to enable Action to
carry out the transactions contemplated by the Transaction
Documents to which it is a party.
(d) No Violation of Law or Agreements. The execution
and delivery of the Transaction Documents to which it is a party do
not, and the consummation of the transactions contemplated thereby
and the compliance with the terms, conditions and provisions
thereof will not, (i) contravene any provision of Action's articles
of incorporation or by-laws or (ii) conflict with, violate, or
result in a breach of or constitute a default (or an event which
would, with the passage of time or the giving of notice or both,
constitute a default) under any of the terms, conditions or
provisions of any material indenture, mortgage, loan or credit
agreement or any other agreement or instrument to which Action is
a party or by which it or any of its assets may be bound or
affected, any judgment or order of any court or governmental
department, commission, board, agency or instrumentality, domestic
or foreign, which names Action and is directed to Action or any of
its assets or any applicable law, rule or regulation.
(e) EWI Sublease.
(i) A true, accurate and complete copy of the EWI
Sublease has been delivered to the Partnership and there are no
amendments, modifications, side letters or understandings between
Action and EWI, except as set forth in the EWI Sublease or as
otherwise disclosed to the Partnership;
(ii) The amount of space currently subleased to EWI
under the EWI Sublease is 230,000 square feet and the amount of the
monthly rent payable therefor is the sum of $42,742;
(iii) Action will not modify, amend or change
the EWI Sublease or terminate the EWI Sublease nor accept any
amendment, modification, surrender or termination of the EWI
Sublease without the prior written consent of the Partnership,
which consent shall not be unreasonably withheld, except that
Action may sublease additional space to EWI in accordance with the
terms of the EWI Sublease;
(iv) The EWI Sublease is in full force and effect
and, to the best of Action's knowledge, no default exists
thereunder on the part of either EWI or Action nor has any event or
omission occurred which with the giving of notice or passage of
time would constitute a default thereunder;
(v) No security deposit or other sum or letter of
credit or other security has been paid by EWI under the EWI
Sublease or in connection therewith or otherwise; and
(vi) Action shall not settle or compromise any
claims which it may have against EWI under the EWI Sublease without
the prior written consent of the Partnership, which consent shall
not be unreasonably withheld.
4. Representations and Warranties of The Partnership. The
Partnership represents and warrants to Action as follows as of the
date hereof and as of the Effective Date:
(a) Organization and Good Standing. The Partnership is
a limited partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware.
(b) Power and Authority. The Partnership has the
requisite power and authority to (i) own its properties and conduct
its business as presently conducted and (ii) make, execute, deliver
and perform the Transaction Documents to which it is a party.
(c) Due Authorization; Enforceability. The execution,
delivery and performance of the Transaction Documents to which it
is a party have been duly authorized by all necessary action on the
part of the Partnership, and constitute, or when executed and
delivered will constitute, the legal, valid and binding obligations
of the Partnership, enforceable against it in accordance with their
respective terms except as limited by bankruptcy, insolvency and
other laws which affect the enforcement of creditors' rights and by
general equitable principles. Except for the consent of
Metropolitan Life Insurance Company ("Metropolitan") and EWI, no
consent or authorization by any third party is required to enable
the Partnership to carry out the transactions contemplated by the
Transaction Documents to which it is a party. The Partnership will
use its reasonable efforts to obtain necessary consents from
Metropolitan and EWI.
(d) No Violation of Laws or Agreements. The execution
and delivery of the Transaction Documents to which it is a party do
not, and the consummation of the transactions contemplated thereby
and the compliance with the terms, conditions and provisions of
thereof by the Partnership will not, (i) contravene any provision
of the Partnership's Partnership Agreement or (ii) except for a
mortgage held by Metropolitan and related loan documents, and
except for the EWI Lease, conflict with, violate, or result in a
breach of or constitute a default (or an event which would, with
the passage of time or the giving of notice or both, constitute a
default) under any of the terms, conditions or provisions of any
material indenture, mortgage, loan or credit agreement or any other
agreement or instrument to which the Partnership is a party or by
which it or any of its assets may be bound or affected, any
judgment or order of any court or governmental department,
commission, board, agency or instrumentality, domestic or foreign,
which names the Partnership and is directed to the Partnership or
any of its assets or any applicable law, rule or regulation. The
Partnership will use its reasonable efforts to obtain necessary
waivers from Metropolitan and EWI.
5. Action Offset Rights. From and after the Effective Date
and so long as either the New Note or the Supplemental Note remains
outstanding, Action shall be entitled to offset against its
obligations to pay Annual Rent under and as defined in the New
Lease amounts owed to Action by the Partnership under the New Note
or the Supplemental Note which are in default beyond any applicable
cure period, first against amounts in default under the
Supplemental Note, then against amounts in default under the New
Note, subject to the following restrictions:
(a) such right of offset may not be exercised to the
extent that an offset would, after taking into account monthly base
rent actually paid under the EWI Lease, the New Lease and any other
lease then in effect with respect to the Property, reduce the
aggregate monthly rental payments made to the Partnership under
such leases to an amount which would be less than the amount then
due to the holder of the first motgage lien on the Property;
provided, that the Partnership shall pay all amounts so received in
respect of base rent to such first mortgage holder; and
(b) it is expressly understood and agreed that such
right of offset is subordinate to the rights of such first mortgage
holder and to the rights of EWI under the EWI Lease and, if either
of them or their designees shall obtain title to the Property, it
shall not be enforceable against either of them.
6. Partnership Offset Rights. From and after the effective
date of the New Lease, the Partnership shall be entitled to offset
against its obligations to pay amounts due under the New Note
amounts owed by Action under the New Lease which are in default
beyond any applicable cure period. If the New Lease is
disaffirmed, avoided or rejected in any bankruptcy, insolvency or
similar proceeding (collectively, a "Rejection"), the amount which
the Partnership shall be entitled to offset under the New Note for
periods after the date of Rejection shall be equal to (a) the
Annual Rent due under the New Lease for the remainder of the
originally stated term thereof, irrespective of such Rejection,
plus (b) the amount which Action would have been required to pay in
respect of Impositions (defined below) during the remainder of the
originally stated term thereof, irrespective of such Rejection,
minus (c) any rent and amounts paid in respect of Impositions by
any tenants who lease any of the space covered by the New Lease
during the remainder of the originally stated term thereof, net of
all expenses incurred by the Partnership in reletting such space.
As used herein, "Impositions" shall mean all CAM Charges, Outside
Common Area Expenses, real estate taxes and assessments and
insurance on the Building and the Land (as all of such terms are
defined in the New Lease). The amount owed by Action in respect of
Impositions which have not been determined as of the date of
Rejection shall be equal to the amount of Impositions for which
Action was liable during the 12-month period immediately preceding
the date of Rejection multiplied by the number of years remaining
in the term of the New Lease, with partial years being pro rated
accordingly. The parties acknowledge and agree that the rights of
the Partnership under this Section shall not be affected or
impaired by any Rejection.
7. Material Inducement. The parties acknowledge and agree
that the provisions of Sections 5 and 6 are material inducements to
each party entering into the Transaction Documents.
8. Additional Agreements.
(a) Notwithstanding anything to the contrary set forth
in the Current Lease, the parties agree that Action shall not be in
default for non-payment of Annual Rent thereunder if it pays Annual
Rent at the rate of $97,000 per month through the Effective Date
(if the Effective Date occurs) or such earlier date as this
Agreement is terminated pursuant to subsection (d) below. After
giving effect to the previous sentence (and subject to subsection
(d) below if the Effective Date does not occur), the Partnership
agrees that Action has paid Annual Rent through September 30, 1996.
Except as otherwise provided in this subsection, Action remains
responsible for the payment and performance of all of its
obligations under the Current Lease until the same is terminated or
expires.
(b) Amounts paid by Action under the Current Lease in
respect of Annual Rent and additional rent for periods after the
Effective Date shall be pro rated as of the Effective Date.
(c) The parties shall each use their reasonable best
efforts to cause the Effective Date to occur. Without limiting the
generality of the foregoing, Action shall comply with its
maintenance, repair and replacement obligations under the Current
Lease at all times prior to the Effective Date.
(d) If the Effective Date does not occur on or before
December 31, 1996, then either party shall have the right, at any
time thereafter but prior to the Effective Date by giving written
notice to the other to such effect, to terminate this Agreement;
provided, that if the Effective Date does not occur by such date
due to the act or omission of either party, then such party shall
have no right to give such notice. In addition, if the Partnership
terminates the Current Lease as permitted thereunder prior to the
Effective Date, then the Partnership shall have the right to
teminate this Agreement. If this Agreement is so terminated then
the Original Note, the Existing Loan Agreement and the Current
Lease shall remain in full force and effect and the parties shall
have their rights and obligations thereunder as if this Agreement
had never existed; provided, that the obligation of (i) the
Partnership to pay interest on the Original Note and (ii) Action to
pay Annual Rent and additional rent under the Current Lease shall
be deemed to have been satisfied in full through June 1, 1996.
(e) Notwithstanding anything to the contrary set forth
in the New Note, if required by the holder of the first mortgage
lien on the Property or by EWI, Action will extend the term of the
New Note, including without limitation the date set forth in
Paragraph 3(a) of the New Note, but in no event beyond the tenth
anniversary of the Effective Date.
(f) From time to time upon the written request of
Action, the Partnership shall confirm in writing that none of the
following events or conditions has occurred from and after the date
of this Agreemant or, if any such an event has occurred, shall give
to Action a written description of such event: (i) the incurrence
by the Partnership of any obligation for borrowed money owed to a
bank or other financial institution ("Indebtedness") or any
refinancing of any Indebtedness; (ii) a default in respect of any
Indebtedness or an event which, with the giving of notice or the
passage of time, will constitute such a default, but only if the
Partnership has received notice of such default or event from its
lender; (iii) the acceleration of any Indebtedness or the
commencement by the holder of any Indebtedness of any action or
proceeding to enforce its remedies in respect thereof; or (iv) any
transfer of the Property or the Partnership or any interest
therein. ANY REQUEST MADE BY ACTION UNDER THIS SUBSECTION SHALL
REFERENCE THIS SUBSECTION AND THE FACT THAT THE FAILURE OF THE
PARTNERSHIP TO RESPOND TO SUCH REQUEST CONSTITUTES A DEFAULT UNDER
THE NEW NOTE AND THE SUPPLEMENTAL NOTE.
9. Nature and Survival of Representations. The
representations and warranties of the Partnership and Action
contained in this Agreement or in any certificate or other document
delivered pursuant to this Agreement, shall be deemed to constitute
representations and warranties of the respective party delivering
the same and shall survive the Effective Date until the New Note
shall have been paid in full.
10. Voluntary Agreement. EACH OF THE PARTIES HERETO
REPRESENTS AND WARRANTS THAT IT IS REPRESENTED BY LEGAL COUNSEL OF
ITS CHOICE AND THAT IT HAS CONSULTED WITH ITS COUNSEL REGARDING
THIS AGREEMENT, THAT IT IS FULLY AWARE OF THE TERMS CONTAINED
HEREIN AND THAT IT HAS VOLUNTARILY AND WITHOUT COERCION OR DURESS
OF ANY KIND ENTERED INTO THIS AGREEMENT.
11. Costs and Expenses. Each party will pay its own costs
and expenses, including without limitation its legal accounting and
financial advisory fees, of its negotiation and performance of and
compliance with the terms and conditions of this Agreement and the
transactions contemplated hereby.
12. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered or, if mailed, when
mailed by United States first-class, certified or registered mail,
postage prepaid, to the other party at the following addresses (or
at such other address as shall be given in writing by any party to
the other):
If to the Partnership, to
J.S. Karlton Company, Inc.
75 Holly Hill Lane
Suite 300
Greenwich, CT 06830
Attn: John S. Karlton
With a required copy to:
Carolan & Greeley
65 Franklin Street
Boston, MA 02710
Attn: Alfred J. Carolan, Jr., Esq.
If to Action, to:
Action Industries, Inc.
460 Nixon Road
Cheswick, Pennsylvania 15024
Attn: T. Ronald Casper
With a required copy to:
Cohen & Grigsby, P.C.
2900 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
Attn: Neil F. Siegel, Esq.
13. Successors and Assigns. This Agreement, and all rights
and powers granted hereby, will bind and inure to the benefit of
the parties hereto and their respective successors and assigns.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Pennsylvania.
15. Headings. The headings preceding the text of the
sections and subsections hereof are inserted solely for convenience
of reference, and shall not constitute a part of this Agreement,
nor shall they affect its meaning, construction or effect.
16. Amendment and Waiver. The parties may by mutual
agreement amend this Agreement in any respect, and any party, as to
such party, may (a) extend the time for the performance of any of
the obligations of any other party, (b) waive any inaccuracies in
representations by any other party, (c) waive compliance by any
other party with any of the agreements contained herein and
performance of any obligations by such other party, and (d) waive
the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this
Agreement. To be effective, any such amendment or waiver must be
in writing and be signed by the party against whom enforcement of
the same is sought.
17. Entire Agreement. This Agreement and the Exhibits
hereto, together with the New Lease and the Current Lease (as
modified by this Agreement) each of which is hereby incorporated
herein, set forth all of the promises, covenants, agreements,
conditions and undertakings between the parties hereto with respect
to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written.
18. Effect of Invalidity of Provisions. In case any one or
more of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof so long as the provision
rendered invalid, illegal or unenforceable does not materially
adversely affect the basic economic bargain of the parties hereto,
and this Agreement shall be construed as if such invalid, illegal
or unenforceable provision had not been contained herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date and year first above written.
ACTION INDUSTRIES, INC.
By: T. RONALD CASPER
------------------------------
Printed Name: T. RONALD CASPER
--------------------
Title: PRESIDENT/CEO
---------------------------
ALLEGHENY CAPITAL GROWTH LIMITED
PARTNERSHIP
By: Third Pennsylvania Holding
Corporation, its General
Partner
By: JOHN KARLTON
------------------------------
Printed Name: JOHN KARLTON
--------------------
Title: PRESIDENT
---------------------------
EXHIBIT 10.23
- -------------
AMENDED AND RESTATED LEASE AGREEMENT
Between
ALLEGHENY CAPITAL GROWTH LIMITED PARTNERSHIP
and
ACTION INDUSTRIES, INC.
ACTION INDUSTRIAL PARK
CHESWICK, PENNSYLVANIA
AMENDED AND RESTATED LEASE AGREEMENT
This Amended and Restated Lease Agreement ("Lease") is
made this 1st day of October, 1996, by and between:
ALLEGHENY CAPITAL GROWTH LIMITED PARTNERSHIP, a Delaware
limited partnership formerly known as Allegheny Industrial
Park, L.P., with its principal offices located at 75 Holly
Hill Lane, Suite 300, Greenwich, Connecticut 06830
("Landlord"),
AND
ACTION INDUSTRIES, INC., a Pennsylvania corporation with its
principal offices located at 460 Nixon Road, Cheswick,
Pennsylvania 15024 ("Tenant").
RECITALS
A. Landlord and Tenant are currently parties to a Lease
Agreement dated June 29, 1990, as amended by a First Amendment
to Lease Agreement dated August 14, 1990 and a Restated Second
Amendment to Lease Agreement dated February 4, 1991 (as so
amended, the "Existing Lease").
B. Pursuant to the Existing Lease, Tenant leases a
portion of certain real property located in the Action
Industrial Park, Cheswick, Pennsylvania and described on
Exhibit A hereto (the "Land") and the buildings located
thereon (the "Buildings" and, together with the Land, the
"Property"), which portion consists of 57,925 square feet of
office space (the "Offices") shown on Exhibit C-1 attached
hereto and 522,215 square feet of warehouse space (the
"Warehouse"), as depicted on the site plan attached hereto as
Exhibit B (the "Site Plan").
C. Landlord and Tenant now desire to amend and restate
the Existing Lease effective as of the Effective Date (as said
term is defined in Article 6 hereof) in the manner hereinafter
set forth.
ARTICLE 1 - AGREEMENT TO LEASE
In consideration of the covenants and agreements set
forth herein, and intending to be legally bound, subject to
Article 7 hereof, Landlord (a) leases to Tenant and Tenant
leases from Landlord the Offices and (b) grants to Tenant (i)
the exclusive right to use the driveways and walkways located
in the area (the "Action Outside Area") shown on the Site Plan
as the Action Outside Area for roadway and walkway purposes
subject to the rights reserved to Landlord in Section 2.4 and
Article 7 hereof and (ii) the non-exclusive right to use in
common with others entitled thereto the driveways and
walkways located in the area (the "Common Outside Area") shown
on the Site Plan as the Common Outside Area, for roadway and
walkway purposes, in each case upon the terms and subject to
the conditions set forth herein, and further subject to all
encumbrances and other matters of record existing as of the
original date of the Existing Lease or incurred since such
date due to the act or omission of, or with the consent of,
Tenant. In no event shall use of the driveways and walkways
located in the Action Outside Area by other tenants or
subtenants in the Property nor by their employees,
contractors, agents or invitees constitute a breach of the
foregoing provisions of this Lease nor shall Landlord have any
responsibility or liability to Tenant to assure that other
tenants, subtenants or their employees, contractors, agents or
invitees do no make use of the Action Outside Area. Tenant
may implement reasonable signage and take reasonable steps to
prevent other tenants from using the driveways, walkways and
parking spaces located in the Action Outside Area, subject,
however, to the rights reserved for the benefit of Landlord
and other tenants set forth in Section 2.4.
ARTICLE 2 - LEASE OF SPACE
2.1 Leased Premises. The Offices leased by Tenant
hereunder are marked with hash marks on Floor Plan 1 attached
hereto as part of Exhibit C-1. The Offices, the Action
Outside Area and the Common Outside Area are accepted in "as-is" condition.
The terms "Leased Premises" or "Premises", as
used in this Lease, shall mean the Offices.
2.2 Term. The term of this Lease (the "Lease Term")
shall commence on the Effective Date (as said term is defined
in Article 6 hereof) and shall end at 11:59 p.m. on the date
which is one (1) day prior to the fifth (5th) anniversary of
the Effective Date, unless sooner terminated under the
provisions of this Lease. The Effective Date shall also be
the commencement date (the "Commencement Date") under this
Lease.
2.3 Rent. Beginning on the Commencement Date and
continuing throughout the Lease Term, Tenant agrees to pay to
Landlord annual rent ("Annual Rent") for the Premises in an
amount equal to One Hundred Thousand and No/100ths
($100,000.00) Dollars. Annual Rent shall be payable in
monthly installments, in advance and without demand,
deduction, setoff or counterclaim except as otherwise provided
in this Lease, on the first business day of each calendar
month throughout the Lease Term.
2.4 Parking. The parking spaces (the "Action Parking
Area") located in the Action Outside Area are (until exercise
of the Recapture Right under Article 7 hereof) hereby declared
to be for the exclusive use of Tenant's employees, guests,
invitees and sublessees throughout the Lease Term, subject to
any claims, takings, rules, laws or regulations of any
governmental agencies or divisions. After exercise of the
Recapture Right, the parking spaces in the Action Parking Area
shall be governed by Article 7 and the rights of Landlord
under Article 7 and, in any event, Tenant's rights in the
Parking Spaces, shall, unless Landlord otherwise elects, be
non-exclusive and subject to limitation as to the number of
paces available to Tenant as provided in Article 7. Landlord
may temporarily close all or any portion of the Action Outside
Area for the purpose, of making repairs, performing necessary
maintenance, constructing improvements or complying with
governmental requirements (but nothing contained herein shall
be deemed to imply that Landlord has any obligation to repair,
maintain, improve or comply with governmental requirements),
in which event Landlord shall provide an equivalent number of
substitute parking spaces on the Land as close to the Offices
as possible for the temporary period during which such
repairs, maintenance or construction are being performed or
such compliance is required, to the extent such spaces are
available. Landlord reserves a right around the perimeter of
the Action Parking area for the purpose of and to the extent
necessary to provide vehicular ingress and egress to other
portions of the Property for Landlord and for any other
tenants on the Property.
ARTICLE 3 - ASSIGNMENT AND SUBLETTING
3.1 Tenant Subletting and Assignment. Tenant may sublet
all or any part of the Leased Premises in each case only for
the Permitted Uses and, in each case, only with the prior
written consent of Landlord which consent will not be
unreasonably withheld. Such sublease shall not grant any
greater rights than are available to Tenant under this Lease.
Tenant will notify Landlord promptly of any modifications to
such subleases and shall not modify any such subleases without
the prior written consent of the Landlord which consent shall
not be unreasonably withheld. As to any such space sublet,
Tenant shall remain liable for the performance of all terms
and conditions of this Lease which apply to the premises
sublet. Tenant may not assign this Lease, by operation of law
or otherwise, without the consent of Landlord, which consent
shall not be unreasonably withheld. An assignment of this
Lease may be only for use of the Premises for the Permitted
Uses. Except as otherwise expressly provided in Section 3.2,
no assignment or subletting shall relieve Tenant from its
obligations hereunder and Tenant shall remain fully and
primarily liable therefor. If this Lease be assigned,
Landlord may, whether or not it has consented to any such
assignment, at any time and from time to time collect rent and
other charges from the assignee, subtenant or occupant, and
apply the net amount collected to the rent and other charges
herein reserved. If the Premises, or any part thereof, is
sublet or occupied by anyone other than Tenant, Landlord may,
whether or not it has consented to such subletting or
occupancy, at any time, and from time to time, after a Default
of Tenant has occurred and so long as such Default of Tenant
is continuing, collect rent and other charges herein reserved
from the subtenant or occupant and apply the net amount
collected to the rent and other charges reserved herein. No
such assignment, subletting, occupancy or collection shall be
deemed a waiver of any breach of this Section 3.1, or the
acceptance of the assignee, subtenant or occupant as a tenant
or (except as otherwise expressly provided in Section 3.2) a
release of Tenant from the further performance by Tenant of
its obligations hereunder. The consent by Landlord to an
assignment or subletting shall in no way be construed to
relieve Tenant or any successor from obtaining the express
consent in writing of Landlord to any further assignment or
subletting.
3.2 Release of Original Tenant in the Case of
Certain Assignments of this Lease . If the original
Tenant shall assign this Lease to an assignee (the
"Assignee") approved in writing by Landlord in accordance
with Section 3.1, such assignment shall not relieve the
original Tenant from its obligations under this Lease and
the original Tenant shall remain fully and primarily
liable therefor notwithstanding such assignment, unless
each of the following conditions have been satisfied:
(a) The identity and creditworthiness of the
Assignee shall have been approved in writing by each
of the Landlord, the holder of the first mortgage on
the Property, the tenant (the "EWI Tenant") under the
EWI Lease (as said term is hereinafter defined) and
Glenshaw Glass Company, Inc. ("Glenshaw") which
approval may be given or withheld by any of such
parties, in their sole and complete discretion;
(b) The Assignee shall have assumed all of
Tenant's obligations under the Lease under a direct
agreement (the "Assumption Agreement") with Landlord
and shall agree to observe, perform and comply with
the Lease directly to and for the benefit of
Landlord, all pursuant to an agreement in form and
substance reasonably satisfactory to the Landlord,
the holder of the first mortgage on the Property, the
EWI Tenant and Glenshaw; and
(c) The original Tenant shall have released
Landlord of any and all claims, liabilities and
obligations which Landlord may have under or on
account of this Lease with respect to matters first
arising from and after the effective date of any such
assignment of this Lease (and, for this purpose,
Tenant agrees that the effective date of such
assignment and the effective date of the Assumption
Agreement shall be identical), all pursuant to an
agreement (the "Tenant's Release") in form and
substance reasonably satisfactory to the Landlord;
and
(d) Landlord shall have executed and delivered
to Tenant a release (the "Landlord's Release") with
respect to matters first arising under the Lease from
and after the effective date of the Assumption
Agreement, all pursuant to an agreement in form and
substance reasonably satisfactory to Landlord. In no
event shall the Landlord's Release release Tenant of
any obligations accruing with respect to any matters
occurring prior to the effective date of such Landlord's
Release;
(e) In Tenant's request for approval of any
such Landlord's Release, the original Tenant shall
specifically request that it be released of
obligations under the Lease in accordance with this
Section 3.2 and furnishes such financial and other
information concerning the Assignee as Landlord, the
holder of the first mortgage on the Property, the EWI
Tenant and Glenshaw may require in their sole
discretion;
(f) No Default of Tenant shall have occurred
and be continuing under this Lease.
Without limiting the generality of the foregoing, the
Landlord's Release and the Tenant's Release shall not
release any claims which either Landlord or Tenant may
have against the other under Sections 4.5 or 4.16 of this
Lease with respect to matters which have occurred prior to
the effective date of such assignment or Assumption
Agreement notwithstanding that a claim for indemnification
thereunder may be made subsequent to the giving of any
such releases by Landlord and Tenant.
All of the provisions of this Section 3.2 are solely for
the benefit of the original Tenant, namely, Action
Industries, Inc. and shall not be for the benefit of any
assignee or sublessee thereof. All reasonable out-of-pocket
costs and expenses incurred by Landlord in
connection with its review and approval of any of the
matters referred to in this Section 3.2 shall be borne by
Tenant, including, without limitation, all reasonable
legal fees incurred by Landlord in connection with any of
the matters referred to in this Section 3.2.
ARTICLE 4 - GENERAL PROVISIONS
4.1 Name of Property. Landlord shall have the right
to, at its option, continue to name the Property "Action
Industrial Park" or to change the name of the Property to such
other name as Landlord may elect, in each case, without any
responsibility or liability to Tenant of any kind or nature.
If Landlord elects to change the name of the Property from
Action Industrial Park, it will not disparage the name
"Action" in any signs which depict the new name for the
Property.
4.2 [Intentionally Omitted]
4.3 Lease Year. A Lease Year shall be the period which
commences on the Commencement Date or each anniversary of such
date and terminates 12 months thereafter.
4.4 Provisions for Payment of Rent. Tenant shall pay all
rent and other payments due to Landlord under this Lease at
the address of its principal offices set forth above, or as
Landlord may otherwise from time to time direct by written
notice to Tenant. Any installment of Annual Rent not paid by
Tenant on or before the Late Payment Date (as said term is
hereinafter defined) will be subject to a late penalty of 5%
of the amount due. As used herein, the term "Late Payment
Date" shall mean the date which is the first to occur of (a)
ten (10) days after the date when such rent or other payment
is due under this Lease, or (b) a time period which is two (2)
days less than the late payment time period applicable to
monthly mortgage payments under any first mortgage from time
to time encumbering the Property. Upon request by Tenant,
from time to time, Landlord shall advise Tenant of the date
upon which a late payment penalty would be payable under the
first mortgage on the Property.
4.5 Permitted Use. Landlord covenants that, subject to
restrictions of record and governmental laws or regulations,
Tenant may use the Leased Premises for office space, showroom
space and related storage space and other related purposes in
connection with the conduct of its existing business and
except, further, in no event may the Leased Premises be used
as a facility for the storage or manufacture of Hazardous
Materials (as said term is hereinafter defined) or for the use
of Hazardous Materials. Tenant agrees not to use, permit or
suffer the use of the Leased Premises for any other purpose
without the consent of Landlord, which consent shall not be
unreasonably withheld. Tenant shall observe and comply with
all applicable governmental laws, statutes, ordinances, rules
and regulations governing Tenant's use of the Property,
including but not limited to all laws, regulations and
ordinances of local, state or federal agencies pertaining to
air and water quality, hazardous materials, waste disposal,
air emissions, general environmental record keeping and
reporting and zoning. If Tenant breaches the obligations
stated herein, which obligations Tenant does not remedy, or if
contamination of the Property occurs for which Tenant, or any
of Tenant's subtenants, licensees or invitees is legally
liable in damages, then Tenant shall indemnify, defend, and
hold Landlord and its officers, directors, and employees
harmless from, all claims, judgments, damages, penalties,
fines, liens, costs, liabilities and losses which arise during
or after the Lease Term as a result of such breach or
contamination. Tenant shall notify Landlord in the event of
material contamination of the Property by Tenant not remedied
by Tenant within 90 days or if Tenant receives notice from
any governmental authority or private party of any claim,
proceeding, litigation, order or directive regarding
environmental matters referenced herein. Tenant shall not
install underground storage tanks on or under the Property
without the consent of Landlord. In the event any electrical
transformer installed or caused to be installed by Tenant on
the Property contains 50 parts per million or greater of
polychlorinated biphenyls ("PCBs"), Tenant shall be
responsible, financially and otherwise, for the proper use and
disposal of such transformers in accordance with all
applicable local, state or federal regulations governing such
transformers. If, after the date hereof, the Property becomes
contaminated by Hazardous Materials (as said term is
hereinafter defined) for which Landlord is legally liable in
damages (exclusive of any contamination or Hazardous Materials
for which Tenant or any assignee, sublessee, successor, assign
or licensee of Tenant may be responsible), Landlord shall
indemnify, defend and hold the original Tenant and its
officers, directors and employees harmless from all claims,
judgments, damages, penalties, fines, liens, costs,
liabilities and losses arising during or after the Term of
this Lease. The provisions of the indemnity contained in the
preceding sentence shall be for the benefit of the original
Tenant only, namely, Action Industries, Inc., and shall not
benefit any assignee, transferee or sublessee thereof. Tenant
represents and warrants to Landlord that there are no
underground storage or other tanks at the Property and that
removal of any underground storage or other tanks was
completed by Tenant in compliance with all applicable laws,
ordinances, rules and regulations. The term "Hazardous
Materials" shall include, without limitation, any material or
substance which is (i) petroleum, (ii) asbestos, (iii)
designated as a "hazardous substance" pursuant to Section 311
of the Federal Water Pollution Control Act, 33 U.S.C. Section 1251
et seq. (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the
Federal Water Pollution Control Act (33 U.S.C. Section 1317), (iv)
defined as a "hazardous waste" pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq. (42 U.S.C. Section 6903), (v) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601), as amended, (vi)
defined as "oil" or a "hazardous waste", a "hazardous
substance", a "hazardous material" or a "toxic material" under
any other law, rule or regulation applicable to the Property
or (vii) is biologically or chemically active.
4.6 Tenant's Pro Rata Share. Except as otherwise
provided herein, Tenant's Pro Rata Share, as used in this
Lease, shall be an amount calculated by multiplying the amount
of the costs, expenses or charges being prorated by a fraction
whose numerator is the total number of square feet of floor
area leased by Tenant in the Leased Premises and whose
denominator is the total number of square feet of leasable
floor area in the Offices and the Warehouse and any other
building now or hereafter constructed on the Land, except that
for purposes of calculating Tenant's share of Common Outside
Area Expenses (as opposed to CAM Charges), Tenant's Pro Rata
Share shall be 25%. The total number of leasable square feet
of floor area in the Offices and the Warehouse on the
Commencement Date is 580,140 square feet. Based on the
foregoing, Tenant's Pro Rata Share shall be 9.98%. Any change
in floor area resulting from construction by Landlord of an
addition to or expansion or reduction of the Leased Premises
or the Warehouse will be included in the calculation of floor
area for purposes of this Section and, in such case, Tenant's
Pro Rata Share (both the 9.98% and the 25%) will be adjusted
accordingly. The architect in charge of the construction of
such addition, expansion or reduction shall certify to
Landlord and Tenant the square footage of the addition,
expansion or reduction by measuring from the exterior faces of
exterior walls or, if none, to the center of any demising
partition, without deduction for columns or structural
elements. Notwithstanding the preceding provisions of this
Section, for purposes of more fairly allocating costs among
tenants, in calculating Tenant's Pro Rata Share, any CAM
Charges or Common Outside Area Expenses which can be
reasonably attributed only to the Leased Premises or the
Warehouse, or to a particular portion thereof, shall be
allocated in the reasonable discretion of Landlord to the
tenant or tenants in that portion of the Buildings.
4.7 Tenant's Care of Leased Premises, CAM Charges, Common
Outside Area Expenses.
(a) Tenant shall, at its own cost and expense, keep
the Leased Premises (and all electrical, heating, air
conditioning, ventilating, plumbing, drains and other utility
systems which exclusively serve the Leased Premises as well as
the roof of the Leased Premises) in good, clean operating
order, condition and repair, except for ordinary wear and tear
and damage by insured casualty. Tenant shall also, at its own
cost and expense, keep the Action Outside Area (as well as the
fencing abutting the Action Outside Area) in good, clean,
operating order, condition and repair, shall make all
necessary repairs, repaving and replacement of the Action
Outside Area necessary to keep the same in good operating
order, condition and repair, and shall be responsible for
keeping the Action Outside Area free from snow, ice, rubbish
and debris and for adequately illuminating and draining the
same. Parking spaces in the Action Outside Area shall, at all
times, be clearly marked by painting, striping or otherwise by
Action, at Action's sole cost and expense. Without limiting
the generality of the foregoing, it is expressly understood
and agreed that Tenant shall not make or suffer any waste or
damage to the Leased Premises or the Action Outside Area and
shall make all necessary repairs, replacements and renewals
thereof, as and when needed in order to keep the Leased
Premises and the Action Outside Area (and abutting fencing) in
good operating order and condition. Without limiting the
generality of the foregoing, it is expressly understood and
agreed that Tenant shall be responsible for the maintenance,
repair, replacement and renewal of (i) all electrical,
heating, ventilating, air conditioning, plumbing, gas,
sprinkler, drainage and other equipment and utility or other
systems which exclusively serve the Leased Premises, (ii) the
roof of the Leased Premises and the slabs, floors, foundation,
walls and structural elements of the Leased Premises, (iii)
all fixtures and interior walls, ceilings, signs (including
exterior signs, where permitted) within the Leased Premises
and portions of any common walls of the Leased Premises which
serve the Leased Premises, (iv) the exterior and interior
portion of all windows, all window frames, doors, door frames
and all other glass or plate glass thereon within the Leased
Premises or the walls thereof or serving the Leased Premises,
(v) all paving, curbs, gutters, grass, landscaping, drainage
systems and lines located in or serving the Action Outside
Area and (vi) the outside lighting serving the Action Outside
Area.
(b) Landlord shall be obligated to maintain the
Common Outside Area, including the maintenance and repair
thereof and Landlord shall also be responsible for keeping the
Common Outside Area free from snow, ice, rubbish and debris,
and for adequately illuminating and draining the same (all of
the costs and expenses incurred by Landlord in connection with
performance of its obligations under this Section 4.7(b) are
hereinafter called the "Common Outside Area Expenses").
(c) Landlord shall also be obligated to maintain
the Common Building Utility Systems (as said term is
hereinafter defined) including the maintenance and repair
thereof. All costs and expenses incurred by Landlord in
connection with the performance of its obligations under this
Section 4.7(c) shall be included within the term "CAM Charges".
As used herein, the term "Common Building Utility Systems"
shall mean the portion of any and all utility lines and
systems and drain lines serving the Buildings and/or the
Leased Premises, including, but not limited to, gas, water,
sewer and electric lines, from the point where they enter or
leave the Leased Premises to the point outside the Buildings
where the applicable utility company assumes control of such
line, together with (i) the water tank located outside the
Buildings which serve the sprinkler system, (ii) the gas
storage shed located outside the Buildings, (iii) the drain
lines and systems outside the Buildings and (iv) any and all
utility lines and drain lines located within the Leased
Premises which are below the slab.
(d) As used in this Lease, the term "CAM Charges"
shall include the costs incurred for operation, maintenance
and repair of the common areas existing at the Property, and
for the replacement of its component parts and structural
elements, including but not limited to the structural elements
of the Buildings located on the Land; the electrical, gas,
sprinkler, plumbing, drainage, water, sewage and HVAC systems
which serve the Property or Buildings in common with other
tenants or space in the Property (including, without
limitation, the Common Building Utility Systems; all areas
exterior to the Leased Premises, including but not limited to
entrances, exits, passageways, sidewalks, driveways, parking
areas, lighting facilities, landscaped areas and utility
lines; together with the cost of cleaning, painting, striping,
and adequate illumination for such elements of the Property;
except that (i) any expense included as a Common Outside Area
Expense, (ii) any expense which, under any other provision of
this Lease, is to be borne entirely by Tenant, (iii) any
expense of maintaining, repairing, replacing or renewing the
roof, exterior walls (other than walls which are common to the
Leased Premises and other parts of the Building), foundation,
floors, windows and glass in the Buildings, (iv) any expense
of maintaining, repairing, replacing or renewing any electric,
plumbing, gas, heating, ventilating, air conditioning,
sprinkler, drainage or other equipment and utility systems
which exclusively serve only parts of the Buildings other than
the Leased Premises and (v) any electric, gas or water charges
which are paid by Tenant under Section 4.9 hereof, shall not
be included in CAM Charges. Such CAM Charges (insofar as they
are for replacements of a major capital structural item (the
"Structural Replacements")) shall be fully included in CAM
Charges when incurred. Upon termination (other than as a
result of (i) a default of Tenant or (ii) a termination in
connection with a substitution of a subtenant in accordance
with Section 3.2 hereof) of this Lease, Landlord shall
reimburse Tenant for the Tenant's Pro Rata Share of the
unamortized cost of such Structural Replacement item (to the
extent theretofore paid by Tenant as a CAM Charge hereunder)
in an amount equal to the remaining number of full years of
the useful life of the Structural Replacement (as of the date
of such expiration of the Lease) as apportioned at the time
the structural replacement was made, multiplied by the
Annualized Cost of the Improvement (as said term is
hereinafter defined) pro-rated in the case of any period of
less than one (1) year; provided, however, that the provisions
of this sentence shall not be binding upon or enforceable
against EWI, its successors, assigns or transferees or
designees under the purchase option set forth in the EWI Lease
or against any purchaser. As used herein, the term "Annualized
Cost of the Improvement" shall mean the cost of the improvement
apportioned equally over annual periods equal to the agreed
upon useful life of the Structural Replacement in question,
which shall be deemed to be the period of time applicable to
the depreciable life of the Structural Replacement at the time
of replacement under Internal Revenue Service Guidelines or a
shorter period if the manufacturer of the replacements items
specifies a shorter useful life. Notwithstanding the breadth
of the definition of CAM Charges, nothing in this Section
4.7(d) shall be deemed to, directly or indirectly, expand the
obligation of Landlord with respect to maintenance, repair,
replacement or operation of the Property beyond those
expressly set forth in Sections 4.7(b) and 4.7(c) of this
Lease or to imply that Landlord has any obligations with
respect to maintenance, repair, replacement or operation of
the Property beyond the obligations set forth in Sections
4.7(b) and 4.7(c). CAM Charges may also include a reasonable
management fee and reasonable overhead charges of Landlord.
(e) Whichever party is performing maintenance,
repair or replacement of the Common Outside Area and
obligations under this Section shall do so in compliance with
all present and future laws, ordinances, orders, rules,
regulations, notices of violations and requirements of public
authorities applicable thereto, whether or not by law tenants
may have such duty or responsibility solely or jointly with a
landlord, except that in no event shall Landlord have any
obligation to correct any failure of the Property (or any part
thereof or system thereon or use thereof) to, as of the
Commencement Date, comply with any such laws, ordinances,
rules or regulations).
(f) Tenant agrees to pay Tenant's Pro Rata Share
(i.e. 9.98%) of the CAM Charges and Tenant's Pro Rate Share
(i.e. 25%) of Common Outside Area Expenses, as hereinafter
provided. Landlord shall bill Tenant monthly for Tenant's Pro
Rata Share of Common Outside Area Expenses and CAM Charges.
Each such demand for payment shall include copies of invoices
for charges incurred by Landlord together with a reasonably
detailed statement prepared in accordance with generally
accepted accounting principles and certified by Landlord's
chief financial officer and containing actual costs and the
calculation of Tenant's Pro Rata Share. Tenant's Pro Rata
Share shall be paid within 30 days-of Landlord's demand
therefor. Common Outside Area Expenses and CAM Charges payable
by Tenant shall not include any debt service, any
administrative personnel expense, any costs of Landlord's
office space or office supplies.
(g) Tenant shall have the right to audit Landlord's
books and records to verify Landlord's calculation of Common
Outside Area Expenses, CAM Charges and Tenant's Pro Rata
Share. In the event of an error in Landlord's favor, Landlord
shall immediately refund the overcharge to Tenant. In the
event of an error in Tenant's favor, Tenant shall immediately
pay the Landlord the amount underpaid. In the event of an
error in Landlord's favor of more than four percent (4%) of
the Common Outside Area Expenses and CAM Charges (as opposed
to four percent (4%) of Tenant's Pro Rate Share thereof),
Tenant shall also have the right to charge the reasonable
expenses of any audit (conducted by an outside auditor) to
Landlord.
(h) If there is a dispute between Landlord and
Tenant with respect to the amount of Common Outside Area
Expense or CAM Charges assessed, or of Tenant's Pro Rata Share
thereof, then Tenant shall pay both the disputed and
undisputed amount when due to Landlord pending a resolution of
such dispute.
4.8 Real Estate and Other Taxes.
(a) Tenant shall be obligated each Lease Year or
any portion thereof in which it is a tenant for the payment of
its Pro Rata Share of all real estate taxes and assessments
(at the discount rate provided Tenant pays its rent and Pro
Rata Share of real estate taxes and assessments, insurance
premiums, CAM Charges and Common Outside Area Expenses when
due). Landlord shall be responsible for payment in the first
instance of all such taxes and assessments on the Property.
Upon receipt Landlord shall submit a bill to Tenant, together
with photostatic copies of all tax bills and all notices
concerning assessments, and a computation of Tenant's Pro Rata
Share. Within 30 days of submission of each such bill and
information, Tenant shall reimburse Landlord in the amount
required by this Lease, and such reimbursement shall be deemed
to be additional rent. Landlord shall have the right but not
the obligation to appeal assessments on the Property, and
Tenant shall pay its Pro Rata Share of the reasonable cost
(including reasonable fees of attorneys and appraisers) of any
such appeal pursued by Landlord to reduce any real estate
taxes upon submission by Landlord to Tenant of copies of
receipts for payments by Landlord of such costs. If by virtue
of any appeal, application, or proceeding brought by or on
behalf of Landlord there is a reduction in the real estate
taxes assessed against the Property, Tenant's Pro Rata Share
of such taxes shall be reduced accordingly or, if previously
paid by Tenant, Tenant's Pro Rata Share of such reduction
shall be paid over and refunded to Tenant upon receipt of such
refund by Landlord. Tenant shall reimburse Landlord for
Tenant's Pro Rata Share of reasonable cost and expenses
incurred in connection with the appeal.
(b) Real estate taxes and assessments as used
herein means all real estate taxes and general and special
assessments on real estate, or any tax imposed on or levied
against real estate or owners of real estate in lieu of such
taxes or assessments. Real estate taxes and assessments as
used herein does not include any of the following, all of
which shall be the sole obligation of Landlord: income,
excise, profits, estate, inheritance, successor, franchise,
capital or other tax or assessment upon Landlord or upon the
rental receipts or other revenues of Landlord from the
Property, except to the extent that rental receipts are taxed
by the municipality in which the Property is located in lieu
of other property taxes.
(c) If Landlord receives an abatement, reduction,
elimination, postponement, refund or other benefit related to
the payment of such taxes and assessments, Tenant shall be
entitled to the benefit thereof, to the extent of its Pro Rata
Share.
(d) For the years in which the Lease Term commences
and terminates, Tenant shall pay only a proportionate share of
real estate taxes and assessments payable under this Section
based on a ratio of the Term within the tax year to the full
tax year. If, as of the Commencement Date, Tenant has paid any
real estate taxes in respect of portions of the Property other
than the Leased Premises for periods occurring after the
Commencement Date, then Landlord shall reimburse Tenant for
all such taxes (after deducting Tenant's Pro Rata Share
thereof under this Lease) paid in respect of such portions and
periods within thirty (30) days of being billed therefor. If
Landlord fails to make any such reimbursement when due and
such failure continues for more than ten (10) days after
written notice thereof, Tenant shall have the right to deduct
the amount of such reimbursement from the next installment of
Annual Office Rent due hereunder.
(e) At Landlord's option, Landlord may require
Tenant to pay into escrow in advance in 12 equal monthly
installments its Pro Rata Share of such taxes and/or
assessments with each monthly payment of rent hereunder. If
Landlord exercises such option, all funds so received from
Tenant shall be kept in a segregated, interest-bearing account
which shall be used solely for paying real estate taxes and
assessments. Tenant's Pro Rata Share of interest accrued in
such interest bearing account shall be paid over to Tenant
after the first day of each Lease Year within thirty (30) days
after request therefor. Notwithstanding anything contained in
this Paragraph 4.8(e) to the contrary, such funds will not
bear interest if the first mortgagee of the Property is
escrowing taxes unless such mortgagee agrees that such escrow
shall be interest bearing, nor shall Tenant be entitled to
receive payments of interest on any such funds unless and to
the extent that any such mortgagee agrees to pay the same in
accordance herewith. In no event will Landlord be in breach
of its obligations hereunder if any such mortgagee does not
agree to pay interest on such funds, refuses to pay interest
to Tenant or fails to pay such interest when due.
4.9 Utilities.
(a) Tenant covenants and agrees that its use of
electric current shall not exceed the capacity of the systems,
wiring and other electrical equipment which Landlord makes
available to the Premises and its total connected load will
not exceed the maximum load from time to time available to the
Premises. Tenant shall not overload the electrical wiring or
electrical panels within or serving the Premises and will
install at its own expense, but only after obtaining
Landlord's prior written approval, any additional electrical
wiring or panels which may be required in connection with
Tenant's apparatus. Landlord shall not in any way be liable
or responsible to Tenant for any loss or damage or expense
which Tenant may sustain or incur if, during the Term of this
Lease, either the quantity or character of electric current is
changed or electric current is no longer available or suitable
for Tenant's requirements due to a factor or cause beyond
Landlord's control. Tenant, at Tenant's expense, shall
purchase and install any replacement lamps, tubes, bulbs,
starters and ballasts which may be needed during the Term.
Tenant shall pay all charges for electricity used or consumed
in the Premises. Electricity is currently furnished to the
entire Building through one meter which enters the Buildings
through the Warehouse in premises being leased to Executive
Warehouse, Inc. ("EWI"). EWI has the right, under its lease
(the "EWI Lease") with Landlord to, if EWI so elects, install
an electric sub-meter or sub-meters at EWI's sole cost and
expense (which cost may be shared with Tenant in such
proportion as EWI and Tenant may agree) in order to measure
electrical usage by Tenant and EWI during each monthly
electricity billing period. The EWI Lease provides that EWI
will coordinate any such submeter installation with Tenant.
The EWI Lease also provides that if EWI installs such sub-meter
or sub-meters, EWI shall read the main meter and each
submeter promptly at the end of each monthly electricity
billing period and promptly furnish Landlord with the
breakdown (the "Electric Breakdown") of electrical consumption
between Tenant and EWI based on such readings. Tenant shall
make arrangements with EWI to coordinate the reading of any
such main electric meter and any such electric submeter. If,
for any reason, Tenant has not received a statement of its
share of electricity charges under this Section 4.9 by the end
of each calendar month, Tenant shall promptly notify Landlord.
Tenant shall pay its share of the electrical charge to
Landlord each month upon the later to occur of (i) five (5)
days after receipt of a statement for such electric charges or
(ii) five (5) days before each related electric bill is due
and payable. The cost of installation, maintenance and repair
of any sub-meter which Tenant elects to install shall be borne
by Tenant. Gas and water are also currently furnished to the
Building through one gas meter and one water meter. Tenant
may, if it so elects, install separate submeters for
measurement of gas and/or water consumption by Tenant at
Tenant's sole expense. The Tenant shall pay when due all
charges for utility services provided directly to the Premises
including, without limitation, electricity, gas, water, sewer
and the cost of providing heating, ventilating and air-conditioning
to the Premises.
(b) Tenant, in cooperation with EWI, shall read
each of the utility meters or submeters promptly at the end of
each monthly electricity, sewer, water and gas billing period
and shall promptly furnish Landlord with the results of each
such reading. Tenant shall pay its share of all such
electric, gas, sewer and water utility charges to Landlord
each month at least five days before each related utility bill
is due and payable. If electricity, water or gas consumed by
the Premises is not metered or submetered separately from
electricity, water or gas, as the case may be, consumed by the
remainder of the Buildings, Tenant shall pay to Landlord,
within five (5) days of being billed therefor by Landlord
(but, in any event, not sooner than five (5) days before such
sums are, in fact, payable to the applicable utility company),
Tenant's share of the aforesaid utilities determined as
hereinafter set forth. Where there is no such separate meter
or submeter installed to measure Tenant's consumption of
electricity, sewer, water or gas, Landlord may, from time to
time, determine Tenant's share of all such electric, gas, sewer
and water charges based on estimates of relative consumption
levels based on actual use (or estimated use if actual usage
information is not available) prepared by an independent
consulting or engineering firm experienced in making such
estimates and, in such case, such estimates of the cost of
providing electricity, gas, sewer and water to the Premises
shall be binding on Landlord and Tenant. Until an estimate of
usage is obtained from a consulting or engineering firm as
contemplated by this Section 4.9(b), Landlord may estimate
Tenant's share of all electric, sewer, water and gas expenses
and require that Tenant pay such estimated amounts monthly in
arrears on the last day of each calendar month during the
Term. Landlord shall have the right to adjust monthly
estimated payments on account of such utilities from time to
time. If water is consumed in the Premises for purposes other
than ordinary drinking and lavatory purposes or in excessive
quantities or if Tenant's heating or cooling requirements are
materially greater than the requirements of other tenants,
then Tenant shall pay to Landlord, on demand from time to
time, charges for such additional water, heating or cooling as
Landlord may require.
(c) Landlord shall not be liable for any
interruption of electricity, gas, water, telephone, sewage,
HVAC and/or septic system or other utility service supplied to
the Premises and Landlord reserves the right to stop any
service or utility to the Premises, when in Landlord's
reasonable judgment it is deemed necessary by reason of
accident, emergency or repair or otherwise; and no such
interruption or stoppage shall be deemed to be an eviction of
Tenant or relieve Tenant from any obligations under this
Lease; in the event any such curtailment, suspension,
interruption or stoppage becomes necessary by reason of the
foregoing, Landlord will use all reasonable efforts to restore
the affected service or services as promptly as possible and
to minimize, to the extent reasonably possible under the
circumstances, any interference, disruption, suspension or
interruption of Tenant's use and enjoyment of the Leased
Premises by reason thereof.
(d) All sums payable under this Section 4.9 shall
constitute additional rent. In the event of nonpayment of any
sums due under this Section 4.9, Landlord shall have all the
same rights and remedies available as in the case of
nonpayment of Annual Rent.
4.10 Tenant's Alterations.
(a) Tenant may, at its own cost and expense and
only with the prior written approval of Landlord which may be
given or withheld by Landlord, in its sole discretion, make
structural, mechanical and electrical changes or alterations
to the Leased Premises subject, however, to Section 4.10(d)
hereof. All work done in connection with such changes or
alterations shall be performed in a good and workmanlike
manner in compliance with applicable building codes and zoning
requirements and all other laws, ordinances, rules and
regulations. Landlord agrees to execute all instruments
necessary to obtain licenses and permits from applicable
governmental authorities to make such changes or alterations
provided that Landlord incurs no obligation, liability or
out-of-pocket expense in connection therewith.
(b) Together with each request for the consent of
Landlord, Tenant shall present to Landlord reasonably detailed
plans and specifications for such proposed structural
alterations, improvements, additions or changes; provided,
however, that approval of such plans and specifications by
Landlord shall not constitute any assumption of any
responsibility by Landlord for their accuracy or sufficiency,
and Tenant shall be solely responsible for such items. All
structural alterations, improvements, additions or changes
shall be done at the expense of Tenant.
(c) All alterations, improvements, additions,
repairs or changes made by Tenant shall remain upon the
Property at the expiration or earlier termination of the Lease
Term and shall become the property of Landlord immediately
upon installation thereof.
(d) Tenant may, at its own cost and expense, but
with the prior approval of Landlord, which approval will not
be unreasonably withheld so long as the requested changes and
alterations do not adversely affect the leasability or
marketability of the Premises or any part thereof as
determined by Landlord, (i) make non-structural, non-mechanical
and non-electrical changes and alterations in and
to the interior of the Leased Premises, including but not
limited to installation of fixtures, equipment and floor
coverings, painting and papering and (ii) may reconfigure non
load bearing interior walls and make related changes in the
location of electrical outlets and related changes to the
heating and air conditioning system serving the Leased
Premises in connection with a reconfiguration of the Premises
and provided, further, that no such reconfiguration,
relocation or change shall adversely affect the Building, the
Premises, Landlord's Recapture Right or any electric, HVAC or
other system serving the Leased Premises or other parts of the
Buildings. Landlord shall have the right to require Tenant to
remove any non-structural changes and alterations made by
Tenant to walls, floors, partitions, ceilings and fixtures at
the conclusion of this Lease to the extent that the value or
marketability of all or any part of the Premises which is or
may be recaptured by Landlord under Article 7 is adversely
affected or the value of the Premises (or any part thereof) is
diminished by such changes and alterations, but in no event
shall Tenant be required to remove any change or alteration
approved in writing by Landlord at the time of alteration or
installation unless such approval states otherwise.
(e) Tenant may not make structural or non-structural
changes to the exterior of the Buildings without the prior
written consent of Landlord.
4.11 Landlord's Reserved Rights. The Premises are
leased subject to the reservation to the Landlord of the roof
and exterior walls of the Premises and of the Building, and
subject to the Landlord's reservation of the right (without
thereby assuming the obligation) to install, maintain, use,
repair and replace (in such manner as to reduce to a minimum
to the extent reasonably practicable the interference with
Tenant's use of the Premises) all pipes, ducts, wires, meters,
utility lines and the like which are in the reasonable
judgment of the Landlord, required to be in the Premises or
are required for other parts of the Buildings. The Landlord
further reserves the right to make additions to the Building
from time to time and to erect additional buildings,
improvements and structures on the land, and in connection
therewith to tie into and make use of common facilities
serving the Premises including without limitation the
electrical systems, the plumbing systems, the heating systems,
sewer, water, and other facilities and appurtenances serving
Premises. The Landlord reserves the right to alter, reduce,
increase and relocate the parking areas, driveways and
walkways from time to time and any common facilities within or
outside the Building; provided, however, that any such
reduction, alteration or relocation does not materially
adversely affect Tenant's use of the Leased Premises.
4.12 Signs. Tenant shall be entitled to retain existing
signs on the exterior and interior of the Property and
Buildings except to the extent such signage is required to be
removed by a new tenant under Article 7. Any additional
exterior signs may be erected by Tenant only with the prior
written consent of Landlord. Any signs erected by Tenant shall
be installed and any existing and future signs of Tenant shall
be maintained by Tenant in good repair at the sole cost and
expense of Tenant. At the end of the Lease Term (whether by
expiration or earlier termination of the Term) or if Tenant no
longer occupies the Property as its primary headquarters or no
longer occupies all of the Offices existing at the date of
this Lease, Tenant will, at Landlord's request, remove
Tenant's signage and repair any damage caused by such removal.
4.13 Landlord's Waiver.
(a) Except for the Personalty listed in Section
1.16 of the Agreement of Sale and Purchase dated as of June
29, 1990 between Landlord and Tenant (the "Purchase
Agreement"), all machinery, equipment, furniture, Tenant's
business fixtures and inventory which are or may be installed
or placed in or upon the Leased Premises by Tenant (exclusive
of any HVAC, electrical, plumbing, lighting, equipment,
ceiling tiles and finishes, floor coverages and leasehold
improvements) ("Tenant's Personal Property") shall remain the
property of Tenant. Landlord waives any right it may have in
Tenant's Personal Property. Tenant may assign, lien, encumber,
mortgage, or create a security interest in or upon Tenant's
Personal Property without the consent of Landlord and may
remove Tenant's Personal Property at any time during the Lease
Term, provided, however, that Tenant shall promptly repair any
damage caused by such removal. Upon the request of Tenant,
Landlord agrees to provide to Tenant within 10 days of such
request, a written waiver in the form attached hereto as
Exhibit D or in a form reasonably satisfactory to any of
Tenant's lenders evidencing Landlord's waiver of any rights it
has or may have in Tenant's Personal Property. If Landlord
fails to execute such waiver of rights, any of Tenant's
lenders may enforce the provisions of this Section as a
third-party beneficiary hereof.
(b) To the extent that Landlord may have a lien on
or security interest in Tenant's Personal Property pursuant to
this Lease, by law or otherwise, Landlord hereby waives and
agrees not to assert such lien or security interest. Landlord
shall execute such additional waivers in the form
substantially attached hereto as Exhibit D for the benefit of
Tenant's lenders as Tenant may, from time to time, reasonably
request.
4.14 Access to Property.
(a) Subject to any governmental requirements and so
long as Landlord does not adversely interfere with Tenant's
use of the Leased Premises, the Common Outside Area or the
Action Outside Area, Landlord may change the entrance, exit
and approaches, and means of entrance, exit and approach, now
existing on the Property. Landlord shall have the right to
alter or expand the existing entrance and exit to and from the
Property, add or authorize any person to add any additional
means of ingress or egress or grant to any other tenant in the
Property any such right or authority so long as such
alteration or expansion does not materially and adversely
interfere with Tenant's use of the Leased Premises.
(b) Landlord has the right (but not the
responsibility) to enter the Property periodically and shall
have access to the Leased Premises and the Action Outside
Area, at reasonable business hours, for inspection (and to
show the Premises to prospective tenants) and to make any
repairs or replacements required of it to be made or to notify
Tenant of reasonable repairs and replacements which are
required of Tenant to be made; provided, however, that
Landlord shall notify Tenant's facilities manager in advance
of such inspections, repairs or replacements, Landlord's
employees, agents and contractors shall identify themselves to
such person upon entering the Property and Landlord will use
reasonable efforts to minimize, to the extent reasonably
possible under the circumstances, interference, disruption,
suspension or interruption of Tenant's use and enjoyment of the
Leased Premises by reason thereof. Notwithstanding the
preceding paragraph, Landlord may enter the Lease Premises and
the Action Outside Area at any time in the case of an
emergency, without notifying Tenant in advance.
4.15 Insurance.
(a) Tenant, at its own cost and-expense, will keep
in force with companies licensed to do business in the
Commonwealth of Pennsylvania:
(i) Comprehensive general liability, personal
injury and personal property damage insurance with respect to
the Leased Premises and the business operated therein with a
combined single limit of $1,000,000. The policy or policies
shall (A) provide that any loss shall be paid notwithstanding
any act or negligence of Landlord or Tenant, (B) name Landlord
as an additional insured thereunder, as its interests may
appear, and (C) extend to any liability of Tenant arising out
of the indemnities, and be subject to the waiver of
subrogation, provided in Section 4.16. Tenant shall also keep
in force, at its own expense, workers' compensation or similar
insurance affording statutory coverage and compensation and
containing statutory limits.
(ii) Fire insurance with standard broad-form
endorsements for extended coverage, vandalism and malicious
mischief and sprinkler leakage, and all-risk casualty
insurance with replacement cost endorsement and with a
deductible of not more than $50,000, covering all of Tenant's
furniture, equipment and other personal property in the Leased
Premises.
(b) Landlord will keep in force with companies
licensed to do business in the Commonwealth of Pennsylvania
(or cause to be kept in force) such fire insurance with such
endorsements for extended coverage, vandalism and malicious
mischief, sprinkler leakage and other coverages, and such
all-risk casualty insurance, in such case, in such amounts, and
with such endorsements and deductibles, with respect to the
Property as Landlord may elect.
(c) All such insurance policies shall provide that
losses shall be payable notwithstanding any act or negligence
of any named insured if such clause is obtainable from the
insurance company. Tenant and Landlord shall have the right to
carry any or all of its insurance under "blanket policies."
Duly executed certificates evidencing the coverage required
hereunder of Tenant shall be delivered to Landlord within 10
days after receipt, together with all portions of the policy
relating to the Property. Such certificates shall specify that
no cancellations shall be effective until 30 days after
written notice to Landlord thereof, except in case of
nonpayment in which case cancellation shall be effective 10
days after written notice, unless a longer period is
available.
(d) During each Lease Year of the Term, Tenant
shall pay Landlord, as additional rent hereunder, Tenant's Pro
Rata Share of Landlord's cost of all insurance on the Building
and the Land (whether purchased directly by Landlord or by any
other tenant or party). Such insurance costs shall including,
without limitation, the costs for fire and extended coverage
insurance and such other insurance covering all hazards
included within customary "all risks" coverage, including
without limitation insurance covering fire, lightning,
vandalism, malicious mischief, and sprinkler leakage, business
interruption and rent insurance, said insurance to be on a
full value, repair, or replacement basis, as determined by
Landlord and Landlords cost for comprehensive liability
insurance indemnifying the Landlord (and any other party)
against all claims and demands for any injury to persons or
property which may be claimed to have occurred in or upon the
Building or the Land in such amounts as Landlord shall from
time to time determine. In addition, notwithstanding the
foregoing, Tenant shall pay as additional rent, one hundred
(100%) percent of Landlord's cost of any insurance with
respect to the Building or the Land which is attributable
solely to Tenant's particular use of the Premises. All
additional rent on account of insurance shall be paid to
Landlord within fifteen (15) days of receipt by Tenant of a
bill therefor from Landlord, which bill shall be accompanied
by a copy of the applicable insurance bills and a computation
showing Tenant's Pro Rata Share of the cost thereof, or, at
the election of the Landlord, in advance in twelve (12) equal
monthly estimated installments (based on an amount estimated
by Landlord) due and payable on the same dates as the monthly
installments of Base Rent payable hereunder, with a final
adjustment to be made as soon as all applicable bills are
available for such period.
4.16 Indemnifications, Mutual Release, and Waiver of
Subrogation Tenant will defend and indemnify Landlord and
hold it harmless from and against any and all claims, actions,
damages, liability and expense (including but not limited to
reasonable attorneys' fees and expenses) in connection with
the loss of life, bodily injury, or damage to property arising
from, related to or in connection with the maintenance,
occupancy or use of the Property by Tenant or occasioned by
any negligent act or omission of Tenant. Landlord will defend
and indemnify Tenant and hold it harmless from and against any
and all claims, actions, damages, liability and expense
(including but not limited to reasonable attorneys' fees and
expenses) in connection with the loss of life, bodily injury
or damage to property of third persons occasioned by any
negligent act or omission of Landlord. The provisions of this
Section shall survive the termination or earlier expiration of
this Lease. Notwithstanding anything to the contrary herein
contained, Landlord and Tenant hereby each release the other
and anyone claiming through or under the other by way of
subrogation or otherwise from any and all liability, claims
and demands whatsoever, for any loss or damage to the property
of one party, occurring through or as a result of any acts or
omissions, whether or not caused by negligence or fault of the
other party or its contractors or subcontractors or their
agents or employees, to the extent of any recovery made by the
waiving party hereto for such loss or damage under any fire
and extended-coverage insurance policy now or hereafter issued
covering the Buildings. In addition, Landlord and Tenant shall
cause each such insurance policy carried by them insuring the
Buildings or the contents thereof to be written to provide
that the insurer waives all rights of recovery by way of
subrogation against the other party hereto in connection with
any loss or damage covered by the policy, if such waiver is
obtainable without additional cost (or if there is an
additional cost, the other party shall pay such cost within 10
days following written notice thereof).
4.17 [Intentionally Omitted]
4.18 [Intentionally Omitted]
4.19 Tenant's Default.
(a) If at any time subsequent to the date of this
Lease any one or more of the following events (herein referred
to as a "Default of Tenant") shall happen:
(i) Tenant shall fail to pay the Annual Rent,
additional rent, Tenant's Pro Rata Share of taxes and
assessments, insurance premiums or of CAM Charges or
Common Outside Area Expenses or other sums or charges
payable by Tenant hereunder when due and Tenant shall
fail to remedy the same within ten (10) days after
notice thereof to Tenant; or
(ii) Tenant shall fail to comply with the
provisions of Article 7 and such failure shall
continue for more than two (2) days after written
notice; or
(iii) Tenant shall neglect or fail to perform
or observe any other covenant herein contained on
Tenant's part to be performed or observed and Tenant
shall fail to remedy the same within thirty (30) days
after notice to Tenant specifying such neglect or
failure, or if such failure is of such a nature that
Tenant cannot reasonably remedy the same within such
thirty (30) day period, Tenant shall fail to commence
promptly to remedy the same and to prosecute such
remedy to completion with diligence and continuity;
or
(iv) Tenant's leasehold interest in the Leased
Premises shall be taken on execution or by other
process of law directed against Tenant; or
(v) Tenant shall make an assignment for the
benefit of creditors or shall file a voluntary
petition in bankruptcy or shall be adjudicated
bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution
or similar relief for itself under any present or
future Federal, State or other statute, law or
regulation for the relief of debtors, or shall seek
or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of all
or any substantial part of its properties, or shall
admit in writing its inability to pay its debts
generally as they become due; or
(vi) A petition shall be filed against Tenant
in bankruptcy or under any other law seeking any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar
relief under any present or future Federal, State or
other statute, law or regulation and shall remain
undismissed or unstayed for an aggregate of ninety
(90) days (whether or not consecutive), or if any
debtor in possession (whether or not Tenant) trustee,
receiver or liquidator of Tenant or of all or any
substantial part of its properties or of the Leased
Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated or
unstayed for an aggregate of ninety (90) days (whether or
not consecutive);
then in any such case, Landlord may terminate this Lease by
notice to Tenant, and thereupon this Lease shall come to an
end as fully and completely as if such date were the date
herein originally fixed for the expiration of the Term of this
Lease, and Tenant will then quit and surrender the Premises to
Landlord, but Tenant shall remain liable as hereinafter
provided.
(b) If this Lease shall be terminated as provided
in this Section 4.19, or if any execution or attachment shall
be issued against Tenant or any of Tenant's property whereupon
the Leased Premises shall be taken or occupied by someone
other than Tenant, Tenant shall surrender and deliver up the
Premises to Landlord, and, upon any default in doing so, then
Landlord may, without notice, re-enter the Premises, either by
force, summary proceedings, ejectment or otherwise, and remove
and dispossess Tenant and all other persons and any and all
property from the same, as if this Lease had not been made,
and to apply for the appointment of a receiver and for other
ancillary relief in such action, provided that Tenant shall
have ten (10) days' written notice (or such longer notice as
applicable law may provide) after such application for a
receiver or other ancillary relief is filed and before any
hearing thereon, and, in such event, Landlord shall have and
enjoy the said Premises, fully and completely, as if this
Lease had never been made.
(c) In the event of any termination, Tenant shall
pay the Annual Rent, Tenant's Pro Rata Share of real estate
taxes and assessments and insurance premiums, CAM Charges,
Common Outside Area Expenses and also all other additional
rent and other sums payable hereunder up to the time of such
termination, and thereafter Tenant, until the end of what
would have been the Term of this Lease in the absence of such
termination, and whether or not the Leased Premises shall have
been relet, shall be liable to Landlord for, and shall pay to
Landlord, as liquidated current damages, the Annual Rent,
Tenant's Pro Rata Share of real estate taxes and assessments,
insurance premiums, CAM Charges, Common Outside Area Expenses
and also all other additional rent and other sums which would
be payable hereunder if such termination had not occurred,
less the net proceeds, if any, of any reletting of the Leased
Premises, after deducting from the net proceeds of such
reletting all reasonable expenses in connection with such
reletting (amortized, to the extent permitted by generally
accepted accounting principles, over the term of such re-letting or such
other period as may be appropriate under the
circumstances), including, without limitation, all
repossession costs, brokerage commissions, legal expenses,
attorneys' fees, advertising, expenses of employees,
alteration costs and expenses of preparation for such
reletting. Tenant shall pay such current damages to Landlord
monthly on the days which the Annual Rent and additional rent
would have been payable hereunder if this Lease had not been
terminated.
(d) At any time after such termination, whether or
not Landlord shall have collected any such current damages, as
liquidated final damages and in lieu of all such current
damages beyond the date of such demand, at Landlord's election
Tenant shall pay to Landlord an amount equal to the present
value (using a discount rate of 8.5%) the excess, if any, of
the rent, Tenant's Pro Rata Share of taxes, insurance premiums
and of CAM Charges and Common Outside Area Expenses and
additional rent and other sums as hereinbefore provided which
would be payable hereunder from the date of such demand
(assuming that, for the purposes of this paragraph, annual
payments by Tenant on account of taxes, insurance premiums,
CAM Charges and Common Outside Area Expenses and other
expenses would be the same as the payments required for the
immediately preceding lease year) for what would be the then
unexpired Term of this Lease if the same had remained in
effect, over the then fair net rental value of the Leased
Premises for the same period (assuming, for this purpose, the
same level of Landlord services as are provided in this
Lease).
(e) In the case of any such termination, re-entry,
expiration or dispossession by summary proceeding or
otherwise, Landlord may (i) re-let the Leased Premises or any
part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option
be equal to or less than or exceed the period which would
otherwise have constituted the balance of the Term of this
Lease and may grant concessions or free rent to the extent
that Landlord considers advisable and reasonably necessary to
re-let the same and (ii) may make such reasonable alterations,
repairs and decorations in the Leased Premises as Landlord in
its reasonable judgment considers advisable and necessary for
the purpose of reletting the Leased Premises; and the making
of such alterations, repairs and decorations shall not operate
or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way
whatsoever for failure to re-let the Leased Premises, or, in
the event that the Leased Premises are re-let, for failure to
collect the rent under such re-letting. Landlord will,
however, use good faith efforts to re-let the Leases Premises.
Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in
the event of Tenant being evicted or dispossessed, or in the
event of Landlord obtaining possession of the Leased
Premises, by reason of the violation by Tenant of any of the
covenants and conditions of this Lease.
(f) In addition to all other rights and remedies
which Landlord may have under the Lease, at law or in equity,
upon the occurrence of any Default of Tenant, Landlord shall
also have the following right: Any prothonotary or attorney
of any court of record may appear for Tenant in amicable
actions in ejectment, and may sign for Tenant an agreement,
for which this Lease shall be his sufficient warrant, for
entering in any competent court an amicable action or actions
in ejectment, and in any suits or in said amicable actions to
confess judgment against Tenant as well as all persons
claiming by, through or under Tenant for the recovery by
Landlord of possession of the Leased Premises. Such authority
shall not be exhausted by any one or more exercises thereof,
but judgment may be confessed from time to time as often as a
Tenant's Default shall have occurred or be continuing. Such
powers may be exercised during as well as after the expiration
extension or renewal of the Lease Term.
(g) The specified remedies to which Landlord may
resort hereunder are not intended to be exclusive of any
remedies or means of redress to which Landlord may at any time
be entitled to lawfully, and Landlord may invoke any remedy
(including the remedy of specific performance) allowed at law
or in equity as if specific remedies were not herein provided
for.
(h) All reasonable costs and expenses incurred by
or on behalf of Landlord (including, without limitation,
reasonable attorneys' fees and expenses) in enforcing its
rights hereunder or occasioned by any Default of Tenant shall
be paid by Tenant.
(i) Notwithstanding anything to the contrary
contained in this Lease:
(i) Landlord shall not have any right to
accelerate rent and other amounts payable hereunder
except to the extent provided in this Lease.
(ii) Landlord shall not have any right to
exercise its remedies hereunder if Tenant cures a Default
of Tenant prior to the effective date of Landlord's
termination of this Lease (but not more than two times in
the aggregate in any 12-month period as to all defaults).
The provisions of this clause (ii) above shall not apply
to failure to pay Annual Rent, or Tenant's Pro Rata Share
of real estate taxes and assessments, insurance premiums,
CAM Charges or Common Outside Area Expenses, or any other
additional rent or charges payable by Tenant under this
Lease nor to a failure to comply with Article 7.
(iii) In the event of any Tenant
Default under this Lease, Landlord shall in each case use
its good faith efforts to mitigate its damages.
(j) In the event of a Default of Tenant, any
amounts paid by Landlord to cure such default and any rents
due and payable by Tenant shall bear interest at the rate
payable by Landlord to its first mortgage lender.
(k) Except as otherwise provided in this Section,
all remedies available to Landlord hereunder and at law and in
equity shall be cumulative and concurrent. No termination of
the Lease nor taking or recovering possession of the Leased
Premises shall deprive Landlord of any remedies or actions
against Tenant for Annual Rent or Tenant's Pro Rata Share of
real estate taxes and assessments or any other additional rent
or for charges or for damages for the breach of any covenant,
agreement or condition herein contained, nor shall the
bringing of any such action for Annual Rent, Tenant's Pro Rata
Share of real estate taxes and assessments, insurance
premiums, CAM Charges and Common Outside Area Expenses and
other additional rent or charges or breach of covenant,
agreement or condition, nor the resort to any other remedy or
right for the recovery of Annual Rent, Tenant's Pro Rate Share
of real estate taxes and assessments and insurance premiums,
CAM Charges, Common Outside Area Expenses, additional rent or
other charges or damages for such breach, be construed as a
waiver or release of the right to insist upon the forfeiture
and to obtain possession.
(l) Any failure of Landlord to enforce any remedy
allowed for the violation of any provision of this Lease shall
not imply the waiver of any such provision, even if such
violation is continued or repeated, and no express waiver
shall affect any provision other than the one(s) specified in
such waiver and only for the time and in the manner
specifically stated.
4.20 Landlord Default. Landlord shall in no event be
in default of the performance of any of Landlord's obligations
hereunder unless and until Landlord shall have unreasonably
failed to perform such obligation within a period of time
reasonably required to correct any such default, after notice
by Tenant to Landlord specifying wherein Landlord has failed
to perform any such obligations. If Landlord is determined
to be in default, Landlord shall reimburse Tenant for the
amounts paid by Tenant, including costs and attorneys' fees,
together with interest thereon at the rate payable by Landlord
to its primary lender.
4.21 Fire and Other Casualty; Eminent Domain.
(a) Abatement Of Rent. If the Leased Premises
shall be damaged by fire or casualty, Annual Rent, Tenant's Pro
Rata Share of real estate taxes and assessments and insurance
premiums, CAM Charges and Common Outside Area Expenses and
other charges and additional rent payable by Tenant shall abate
proportionately for the period in which, by reason of such
damage, there is substantial interference with Tenant's
use of the Leased Premises, having regard to the extent to
which Tenant may be required to discontinue Tenant's use
of all or a portion of the Leased Premises, but such
abatement or reduction shall end if and when Landlord
shall have substantially restored the Leased Premises
(excluding any alterations, additions or improvements made
by Tenant pursuant to this Lease) to the condition in
which they were prior to such damage. If the Leased
Premises shall be affected by any exercise of the power of
eminent domain, Annual Rent, Tenant's Pro Rata Share of
real estate taxes and assessments and insurance premiums,
CAM Charges and Common Outside Area Expenses and
additional rent payable by Tenant shall be justly and
equitably abated and reduced according to the nature and
extent of the loss of use thereof suffered by Tenant. In
no event shall Landlord have any liability for damages to
Tenant for inconvenience, annoyance, or interruption of
business arising from such fire, casualty or eminent
domain.
(b) Landlord's Right Of Termination. If (i) the
Premises or the Building are substantially damaged by fire or
casualty (the term "substantially damaged" meaning damage of
such a character that the same cannot, in ordinary course,
reasonably be expected to be repaired within one hundred
eighty (180) days from the time the repair work would
commence), or (ii) if any part of the Building is taken by any
exercise of the right of eminent domain, or (iii) any
mortgagee then holding a mortgage on the Property or on any
interest of Landlord therein should require that insurance
proceeds or awards payable as the result of any fire, casualty
or taking be applied toward the applicable mortgage debt
rather than to restoration of the Building, then Landlord
shall have the right to terminate this Lease (even if
Landlord's entire interest in the Leased Premises may have
been divested) by giving notice of Landlord's election so to
do within forty five (45) days after the occurrence of such
casualty or the effective date of such taking, whereupon
this Lease shall terminate thirty (30) days after the
date of such notice with the same force and effect as if
such date were the date originally established as the
expiration date hereof.
(c) Restoration. If this Lease shall not be
terminated pursuant to Section 4.21(b), 4.21(d) or 4.21(e) and
provided that (a) the Leased Premises, Building or part
thereof, can be lawfully restored to substantially its former
condition under applicable zoning, building, and other laws
and (b) any first mortgagee with respect to the Property shall
make the proceeds of insurance or condemnation awards related
thereto available for restoration, Landlord shall thereafter
use due diligence to restore the Leased Premises (excluding
any alterations, additions or improvements made by Tenant) to
proper condition for Tenant's use and occupation, provided
that Landlord's obligation shall be limited to the amount of
insurance proceeds actually made available to Landlord
therefor. If, for any reason, such restoration shall not be
substantially completed within six months after the expiration
of the forty five (45) day period referred to in Section
4.21(b) (which six-month period may be extended for such
periods of time as Landlord is prevented from proceeding with
or completing such restoration by reason of a Force Majeure
Event or for any other cause beyond Landlord's reasonable
control, but in no event for more than an additional three
months), Tenant shall have the right to terminate this Lease
by giving notice to Landlord thereof within thirty (30) days
after the expiration of such period (as so extended). Upon the
giving of such notice, this Lease shall cease and come to an
end without further liability or obligation on the part of
either party unless, within such 30-day period, Landlord
substantially completes such restoration. Such right of
termination shall be Tenant's sole and exclusive remedy at law
or in equity for Landlord's failure so to complete such
restoration.
(d) If, within two years prior to the expiration of
the Lease Term, more than 50% of the Leased Premises shall be
substantially damaged or destroyed by fire or any other
casualty, and the estimated time required for restoration
exceeds six months, Tenant shall have the option of
terminating this Lease 60 days after written notice to
Landlord, such written notice to Landlord to be given within
30 days after such destruction or damage.
(e) In the event that (i) more than 25% of the
Leased Premises are taken by any public authority or utility
under the power of eminent domain or (ii) if more than 25% of
the Property is taken by any public authority and as a result
of such taking Tenant's business is, in its reasonable
judgment, materially adversely affected thereby, then, within
60 days of any of the above, Tenant will have the irrevocable
right to terminate this Lease by written notice to Landlord,
in which case all rent and other sums due hereunder shall
abate as of the date of the taking.
(f) Award. Landlord shall have and hereby
reserves and excepts, and Tenant hereby grants and
assigns to Landlord, all rights to recover for damages to
the Property, the Leased Premises and the leasehold
interest hereby created, and to compensation accrued or
hereafter to accrue by reason of such taking, damage or
destruction, and by way of confirming the foregoing,
Tenant hereby grants and assigns, and covenants with
Landlord to grant and assign to Landlord, all rights to
such damages or compensation. Nothing contained herein
shall be construed to prevent Tenant from, at its sole
cost and expense, prosecuting a separate condemnation
proceeding with respect to a claim for the value of any
of Tenant's Personal Property installed in the Leased
Premises by Tenant at Tenant's expense and for relocation
expenses, provided that such action shall not affect the
amount of compensation otherwise recoverable by Landlord
from the taking authority.
(g) No Liability On Account Of Injury To Business,
Etc. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant or
resulting in any way from damage from fire or other casualty
or the repair thereof and Tenant understands and agrees that
Landlord shall in no event be responsible for the repair or
replacement of any furniture or furnishings or any fixtures or
equipment removable by Tenant under the provisions of this
Lease. If Tenant desires any other or additional repairs or
Restoration and if Landlord consents thereto, the same shall
be done at Tenant's expense. Tenant acknowledges that
Landlord shall be entitled to the full proceeds of any
insurance coverage whether carried by Landlord or Tenant, for
damage to the Leased Premises and any alterations or
improvements thereto. Upon any expiration or earlier
termination of this Lease, any insurance proceeds not
theretofore applied to the cost of Restoration shall be paid
to Landlord. Tenant acknowledges that the fire and extended
coverage insurance carried by Landlord shall not extend to
Tenant's Personal Property, including trade fixtures, floor
coverings, furniture and other property removable by Tenant
and that Tenant shall be responsible for carrying fire,
casualty, malicious mischief, sprinkler leakage and all risk
insurance on all such personal property, trade fixtures, floor
coverings, furniture and other property removable by it.
4.22 Financial Statements. Tenant shall, from time to
time, deliver to Landlord, within thirty (30) days after
request, a current annual certified financial statement,
including operating statements and balance sheets, for Tenant.
All such financial statements shall be prepared and certified
by an independent certified public accounting firm and shall
be prepared in accordance with generally accepted accounting
principles consistently applied.
4.23 Subordination of Lease.
(a) Landlord reserves the right to subject and
subordinate this Lease at all times to the lien of any first
mortgage, deed of trust, land lease or other security document
having first priority, now or hereafter placed upon Landlord's
interest in the Property, and to all advances made thereunder
and to the interest therein, and all renewals and
modifications thereof, all on such terms and conditions as the
holder of any such first mortgage customarily requires.
Tenant shall, upon written request, and from time to time,
promptly execute and deliver, without charge and in form
satisfactory to the Landlord and any such mortgagee, all
instruments and documents that may be requested to acknowledge
such subordination in recordable form within ten (10) days of
such request.
(b) Notwithstanding anything to the contrary set
forth above, any Landlord mortgagee may at any time
subordinate its mortgage to this Lease, without Tenant's
consent, by execution of a written document subordinating such
mortgage to this Lease to the extent set forth therein, and
thereupon this Lease shall be deemed prior to such mortgage to
the extent set forth in such written document without regard
to their respective dates of execution, delivery or recording.
In that event, to the extent set forth in such written
document, such mortgagee shall have the same rights with
respect to this Lease as though this Lease had been executed
and this Lease or memorandum thereof recorded prior to the
execution, delivery, and recording of the mortgage. Should
Landlord or any mortgagee or purchaser desire confirmation of
either such subordination or attornment, as the case may be,
Tenant upon written request, and from time to time, will
promptly execute and deliver without charge and in form
satisfactory to Landlord, the mortgagee or the purchaser all
instruments and documents that may be requested to acknowledge
such subordination or agreement to attorn, in recordable form,
within 10 days of such request.
ARTICLE 5 - ADDITIONAL PROVISIONS
5.1 Notice. Whenever notice is required or permitted in
this Lease, such notice will be in writing and deemed to be
properly given effective upon the date of receipt or refusal,
only if sent by certified mail or registered mail, or upon
receipt only if sent by any nationally recognized overnight
mail service to the parties hereto addressed to the following:
Seller at: Action Industries, Inc.
460 Nixon Road
Cheswick, Pennsylvania 15024
Attention: T. Ronald Casper
with a copy to: Cohen & Grigsby, P.C.
2900 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
Attn: Neil F. Siegel, Esq.
Buyer at: J.S. Karlton Company, Inc.
75 Holly Hill Lane
Suite 300
Greenwich, CT 06830
Attn: John S. Karlton
with a copy to: Carolan & Greeley
65 Franklin Street
Boston, MA 02710
Attn: Alfred J. Carolan, Jr., Esq.
or to such other addresses as may be requested by any party
hereto by giving notice to the other party in the manner
herein specified.
5.2 Short-Form Lease. Each of the parties hereto
covenants to the other that this Lease shall not be recorded
by either of them. However, on the Commencement Date, Landlord
and Tenant shall execute a short-form lease for recording,
which shall contain such form and substance as either party
shall reasonably request, with the exception of the rent
reserved hereunder. Upon the termination of this Lease, Tenant
shall execute, acknowledge, and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord
all right, rifle, and interest of Tenant in and to the
Property arising from this Lease or otherwise, all without
cost or expense to Landlord.
5.3 Entire Agreement. This Lease, together with the
Recitals and Exhibits, shall constitute the entire agreement
of the parties hereto with respect to the leasing of the
Property; all prior agreements between the parties whether
written or oral, are merged herein and shall be of no force
and effect.
5.4 Severability. If any term, covenant, condition, or
provision of this Lease is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the
remainder of the provisions hereof shall continue in full
force and effect and shall in no way be affected, impaired, or
invalidated thereby.
5.5 Grammatical Usage and Construction. In construing
this Lease, feminine or neuter pronouns will be substituted
for those masculine in form and vice versa, and plural terms
will be substituted for singular and singular for plural in
any place in which the context so requires. This Lease shall
be construed without regard to the identity of the party who
drafted the various provisions hereof. Moreover, each and
every provision of this Lease shall be construed as though all
parties hereto participated equally in the drafting thereof.
As a result of the foregoing, any rule or construction that a
document is to be construed against the drafting party will
not be applicable hereto.
5.6 Table of Contents, Paragraph Headings. The table of
contents and paragraph headings are inserted only for
convenience and in no way define, limit or describe the scope
or intent of this Lease, nor in any way affect this Lease.
5.7 No Joint Venture or Partnership Created by Lease. It
is hereby understood and agreed that nothing contained herein
shall be deemed or construed by the parties hereto nor by any
third party as creating the relationship of principal and
agent or of partnership or of joint venture between the
parties hereto, it being agreed that no provision herein
contained nor any acts or the parties herein will be deemed to
create any relationship between the parties hereto other than
the relationship of Landlord and Tenant.
5.8 Broker's Commission. Landlord and Tenant represent
and warrant to each other that there are no brokerage
commissions or finders' fees due any party as a result of
this transaction, except, however, that a commission (the "Gold
Fee") is due Gold & Company in connection with a lease (the
"EWI Lease") between Landlord and Executive Warehouse, Inc.
dated _________________, 1996, with respect to approximately
515,375 square feet of space located in the balance of the
Property. Tenant acknowledges and agrees that it is
responsible for, and shall pay, a share of such Gold Fee as
agreed upon by Tenant and Gold & Company. Landlord
acknowledges that it is responsible for, and will pay, a share
of such Gold Fee as agreed upon by Landlord and Gold &
Company. Landlord and Tenant will indemnify and hold harmless
each other for any breach of the above representations and
warranties and agreements, including, without limitation,
reasonable attorneys' fees incurred in connection with any such
claim.
5.9 Rights Cumulative. Unless expressly provided to the
contrary in this Lease, each and every one of the rights,
remedies and benefits provided by this Lease will be
cumulative and will not be exclusive of any other such rights,
remedies, and benefits allowed by law.
5.10 Non-Waiver. The failure of Landlord or Tenant to
enforce against the other any provision, covenant or condition
herein, by reason of either of them committing any breach of
or default under this Lease, shall not be deemed a waiver
thereof, nor shall such failure to enforce void or affect the
right of the aggrieved party to enforce the same covenant or
condition on the occasion of any subsequent breach or default;
nor will the failure of either party to exercise any option in
this Lease upon any occasion arising therefor be deemed or
construed to be a waiver of the right to exercise the same
type of option upon any subsequent occasion.
5.11 Time is of the Essence. Time is of the essence in
all provisions of this Lease.
5.12 Surrender of Premises. At the expiration or earlier
termination of the Lease Term, Tenant will quit and surrender
the Leased Premises, the Action Outside Area, all utility
systems located in or servicing the Premises, the roof above
the Leased Premises and every part of the Leased Premises in
good operating condition and repair, reasonable wear and tear
and damage by insured casualty excepted.
5.13 Successors and Assigns. The provisions of this Lease
shall bind and inure to the benefit of the parties hereto and
their respective permitted successors and assigns unless
prohibited by this Lease.
5.14 No Merger. There shall be no merger of this Lease or
of the leasehold estate created by this Lease with the fee
estate in the Property or any part of it because the same
person or entity holds, directly or indirectly, this Lease or
the leasehold estate and an interest in the fee estate in the
Property, without the prior written consent of Landlord and
Landlord's mortgagee.
5.15 Force Majeure. Except as otherwise expressly set
forth herein, in the event either party hereto is delayed or
hindered in, or prevented from, the performance of any act
required hereunder by reason of strikes, lockouts, failure of
power, restrictive governmental laws or regulations, riots,
insurrection, war or other reasons of a like nature not the
fault of the party delayed in performing work or doing acts
required under the terms of this Lease (all of such reasons or
causes referred to in this Lease as "force majeure"), then
performance of such acts will be excused for the period of the
delay, and the period of the performance of any such act will
be extended for a period equivalent to the period of such
delay, but in no event shall force majeure ever excuse Tenant
from the obligation to pay Annual Rent, Tenant's Pro Rata Share
of real estate taxes and assessments, insurance premiums, CAM
Charges, Outside Common Area Expenses, additional rent or any
other sum or charge when due.
5.16 Holdover. In the event Tenant fails to deliver
possession of the Property then under lease by it by the last
day of the Lease Term, this Lease shall be extended on a
month-to-month basis until canceled by either party hereto by
30 days prior written notice. If Tenant fails to vacate the
Property within 30 days after such notice by Landlord, Tenant
shall be treated as a tenant at sufferance and shall pay as
rent for the first two months of such holdover period an
amount equal to 150% of the Annual Rent payable during the
last Lease Year of the Lease Term and 200% of such rent for
each month thereafter, and otherwise under the terms and
conditions of this Lease.
5.17 Arbitration of CAM Charge Disputes. If, at any
time, during the term of this Lease when the Premises includes
at least 28,500 square feet, there arises any dispute relating
to the items or amounts included in the calculation of Common
Outside Area Expenses or CAM Charges and such dispute cannot
be resolved within thirty (30) days after such dispute is
asserted in writing, then either party to this Lease may, upon
ten (10) days business notice to the other party, request
arbitration and each party shall, within ten (10) business
days thereafter, select one arbitrator. The two arbitrators
so selected shall then, within ten (10) business days
thereafter, select a third arbitrator. If the two so selected
cannot agree on a third, the third shall be selected by the
American Arbitration Association in Pittsburgh, Pennsylvania
or any successor organization thereto. The arbitration shall
be held promptly in Pittsburgh, Pennsylvania pursuant to the
usual procedure of the American Arbitration Association. Such
three (3) arbitrators shall investigate the allegations and
the facts and shall promptly hold hearings and shall permit
the parties to present evidence and arguments, and shall
render a decision within thirty (30) days after the conclusion
of such hearings as to the correct calculation of the amount
of Common Outside Area Expenses or CAM Charges which were the
subject of such proceeding, which decision shall be final,
valid, binding, conclusive and non-appealable and any party
shall have the right to institute such action or proceeding in
such courts as shall be appropriate in the circumstances to
enforce any such arbitration decision. The arbitrator shall
determine which party or in what proportion the parties shall
bear the cost of such arbitration and the manner in which
attorneys' fees shall be paid. Any award of money damages and
all costs and attorneys' fees payable hereunder shall be paid
to the party entitled thereto within ten (10) days after the
date it receives the arbitrations' decision.
5.18 Waiver of Jury Trial. LANDLORD AND TENANT WAIVE THE
RIGHT TO A TRIAL BY JURY IN ANY ACTION, COUNTERCLAIM OR
PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF
THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY MADE BY LANDLORD AND TENANT, AND LANDLORD AND
TENANT ACKNOWLEDGE THAT NEITHER PARTY NOR ANY PERSON ACTING ON
BEHALF OF SUCH PARTY HAS MADE ANY REPRESENTATIONS OF FACT TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR
NULLIFY ITS EFFECT. LANDLORD AND TENANT FURTHER ACKNOWLEDGE
THAT EACH HAS BEEN REPRESENTED IN THE SIGNING OF THIS LEASE
AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. LANDLORD AND
TENANT EACH FURTHER ACKNOWLEDGE THAT IT HAS READ AND
UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER
PROVISION.
5.19 Landlord's Liability.
(a) Tenant specifically agrees to look solely to
the assets of Landlord at the time owned, for recovery of any
judgment from Landlord; it being specifically agreed that John
S. Karlton shall never be personally liable for any such
judgment or for the payment of any monetary obligation to
Tenant.
(b) In no event shall Landlord ever be liable to
Tenant for any loss of business or any other indirect or
consequential damages suffered by Tenant from whatever cause.
(c) With respect to any repairs, replacements or
restoration which are required or permitted to be made by
Landlord, the same may be made during normal business hours
and Landlord shall have no liability for damages to Tenant for
inconvenience, annoyance or interruption of business arising
therefrom but, subject to the foregoing, Landlord will use
reasonable efforts to minimize such inconvenience, annoyance
or business interruption.
5.20 Assignment Of Rents And Transfer Of Title.
(a) With reference to any assignment by Landlord of
Landlord's interest in this Lease, or the rents payable
hereunder, conditional in nature or otherwise, which
assignment is made to the holder of a mortgage on property
which includes the Leased Premises, Tenant agrees that the
execution thereof by Landlord, and the acceptance thereof by
the holder of such mortgage or assignment, shall not be
treated as an assumption by such holder of any of the
obligations of Landlord hereunder unless such holder shall
specifically otherwise elect.
(b) In the event of any transfer of title to the
Property by Landlord, Landlord shall thereafter be entirely
freed and relieved from the performance and observance of all
covenants and obligations hereunder except for unperformed
obligations arising out of events occurring prior to such
transfer.
5.21 Quiet Enjoyment. If Tenant pays the Annual Rent,
additional rent, CAM Charges, real estate taxes and
assessments, insurance, Tenant's Outside Area Expenses and
other sums and charges payable by Tenant hereunder and
otherwise substantially performs all of the covenants and
conditions to be performed by Tenant under this Lease, subject
to applicable notice and grace periods, it shall, during the
Lease Term, lawfully, peaceably and quietly occupy and enjoy
the Leased Premises as provided herein with the improvements
and appurtenances thereto belonging and the rights and
privileges herein granted without hindrance or ejection by any
persons lawfully claiming under Landlord to have title to the
Leased Premises superior to Tenant. The foregoing covenant of
quiet enjoyment is in lieu of any other covenant, express or
implied. If a purchaser of the Property so requests, Tenant
will attorn to and recognize the purchaser as Landlord under
this Lease, subject to all of the terms of this Lease.
5.22 Estoppel Certificate. Upon request of Landlord or
Tenant, the other party, within 10 days of the date of such
written request, agrees to execute and deliver to the party
requesting, without charge, a written statement (a) ratifying
this Lease; (b) certifying that this Lease is in full force
and effect, if such is the case, and has not been modified,
assigned, supplemented, or amended except by such writings as
are stated; (c) certifying that all conditions and agreements
under this Lease to be satisfied and performed have been
satisfied and performed, except as stated; (d) certifying that
the other party is not in default under this Lease or stating
the defaults claimed; and (e) reciting the amount of advance
rental, if any, paid by Tenant and the date to which rental
has been paid.
5.23 Emergency Cures. In the event of emergencies, or
where necessary to prevent immediate injury to persons or
damage to property, either party may cure a default by the
other before the expiration of the notice period, but only
after giving written or oral notice to the other party.
5.24 Governing Law. This Lease shall be governed by,
construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
5.25 Attorneys' Fees. In the event of any litigation
between Landlord and Tenant, the prevailing party shall be
entitled to receive from the other, the amount of its
reasonable out-of-pocket legal fees and expenses and other
out-of-pocket costs incurred in connection therewith.
5.26 Consents. Whenever under this Lease, express
provision is made for either party's securing the consent or
approval of the other, such consent or approval shall be in
writing and shall not be unreasonably withheld or delayed,
except as may be expressly set forth otherwise to the
contrary. It is expressly understood and agreed that where a
party has the right to grant or withhold approval in its sole
discretion, the provisions of this Section 5.26 shall not
apply.
ARTICLE 6 - EFFECTIVE DATE; SPECIAL PROVISIONS
6.1 Effective Date. This Amended and Restated Lease
shall become effective as of the date (the "Effective Date")
upon which the term of the EWI Lease shall commence. Landlord
shall give Tenant written notice of the date which is the
actual commencement date of the EWI Lease when such date
becomes fixed and established. Tenant shall, notwithstanding
any term, covenant or provision of this Amended and Restated
Lease to the contrary, remain liable for payment and
performance of all obligations under the Existing Lease which
accrue or are to be performed thereunder through the Effective
Date and, also, for all obligations thereunder with respect to
any matters occurring, arising or in existence through the
Effective Date. Without limiting any other term or provision
of this Lease, Tenant agrees that any and all purchase
options, purchase rights, rights of first refusal and
extension options in the Existing Lease are hereby terminated
absolutely.
6.2 Surrender of Property. Tenant shall surrender the
entire Property (exclusive of the Leased Premises under this
Lease and subject to the Tenant's appurtenant rights to use the
Action Outside Area) on the Effective Date in the condition
required under, and in compliance with the provisions of, the
Existing Lease.
ARTICLE 7 - LANDLORD'S RIGHT TO TAKE BACK SPACE
7.1 Recapture Notice; Recapture Space; Annual Rent
Adjustment. Landlord shall have the right (the "Recapture
Right"), exercisable at any time, to terminate this Lease as
to all or any part of the Premises by giving written notice to
Tenant as provided herein (the "Recapture Notice"). Landlord
may exercise the Recapture Right as often as Landlord may
require from time to time and this Lease shall, as to such
portion of the Premises as is included and specified in a
Recapture Notice, terminate on the date set forth in any such
Recapture Notice, which date shall be not sooner than twenty
(20) days after the giving of such Notice, if the Recapture
Notice relates to 30,000 square feet or less. If the
Recapture Notice relates to more than 30,000 square feet, then
the Termination Date in such Recapture Notice shall be the
later of thirty (30) days after the giving of such Notice or
December 31, 1996. In any such case, this Lease shall, as to
the portion of the Premises included in any such Recapture
Notice (such portion of the Premises being called the
"Recapture Space"), expire and terminate on the date set forth
in such Notice (but not sooner than the date specified in the
immediately preceding sentences) with the same effect as if,
as to such Recapture Space, the termination date set forth in
the Recapture Notice were the expiration date of the Lease
with respect to such Recapture Space. Upon the effective date
of termination of this Lease by a Recapture Notice given under
Article 7 hereof as to Recapture Space which constitutes less
than all of the Premises, Tenant shall be entitled to a
reduction in Annual Rent from and after the effective date of
such termination in an amount equal to the greater of (a) the
number of square feet so recaptured or terminated multiplied
by the greater of $1.72 or (b) the actual annual fixed rent
("Recapture Space Fixed Rent") (exclusive of any additional
rent on account of taxes, insurance, CAM charges and the like)
payable under any lease (a "Recapture Space Lease") entered
into by Landlord at such time or thereafter (but during what
would have otherwise constituted a part of the five (5) year
term of this Lease) with respect to Recapture Space allocable
to any period which otherwise would have been coterminous with
the balance of the term of this Lease (but after deducting
from such Recapture Space Fixed Rent, any portion thereof
allocable to leasehold improvements paid for by Landlord for
such new tenant and for leasing commissions, moving expense
allowances, tenant inducements and other expenses incurred by
Landlord in connection with such Recapture Space Lease, in
each case, amortized over the term of such Recapture Space
Lease). In no event shall Tenant be entitled to any excess
rent (fixed or otherwise) which Landlord may receive on
account of leasing Recapture Space which, in the aggregate,
ever exceeds the Annual Rent hereunder, it being understood
that at such time as Tenant's Annual Rent is reduced to zero
as a result of reductions or credits which apply under this
Section 17, whether as a result of leasing or releasing the
Recapture Space or otherwise, then all of Tenant's rights to
occupy any premises shall terminate effective as of such date
(but not sooner than December 31, 1996). Effective upon the
termination of this Lease as to any such Recapture Space, this
Lease and Tenant's Pro Rata Share hereunder shall also be
modified, effective as of such date in accordance with the
formula set forth in Section 4.6 to take into account the
reduction in the size of the Premises (except that Tenant's
Pro Rata Share of Common Outside Area Expenses, as opposed to
CAM Charges, shall be reduced ratably based on the percentage
of space within the Premises which is, from time to time,
recaptured (i.e. if 10% of the space is recaptured, then
Tenant's original Pro Rata Share of Common Outside Area
Expenses shall be reduced by 10%, i.e. 2.5%, to 22 1/2%).
Tenant's share of utilities shall, if utilities for any
Recaptured Space and Tenant's remaining space cannot be
separately metered, be shared pro rata between Tenant and such
new tenant in proportion to the total space occupied by each
such tenant in relation to one and other. i.e. If Action's
space is reduced by 40%, then effective upon the date when a
new lease is entered into for such recaptured space, Tenant
shall be responsible only for 60% of the submetered
electricity for such space and 60% of gas, sewer and water
utility charges related thereto unless, in any such case,
Landlord elects to have such utilities submetered. The cost
of any such submetering shall be borne by Tenant and, in such
case, Tenant shall pay for utilities based on the submeter
readings. Except that notwithstanding the provisions of this
sentence to the contrary, if either Landlord or Tenant so
requests, then the cost of electricity charges for electric
service which commonly serves the Recaptured Space and any
portion of the Premises then remaining under this Lease shall
be determined by the utility company (or if the utility
company will not do so, by an electrical engineer selected by
Landlord) and Landlord shall have the right to periodically
(not more often than once every six (6) months) have such
share of electricity costs recalculated and re-estimated by
the utility company or electrical engineer. Further, in the
case of any other utility (except electricity) which commonly
serves the Recaptured Space and the then remaining space
included within the Premises under this Lease, either Landlord
or Tenant shall have the right to have Tenant's share of such
utilities determined by the utility company furnishing the
same provided such utility company is willing to make such
determination and, in such case, where the utility company
makes such determination, Landlord shall have the right to
have the utility company, from time to time, re-estimate the
Tenant's share of such utilities but not more often than once
during any six (6) month period. If either Landlord or Tenant
elects to have an electrical engineer determine Tenant's
electric usage or the utility company to determine any other
utility usage of Tenant, then, until such time as the
determination of such electrical engineer or utility company
is made, Tenant shall pay its pro rata share of utilities on
the basis otherwise herein stated and there shall be no
readjustment for any period prior to the date when such a
determination is made by such electrical engineer or utility
company.
7.2. Upon exercise of any such Recapture Right, Tenant
shall no longer have the exclusive right to use the Action
Outside Area nor the parking spaces located therein as
provided in Article 1 but, rather, shall, at the option of
Landlord, either have the non-exclusive right to use the
Action Outside Area in common with any such new tenant or
tenants and, if Landlord so elects, Tenant's rights in the
Action Outside Area insofar as it relates to parking shall be
limited to the proportionate number of parking spaces located
therein based on a fraction, the numerator of which is the
number of square feet remaining within the Action Premises and
the denominator of which is 57,925. Landlord shall have the
right to designate exclusive parking areas and exclusive
parking spaces for any such new tenant and shall have the
right to restrict Action's parking spaces to a defined area
within the Outside Common Area as Landlord may require.
7.3. As and to the extent required by Landlord, if access
to any space of a new tenant which leases or occupies
Recapture Space requires common access through any Premises
which remain under this Lease, Action agrees to grant such
common access and to fully cooperate with Landlord so that all
necessary utilities and access are provided to such new space
through any remaining premises under this Lease. If Landlord
exercises a Recapture Right from time to time with respect to
less than all the Premises then remaining under this Lease,
the balance of space which does remain as Premises under this
Lease after giving effect to such Recapture shall be space
comprised of not less than 2,000 continuous square feet with
access to and from such remaining space to an entrance outside
the Building by any manner or means which Landlord may provide
(including, without limitation, access through the space of
another tenant). Without limiting the generality of the
foregoing, it is understood that if Landlord so elects,
Landlord could elect to recapture all of the Premises except
the mezzanine area and provide Tenant with access from the
mezzanine outside the Building through space leased to other
tenants.
7.4 Landlord shall have the right in connection with the
exercise of a Recapture Right to enter into the Premises or to
permit its agents, contractors or subcontractors or any new
tenant or their agents, their contractors or their
subcontractors to enter into the Premises for the purpose of
making such improvements and alterations as required in
connection with such new lease but, in connection therewith,
the parties agree to use good faith efforts to minimize
interference with Tenant's use of any remaining space.
7.5 Upon request of either Landlord or Tenant, the
parties shall enter into an amendment to this Lease consistent
with the foregoing within fifteen (15) days after request by
the other, although failure to do so shall not affect the
operation of the provisions hereof, all of which shall operate
automatically. Subject to Section 7.3, Landlord shall have
the right to designate any parts of the Premises as Landlord
may require for recapture pursuant to the provisions of this
paragraph.
7.7 Any assignment of this Lease by Tenant and any
subletting of all or any part of the Premises shall, in all
cases, be subject to the rights of Landlord under this Article
VII.
7.7 At Landlord's option, Landlord may assume all or any
part of the responsibilities of Tenant under Section 4.7(a) of
this Lease or may delegate such responsibility to any new
tenant and, in any such case, Tenant shall be responsible for
its pro rata share (such pro rata share to be based upon a
fraction, the numerator of which is the space remaining under
this Lease and the denominator of which is 57,925 with all
payments to be made to Landlord or its designee, as the case
may be, on a monthly basis, based on Landlord's estimate of
such costs with any overpayment or underpayment to be paid by
the party responsible therefor within thirty (30) days after
receipt of the Landlord's final statement in each fiscal year
for the total costs for such year. Landlord may also elect to
have Tenant continue to perform any or all of such obligations
as they relate to the remaining space under this Lease if
Landlord so elects.
7.8 Tenant agrees that it shall quit and surrender any
Recapture Space in the condition required under the Lease not
later than the effective termination date applicable thereto,
time being of the essence.
IN WITNESS WHEREOF, the parties hereto have executed
this Lease on the day and year first above written.
LANDLORD:
ALLEGHENY CAPITAL GROWTH
LIMITED PARTNERSHIP
By: JOHN KARLTON
Title: President
TENANT:
ACTION INDUSTRIES, INC.
By: T. RONALD CASPER
Title: President and CEO
JSK0015
September 25, 1996
EXHIBIT 10.24
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PROMISSORY JUDGMENT NOTE
$2,300,000 October 1, 1996
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY,
allegheny capital growth limited partnership, a Delaware limited
partnership (the "Undersigned"), promises to pay to the order of
ACTION INDUSTRIES, INC., a Pennsylvania corporation (together with
its successors and assigns, "Action"), at the offices of Action
located at Action Industrial Park, 460 Nixon Road, Cheswick,
Pennsylvania 15024, or at such other place as Action may from time
to time designate in writing, the principal amount of TWO MILLION
THREE HUNDRED THOUSAND AND 00/100 DOLLARS ($2,300,000), together
with interest thereon at the rate specified herein.
1. This Note is the "New Note" referred to in, is subject to
the terms of and is entitled to the benefits of that certain
Settlement Agreement between the parties of even date herewith (the
"Settlement Agreement"), the terms of which are incorporated herein
by reference. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to those terms in the
Settlement Agreement.
2. This Note shall not bear interest prior to the second
anniversary of the Effective Date. Thereafter, this Note shall
bear interest at the rate of 6% per annum, which interest shall be
payable monthly in arrears commencing on the last day of the month
in which the second anniversary of the Effective Date occurs and
continuing on the last day of each month thereafter and on the
Maturity Date (defined below).
3. No repayment of the principal amount hereof shall be
required prior to the "Maturity Date," defined as the earliest to
occur of (a) the seventh anniversary of the date hereof, (b) the
date when the Property or a majority interest in the Undersigned is
sold to an unaffiliated third party (it being specifically
understood that family members of John Karlton to the third degree
of consanguinity and trusts created for his or their benefit are
not unaffiliated third parties) or (c) the date when a refinancing
of the indebtedness secured by the Property (a "Refinancing"),
other than a First Refinancing (defined below), occurs. All
outstanding principal, accrued interest and other amounts due
hereunder shall be due and payable on the Maturity Date.
4. If the Undersigned obtains a loan which refinances the
mortgage loan currently owed to Metropolitan Life Insurance Company
("Metropolitan") which is secured by the Property (the "First
Refinancing"), then such loan shall not have an original principal
amount in excess of $10,800,000. An extension of the current
Metropolitan loan shall not be considered to be the First
Refinancing unless the principal amount of such loan is increased
in connection with such extension; provided, that the inclusion of
any fees, outstanding interest or similar amounts in the principal
amount of such loan as a condition to such extension shall not
constitute an increase in the principal amount of such loan for the
purposes of this sentence.
5. Payments due under this Note and the obligations of the
Undersigned hereunder are subject to setoff and deduction in
accordance with the terms of the Settlement Agreement.
6. In the event of any litigation or arbitration between the
Undersigned and Action, the prevailing party shall be entitled to
recover from the other its reasonable costs and expenses (including
reasonable attorneys' fees and court costs) incurred in connection
with such litigation or arbitration. Subject to the foregoing, the
Undersigned agrees to pay, in addition to all other sums due
hereunder, the reasonable costs and expenses incurred by Action in
connection with all actions taken to collect this Note, whether by
legal proceedings or otherwise, including without limitation
reasonable legal fees and court costs.
7. All payments due hereunder which are not paid when due
shall bear interest at the rate of 8% per annum.
8. Payments under this Note, including amounts designated as
payments of interest or as prepayments, shall be applied by Action
first to lawful charges (including without limitation costs and
expenses due hereunder), then to interest accrued and then to
principal. The principal amount outstanding hereunder from time to
time may be prepaid, in whole or in part and at the option of the
Undersigned, without penalty or other restriction.
9. Upon the occurrence of any of the events described below
and so long as no Event of Default (as defined in the New Lease)
which has been determined to have occurred under the New Lease has
not been remedied, whether directly by Action or by the Partnership
having the opportunity to exercise offset rights under the
Settlement Agreement (each, an "Event of Default"), Action may,
upon written notice to the Undersigned, declare this Note and all
sums due hereunder to be immediately due and payable, whereupon
such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all
of which are expressly waived by the Undersigned (except that upon
the occurrence of any of the events described in clause (g) below,
this Note and all sums due hereunder shall be immediately due and
payable and without presentment, demand, protest or other formality
of any kind, all of which are expressly waived by the Undersigned):
(a) The Undersigned shall fail to make any payment of
principal, interest or any other sums owing hereunder when due and
such failure shall continue for more than ten (10) days after
written notice thereof from Action to the Undersigned;
(b) The Undersigned shall (i) default (as principal or
as guarantor or other surety) in the payment or performance of any
obligation for Indebtedness (as that term is defined in Section
8(f) of the Settlement Agreement) other than the Supplemental Note
beyond any period of grace with respect thereto and (ii) in the
case of the Indebtedness secured by a first mortgage lien on the
Property from time to time only, the mortgagee commences to
exercise any of its remedies with respect thereto; provided,
however, that this Event of Default shall be deemed cured as and to
the extent that the holder of such Indebtedness shall either waive
the declaration of such default and reinstate the obligation or
obligations or deem the obligation or obligations satisfied; and
further provided, that notwithstanding any such default, Action
will forbear from exercising its remedies hereunder for so long as
the holders of all such Indebtedness so forbear, but if any of such
holders charge interest at a penalty rate during the period of such
forbearance then interest shall accrue hereunder during the period
of such forbearance at the rate specified in Paragraph 7 above;
(c) The Undersigned shall create, or permit to be
created, voluntarily, involuntarily, by operation of law or
otherwise, any mortgage, security interest or other lien of any
kind upon any of its assets or properties, including without
limitation upon the Property, the EWI Lease or the New Lease,
except for (i) mortgages, security interests and assignments of
leases and rents that secure the current Metropolitan loan or the
loan obtained as a result of the First Refinancing (which shall in
no event shall have a principal amount in excess of $10,800,000)
and (ii) liens which are not voluntarily created or assented to by
the Partnership and which are removed, bonded over or, in the case
of materialmen's and mechanics' liens only, adequately reserved
against within 30 days after written notice therof from Action to
the Undersigned; provided, that the Undersigned shall not be deemed
to be in default under this subparagraph if (A) such lien was
created by an act or omission of a tenant of the Property and (B)
the Undersigned is actively and in good faith pursuing its remedies
against such tenant to have such lien removed or bonded over;
(d) One or more judgments for the payment of money or in
mortgage foreclosure shall have been entered against the
Undersigned, which judgment or judgments exceed $50,000 in the
aggregate, and such judgment or judgments shall have remained
undischarged and unstayed for a period of twenty consecutive days;
(e) Subject to applicable notice and grace periods
contained therein, if any, the Undersigned shall breach any
obligation incurred or covenant made in Section 8(f) the Settlement
Agreement and such default shall not be cured within 30 days after
written notice of a default under such Section 8(f) is given by
Action to the Undersigned, except that a default under this
subsection shall be deemed to be cured whenever the Partnership
provides the information required by such Section 8(f);
(f) The Undersigned shall sell (or otherwise transfer or
convey) any portion of the Property; or
(g) A proceeding shall have been instituted in respect
of the Undersigned:
(i) seeking to have an order for relief entered in
respect of the Undersigned, or seeking a declaration or entailing
a finding that the Undersigned is insolvent or a similar
declaration or finding, or seeking dissolution, winding-up, charter
revocation or forfeiture, liquidation, reorganization, arrangement,
adjustment, composition or other similar relief with respect to the
Undersigned, its assets or its debts under any law relating to
bankruptcy, insolvency, relief of debtors or protection of
creditors, termination of legal entities or any other similar law
now or hereafter in effect; or
(ii) seeking appointment of a receiver, trustee,
custodian, liquidator, assignee, sequestrator or other similar
official for the Undersigned or for all or any substantial party of
its property and such proceeding shall result in the entry, making
or grant of any such order for relief, declaration, finding, relief
or appointment, or such proceeding shall remain undismissed and
unstayed for a period of ninety consecutive days;
provided, that any such proceeding shall not constitute a default
under this subsection if Action institutes, or joins with any other
creditor in instituting, such proceeding.
10. The successors and assigns of the Undersigned shall be
bound by the terms hereof; the rights and privileges of Action
under this Note shall inure to the benefit of its successors and
assigns; the Undersigned may not assign or delegate its rights or
obligations hereunder without the prior written consent of the
holder hereof. This Note shall be governed by the laws of the
Commonwealth of Pennsylvania. Except as expressly provided to the
contrary herein, all persons now or at any time liable for payment
of this Note hereby waive presentment, demand, dishonor, protest,
notice of protest, notice of default and notice of dishonor, and
any other notice or demand of any kind from Action. The
Undersigned expressly consents to any and all extensions and
renewals of this Note, in whole, or in part, and to all delays in
time of payment or other performance under this Note which Action
may grant at any time and from time to time without limitation and
without any notice or further consent of the Undersigned. Action
hereby reserves all rights against the Undersigned.
11. The remedies of Action, as provided herein or by law,
shall be cumulative and concurrent and may be pursued singularly,
successively or together, at the sole discretion of Action, and may
be exercised as often as the occasion therefor shall arise.
12. POWER TO CONFESS JUDGMENT: AT ANY TIME AFTER AN EVENT OF
DEFAULT DESCRIBED IN PARAGRAPH 9(a) HAS OCCURRED, THE UNDERSIGNED
HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY
ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED STATES OR
ELSEWHERE, INCLUDING THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY,
PENNSYLVANIA, TO APPEAR FOR THE UNDERSIGNED, AND WITH OR WITHOUT
DECLARATION FILED, CONFESS JUDGMENT AGAINST THE UNDERSIGNED IN
FAVOR OF THE HOLDER HEREOF, AS OF ANY TERM, FOR THE UNPAID BALANCE
HEREOF, WHETHER BY ACCELERATION OR OTHERWISE WITH COSTS OF SUIT AND
AN ATTORNEY'S COMMISSION OF $15,000 WITH RELEASE OF ERRORS. THE
UNDERSIGNED HEREBY WAIVES ALL LAWS EXEMPTING REAL OR PERSONAL
PROPERTY FROM EXECUTION, TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY
BE WAIVED BY THE UNDERSIGNED. NO SINGLE EXERCISE OF THE FOREGOING
POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO EXHAUST THE POWER,
WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE
INVALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE
UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS
THE HOLDER HEREOF SHALL ELECT, UNTIL SUCH TIME AS HOLDER SHALL HAVE
RECEIVED PAYMENT IN FULL OF THE DEBT EVIDENCED HEREBY.
BY SIGNING THIS INSTRUMENT, THE UNDERSIGNED HEREBY
ACKNOWLEDGES THAT THIS NOTE IS GIVEN IN CONNECTION WITH A
COMMERCIAL TRANSACTION AND THAT IT HAS READ, UNDERSTOOD AND
VOLUNTARILY AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING
THE CONFESSION OF JUDGMENT PROVISION WHICH MAY RESULT IN A COURT
JUDGMENT AGAINST THE UNDERSIGNED WITHOUT PRIOR NOTICE OR HEARING
AND SUBJECT TO ANY OFFSET RIGHTS OF THE UNDERSIGNED.
13. Action agrees that if, in connection with the enforcement
of its rights under this Note, it obtains a lien against the
Property, it will release such lien if (a) the Property is sold to
EWI or its permitted assigns pursuant to the option, and at the
option price, currently set forth in the EWI Lease and (b) Action
receives all proceeds from such sale which are payable to the
Landlord under the EWI Lease (but in no event more than are
necessary to satisfy this Note and the Supplemental Note in full).
14. If at any time Action receives a bona fide offer to purchase
this Note which it intends to accept, it shall give the Undersigned
notice of such offer (an "Offer Notice"), which notice shall set
forth the terms of such offer and the proposed purchaser. The
Undersigned shall have a period of 10 days after its receipt of an
Offer Notice to elect to purchase this Note on the same terms and
conditions as set forth in the Offer Notice (except the puchase
price shall be paid in cash) by giving notice to Action to such
effect. Notwithstanding the foregoing, if the purchase price for
this Note is payable in installments in whole or in part, then the
Undersigned may either (a) pay the purchase price in cash, in which
case the purchase price (or such portion thereof) shall be
discounted to present value using the interest rate (if any) to be
paid by such proposed purchaser or (b) pay the purchase price in
installments, but only if it also delivers to Action an irrevocable
letter of credit securing its obligation to pay the balance of the
purchase price. If the Undersigned so elects to purchase this
Note, then the closing of such transaction shall occur not later
than the date when the closing with the proposed purchaser was to
have occurred, as specified in the Offer Notice. If the
Undersigned does not so elect to purchase this Note then, during
the 90-day period commencing 10 days after the Undersigned's
receipt of the Offer Notice, Action shall have the right to sell
this Note to the purchaser identified in, and on terms and
conditions substantially as specified in, the Offer Notice. If
such a sale does not occur within such time period then it shall
once again be subject to the terms of this Section. The foregoing
rights of the Undersigned shall not be applicable in the case of a
sale or other transfer of this Note to any person who controls, is
controlled by or is under common control with Action or to any
puchaser of all or substantially all of the assets of Action;
provided, that the foregoing rights shall suvive any such sale or
transfer and the transferee shall be bound thereby.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the Undersigned has caused this note to be executed and delivered
as of the day and year first above written.
ALLEGHENY CAPITAL GROWTH
LIMITED PARTNERSHIP
By: Third Pennsylvania
Holding Corporation, its
General Partner
By: JOHN KARLTON
--------------------------
Name: JOHN KARLTON
------------------------
Title: PRESIDENT
-----------------------
EXHIBIT 10.25
- -------------
SUPPLEMENTAL PROMISSORY JUDGMENT NOTE
$45,000 October 1, 1996
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY,
allegheny capital growth limited partnership, a Delaware limited
partnership (the "Undersigned"), promises to pay to the order of
ACTION INDUSTRIES, INC., a Pennsylvania corporation (together with
its successors and assigns, "Action"), at the offices of Action
located at Action Industrial Park, 460 Nixon Road, Cheswick,
Pennsylvania 15024, or at such other place as Action may from time
to time designate in writing, the principal amount of FORTY FIVE
THOUSAND AND 00/100 DOLLARS ($45,000), together with interest
thereon at the rate specified herein.
1. This Note is the "Supplemental Note" referred to in, is
subject to the terms of and is entitled to the benefits of that
certain Settlement Agreement between the parties of even date
herewith (the "Settlement Agreement"), the terms of which are
incorporated herein by reference. Capitalized terms used herein
and not otherwise defined shall have the meanings assigned to those
terms in the Settlement Agreement.
2. This Note shall not bear interest until January 1, 1997.
Thereafter, it shall bear interest at the rate of 7.5% per annum,
which interest shall be payable on the Maturity Date (defined
below).
3. No repayment of the principal amount hereof shall be
required prior to the "Maturity Date," defined as the earliest to
occur of (a) the date which is 18 months after the Effective Date,
(b) the date when the Property or a majority interest in the
Undersigned is sold to an unaffiliated third party (it being
specifically understood that family members of John Karlton to the
third degree of consanguinity and trusts created for his or their
benefit are not unaffiliated third parties) or (c) the date when a
refinancing of the mortgage loan currently owed to Metropolitan
Life Insurance Company (the "Metropolitan Loan") occurs; provided,
that an extension of the Metropolitan Loan shall not be considered
to be such a refinancing unless the principal amount of such loan
is increased in connection with such extension; and further
provided, that the inclusion of any fees, outstanding interest or
similar amounts in the principal amount of such loan as a condition
to such extension shall not constitute an increase in the principal
amount of such loan for the purposes of this sentence. All
outstanding principal, accrued interest and other amounts due
hereunder shall be due and payable on the Maturity Date.
4. Payments due under this Note and the obligations of the
Undersigned hereunder are subject to setoff and deduction in
accordance with the terms of the Settlement Agreement.
5. In the event of any litigation or arbitration between the
Undersigned and Action, the prevailing party shall be entitled to
recover from the other its reasonable costs and expenses (including
reasonable attorneys' fees and court costs) incurred in connection
with such litigation or arbitration. Subject to the foregoing, the
Undersigned agrees to pay, in addition to all other sums due
hereunder, the reasonable costs and expenses incurred by Action in
connection with all actions taken to collect this Note, whether by
legal proceedings or otherwise, including without limitation
reasonable legal fees and court costs.
6. All payments due hereunder which are not paid when due
shall bear interest at the rate of 9.5% per annum.
7. Payments under this Note, including amounts designated as
payments of interest or as prepayments, shall be applied by Action
first to lawful charges (including without limitation costs and
expenses due hereunder), then to interest accrued and then to
principal. The principal amount outstanding hereunder from time to
time may be prepaid, in whole or in part and at the option of the
Undersigned, without penalty or other restriction.
8. Upon the occurrence of any of the events described below
and so long as no Event of Default (as defined in the New Lease)
which has been determined to have occurred under the New Lease has
not been remedied, whether directly by Action or by the Partnership
having the opportunity to exercise offset rights under the
Settlement Agreement (each, an "Event of Default"), Action may,
upon written notice to the Undersigned, declare this Note and all
sums due hereunder to be immediately due and payable, whereupon
such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all
of which are expressly waived by the Undersigned (except that upon
the occurrence of any of the events described in clause (g) below,
this Note and all sums due hereunder shall be immediately due and
payable and without presentment, demand, protest or other formality
of any kind, all of which are expressly waived by the Undersigned):
(a) The Undersigned shall fail to make any payment of
principal, interest or any other sums owing hereunder when due and
such failure shall continue for more than ten (10) days after
written notice thereof from Action to the Undersigned;
(b) The Undersigned shall (i) default (as principal or
as guarantor or other surety) in the payment or performance of any
obligation for Indebtedness (as that term is defined in Section
8(f) of the Settlement Agreement) beyond any period of grace with
respect thereto and (ii) in the case of the Indebtedness secured by
a first mortgage lien on the Property from time to time only, the
mortgagee commences to exercise any of its remedies with respect
thereto; provided, however, that this Event of Default shall be
deemed cured as and to the extent that the holder of such
Indebtedness shall either waive the declaration of such default and
reinstate the obligation or obligations or deem the obligation or
obligations satisfied; and further provided, that notwithstanding
any such default, Action will forbear from exercising its remedies
hereunder for so long as the holders of all such Indebtedness so
forbear, but if any such holders charge interest at a penalty rate
during the period of such forbearance then interest shall accrue
hereunder during the period of such forbearance at the rate
specified in Paragraph 6 above;
(c) The Undersigned shall create, or permit to be
created, voluntarily, involuntarily, by operation of law or
otherwise, any mortgage, security interest or other lien of any
kind upon any of its assets or properties, including without
limitation upon the Property, the EWI Lease or the New Lease,
except for (i) mortgages, security interests and assignments of
leases and rents that secure the Metropolitan Loan and (ii) liens
which are not voluntarily created or assented to by the Partnership
and which are removed, bonded over or, in the case of
materialmens's or mechanics' liens only, adequately reserved
against within 30 days of written notice thereof from Action to the
Undersigned; provided, that the Undersigned shall not be deemed to
be in default under this subparagraph if (A) such lien was created
by an act or omission of a tenant of the Property and (B) the
Undersigned is actively and in good faith pursuing its remedies
against such tenant to have such lien removed or bonded over;
(d) One or more judgments for the payment of money or in
mortgage foreclosure shall have been entered against the
Undersigned, which judgment or judgments exceed $50,000 in the
aggregate, and such judgment or judgments shall have remained
undischarged and unstayed for a period of twenty consecutive days;
(e) Subject to applicable notice and grace periods
contained therein, if any, the Undersigned shall breach any
obligation incurred or covenant made in the New Note or in Section
8(f) of the Settlement Agreement and, in the case of Section 8(f)
of the Settlement Agreement only, such default shall not have been
cured within 30 days after written notice of a default under such
Section 8(f) is given by Action to the Undersigned, except that a
default under this subsection by reason of a default under such
Section 8(f) shall be deemed to be cured whenever the Partnership
provides the information required by such Section 8(f);
(f) The Undersigned shall sell (or otherwise transfer or
convey) any portion of the Property; or
(g) A proceeding shall have been instituted in respect
of the Undersigned:
(i) seeking to have an order for relief entered in
respect of the Undersigned, or seeking a declaration or entailing
a finding that the Undersigned is insolvent or a similar
declaration or finding, or seeking dissolution, winding-up, charter
revocation or forfeiture, liquidation, reorganization, arrangement,
adjustment, composition or other similar relief with respect to the
Undersigned, its assets or its debts under any law relating to
bankruptcy, insolvency, relief of debtors or protection of
creditors, termination of legal entities or any other similar law
now or hereafter in effect; or
(ii) seeking appointment of a receiver, trustee,
custodian, liquidator, assignee, sequestrator or other similar
official for the Undersigned or for all or any substantial party of
its property and such proceeding shall result in the entry, making
or grant of any such order for relief, declaration, finding, relief
or appointment, or such proceeding shall remain undismissed and
unstayed for a period of ninety consecutive days.
provided, that any such proceeding shall not constitute a default
under this subsection if Action institutes, or joins with any other
creditor in instituting, such proceeding.
9. The successors and assigns of the Undersigned shall be
bound by the terms hereof; the rights and privileges of Action
under this Note shall inure to the benefit of its successors and
assigns; the Undersigned may not assign or delegate its rights or
obligations hereunder without the prior written consent of the
holder hereof. This Note shall be governed by the laws of the
Commonwealth of Pennsylvania. Except as expressly provided to the
contrary herein, all persons now or at any time liable for payment
of this Note hereby waive presentment, demand, dishonor, protest,
notice of protest, notice of default and notice of dishonor, and
any other notice or demand of any kind from Action. The
Undersigned expressly consents to any and all extensions and
renewals of this Note, in whole, or in part, and to all delays in
time of payment or other performance under this Note which Action
may grant at any time and from time to time without limitation and
without any notice or further consent of the Undersigned. Action
hereby reserves all rights against the Undersigned.
10. The remedies of Action, as provided herein or by law,
shall be cumulative and concurrent and may be pursued singularly,
successively or together, at the sole discretion of Action, and may
be exercised as often as the occasion therefor shall arise.
11. POWER TO CONFESS JUDGMENT: AT ANY TIME AFTER AN EVENT OF
DEFAULT DESCRIBED IN PARAGRAPH 8(a) HAS OCCURRED, THE UNDERSIGNED
HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY
ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED STATES OR
ELSEWHERE, INCLUDING THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY,
PENNSYLVANIA, TO APPEAR FOR THE UNDERSIGNED, AND WITH OR WITHOUT
DECLARATION FILED, CONFESS JUDGMENT AGAINST THE UNDERSIGNED IN
FAVOR OF THE HOLDER HEREOF, AS OF ANY TERM, FOR THE UNPAID BALANCE
HEREOF, WHETHER BY ACCELERATION OR OTHERWISE WITH COSTS OF SUIT AND
AN ATTORNEY'S COMMISSION OF $15,000 WITH RELEASE OF ERRORS. THE
UNDERSIGNED HEREBY WAIVES ALL LAWS EXEMPTING REAL OR PERSONAL
PROPERTY FROM EXECUTION, TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY
BE WAIVED BY THE UNDERSIGNED. NO SINGLE EXERCISE OF THE FOREGOING
POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO EXHAUST THE POWER,
WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE
INVALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE
UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS
THE HOLDER HEREOF SHALL ELECT, UNTIL SUCH TIME AS HOLDER SHALL HAVE
RECEIVED PAYMENT IN FULL OF THE DEBT EVIDENCED HEREBY.
BY SIGNING THIS INSTRUMENT, THE UNDERSIGNED HEREBY
ACKNOWLEDGES THAT THIS NOTE IS GIVEN IN CONNECTION WITH A
COMMERCIAL TRANSACTION AND THAT IT HAS READ, UNDERSTOOD AND
VOLUNTARILY AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING
THE CONFESSION OF JUDGMENT PROVISION WHICH MAY RESULT IN A COURT
JUDGMENT AGAINST THE UNDERSIGNED WITHOUT PRIOR NOTICE OR HEARING
AND SUBJECT TO ANY OFFSET RIGHTS OF THE UNDERSIGNED.
12. Action agrees that if, in connection with the enforcement
of its rights under this Note, it obtains a lien against the
Property, it will release such lien if (a) the Property is sold to
EWI or its permitted assigns pursuant to the option, and at the
option price, currently set forth in the EWI Lease and (b) Action
receives all proceeds from such sale which are payable to the
Landlord under the EWI Lease (but in no event more than are
necessary to satisfy this Note and the New Note in full.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
the Undersigned has caused this note to be executed and delivered
as of the day and year first above written.
ALLEGHENY CAPITAL GROWTH
LIMITED PARTNERSHIP
By: Third Pennsylvania
Holding Corporation, its
General Partner
By: JOHN KARLTON
-------------------------
Name: JOHN KARLTON
-----------------------
Title: PRESIDENT
----------------------
EXHIBIT 10.26
- -------------
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
MAZEL COMPANY L.P.
and
ACTION INDUSTRIES, INC.
October _____, 1996
TABLE OF CONTENTS
SECTION 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . .1
1.1 "Applicable Closing Date". . . . . . . . . . . . . . .1
1.2 "Assets" . . . . . . . . . . . . . . . . . . . . . . .1
1.3 "Bank" . . . . . . . . . . . . . . . . . . . . . . . .1
1.4 "Bank Lien" . . . . . . . . . . . . . . . . . . . . .1
1.5 "Cheswick Facility" . . . . . . . . . . . . . . . . .2
1.6 "Claims" . . . . . . . . . . . . . . . . . . . . . . .2
1.7 "COBRA" . . . . . . . . . . . . . . . . . . . . . . .2
1.8 "Code" . . . . . . . . . . . . . . . . . . . . . . . .2
1.9 "Damages" . . . . . . . . . . . . . . . . . . . . . .2
1.10 "Employee" . . . . . . . . . . . . . . . . . . . . . .2
1.11 "ERISA" . . . . . . . . . . . . . . . . . . . . . . .2
1.12 "First Closing Date" . . . . . . . . . . . . . . . . .2
1.13 "GAAP" . . . . . . . . . . . . . . . . . . . . . . . .2
1.14 "Good and Saleable Inventory" . . . . . . . . . . . .2
1.15 "Gross Sales" . . . . . . . . . . . . . . . . . . . .2
1.16 "Intellectual Property" . . . . . . . . . . . . . . .2
1.17 "Inventory" . . . . . . . . . . . . . . . . . . . . .3
1.18 "Powerhouse Customers" . . . . . . . . . . . . . . . .3
1.19 "Powerhouse Inventory" . . . . . . . . . . . . . . . .3
1.20 "Promotional Customers" . . . . . . . . . . . . . . .3
1.21 "Promotional Inventory" . . . . . . . . . . . . . . .3
1.22 "Second Closing Date" . . . . . . . . . . . . . . . .3
1.23 "Seller's Warranty Claims" . . . . . . . . . . . . . .3
1.24 "Trade Secrets" . . . . . . . . . . . . . . . . . . .3
1.25 "Warehouse Facilities" . . . . . . . . . . . . . . . .3
1.26 "WARN" . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2 PURCHASE OF ASSETS . . . . . . . . . . . . . . . . . .4
2.1 Sale of Assets . . . . . . . . . . . . . . . . . . . .4
(a) First Closing Date. . . . . . . . . . . . . . . .4
(b) Second Closing Date . . . . . . . . . . . . . . .5
(c) Instructions of Conveyance. . . . . . . . . . . .6
(d) Right of Buyer to Exclude Certain Inventory . . .6
2.2 Excluded Assets. . . . . . . . . . . . . . . . . . . .6
2.3 Consideration. . . . . . . . . . . . . . . . . . . . .6
2.4 Inventory Taking . . . . . . . . . . . . . . . . . . .6
2.5 Purchase Price and Payment . . . . . . . . . . . . . .7
2.6 Allocation of Purchase Price . . . . . . . . . . . . .9
2.7 No Assumption of Liabilities . . . . . . . . . . . . .9
2.8 Unassumed Liabilities. . . . . . . . . . . . . . . . 10
2.9 Bulk Sale Law. . . . . . . . . . . . . . . . . . . . 11
2.10 Non-Assignable Contracts and Rights. . . . . . . . . 11
2.11 Prorations . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3 CLOSING DATE . . . . . . . . . . . . . . . . . . . . 12
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . 13
4.1 Organization, Qualification and Authority of Seller. 13
(a) Due Organization and Qualification. . . . . . . 13
(b) Power and Authority to Conduct Business . . . . 13
(c) No Defaults or Violations . . . . . . . . . . . 13
(d) Power and Authority to Enter Into Agreements. . 14
(e) Due Execution and Enforceability. . . . . . . . 14
4.2 Inventory Report . . . . . . . . . . . . . . . . . . 14
4.3 No Equity Interest . . . . . . . . . . . . . . . . . 14
4.4 Title to Assets; No Claims, Liens, Etc.; "AS-IS"
Condition of Inventory . . . . . . . . . . . . . . . 14
4.5 Contracts and Commitments. . . . . . . . . . . . . . 15
(a) Customer Purchase Orders, Sales Bids and Proposals15
(b) Restrictions on Conduct of Business . . . . . . 15
4.6 Intellectual Property. . . . . . . . . . . . . . . . 15
4.7 Trade Secrets and Customer Lists . . . . . . . . . . 16
4.8 Customers and Sales. . . . . . . . . . . . . . . . . 16
4.9 Customer Deposits. . . . . . . . . . . . . . . . . . 16
4.10 Suppliers. . . . . . . . . . . . . . . . . . . . . . 17
4.11 Insurance. . . . . . . . . . . . . . . . . . . . . . 17
4.12 Contracts. . . . . . . . . . . . . . . . . . . . . . 17
4.13 Inventories. . . . . . . . . . . . . . . . . . . . . 17
4.14 Product Warranties . . . . . . . . . . . . . . . . . 18
4.15 Tax Returns. . . . . . . . . . . . . . . . . . . . . 18
4.16 Pending Claims, Litigation and Governmental
Proceedings. . . . . . . . . . . . . . . . . . . . . 18
4.17 Judgments, Orders and Consent Decrees. . . . . . . . 18
4.18 Agents and Employees . . . . . . . . . . . . . . . . 19
4.19 Labor Matters. . . . . . . . . . . . . . . . . . . . 19
4.20 Environmental Matters. . . . . . . . . . . . . . . . 19
4.21 Compliance with Laws . . . . . . . . . . . . . . . . 20
4.22 Evaluation of Terms of Transaction . . . . . . . . . 20
4.23 Full Disclosure. . . . . . . . . . . . . . . . . . . 20
4.24 Duty of Seller to Make Inquiry . . . . . . . . . . . 20
4.25 No Broker's or Finder's Fees . . . . . . . . . . . . 20
4.26 Survival . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5 REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . 21
5.1 Authority, Enforceability, Etc.. . . . . . . . . . . 21
(a) Due Organization. . . . . . . . . . . . . . . . 21
(b) Power and Authority to Conduct Business . . . . 21
(c) No Defaults or Violations . . . . . . . . . . . 21
(d) Power and Authority to Enter Into Agreements. . 22
(e) Due Execution and Enforceability. . . . . . . . 22
5.2 No Broker's or Finder's Fees . . . . . . . . . . . . 22
5.3 Judgments, Orders and Consent Decrees. . . . . . . . 22
5.4 Survival . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6 COVENANTS OF SELLER. . . . . . . . . . . . . . . . . 23
6.1 Conduct of Business Pending Second Closing Date. . . 23
(a) Full Access . . . . . . . . . . . . . . . . . . 23
(b) Customer Purchase Orders, Product Supply Orders,
Bids and Proposals. . . . . . . . . . . . . . . 23
(c) Use of Intellectual Property. . . . . . . . . . 24
(d) Inventory Liquidation Sales . . . . . . . . . . 24
(e) Business Operations . . . . . . . . . . . . . . 24
(f) Insurance . . . . . . . . . . . . . . . . . . . 24
(g) Compliance with Laws. . . . . . . . . . . . . . 25
6.3 Conditions Precedent . . . . . . . . . . . . . . . . 25
6.4 Injunctions. . . . . . . . . . . . . . . . . . . . . 25
6.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7 CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. 25
7.1 Representations and Warranties True on Applicable Closing
Date . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Compliance with Agreement. . . . . . . . . . . . . . 25
7.3 Secretary's Certificate. . . . . . . . . . . . . . . 25
7.4 Compliance Certificate . . . . . . . . . . . . . . . 26
7.5 No Litigation. . . . . . . . . . . . . . . . . . . . 26
7.6 Consents and Approvals . . . . . . . . . . . . . . . 26
7.7 Termination of Liens; Warehouseman's Waiver. . . . . 26
7.8 Damage or Destruction. . . . . . . . . . . . . . . . 26
7.9 Warehouse Arrangements . . . . . . . . . . . . . . . 26
7.10 Opinion of Counsel . . . . . . . . . . . . . . . . . 26
7.11 Injunctions. . . . . . . . . . . . . . . . . . . . . 26
SECTION 8 CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE 27
8.1 Representations and Warranties True at the Applicable
Closing Date . . . . . . . . . . . . . . . . . . . . 27
8.2 Compliance With Agreement. . . . . . . . . . . . . . 27
8.3 Secretary's Certificate. . . . . . . . . . . . . . . 27
8.4 Compliance Certificate . . . . . . . . . . . . . . . 27
8.5 No Litigation. . . . . . . . . . . . . . . . . . . . 27
8.6 Consents and Approvals . . . . . . . . . . . . . . . 27
8.7 Opinion of Counsel . . . . . . . . . . . . . . . . . 27
8.8 Approval by Shareholders of Seller . . . . . . . . . 28
SECTION 9 FURTHER AGREEMENTS OF THE PARTIES. . . . . . . . . . 28
9.1 Employees. . . . . . . . . . . . . . . . . . . . . . 28
9.2 Nondisclosure. . . . . . . . . . . . . . . . . . . . 29
9.3. Restrictive Covenants. . . . . . . . . . . . . . . . 29
(a) Confidentiality . . . . . . . . . . . . . . . . 29
(b) Non-Competition . . . . . . . . . . . . . . . . 30
(c) Injunctive Relief . . . . . . . . . . . . . . . 31
9.4 Negotiation with Others. . . . . . . . . . . . . . . 31
9.5 Replenishment Sales Following First Closing Date . . 31
9.6 Approval of Shareholders of Seller . . . . . . . . . 31
9.7 Right of First Refusal with Respect to Other Assets of
Seller . . . . . . . . . . . . . . . . . . . . . . . 31
9.8 Trade Show Deposits. . . . . . . . . . . . . . . . . 32
9.9 Accounts Receivable. . . . . . . . . . . . . . . . . 32
SECTION 10 RISK OF LOSS. . . . . . . . . . . . . . . . . . . . 33
10.1 Risk of Loss . . . . . . . . . . . . . . . . . . . . 33
SECTION 11 TERMINATION AND ABANDONMENT . . . . . . . . . . . . 33
11.1 Termination. . . . . . . . . . . . . . . . . . . . . 33
11.2 Notice of Termination. . . . . . . . . . . . . . . . 33
SECTION 12 INDEMNIFICATION AND REIMBURSEMENT . . . . . . . . . 34
12.1 Indemnification by Seller. . . . . . . . . . . . . . 34
12.2 Indemnification by Buyer . . . . . . . . . . . . . . 35
12.3 Product Liability Matters. . . . . . . . . . . . . . 36
12.4 Claims for Reimbursement . . . . . . . . . . . . . . 36
12.5 Defense of Third-Party Claims. . . . . . . . . . . . 36
12.6 Indemnification as Sole Remedy; Exceptions . . . . . 37
12.7 Limitations. . . . . . . . . . . . . . . . . . . . . 37
SECTION 13 RIGHT TO PROCEED. . . . . . . . . . . . . . . . . . 38
13.1 Waiver of Conditions. . . . . . . . . . . . . . . . 38
SECTION 14 MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . 38
14.1 Costs and Expenses . . . . . . . . . . . . . . . . . 38
14.2 Amendment and Modification . . . . . . . . . . . . . 39
14.3 No Assignment. . . . . . . . . . . . . . . . . . . . 39
14.4 Notices. . . . . . . . . . . . . . . . . . . . . . . 40
14.5 Counterparts . . . . . . . . . . . . . . . . . . . . 40
14.6 Headings . . . . . . . . . . . . . . . . . . . . . . 40
14.7 Recitals, Exhibits and Schedules . . . . . . . . . . 40
14.8 Schedules and Exhibits . . . . . . . . . . . . . . . 40
14.9 Waiver; Remedies . . . . . . . . . . . . . . . . . . 40
14.10 Governing Law . . . . . . . . . . . . . . . . . . . 40
14.11 Jurisdiction and Venue. . . . . . . . . . . . . . . 41
14.12 Severability. . . . . . . . . . . . . . . . . . . . 41
14.13 Entire Agreement. . . . . . . . . . . . . . . . . . 41
14.13 Time is of the Essence. . . . . . . . . . . . . . . 41
Schedules
4.1(c) No Defaults or Violations
4.1(d) Power and Authority to Enter Into Agreements
4.2 Inventory Reports
4.3 Equity Interests
4.5(a) Sales Contracts
4.6 Schedule of Trade Names, Trademarks, Service Marks, and
Copyrights
4.8 Schedule of Customers
4.10 Schedule of Suppliers
4.11 Product Liability Insurance
4.12 Contracts
4.16 Pending Claims, Litigation and Governmental Proceedings
4.18 Agents and Employees
6.1(b) Outstanding Supply Orders for Promotional Inventory
Exhibits
A General Assignment and Bill of Sale
B Assignment of Trademarks
C Assignment of Trade Names and Copyrights
D Accounting Standard and Principles/"Wall to Wall"
Inventory Procedures
E Form of Bulk Sales Notice
F Form of Bulk Sales Affidavit
G Opinion of Counsel to Seller
H Opinion of Counsel to Buyer
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into as of the _____ day of
October, 1996, by and between ACTION INDUSTRIES, INC., a
Pennsylvania corporation ("Seller") and MAZEL COMPANY L.P., a
Delaware limited partnership, or its nominee or successor
("Buyer"), is to evidence the following agreements and
understandings:
W I T N E S S E T H:
WHEREAS, Seller is engaged in the purchase, sale, import and
distribution of a wide variety of replenishment merchandise sold
under the trade name "Powerhouse" and promotional merchandise sold
under a variety of trade names; and
WHEREAS, Buyer desires to purchase from Seller, and Seller
desires to sell to Buyer, certain assets of Seller, and Buyer is
not assuming any of the liabilities or obligations of Seller
(except for those specified obligations of Seller delineated in
Section 2.7 hereof) upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises, the mutual
promises made herein and the mutual benefits to be derived
therefrom, the parties hereto hereby represent, warrant, covenant,
agree and understand as follows with the intent to be legally
bound:
SECTION 1
DEFINITIONS
Capitalized terms not otherwise defined in this Agreement
shall have the meanings set forth in this Section 1.
1.1 "Applicable Closing Date" means the First Closing Date or the
Second Closing Date, as the context of this Agreement may require.
1.2 "Assets" means those assets of Seller described in Sections
2.1(a) and 2.1(b) of this Agreement, other than the Excluded
Assets, as defined in Section 2.2 of this Agreement.
1.3 "Bank" means Foothill Capital Corporation, Seller's
institutional lender.
1.4 "Bank Lien" means the lien and security interest in certain
assets of Seller granted to Bank, which lien, with respect to the
Assets, will be released on the Applicable Closing Date.
1.5 "Cheswick Facility" means the office/warehouse building
utilized by Seller as its corporate headquarters and located at 460
Nixon Road, Cheswick, Pennsylvania.
1.6 "Claims" means all liens, encumbrances, security interests,
mortgages, equities, interests, options or pledges of every kind,
nature and description.
1.7 "COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985.
1.8 "Code" means the Internal Revenue Code of 1986 and any
amendments, predecessor laws, or successor laws.
1.9 "Damages" means all liabilities, deficiencies, losses, costs
or expenses, including, but not limited to, reasonable attorney's
and other professional fees, costs of litigation, interest and
penalties.
1.10 "Employee" means any person employed by Seller pursuant
to either a contractual or at will relationship who works for
Seller, whether or not at the Cheswick Facility or the Warehouse
Facilities (defined below).
1.11 "ERISA" means the Employee Retirement Income Securities
Act of 1974, as amended.
1.12 "First Closing Date" means the date defined in Section 2.1(a).
1.13 "GAAP" means generally accepted accounting principles
consistently applied.
1.14 "Good and Saleable Inventory" means each item of Powerhouse
Inventory and Promotional Inventory of Seller which meets each of
the following criteria: (i) it is not damaged or defective; and
(ii) it is not diminished in fair market value by reason of
factors that Buyer reasonably deems relevant applying standards
similar to those applied in connection with purchases of inventory
at closeout prices.
1.15 "Gross Sales" shall mean the gross invoice sales price, net of
freight, discounts and allowances of all Powerhouse Inventory that
Buyer purchases from Seller pursuant to this Agreement and that is
sold and shipped to Powerhouse Customers within ninety (90) days
following the First Closing Date and paid for within one hundred
eighty (180) days following the First Closing Date.
1.16 "Intellectual Property" includes, but is not limited to: all
Trade Secrets, patents, and patent applications, if any, trade
names, fictitious names, assumed names, trademarks, trade dress,
logos and service marks (whether domestic or foreign, registered or
unregistered), all copyrights (registered or unregistered) licensed
or owned by Seller or by any affiliate of Seller and now or at any
time used by Seller in connection with the sale of the Powerhouse
Inventory and/or the Promotional Inventory.
1.17 "Inventory" means, collectively, the Powerhouse Inventory or
the Promotional Inventory.
1.18 "Powerhouse Customers" means those customers of Seller
identified in Schedule 4.8 attached hereto.
1.19 "Powerhouse Inventory" means the replenishment inventory and
all related point-of-sale inventory, i.e., displays, display
headers (on pallets and dies) and components thereof ("Point-of-Sale
Inventory") of Seller sold under the name "Powerhouse" and
located at the Cheswick Facility or the Columbus Warehouse.
1.20 "Promotional Customers" means those customers of Seller
identified in Schedule 4.8 attached hereto.
1.21 "Promotional Inventory" means all inventory of merchandise,
goods and other products for sale to Seller's Promotional Customers
and all related Point-of-Sale Inventory which are sold or offered
for sale to Seller's Promotional Customers and located at the
Cheswick Facility or the Mount Vernon Warehouse.
1.22 "Second Closing Date" means the date defined in Section
2.1(b).
1.23 "Seller's Warranty Claims" means all warranty,
indemnification, or other contract claims of Seller against third
parties whether implied, express or otherwise, or refunds due to
Seller from third party manufacturers, vendors, carriers or
utilities arising from or relating to Seller's purchase of the
Powerhouse Inventory or Seller's purchase of the Promotional
Inventory.
1.24 "Trade Secrets" includes: marketing materials; program
pricing, merchandising requirements and costs, and display
requirements; sales incentive programs including quotas, actual
performance and bonuses paid; and other information relating to the
sale of Powerhouse and Promotional Inventory that Buyer may
reasonably identify and request.
1.25 "Warehouse Facilities" means, collectively, (i) the
public warehouse located at 711 Distribution Drive, Columbus, Ohio
and owned by Transmanagement Corporation (the "Columbus
Warehouse"); and (ii) the public warehouse located at 160 Columbus
Road, Mt. Vernon, Ohio and owned by Transmanagement Corporation
(the "Mount Vernon Warehouse").
1.26 "WARN" means the Worker Adjustment Retraining
Notification Act of 1988.
SECTION 2
PURCHASE OF ASSETS
2.1 Sale of Assets.
(a) First Closing Date. On the tenth (10th) business day
following the execution and delivery of this Agreement or such
earlier date as the parties may mutually agree in writing (the
"First Closing Date"), Seller shall sell, transfer, assign, grant,
convey and deliver to Buyer, free and clear of all Claims, the
following assets:
(i) all Powerhouse Inventory which as of the First
Closing Date has not been shipped and remains
unsold, subject, however, to Paragraph 2.1(d);
(ii) all of Seller's right, title and interest in and to
the trademarks "Homewares" and "Impressions",
together with any design or logo relating to such
names;
(iii) the non-exclusive right and license to use
(concurrently with Seller) the registered
trademarks "DOLLAR-AMA" and "DOLLAR DAZE,"
together with any design or logo relating to
such names, in connection with the conduct of
business by Buyer between the First Closing
Date and the Second Closing Date; provided,
however, that if the Second Closing Date does
not occur, then such licenses shall terminate
upon the termination of this Agreement but
Buyer shall nonetheless have a first right of
refusal to acquire such Intellectual Property
pursuant to Section 9.7 hereof;
(iv) packaging and labeling material and sales
literature relating to the Powerhouse Inventory;
(v) all of Seller's Warranty Claims with respect to the
Powerhouse Inventory included in the Assets;
(vi) all Intellectual Property that relates exclusively
to the Powerhouse Inventory;
(vii) all customer lists, supplier lists, import
records (including, but not limited to, "point
of origin" records), export records (if any)
and recall notices relating to or associated
with the Powerhouse Inventory ; and
(viii) to the extent (if at all) assumed by Buyer
pursuant to Section 2.7 hereof, Action's bids
and sales proposals and unfulfilled customer
purchase orders and purchase commitments
relating to the Powerhouse Inventory, and such
other contracts, obligations and commitments
of Seller in respect of the Powerhouse
Inventory as Buyer, in its sole discretion,
may elect to assume hereunder.
(b) Second Closing Date. On such date as the parties may
mutually agree in writing, which date shall in no event be later
than January 31, 1997 except as mutually agreed in writing by the
parties, (the "Second Closing Date"), Seller shall sell, transfer,
assign, grant, convey and deliver to Buyer, free and clear of all
Claims, whether tangible, intangible, personal or mixed, the
following assets:
(i) all Promotional Inventory which as of the Second
Closing Date has not been shipped and remains
unsold, subject, however, to Paragraph 2.1(d);
(ii) all of Seller's right, title and interest in and to
all Intellectual Property that has not already been
assigned and transferred to Buyer on the First
Closing Date;
(iii) packaging and labeling material and sales
literature relating to the Promotional
Inventory;
(iv) all of Seller's Warranty Claims with respect to the
Promotional Inventory included in the Assets;
(v) customer lists, supplier lists, import records
(including, but not limited to, "point of origin"
records), export records (if any), recall notices
relating to or associated with the Promotional
Inventory; and
(vi) to the extent assumed by Buyer pursuant to Section
2.7 hereof, Action's bids and sales proposals and
unfulfilled customer purchase orders and purchase
commitments relating to the Promotional Inventory,
and such other contracts, obligations and
commitments of Seller in respect of the Promotional
Inventory as Buyer, in its sole discretion, may
elect to assume hereunder.
(c) Instructions of Conveyance. The assets described in
Sections 2.1(a) and (b) above are hereinafter collectively referred
to as the "Assets". The Assets constituting tangible personal
property shall be conveyed to Buyer by execution and deliver of a
General Assignment and Bill of Sale in the form attached hereto as
"Exhibit A". Intellectual Property shall be conveyed to Buyer by
execution and delivery of an Assignment of Trademarks and
Assignment of Trade Names and Copyrights in the forms attached
hereto as Exhibits "B" and "C", respectively.
(d) Right of Buyer to Exclude Certain Inventory.
Notwithstanding anything contained herein to the contrary: (i)
Buyer shall not be required to purchase any item of Powerhouse
Inventory or Promotional Inventory which is not Good and Saleable
Inventory; (ii) Buyer shall not be required to purchase any item of
Powerhouse Inventory or Promotional Inventory if the total number
of units in stock of such item on the Applicable Closing Date is
less than one hundred (100); and (iii) Buyer shall not be required
to purchase any new Inventory not presently in Seller's possession
or on order or any Inventory purchased by Seller other than as
specifically provided in or permitted under Section 6.1(b). Any
Inventory which Buyer elects not to purchase pursuant to this
Section 2.1(d) shall be deemed an Excluded Asset.
2.2 Excluded Assets. Buyer shall not purchase or acquire
hereunder any right, title or interest in or to any of the
properties, rights or assets of Seller not described in Section 2.1
hereof (collectively, the "Excluded Assets").
2.3 Consideration. Upon the terms and subject to the conditions
set forth in this Agreement and in consideration for the Assets,
Buyer shall pay and remit to Seller on the Applicable Closing Date
the Purchase Price (as defined in Section 2.5(a) hereof) in the
manner described in Section 2.4(b) hereof.
2.4 Inventory Taking.
(a) On the day immediately preceding the Applicable Closing
Date, a "wall-to-wall" physical inventory of the Inventory to be
purchased on such date will be conducted at the Warehouse
Facilities and, if applicable, at the Cheswick Facility, by Seller
and by Buyer jointly at their respective cost and expense. Such
inventory will be valued at 63.3% of actual cost of Inventory, as
reflected in Seller's books and records (as previously reviewed by
Buyer). Procedures for the taking and calculation of the Inventory
are set forth in Exhibit "D" attached hereto and made a part
hereof. The parties shall agree upon and sign the report of the
Inventory ("Inventory Report") following the completion of the
physical inventory and the resolution of any disputes. In order to
facilitate the taking of the "wall-to-wall" physical inventory: (i)
all operations of Seller at the facility at which the Inventory to
be purchased is located shall cease during the taking of such
physical inventory; and (ii) no such Inventory shall be shipped and
no goods or materials shall be received during the taking of such
physical inventory. Representatives of Buyer and Seller shall be
entitled to participate at their respective cost and expense in the
observation of the physical inventory.
(b) In the event of a dispute between the parties as to the
accuracy of any items contained in the Inventory Report, then the
Buyer shall pay the undisputed amount to the Seller on the
Applicable Closing Date and Seller and Buyer shall negotiate in
order to agree upon the proper valuation. If they shall fail to
come to an agreement with respect thereto within fifteen (15) days
after such negotiation shall commence, then the amount of the
Inventory valuation shall be referred for determination to the
Cleveland, Ohio offices of Deloitte & Touche (the "Dispute
Accountants"), who shall be instructed, with respect to each item
in dispute, to choose between the position taken on that issue by
Buyer and the position taken on that issue by Seller (as opposed to
adopting either a compromise position or any position not taken by
one or the other of Buyer and Seller). The Dispute Accountants
shall have no right, authority or discretion to employ any
accounting standard or principles or valuation method except for
those reflected in "Exhibit D". The determination by the Dispute
Accountants shall be final, binding, and conclusive on the parties.
The fees and disbursements of the Dispute Accountants shall be
allocated between Buyer and Seller so that the dollar amount of
such fees and disbursements borne by each of them is in direct
proportion to that portion of the dollar amount of the items in
dispute (i.e.: the aggregate dollar spread between the positions
taken by each of Buyer and Seller) with respect to which the
Dispute Accountants find against each of Buyer and Seller,
respectively. Nothing herein contained shall be construed (i) to
authorize or permit the Dispute Accountants to arbitrate or
determine any question or matter whatsoever under or in connection
with this Agreement except the valuation of inventory, or (ii) to
require the Dispute Accountants to follow rules of the American
Arbitration Association or of any other body in making such
determination.
2.5 Purchase Price and Payment.
(a) The aggregate purchase price for the Assets (the
"Purchase Price") will be an amount equal to (i) $100,000 plus (ii)
an amount equal to 63.3% of Seller's actual cost of the Inventory
plus (iii) an amount equal to five percent (5%) of Gross Sales of
Powerhouse Inventory. It is the present intention of Buyer to sell
Powerhouse Inventory to the Powerhouse Customers from the Columbus
Warehouse.
(b) The Purchase Price will be paid as follows:
(i) On the First Closing Date, Buyer shall pay the sum
of $25,000 plus an amount equal to 63.3% of
Seller's actual cost of Powerhouse Inventory;
(ii) On the Second Closing Date, Buyer shall pay the sum
of $75,000 plus an amount equal to 63.3% of
Seller's actual cost of the Promotional Inventory;
and
(iii) Within one hundred and eighty (180) days
following the First Closing Date, Buyer shall
make the payment described in subsection
2.5(a)(iii) above (such payment shall
accompanied by a sales report indicating Gross
Sales upon which such payment is based,
together with such additional documentation as
Seller may reasonably require).
Any dispute between the parties with respect to the
calculation or payment of the royalties described in subsection
2.5(a)(iii) which remains unresolved for a period of thirty (30)
days following the date on which notice of such dispute is received
by Buyer or Seller, as the case may be, shall be referred to the
Dispute Accountants for determination in accordance with Section
2.4(b), and such determination shall be final, binding and
conclusive on the parties.
(c)(i) To the extent that the Purchase Price for the
Assets paid on the First Closing Date or
Second Closing Date is greater than the
purchase price for the Assets sold on such
Applicable Closing Date, as finally
determined, such excess resulting from
breakage of or damage to perishable or fragile
container Inventory that is discovered within
thirty (30) days following the Applicable
Closing Date and which renders such Inventory
non-saleable (such excess payment being
hereinafter referred to as the "Adjustment"),
Buyer may, at its sole election and upon
notice to Seller, set off against the royalty
payments described in subparagraph 2.5(b)(iii)
an amount equal to such excess payment. Any
notice delivered by Buyer pursuant to the
preceding sentence shall set forth in
reasonable detail the type, unit quantity and
cost to Buyer of each item of Inventory in
respect of which an adjustment is being
claimed by Buyer. In the event such setoff is
insufficient to satisfy any Purchase Price
Adjustment in Buyer's favor, Seller shall pay
to Buyer by certified check or by wire
transfer in immediately available federal
funds, the amount of the deficiency plus
interest thereon from the Applicable Closing
Date at the rate of nine percent (9%) per
annum. Notwithstanding anything in this
subsection to the contrary, Buyer shall not be
entitled to claim any Adjustment in its favor
unless, and solely to the extent, the total
Purchase Price paid for the damaged or broken
container Inventory in respect of which the
Adjustment is being claimed, exceeds ten
percent (10%) of the Purchase Price paid on
the Applicable Closing Date;
(ii) To the extent the Purchase Price for the Assets,
sold on the First Closing Date or Second Closing
Date, as finally determined, is greater than the
purchase price paid on the Applicable Closing Date,
Buyer shall pay to Seller, by certified check or by
wire transfer of immediately available federal
funds, an amount equal to such difference plus
interest thereon from the Applicable Closing Date
at the rate of nine percent (9%) per annum.
2.6 Allocation of Purchase Price. The Purchase Price represents
the amount agreed upon by the parties to be the fair market value
of the Assets. The Purchase Price shall be allocated for income
tax purposes among the Assets in a manner consistent with Section
1060 of the Code. Buyer shall provide to Seller, not later than
sixty (60) days after the date on which the Purchase Price is
finally determined, a written proposal for the allocation of the
Purchase Price among the Assets. Seller shall notify Buyer within
thirty (30) days of receipt of the proposal whether or not and to
what extent Seller agrees with the proposal. If Buyer and Seller
cannot agree on the allocation within forty-five (45) days of
Seller's receipt of the proposal, each of Buyer and Seller shall be
free to allocate the Purchase Price among the Assets as it may
independently deem appropriate. If, however, Buyer and Seller
agree upon the allocation, each of the parties hereby covenants and
agrees that it will not take a position on any federal, state or
local tax return before any governmental agency charged with the
collection of any tax, or in any judicial proceeding that is in any
way inconsistent with the purchase price allocation and will
cooperate with one another in the timely filing consistent with
such purchase price allocation on Form 8594 with the Internal
Revenue Service.
2.7 No Assumption of Liabilities.
(a) Buyer and Seller agree that Buyer is not purchasing,
assuming, or accepting any debts, liabilities or obligations
whatsoever of Seller, contingent or non-contingent, liquidated or
unliquidated, asserted or unasserted, all of which remain the
debts, liabilities, and obligations of Seller, except as provided
in Section 2.7(b) hereof.
(b) On the Applicable Closing Date, Buyer shall assume and
agree to pay, perform and discharge the following (and only the
following) obligations of Seller (collectively, the "Assumed
Liabilities"):
(i) such customer purchase orders for Powerhouse
Inventory and Promotional Inventory accepted by
Seller in the ordinary course of business (to the
extent the same remain unfulfilled on the
Applicable Closing Date) as Buyer shall review,
approve and elect in writing to assume in its sole
and absolute discretion; and
(ii) such other contracts, obligations and commitments
of Seller in respect of the Inventory as Buyer
shall review, approve and elect in writing to
assume in its sole and absolute discretion.
2.8 Unassumed Liabilities. Buyer shall not assume or be liable to
Seller or any other person or entity for or in respect of any
debts, liabilities and obligations of Seller not specified in
Section 2.7 hereof (collectively, the "Unassumed Liabilities").
Notwithstanding the provisions of Section 2.7 hereof and without
limiting the generality of the preceding sentence, Buyer shall not
assume or be liable to Seller or any other person or entity for or
in respect of the following debts, liabilities and obligations of
Seller:
(a) Any debt, liability or obligation of Seller to taxing or
other governmental authorities for any foreign or domestic,
federal, state or local income taxes or similar taxes based upon
the income of Seller for periods ending on or prior to the Closing
Date;
(b) Any debt, liability or obligation with respect to any
event which shall have occurred on or prior to the Closing Date
whether or not such event and the liability relating thereto is
insured against under any of the coverages under the insurance
policies and/or self-insurance programs of Seller;
(c) Any debt, liability or obligation of Seller under or in
respect of any compensation or benefit plan, policy or arrangement
in favor of the Employees of Seller;
(d) Any debt, liability or obligation of Seller to any of its
shareholders, directors, officers or Employees arising out of the
transactions contemplated hereby, including, without limitation,
any liability for severance or termination pay;
(e) Any of Seller's products liability obligations or product
warranty obligations; or
(f) Any debt, liability or obligation of Seller arising from
or relating to, directly or indirectly, of Seller's employee
welfare plans or employee benefit plans.
2.9 Bulk Sale Law. The parties hereto understand and agree that
the transfer which is the subject matter of this Agreement may be
subject to the provisions of Chapter 1306 of the Ohio Revised Code,
Uniform Commercial Code (Bulk Transfers) ["Bulk Sales Law"] and
that Buyer is not assuming any debts or obligations of Seller in
connection with this Agreement in its sole discretion, except for
such unfilled customer purchase orders and other agreements or
obligations as Buyer may elect to assume pursuant to subparagraphs
2.7(b)(i) and (ii).
Buyer hereby waives compliance by Seller with the Bulk Sales
Law solely with respect to the transactions to be consummated on
the First Closing Date; provided, however, that such waiver does
not as between Buyer and Seller relieve Seller of any of the
Unassumed Liabilities. Seller agrees to furnish in adequate time
to comply with the Bulk Sales Law affidavits, list of creditors
with addresses and such other instruments and documents as are
customary pursuant to the Bulk Sales Law as Buyer's counsel shall
require for Buyer to comply with the Bulk Sales Law with respect to
the transactions to be consummated on the Second Closing Date.
Forms of the Bulk Sales Notice and Bulk Sales Affidavit are
attached hereto as Exhibits "E" and "F", respectively.
2.10 Non-Assignable Contracts and Rights. To the extent that the
assignment by Seller of any property, right or asset to be assigned
to Buyer pursuant to this Agreement shall require the consent or
approval of any other party, and such consent or approval shall not
have been obtained on or prior to the Applicable Closing Date, this
Agreement shall not constitute a contract to assign the same if an
attempted assignment would constitute a breach thereof or would in
any way adversely affect the rights of Seller (or Buyer as
assignee) thereunder. In such case, the beneficial interest in or
to such property, right or asset shall in any event pass as of the
Closing Date to Buyer hereunder, and Seller covenants and agrees:
(a) From and after the Applicable Closing Date to hold and
declare that Seller holds any and all such properties, rights or
assets in trust for the benefit of Buyer and its successors and
assigns;
(b) To use their reasonable best efforts to obtain and secure
any and all consents and approvals that may be necessary to effect
the valid sale, transfer or assignment of the same to Buyer without
change in any of the material terms or conditions thereof,
including, without limitation, the formal assignment or novation of
any of the same, if so required;
(c) To make or complete such transfers as soon as reasonably
possible;
(d) To cooperate with Buyer in any other reasonable
arrangement designed to provide for Buyer the benefits of and to
such properties, rights or assets; and
(e) From and after the Applicable Closing Date to use
reasonable efforts, at the request and expense of Seller, to
enforce for the account of Buyer (and its successors and assigns)
any and all rights of Seller arising from or in respect of such
properties, rights or assets.
2.11 Prorations. The following items shall be prorated as of the
Applicable Closing Date to the extent that Seller has paid such
items for any period after the Applicable Closing Date or Buyer
will be required to pay such items for any period prior to the
Applicable Closing Date:
(i) Personal property taxes and other taxes with
respect to the Assets (the parties shall cooperate
fully to avoid, to the extent legally possible, the
payment of duplicate personal property taxes); and
(ii) any other item which may be mutually agreed to by
the parties.
Any net amount owed hereunder shall be paid within thirty (30)
days following the Applicable Closing Date by the party owing such
amount or within thirty (30) days after the date of determination,
if later.
SECTION 3
CLOSING DATE
Consummation of the purchase and sale of Assets and the other
transactions provided for in this Agreement shall take place at the
offices of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. located at
Tower at Erieview, Suite 2600, 1301 East Ninth Street, Cleveland,
Ohio, on the Applicable Closing Date. Each Closing shall commence
at 10:00 a.m. local time on the Applicable Closing Date or such
other time as the parties hereto may mutually agree in writing; and
the purchase and sale of Assets and all other transactions provided
for herein to occur on and as of the Applicable Closing Date shall
be deemed to have occurred simultaneously and to be effective as of
the opening of business on such date.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Buyer to purchase the Assets and perform
its other obligations herein, Seller hereby makes the following
representations, warranties and covenants, each of which shall be
true and correct on the execution hereof and shall be true and
correct on each Applicable Closing Date and which shall survive
such Applicable Closing Date for the period of time specified in
Section 4.26 below;
4.1 Organization, Qualification and Authority of Seller.
(a) Due Organization and Qualification. Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania and is qualified
to transact business as a foreign corporation in the State of Ohio
and all other jurisdictions where the nature of its business or the
ownership, leasing or operation of Seller's properties or assets
requires qualification, except where the failure to be so qualified
is not likely to have a material adverse effect on the business
operations or financial condition of Seller, the value of the
Assets or the ability of Seller to convey the Assets (a "Material
Adverse Effect").
(b) Power and Authority to Conduct Business. Seller has the
full power and authority to own or lease its properties and to
conduct its business in the manner and the places where such
property is owned or leased and its business is conducted. Seller
possesses all permits and licenses from state, local, or Federal
agencies or subdivisions necessary to operate its business the
failure of which to obtain would have a Material Adverse Effect,
all of which are in full force and effect.
(c) No Defaults or Violations. As of the Applicable Closing
Date, except as disclosed in Schedule 4.1(c), the execution and
delivery of this Agreement, and the performance by Seller of
obligations under this Agreement: (i) will not violate,
contravene, be in conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a
default under: (A) any provision of law or any rule or regulation
of any governmental agency; (B) any order, rule or decree of any
court, arbitrator or other agency of government; (C) any provision
of the Articles of Incorporation or By-Laws of Seller; or (D) any
lease, indenture, agreement or other instrument to which Seller or
any of the Assets is or may be bound (in each case, solely with
respect to clause (A) and (D), which would be likely to have a
Material Adverse Effect); and (ii) will not result in the creation
or imposition of any claim of any nature whatsoever upon the
Assets.
(d) Power and Authority to Enter Into Agreements. Seller has
the right, power and authority to enter into and perform its
obligations under this Agreement and the other agreements provided
for herein. No consent, approval or authorization of, or
registration, declaration, or filing with any court, governmental
authority (federal, state, or local), collective bargaining unit,
lending institution (other than Bank, which approval has been
obtained) or other third party is required in connection with the
execution and delivery by Seller of this Agreement or its
performance of, or compliance with, the terms, provisions, and
conditions hereof, except as disclosed in Schedule 4.1(d)
(e) Due Execution and Enforceability. The execution,
delivery and performance of this Agreement and the other agreements
provided for herein by and on behalf of Seller have been duly and
validly authorized and approved by the Board of Directors of
Seller, and if the Second Closing Date occurs, will be duly and
validly authorized and approved by the shareholders of Seller.
Seller has taken and will take all such other corporate action as
is necessary or required to enter into, execute and deliver this
Agreement and the other agreements provided for herein and to
perform their respective obligations hereunder and thereunder.
This Agreement and the other agreements provided for herein
constitute the valid and legally binding obligations of Seller,
enforceable against Seller in accordance with their respective
terms and conditions (except to the extent the same may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditor's rights generally or by general equitable
principles).
4.2 Inventory Report. Attached as Schedule 4.2 is Seller's
perpetual inventory reports, which fairly and accurately describe
the type, quantity and cost to Seller of its Powerhouse Inventory
and Promotional Inventory in each case as of September 30, 1996.
4.3 No Equity Interest. Seller does not own or hold (directly or
indirectly) any equity or debt interest in any corporations, joint
venture, partnerships, business associations, trusts, or other
firms or entities which are engaged in the sale of replenishment
merchandise and/or promotional merchandise, except as set forth in
Schedule 4.3. .
4.4 Title to Assets; No Claims, Liens, Etc.; "AS-IS" Condition of
Inventory.
(a) As of each Applicable Closing Date, Seller will have good
and marketable title to all of the Assets to be transferred and
sold to Buyer on such Applicable Closing Date, free and clear of
all Claims whatsoever.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT: SELLER MAKES
NO EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO THE PHYSICAL
CONDITION OF THE INVENTORY; THE WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY EXPRESSLY DISCLAIMED;
AND THE INVENTORY WILL BE TRANSFERRED AND CONVEYED "AS IS, WHERE
IS" AND WITH ALL FAULTS.
4.5 Contracts and Commitments.
(a) Customer Purchase Orders, Sales Bids and Proposals. Set
forth on Schedule 4.5(a) hereto is a true and complete list and
description of each individual written customer purchase order,
sales contract or indication of interest as is documented by
initial order processing (IOP) forms with respect to Powerhouse
Inventory, together with a list of all other contracts, obligations
and commitments of Seller with respect to the Powerhouse Inventory,
as of September 30, 1996. A similar schedule containing the
information described in the preceding sentence with respect to the
Promotional Inventory, as of a date not less than three (3) days
prior to the Second Closing Date, will be delivered by Seller to
Buyer on the Second Closing Date, and shall be deemed to be a part
of Schedule 4.5(a).
(b) Restrictions on Conduct of Business. Seller is not
restricted by commitment (including, without limitation, any non-competition
agreement or covenant) from carrying on the sale of
Inventory as carried on at the date hereof.
4.6 Intellectual Property.
(a) Set forth on Schedule 4.6 is a list of all patents, trade
names, trademarks, service marks, and copyrights ("Schedule of
Trade Names, Trademarks, Service Marks, and Copyrights") both
domestic and foreign, owned by Seller in respect of its
replenishment inventory business and its promotional inventory
business and used in such business now or, to Seller's knowledge,
at any time within the last three (3) years and indicating their
registration number and dates of registration. Except as set forth
on Schedule 4.6 hereto, and except for limited licenses granted to
those customers solely in connection with promotions which licenses
terminate upon termination of the promotion (Seller will endeavor
to furnish copies or written summaries of such promotions to Buyer
prior to the First Closing Date), Seller owns all right, title and
interest in and to its Intellectual Property.
(b) Except as set forth on Schedule 4.6., Seller has not
received any notification, and has no knowledge that Seller has
infringed, within the past three (3) years, nor is now infringing,
on any patent, trade name, trademark, service mark or copyright
belonging to any other person, firm, or corporation, except for (i)
claims which have been fully and finally adjudicated or settled for
an individual amount not exceeding Five Thousand Dollars ($5,000)
or totaling Twenty Five Thousand Dollars ($25,000) in the
aggregate; and (ii) claims or demands asserted by third parties in
respect of which no further action has been taken by such third
parties within the past eighteen (18) months. Seller owns or holds
adequate licenses or other rights to use all trademarks, service
marks, trade names, and copyrights necessary for the sale and
promotion of Inventory. To Seller's knowledge, such use does not,
and will not, conflict with, infringe on, or otherwise violate any
rights of others.
4.7 Trade Secrets and Customer Lists. Seller is the owner of all
Trade Secrets and customer lists required for the sale,
distribution and marketing of the Assets, free and clear of any
Claims. Seller is not using, or in any way making use of, any
confidential information, trade secrets or customer lists of any
third party, including, without limitation, to Seller's knowledge,
any former employer of any present or past Employee of Seller.
There are no suits pending or, to Seller's knowledge, threatened
with respect to any Trade Secrets or customer lists of Seller.
4.8 Customers and Sales. Attached as Schedule 4.8 are complete
and accurate schedules of Powerhouse Customers and Promotional
Customers during the twelve (12) months ended June 30, 1996,
ranking (by sales dollar volume) all customers that made purchases
of (i) Powerhouse Inventory; and (ii) Promotional Inventory during
such period. Except as expressly set forth in the Summary of
Relations attached to Schedule 4.8: (x) Seller has not been
notified, and is not otherwise aware, that any of the twenty-five
(25) largest customers listed in Schedule 4.8 of any Powerhouse
Inventory or Promotional Inventory has ceased, or intends to cease,
purchasing from Seller, has materially altered or intends to
materially alter the amount of business that it is presently doing
with Seller, or, to Seller's knowledge, will refuse to do business
with Buyer following the Closing; and (y) there are no disputes or
controversies pending or, to Seller's knowledge, threatened between
Seller and any of the twenty-five (25) largest customers listed in
Schedule 4.8. Seller will deliver to Buyer, within ten (10) days
following the First Closing Date, a supplemental Schedule 4.8
containing the same type information set forth in Schedule 4.8 for
the period July 1, 1996 through September 30, 1996 except that
Seller shall endeavor, but shall not be required to, add new
customers to the Summary of Relations attached to Schedule 4.8.
Buyer acknowledges and understands that Seller does not make,
and expressly disclaims, any representation or warranty with
respect to the present or future intention of any of Seller's
customers to purchase Inventory from Buyer following the Applicable
Closing Date, except as expressly provided in clause (x) of the
second sentence of the preceding paragraph.
4.9 Customer Deposits. Seller has not received, and will not
receive prior to the Applicable Closing Date, any deposits,
payments on account or similar payment with respect to any of its
Inventory contracts or orders (except with respect to Inventory
delivered to customers prior to the Applicable Closing Date), and
no such deposits, payments on account or similar payments are due
or owing to Seller.
4.10 Suppliers. Attached as Schedule 4.10 is, to Seller's
knowledge, a complete and accurate schedule of vendors of each
current Inventory item. Except as expressly set forth in the
Summary of Relations attached to Schedule 4.10: (i) Seller has not
been notified, and is not otherwise aware, that any of the ten (10)
largest suppliers listed in Schedule 4.10 intends to cease doing
business with Seller materially reduce the amount of its product
available to Seller, or, to Seller's knowledge, refuse to sell
Products to Buyer; and (ii) there are no current disputes or
controversies pending or, to Seller's knowledge, threatened between
Seller and any of the ten (10) largest suppliers listed in
Schedule 4.10. Seller is current in its payment obligations to its
ten (10) largest suppliers except as specifically described in the
Summary of Relations attached to Schedule 4.10.
Buyer acknowledges and understands that Seller does not make,
and expressly disclaims, any representation or warranty with
respect to the present or future intention of any of Seller's
suppliers to sell products to Buyer following the Applicable
Closing Date, except as expressly provided in clause (i) of the
second sentence of the preceding paragraph.
4.11 Insurance. Seller maintains policies of product liability
insurance in respect of the Inventory in amounts reasonably deemed
by its management to be sufficient. All such policies are
described in Schedule 4.11.
4.12 Contracts. Except as set forth on Schedule 4.5(a) or on
Schedule 4.12, attached hereto, Seller is not, and on the
Applicable Closing Date will not be a party to any contract or
commitment (whether oral or written), including, without
limitation, any franchise agreement, licensing agreement, sales
representative agreement, distributorship agreement, or employment
agreement, which relates to the sale of Inventory.
4.13 Inventories.
(a) Any merchandise located at the Cheswick Facility or the
Warehouse Facilities which is on consignment from others will
either be clearly marked or physically segregated from the
Inventory being purchased by Buyer. Any merchandise owned by
Seller and which has been consigned to others will not be included
in the Inventory to be purchased by Buyer.
(b) Seller has not maintained records of defective product
return expense with respect to Powerhouse Inventory and Promotional
Inventory for several years, because it was determined that such
expense was minimal in relation to total sales dollar volume and
not significant enough to justify the cost of continuing to
maintain such records. Nothing has come to the attention of Seller
since these records were discontinued to indicate that defective
product return expense has increased significantly.
(c) Seller is not aware of, and has not received notice of
any design, structural or manufacturing defect or condition
(whether latent or patent) with respect to the Inventory which is,
has been or is reasonably likely to be: (i) the subject of legal or
administrative proceedings; (ii) in violation of any applicable
laws, rules or regulations; or (iii) except for DeMinimis Claims,
(defined in Section 4.16) the subject of any third party claim of
patent, trademark, trade name or copyright infringement or any
similar claim.
4.14 Product Warranties. There are no express outstanding product
warranty obligations of Seller, nor any express representations,
guarantees or indemnifications given or made by Seller in
connection with the sale of Inventory.
4.15 Tax Returns. Seller has filed with the Internal Revenue
Service and with all other appropriate foreign, federal, state,
provincial and local governmental agencies, and will continue to
file through and after the Second Closing Date, all personal
property tax returns and tax reports required to be filed by Seller
in respect of the Assets, and has paid and will continue to pay all
amounts due in connection therewith. No claims for assessment or
collection of taxes in respect of the Assets has been asserted
against Seller, and Seller does not know of any proposed tax
assessment against or in respect of the Assets.
4.16 Pending Claims, Litigation and Governmental Proceedings. Set
forth on Schedule 4.16 is a list and description of each recall
notice, government or manufacturer's warning notice, claim, suit,
action, arbitration or regulatory, administrative, or governmental
proceeding or investigation or any other proceeding or
investigation filed against or commenced by Seller with respect to
the Inventory in the last five (5) years and which relates solely
or primarily to product liability or product use or safety except
for: (i) claims which have been fully and finally adjudicated or
settled for an individual amount not exceeding Five Thousand
Dollars ($5,000), or totaling Twenty-Five Thousand Dollars
($25,000) in the aggregate; and (ii) complaints or demands asserted
by customers in respect of which no further action has been taken
by such customers within the past eighteen (18) months ("DeMinimis
Claims"). Except as set forth on Schedule 4.16 and except for
DeMinimis Claims no litigation is pending or, to the knowledge of
Seller, threatened against Seller in respect of the sale, import,
marketing or use of Inventory.
4.17 Judgments, Orders and Consent Decrees. Seller is not subject
to any judgment, ruling, injunction, order, writ or decree of, or
agreement with, any court, arbitrator or regulatory authority
limiting, restricting or adversely affecting the sale by Seller of
the Inventory or Seller's ownership of the Assets.
4.18 Agents and Employees. No Employee of Seller is subject to any
confidentiality, non-disclosure or non-compete agreement with
Seller or, to Seller's knowledge, any other entity except as
described in Schedule 4.18. As used in this Section 4.18, the term
"Seller's knowledge" means, and is limited to, the actual
knowledge, without independent investigations, of T. Ronald Casper
and Kenneth Campbell.
4.19 Labor Matters.
(a) Seller acknowledges that Buyer is not assuming any of
Seller's obligations or liabilities relating to or arising from any
employment contract, collective bargaining agreement, Plan or
program in favor of Seller's Employees, all of which remain the
sole obligation of Seller.
(b) Seller shall bear all liability, if any, caused by or
arising from the termination and/or permanent layoff of its
Employees.
(c) Seller represents and warrants that it has taken or will
take prior to Closing all actions necessary, including but not
limited to any notice required to be given to its employees, local,
state or federal government agencies, to comply with WARN (if
applicable), COBRA and any other local or state laws applicable to
the transactions contemplated by this Agreement. Notwithstanding
the foregoing, Seller agrees that it will make no filings regarding
this transaction concerning or relating to Seller's Employees with
governmental, employment or worker's compensation agencies without
providing a copy thereof to Buyer at least five (5) days prior to
such filing.
4.20 Environmental Matters. Seller is in compliance with all
federal, state, and local laws, regulations, and ordinances
relating to the environment or to the discharge of matter into the
air, water, or earth, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, and the Resource Conservation and Recovery
Act of 1976, as amended, except for such non-compliance as is not
likely to have a Material Adverse Effect. There are no actions,
suits, or proceedings pending or, to the best knowledge of Seller,
threatened against Seller in connection with the Inventory, the
Cheswick Facility or the Warehouse Facilities by or before any
federal, state, or local court or government authority or agency
concerning any non-compliance or alleged non-compliance with any
such laws, regulations, and ordinances in respect of said
facilities.
4.21 Compliance with Laws. Seller has at all times conducted its
business in compliance and conformity in all material respects with
all applicable federal, state, local and foreign laws, statutes and
ordinances and the rules and regulations promulgated thereunder
(including, but not limited to, laws, rules and regulations
relating to the sale, marketing, packaging, labeling, export,
import, transport or distribution of the Inventory), except for
such non-compliance as is not likely to have a Material Adverse
Effect; and there are no pending or, to Seller's knowledge,
threatened claims or notices of violation by Seller in any such
laws, statutes, ordinances, rules and regulations or claims which
are likely of assertion.
4.22 Evaluation of Terms of Transaction. Seller, through its Board
of Directors, with the assistance of Parker/Hunter Incorporated,
its independent financial adviser, has determined to proceed with
the transactions provided for in this Agreement as the best
transaction for the sale of the Assets, taking into account the
purchase price for the Assets and the terms and conditions of the
transaction.
4.23 Full Disclosure. To Seller's knowledge, no representation,
covenant or warranty by Seller in this Agreement and no statement,
Schedule or Exhibit furnished to Buyer pursuant to this Agreement
omits or will omit to state a material fact necessary to make any
representations, covenants and/or warranties of Seller under this
Agreement not misleading.
4.24 Duty of Seller to Make Inquiry. To the extent that any of the
representations and warranties made by Seller in this Agreement are
qualified by the knowledge or belief of Seller, and except as
expressly otherwise provided in this Agreement, Seller represents
and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations
and warranties relate, including, without limitation, diligent
inquiry of all key management personnel of Seller whose position
entails having detailed knowledge of the subject matter of such
representations and warranties.
4.25 No Broker's or Finder's Fees. No person or firm other than
Seller (and its directors, officers, employees and independent
accountants and attorneys) and Parker/Hunter Incorporated have
arranged or participated in arranging, on behalf of Seller, the
transactions provided for herein. Any broker's or finder's fees to
be paid by Seller to Parker/Hunter Incorporated or to others shall
be borne exclusively by Seller. Except as described in the
preceding sentence, Seller has no knowledge of any claim (or the
reasonable basis therefor) for a broker's or finder's fee to be
paid in connection with the consummation of the transactions
provided for herein.
4.26 Survival. All representations and warranties made by Seller
in this Agreement, including but not limited to, those contained in
Section 4 hereof, shall survive the Applicable Closing Date
(irrespective of any investigation of the Assets made by Buyer) for
a period of eighteen (18) months and shall be true and correct on
as of the Applicable Closing Date as if specifically made thereon;
provided, however, that (i) the representations and warranties
contained in Sections 4.1 and 4.4 shall survive the Closing for a
period of ten (10) years; and (ii) the representations and
warranties contained in Section 4.15 shall survive the Closing
through the date that is thirty (30) days after the expiration of
the longest statute of limitations (including any waivers)
applicable to any action that may be brought by any governmental
entity with respect to liability for the relevant tax period.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, in order to induce Seller to sell the Assets and
perform its other obligations hereunder, hereby makes the following
representations and warranties to Seller, each of which shall be
true and correct as of the execution hereof and shall be true and
correct on the First Closing Date and the Second Closing Date and
which shall survive the Closing for the period of time specified in
Section 5.3.
5.1 Authority, Enforceability, Etc.
(a) Due Organization. Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws of
Delaware and is duly qualified to transact business as a foreign
limited partnership in the State of Ohio and in all other
jurisdictions where the nature of its business or the ownership,
leasing or operation of Buyer's properties or assets requires
qualification, except where the failure to be so qualified is not
likely to have a Material Adverse Effect on the business operations
and financial condition of Buyer or the ability of Buyer to
purchase the Assets.
(b) Power and Authority to Conduct Business. Buyer has the
full power and authority to own or lease its properties and to
conduct its business in the manner and the places where such
property is owned or leased and its business is conducted.
(c) No Defaults or Violations. As of the Applicable Closing
Date, the execution and delivery of this Agreement, and the
performance by Buyer of its obligations under this Agreement will
not violate, contravene, be in conflict with, result in a breach of
or constitute (with or without notice or lapse of time, or both) a
default under: (A) any provision of law; (B) any order, rule or
regulation of any court, arbitrator or other agency of government;
(C) any provision of the Third Amended and Restated Agreement of
Limited Partnership of Buyer; or (D) any lease, indenture,
agreement or other instrument to which Buyer is or may be bound, in
each case which will be likely to have a Material Adverse Effect.
(d) Power and Authority to Enter Into Agreements. Buyer has
the right, power and authority to enter into and perform its
obligations under this Agreement and the other agreements provided
for herein. No consent, approval or authorization of, or
registration, declaration or filing with any court, governmental
authority (federal, state or local), collective bargaining unit,
lending institution or other third party is required in connection
with the execution and delivery by Buyer of this Agreement or its
performance of or compliance with the terms, provisions and
conditions hereof.
(e) Due Execution and Enforceability. The execution,
delivery and performance of this Agreement and the other agreements
provided for herein by and on behalf of Buyer have been duly and
validly authorized and approved by all requisite partnership
action, and Buyer has taken all such other action as is necessary
or required to enter into, execute and deliver this Agreement and
the other agreements provided for herein and to perform Buyer's
obligations hereunder and thereunder. This Agreement and the other
agreements provided for herein constitute the valid and legally
binding obligations of Buyer, enforceable in accordance with their
respective terms and conditions (except to the extent the same may
be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditor's rights generally or by general
equitable principles).
5.2 No Broker's or Finder's Fees. No person or firm has been
engaged by Buyer in arranging or participating in arranging, on
behalf of Buyer, the transactions provided for herein. Any
broker's or finder's fees to be paid by Seller to Parker/Hunter
Incorporated or to others shall be borne exclusively by Seller.
Except as described in the preceding sentence, Buyer has no
knowledge of any claim (or the reasonable basis therefor) for a
broker's or finder's fee to be paid in connection with the
consummation of the transactions provided for herein.
5.3 Judgments, Orders and Consent Decrees. Buyer is not subject
to any judgment ruling, injunction, order, writ or decree of, or
agreement with any court, arbitrator, or regulatory authority,
limiting, restricting or adversely affecting the purchase by Buyer
of the Assets or Buyer's ownership thereof immediately following
the Applicable Closing Date, nor is Buyer party to any litigation
or other legal proceeding which would restrict or adversely affect
Buyer's ability to purchase the Assets.
5.4 Survival. All representations and warranties made by Buyer in
this Agreement, including, but not limited to, those contained in
Section 5 hereof, shall survive the Applicable Closing Date for a
period of ten (10) years and shall be true and correct as of the
Applicable Closing Date as if specifically made thereon.
SECTION 6
COVENANTS OF SELLER
6.1 Conduct of Business Pending Second Closing Date. From and
after the date of this Agreement and until the Second Closing Date,
Seller hereby covenants and agrees as follows:
(a) Full Access. Buyer and its authorized representatives
shall have full access during normal business hours and upon prior
notice, but without unreasonably interrupting business, to the
premises and to all books of account, financial records, contracts,
pricing practices, warranty records, sales and credit records and
other business information of Seller, but only to the extent that
same relate to the Assets, and to Seller's personnel, and Seller
shall furnish or cause to be furnished to Buyer and its authorized
representatives all information with respect to the Business and
affairs of Seller as Buyer and its authorized representatives may
reasonably request.
(b) Customer Purchase Orders, Product Supply Orders, Bids and
Proposals. Seller shall not:
(i) purchase any additional Powerhouse Inventory or
Promotional Inventory except: (A) pursuant to
currently outstanding supply orders issued by
Seller for Promotional Inventory, true and complete
copies of which are attached hereto as Schedule
6.1(b); and (B) as otherwise necessary to fill
customer orders prior to the Applicable Closing
Date and as may be preapproved in writing by Buyer;
provided, however, that Seller may place orders for
"point of sale" inventory in an aggregate amount
not exceeding Forty Five Thousand Dollars ($45,000)
without obtaining the prior written approval of
Buyer, and Seller shall furnish Buyer copies of
each such order. Seller shall promptly furnish
Buyer true and complete copies of any new supply
orders placed by Seller pursuant to Clause (B) of
the preceding sentence; or
(ii) solicit or accept new customer orders for
Powerhouse Inventory or Promotional Inventory,
whether from existing customers or new customers of
Seller, provided, however that Seller may solicit,
accept and fill customer orders received following
the date hereof for the sole purpose of disposing
of Seller's existing Inventory as well as the
Promotional Inventory ordered by Seller that is
described in the supply orders attached to Schedule
6.1(b) and any additional Promotional Inventory
ordered by Seller following the date hereof and
which has been preapproved in writing by Buyer.
(c) Use of Intellectual Property. Seller will not license
any person or entity other than Buyer to use any of its
Intellectual Property, other than licenses granted to customers in
connection with promotions in accordance with past practice.
(d) Inventory Liquidation Sales. Seller will not conduct any
liquidation sale, "going out of business" sale or similar sales
activities (or offer any extraordinary price reductions), and
Seller shall offer sales discounts solely to the extent such
discounts are consistent with those offered by Seller during the
six (6) months immediately preceding the date of execution of this
Agreement; provided, however, that the covenants and agreements
contained in this Section 6.1(d) shall not apply with respect to
any of the Excluded Assets.
(e) Business Operations.
(i) Seller will use its reasonable efforts to sell
(without replacing) its Promotional Inventory
between the First Closing Date and the Second
Closing Date by filling existing customer orders.
(ii) Prior to the Second Closing Date, Seller shall
refrain from the following:
(A) making sales on other than Seller's customary
terms and conditions within the past six (6)
months (including price and terms of payment)
and in the ordinary course of business; or
(B) selling, assigning, transferring, abandoning
or permitting to lapse any Intellectual
Property, Trade Secrets or other intangible
assets, or disclosing any Trade Secrets or
other material proprietary confidential
information to any person other than Buyer or
its representatives; provided, however, that
if preventing the lapse of any Intellectual
Property requires the payment of money, then
Buyer shall reimburse Seller on the Second
Closing Date for Buyer's pro rata portion of
such expense.
(f) Insurance. Seller shall continue in full force and
effect its existing insurance and bonding coverages in respect of
the Assets.
(g) Compliance with Laws. Seller shall comply in all
material respects with all applicable statutes, laws, ordinances,
rules and regulations as may be required in connection with the
maintenance and operation of the Assets or for the valid and
effective transfer to Buyer of the Assets and the consummation of
the transactions contemplated by this Agreement.
6.3 Conditions Precedent. Seller and Buyer shall use all
reasonable efforts to assure that the conditions precedent set
forth in Section 7 and 8 hereof, respective are satisfied on or
prior to the Applicable Closing Date.
6.4 Injunctions. If any court of competent jurisdiction over
Seller or the Assets issues or otherwise promulgates any injunction
order or decree which prohibits the sale of, or otherwise adversely
affects, the Assets, Seller shall use its reasonable efforts to
have such injunction dissolved or otherwise eliminated as promptly
as possible.
6.5 Taxes. Seller covenants and agrees that it will prepare and
file all tax returns required to be filed by it in respect of the
Assets for periods ending on or prior to the Closing Date
including, without limitation, personal property taxes, and pay all
amounts due thereunder.
SECTION 7
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Each and every obligation of Buyer to be performed on the
First Closing Date or the Second Closing Date shall be subject to
the satisfaction on or prior thereto of each of the following
conditions:
7.1 Representations and Warranties True on Applicable Closing
Date. The representations and warranties made by Seller in this
Agreement and in the Schedules and Exhibits hereto shall be true
and correct in all material respects on and as of the Applicable
Closing Date as though such representations and warranties had been
made again and reaffirmed on and as of the Applicable Closing Date.
7.2 Compliance with Agreement. Seller shall have performed and
complied in all material respects with all of its obligations under
this Agreement which are to be performed or complied with by it on
or prior the Applicable Closing Date.
7.3 Secretary's Certificate. Seller shall have delivered to Buyer
the certificate of its Secretary or Assistant Secretary certifying
as of the Applicable Closing Date to the authorization and approval
of this Agreement and the transactions provided for herein by duly
adopted resolutions of the Board of Directors of Seller.
7.4 Compliance Certificate. Seller shall have delivered to Buyer
the certificate of T. Ronald Casper, President of Seller
certifying, as of the Applicable Closing Date, the fulfillment of
the conditions set forth in Sections 7.1 and 7.2 hereof.
7.5 No Litigation. No investigation, suit, action or other
proceeding shall be pending or threatened before or by any court of
governmental agency which in the reasonable opinion of Buyer, may
adversely affect this Agreement or the consummation of the
transactions provided for herein.
7.6 Consents and Approvals. Seller and Buyer shall have obtained
all necessary and material authorizations, consents and approvals
required for the valid consummation of the transactions provided
for in this Agreement, and each of them shall be in full force and
effect.
7.7 Termination of Liens; Warehouseman's Waiver. The Bank Lien
shall have been released with respect to the Assets being
transferred to Buyer on the Applicable Closing Date, and original
UCC-3 Partial Releases, executed by Bank, as well as a written
waiver or other written instrument from Transmanagement Corporation
and any and all other persons or entities with a Claim against any
of the Assets, delivered to Buyer, each in form and substance
reasonably satisfactory to Buyer.
7.8 Damage or Destruction. There shall not have been any material
damage to or destruction of the Assets (whether or not covered by
insurance).
7.9 Warehouse Arrangements. Buyer shall have entered into
arrangements with the owner of the Warehouse Facilities upon terms
and conditions satisfactory to Buyer in its sole discretion;
provided, however, that the foregoing condition shall automatically
be deemed waived upon consummation of the transactions to be
completed on the First Closing Date.
7.10 Opinion of Counsel. Seller shall have delivered to Buyer an
opinion of Cohen & Grigsby, P.C., counsel to Seller, in the form
attached hereto as Exhibit "G".
7.11 Injunctions. There shall not be in effect any injunctions,
decrees or orders prohibiting the sale of, or otherwise adversely
affecting, the Assets.
SECTION 8
CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Each and every obligation of Seller to be performed on the
First Closing Date or the Second Closing Date shall be subject to
the satisfaction on or prior thereto of each of the following
conditions:
8.1 Representations and Warranties True at the Applicable Closing
Date. The representations and warranties of Buyer contained in
this Agreement shall be true and correct in all material respects
on and as of the Applicable Closing Date as though such
representations and warranties had been made again and reaffirmed
on and as of the Applicable Closing Date.
8.2 Compliance With Agreement. Buyer shall have performed and
complied in all material respects with all of its obligations under
this Agreement which are to be performed or complied with by it on
or prior to the Applicable Closing Date.
8.3 Secretary's Certificate. Buyer shall have delivered to Seller
a certificate of the Secretary or Assistant Secretary of its
Managing General Partner certifying as of the Applicable Closing
Date to the authorization and approval of this Agreement and the
transactions provided for herein by duly adopted partnership
authorization of the General Partners of Buyer.
8.4 Compliance Certificate. Buyer shall have delivered to Seller
the certificate of the President or any duly authorized Vice
President of Buyer certifying as of the Applicable Closing Date to
the fulfillment of the conditions set forth in Sections 8.1 and 8.2
hereof.
8.5 No Litigation. No investigation, suit, action or other
proceeding shall be pending or threatened before or by any court or
governmental agency which in the reasonable opinion of Seller may
adversely affect this Agreement or the consummation of the
transactions provided for herein.
8.6 Consents and Approvals. Buyer shall have obtained all
necessary and material authorizations, consents and approvals as
required for the valid consummation of the transaction provided for
in this Agreement, and each of them shall be in full force and
effect.
8.7 Opinion of Counsel. Buyer shall have delivered to Seller an
opinion of Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., counsel
to Buyer, in the form attached hereto as Exhibit "H".
8.8 Approval by Shareholders of Seller. The shareholders of
Sellers shall have approved and ratified the transactions described
in this Agreement at a Special Meeting of Shareholders called for
such purpose; provided, further, that this condition precedent
shall apply solely with respect to those transactions that are to
be consummated on the Second Closing Date; provided, however, that
if the shareholders of Seller fail or refuse to approve and ratify
the transactions and the Second Closing does not occur, then the
provisions of Section 14.1(b) shall apply.
SECTION 9
FURTHER AGREEMENTS OF THE PARTIES
9.1 Employees.
(a) The parties acknowledge that prior to the date hereof,
Buyer has notified Seller that Buyer may desire to enter into
arrangements for the employment by Buyer of (or other association
of Buyer with) one or more of the following individuals: Charles
Stewart, Sherri Stitt, Donald Cashman, Richard DeLong, Deanna
Hayman, Thomas Ranieri, Wayne Smith and James Meehan, as such
Employees of Seller may be potentially relevant to Buyer's
business, and Buyer agrees to notify Seller prior to extending any
offer of employment or other association to any of the
aforementioned individuals or to any other present or future
Employee of Seller, provided, that any such offer to then-current
employees of Seller made prior to the Second Closing Date shall be
made only with the prior written consent of Seller. Seller agrees
to notify Buyer prior to terminating, laying off or otherwise
taking any action directly affecting the employment status of any
of the aforementioned Seller's Employees. Buyer may, but shall not
be obligated pursuant to this Agreement or for any other reason to,
offer full or part-time employment or other association (i.e.,
consulting) after the First Closing Date to any of the
aforementioned individuals or to any other present or future
Employees of Seller on such terms and conditions as Buyer, in its
sole discretion, may determine, subject however, to the preceding
sentence. Buyer may communicate with the present employees or
agents of Seller prior to the Closing upon reasonable prior notice
to Seller. Seller shall not directly or indirectly induce, suggest
or recommend to Employees of Seller that they reject offers of
employment or other association with Buyer. Seller shall cooperate
with Buyer in all reasonable respects in connection with any offers
of employment or other association that Buyer may make to Seller's
employees and to transition any such employees from Seller's
employment to possible association with Buyer. Seller shall also
cooperate with Buyer, to the extent reasonably consistent with
Seller's operational requirements, between the First Closing Date
and the Second Closing Date, to make available to Buyer Seller's
employees whose services are reasonably required by Buyer. In any
such case, Buyer shall reimburse Seller on the Second Closing Date
for a portion of the direct employee-related costs incurred by
Seller for any such employees on an hourly or per diem basis for
service committed to or utilized exclusively by Buyer. "Direct
employee-related costs" means, and shall be limited to, direct
wages, payroll taxes, insurance benefits and travel expenses
directly related to Buyer's business, provided, however, that
Buyer's obligation to reimburse Seller for the cost of Employee
insurance benefits shall in no event exceed $300 per full calendar
month per Employee.
(b) Seller hereby agrees that it will not, without the prior
written consent of Buyer, notify, promise, represent, advise, state
or otherwise communicate to any employee of Seller that Buyer will
be hiring any or all such employees or make any offer of employment
or other association on behalf of Buyer.
9.2 Nondisclosure. Seller and Buyer shall not disclose, directly
or indirectly, the terms of or reveal the existence of this
Agreement, its Schedules or Exhibits to any person, firm or entity
other than their respective attorneys, accountants, lenders, and
representatives who are required to be informed thereof in
connection with their representation of the parties in connection
with the transactions, except for proxy statements, press releases
and other filings and disclosures as, in the reasonable judgment of
Seller's counsel, required by applicable securities or other laws.
Seller will advise Buyer in writing and, to the fullest extent
practicable, will consult with Buyer prior to any such disclosure.
No press release or governmental notification, report or other
filing by either party shall be made without the other party's
prior written approval of the content thereof, except as provided
in the first sentence of this Section. The parties will issue a
joint press release upon the consummation of the transactions
contemplated by this Agreement.
9.3. Restrictive Covenants.
(a) Confidentiality. Each party covenants and agrees that
from and after the date hereof, it shall not directly or indirectly
disclose, divulge, discuss, copy or otherwise use or cause to be
used in any unlawful manner, any confidential information relating
to the sale and promotion of the Inventory, including but not
limited to, information regarding operations, accounts, books and
records, sales, customers, pricing and other activities of Seller
which constitute "trade secrets" within the meaning of Section
133.51(a)(3) of the Ohio Revised Code, except for (i) in the case
of Seller, the conduct of its business through the Second Closing
Date in the manner contemplated by Section 6.1; and (ii) in the
case of Buyer, the sale and promotion of Powerhouse Inventory
following the first Closing Date and the sale and promotion of
Powerhouse Inventory and Promotional Inventory following the Second
Closing Date. Each party recognizes and agrees that the disclosure
of such trade secrets to parties other than the other party or the
improper use thereof will cause serious and irreparable injury to
such other party. In the event a party is requested or required
(by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigation, demand or similar
process) to disclose any confidential information, such party
agrees to provide the other party with prompt notice of such
request so that the other party may seek an appropriate protective
order and/or waive such party's compliance with the provisions of
this paragraph. The foregoing shall not prevent either party from
making such disclosures as are in the reasonable judgment of such
party's counsel, required by applicable securities laws, except
that each party shall advise the other party in writing and, to the
fullest extent practicable, will consult with the other prior to
making any such disclosure. Upon termination of this Agreement,
for whatever reason, prior to the Second Closing Date, Buyer agrees
to deliver to Seller all written materials, reports and information
(including Trade Secrets) furnished by Seller concurrently with or
prior to the execution of this Agreement (except for Assets
purchased by Buyer on the First Closing Date), and Buyer will
destroy all copies of same.
(b) Non-Competition. Seller agrees that commencing on the
First Closing Date and for a period expiring five (5) years
following the First Closing Date (if the First Closing occurs but
the Second Closing fails to occur) or expiring five (5) years
following the Second Closing Date (if the Second Close Date occurs)
(the "Restricted Period"), Seller will not, directly or indirectly,
either as principal, agent, partner, lender, investor, or in any
other capacity, engage in, have a financial interest in or be in
any way connected or affiliated with any enterprise (whether or not
incorporated) which engages in the purchase, sale, marketing,
import, distribution or brokerage of replenishment inventory or
promotional inventory of a format, category or product line which
is sold or offered for sale by Seller in the United States of
America at the date of this Agreement ("Competitive Products"),
except for the sale of Promotional Inventory pending the Second
Closing Date, and except for Inventory included in the Excluded
Assets. In addition, Seller will not, during the Restricted
Period, divert or take away or attempt to divert or take away any
of Buyer's or any Buyer's affiliates' employees and, solely with
respect to the Competitive Products and Competitive Business
(defined below), Buyer's or Buyer's affiliates' customers or
suppliers, and, further, Seller shall refrain from, directly or
indirectly: (i) committing any act which would in any way
jeopardize any relationship Buyer or any Buyer affiliate has or may
come to have with any such employee, customer or supplier; or (ii)
engaging in, having a financial interest in, or being in any way
connected or affiliated with any enterprise which engages in the
wholesale or retail sale and distribution of closeout merchandise.
Notwithstanding anything to the contrary contained in the
above paragraph, in the event the Second Closing does not occur
solely as a result of Buyer's breach of its obligations hereunder
(as finally determined by a court of law), the covenants contained
in Paragraph 9.3(b) shall be inoperative and of no force and
effect.
(c) Injunctive Relief. Seller and Buyer agree that the
remedy at law for any breach by them of the foregoing provisions of
this section will be inadequate, and Buyer shall be entitled to
both temporary and permanent injunctive relief (without bond)
enforcing such provisions, in addition to any other remedy it may
have at law or in equity.
9.4 Negotiation with Others. From and after the date hereof until
the earlier to occur of: (i) the termination of this Agreement
pursuant to Section 11, or (ii) December 31, 1996, neither Seller
nor any of Seller's officers, directors, employees or agents will,
directly or indirectly: (a) solicit or initiate discussions or
engage in negotiations with any person (whether such negotiations
are initiated by them or otherwise), other than Buyer, with respect
to the possible acquisition of the Assets or any portion thereof,
(b) provide any information with respect to the Assets to any
person, other than Buyer, relating to the possible acquisition of
the Assets or any portion thereof, or (c) enter into a transaction
with any person, other than Buyer, concerning the possible
acquisition of the Assets or any portion thereof . Nothing in this
Section shall be deemed to prevent sales to customers prior to the
Applicable Closing Date in the ordinary course of business. If
Seller or any of Seller's officers, directors, employees or agents
receives any unsolicited offer or proposal to enter into
negotiations relating to any of the above, Seller shall immediately
notify Buyer of such fact.
9.5 Replenishment Sales Following First Closing Date. Except for
the payments described in Section 2.5(a), any sales of Powerhouse
Inventory by Buyer at any time following the First Closing Date for
replenishment of goods originally ordered by a Powerhouse Customer
or a Promotional Customer prior to the First Closing Date, which
replenishment request is filled by Buyer, shall be for the sole
account of Buyer (it being understood, however, that Buyer shall
not be obligated to fill any such replenishment order).
9.6 Approval of Shareholders of Seller. Seller will use its best
efforts to obtain the approval of its shareholders the execution
and delivery by Seller of this Agreement and the consummation of
the transactions described herein. Seller represents and warrants
that it is not aware of any reason why shareholder consent and
approval will not be obtained by December 31, 1996.
9.7 Right of First Refusal with Respect to Other Assets of Seller.
Unless the First Closing Date does not occur solely by reason of
Buyer's default or breach hereunder, in the event Seller receives
an offer for all or a significant portion of its assets other than
the Assets at any time within thirty (30) days following the First
Closing Date (such other assets may include, but are not limited
to, warehouse and office fixture and equipment, electronic and
computer equipment, and transferable software), Buyer shall have a
right of first refusal to acquire all or any portion of such assets
upon the same terms and conditions as offered by the third party.
Seller shall promptly furnish Buyer with a complete description of
the terms and conditions of such offer, including the purchase
price, the terms and conditions of purchase, the proposed Closing
Date, and the identity of the Purchaser. In addition to the
foregoing, in the event the First Closing occurs but the Second
Closing does not occur (other than solely by reason of Buyer's
default or breach under this Agreement), Buyer shall have a right
of first refusal to purchase any Intellectual Property which is not
conveyed to Buyer at the First Closing upon the same terms and
conditions as offered by a third party at any time prior to the
fifth (5th) anniversary of the First Closing Date, and Seller shall
furnish a copy of the third party offer containing the same detail
as prescribed in the preceding sentence. Buyer shall notify Seller
in writing within twenty (20) days following receipt of the third
party offer ("Notice of Exercise") whether Buyer desires to
exercise its rights of refusal hereunder, and the purchase and sale
of assets under this Section shall occur on the later of the
closing date described in the third party offer or thirty (30) days
following the date of Buyer's Notice of Exercise.
9.8 Trade Show Deposits. Buyer acknowledges that Seller has
heretofore provided to Buyer written evidence of payment by Seller
of deposits (collectively, "Trade Show Deposits") for floor space
for show booths for the following trade conventions: (i) National
Housewares Merchants Association (NHMA), McCormick Place, Chicago,
Illinois (to be held January 1997) - $12,375.00, and (ii)
Association of Retail Marketing Services (ARMS), Ramada Congress
Hotel, Chicago, Illinois (to be held January 1997) - such amounts
as have been paid by the Second Closing Date, not to exceed $2,360
(collectively, the "Trade Show Deposits"). On the Second Closing
Date, Buyer will pay to Seller an amount equal to the Trade Show
Deposit pertaining to such convention trade show, and shall assume
Seller's remaining payment obligations, if any, in respect of the
ARMS convention. Seller represents and warrants that its floor
space for trade show booth for the NHMA Trade Show has been paid in
full.
9.9 Accounts Receivable. The parties acknowledge that Buyer is not
acquiring any of Seller's accounts receivable. Any payments
received by Buyer in respect of Seller's receivables shall be
allocated in accordance with the customer's designation; absent
such designation, such payments shall be allocated and paid first
to Seller to the extent of the unpaid balance owed by such customer
to Seller for goods shipped and billed prior to the applicable
Closing Date. Each party agrees to properly remit to the other, in
precisely the form received, with endorsement, any and all
payments received by such party which payment is actually due and
owing to the other party, and any such sums erroneously paid by the
customer to such party shall be held in trust for the other party.
Each party agrees to furnish the other access to deposit slips,
bank reconciliation statements, customer correspondence and other
documents upon the reasonable request of such other party in order
to verify the prompt remittance of all sums required to be remitted
to the other party pursuant to this Section 9.9.
SECTION 10
RISK OF LOSS
10.1 Risk of Loss. Risk of Loss with respect to the Assets being
transferred on an Applicable Closing Date shall pass to Buyer
effective as of the opening of business on such Applicable Closing
Date.
SECTION 11
TERMINATION AND ABANDONMENT
11.1 Termination. This Agreement may be terminated forthwith upon
the receipt of notice of termination as provided for in Section
11.2 hereof, and the purchase and sale and the other transactions
provided for by this Agreement may be abandoned, without liability
on the party of either party to the other, except as otherwise
provided in Section 14.1(b):
(a) By mutual written consent of Seller and Buyer;
(b) By Buyer, if any of the conditions of Section 7 of this
Agreement have not been satisfied on the intended Closing Date and
have not been waived by Buyer in writing;
(c) By Seller, if any of the conditions of Section 8 of this
Agreement have not been satisfied on the intended Applicable
Closing Date and have not been waived by Seller in writing;
(d) By either Buyer or Seller, if the Second Closing Date has
not occurred (for any reason other than a breach of any
representation, warranty, covenant or agreement contained herein or
in any Schedule or Exhibit hereto by the party seeking to so
terminate) on or before January 31, 1997; or
(e) By either Buyer or Seller, if the other party files on or
before the Second Closing Date a petition in bankruptcy,
reorganization, liquidation or receivership or a petition in
bankruptcy, reorganization, liquidation or receivership is filed on
or before the Second Closing Date against such other party.
11.2 Notice of Termination. In the event of termination and
abandonment by either party as provided in Section 11.1 hereof,
prompt written notice thereof shall forthwith be given to the other
party.
SECTION 12
INDEMNIFICATION AND REIMBURSEMENT
12.1 Indemnification by Seller.
(a) In order to induce Buyer to enter into this Agreement and
to consummate transactions contemplated hereby, Seller covenants
and agrees to and shall indemnify Buyer and its partners (and their
constituent partners and shareholders), officers, employees and
agents, and their heirs, executors, administrators, personal
representatives, successors and assigns (collectively, the "Buyer
Interests") and shall hold the Buyer Interests harmless against and
with respect to any and all Damages incurred in connection with or
arising out of or resulting from or incident to:
(i) any misrepresentation, omission, breach of
warranty, representation or covenant, or non-fulfillment
of any obligation on the part of Seller
under this Agreement, any certificate, Schedule or
Exhibit, or other instrument furnished to Buyer in
connection with this Agreement;
(ii) the Unassumed Liabilities;
(iii) Seller's failure to comply with the provisions
of the Bulk Sales Law;
(iv) any claims, violations or alleged violations by
Seller of any laws, statutes, codes, ordinances,
rules or regulations whether foreign or domestic,
state, federal or local;
(v) the filing (or failure to file) or payment (or non-payment)
of any taxes by Seller, pursuant to any
federal, state, local or foreign income tax, excise
or franchise tax, ad valorem, sales and use tax,
payroll tax, and/or F.I.C.A. taxes or any
deficiencies in any taxes payable by or on behalf
of Seller;
(vi) arising from or relating to any and all claims,
grievances or arbitrations under any collective
bargaining agreement to which Seller may have been
a party at any time prior to the Closing Date,
including, but not limited to, claims and/or
judgments for unfair labor practices incurred on or
limited to, before the Closing Date whether filed
(by either union or non-union employees) prior to,
on, or after the Closing Date with the National
Labor Relations Board or any comparable federal,
state or local board, agency, or commission, or any
state or federal court;
(vii) any damages, obligation or penalty for
contributions to any Plan with respect to
Seller's employees for all periods on and
before the Closing Date, ERISA claims or
violations;
(viii) any and all amounts owed by Seller to Bank or
to Transmanagement Corporation;
(ix) any liability related to any Excluded Asset; and
(x) any and all actions, suits, proceedings, demands,
assessments, penalties, fines, judgments, costs and
legal and other expenses incident to any of the
foregoing.
(b) The indemnification of this Section shall survive the
Closing; provided, however, that any claim for the incorrectness or
breach of the representations, warranties or covenants of Seller
contained in Section 4 must be brought within the applicable
limitations period as described in Section 4.26.
12.2 Indemnification by Buyer.
(a) In order to induce Seller to enter into this Agreement
and to consummate the transactions contemplated hereby, Buyer
covenants and agrees to and shall indemnify Seller, its directors,
officers, employees, agents, successors and assigns (collectively,
the "Seller Interests") and shall hold the Seller Interests
harmless against and with respect to any and all Damages, incurred
in connection with or arising out of or resulting from or incident
to:
(i) a breach of any representation, warranty, covenant
or agreement on the party of Buyer under this
Agreement or under any document executed and
delivered by Buyer in connection therewith;
(ii) the failure of Buyer to pay or perform any of the
Assumed Liabilities;
(iii) the conduct by Buyer of its business following
the Closing Date; and
(iv) any and all actions, suits, proceedings, demands,
assessments, penalties, fines, judgments, costs and
legal and other expenses incident to any of the
foregoing.
(b) The indemnification in this Section shall survive the
Closing.
12.3 Product Liability Matters. Notwithstanding anything to the
contrary contained in this Agreement, none of the provisions of
this Section 12 shall apply to any Damages claimed under Section
12.1(a)(ii) or Section 12.2(a)(ii) or (iii) which directly result
from any product liability claims, suits, demands or causes of
action arising following the Applicable Closing Date and that
pertain to any of the Inventory. With respect to such matters, the
parties do not intend for this Agreement to alter the legal
relationship between them that would exist in the absence of this
Agreement.
12.4 Claims for Reimbursement. In the event that the Buyer
Interests or the Seller Interests shall have suffered any Damages
(as hereinabove defined) with respect to any liability or claim to
which the foregoing indemnities relate, the Buyer Interests or the
Seller Interests, as the case may be (the "Indemnified Party"),
shall give Seller or Buyer, as the case may be (the "Indemnifying
Party"), prompt written notice of the nature and amount of such
Damages and the Indemnified Party's claim for reimbursement
therefor. The Indemnifying Party shall have thirty (30) days from
the date of said notice to investigate and dispute the nature,
validity or amount of any such claim. During said 30-day period,
the Indemnifying Party shall have reasonable access, during normal
business hours and upon prior notice, to the books and records of
the Indemnified Party for the purpose of such investigation in
accordance with the provisions of Sections 12.1 or 12.2 hereof. In
the event that the Indemnifying Party shall dispute the nature,
validity or amount of said claim, the Indemnifying Party shall give
the Indemnified Party written notice of such dispute within said
30-day period, and the parties shall attempt in good faith to
resolve such dispute.
In the absence of a dispute, the Indemnifying Party shall
promptly, and in any event not later than the expiration of said
30-day period, reimburse the Indemnified Party in full for any such
Damages, as set forth in the Indemnified Party's notice. In the
event that the Indemnifying Party shall dispute only the amount of
the claim, the Indemnifying Party shall, concurrently with the
delivery of its notice of dispute, pay to the Indemnified Party the
undisputed portion of the claim.
12.5 Defense of Third-Party Claims. If any lawsuit or enforcement
action is filed against an Indemnified Party by a third party and
the Indemnified Party is entitled to indemnification pursuant to
this Agreement, written notice thereof shall be given to the
Indemnifying Party as promptly as practicable (and in any event
within ten (10) days after the service of the citation or summons);
provided, however, that the failure of any Indemnified Party to
give timely notice shall not affect rights to indemnification
hereunder except to the extent that the Indemnifying Party
demonstrates actual damages caused by such failure, if (i) such
failure to give timely notice does not materially affect the
ability or right of the Indemnifying Party to participate in the
defense of such lawsuit or enforcement action, (ii) actual notice
is given to the Indemnifying Party within a reasonable time, and
(iii) to the extent that such failure to give timely notice causes
the Indemnifying Party to incur additional expense with respect to
such lawsuit or enforcement action, the Indemnified Party promptly
reimburses the Indemnifying Party for such additional expense.
After such notice, if the Indemnifying Party shall acknowledge
in writing to such Indemnified Party that such Indemnifying Party
may be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the Indemnifying Party
shall be entitled, if it so elects, to take control of the defense
and investigation of such lawsuit or action, and to employ and
engage attorneys of its own choice to handle and defend the same,
at the Indemnifying Party's cost, risk and expense; and such
Indemnified Party shall cooperate in all reasonable respects, at
its cost, risk and expense, with the Indemnifying Party and such
attorneys in the investigation, trial and defense of such lawsuit
or action any appeal arising therefrom.
12.6 Indemnification as Sole Remedy; Exceptions. Absent fraud on
the part of Seller, and subject to Section 14.1(b), the
indemnification provided to Buyer in this Agreement shall be the
sole remedy of Buyer against Seller in respect of any claims
arising under or out of this Agreement or any of the documents
delivered on the Applicable Closing Date that are based upon any
action, fact or circumstance existing as of the date of this
Agreement; provided, however, that should Buyer assert a claim for
indemnification between the First Closing Date and Second Closing
Date, Buyer, upon notice to Seller, and to the extent that Seller
does not dispute said claim in writing within five (5) days
following receipt thereof, may satisfy such indemnification claim
by setting off the amount of such claim against its payment
obligations on the Second Closing Date. Should Seller dispute said
claim, or a portion of said claim, in writing, Buyer shall deposit
the disputed portion of the claim in a joint signature interest-
bearing escrow account pending full and final resolution of the
claim (costs of escrow to be paid or reimbursed by the non-prevailing party).
Subject to Section 14.1(b), the indemnification provided to
Seller in this Section 12 shall be the sole remedy of Seller
against Buyer against Buyer in respect of any claims arising under
or out of this Agreement or any of the documents delivered on the
Applicable Closing Date that are based upon any action, fact or
circumstance existing as of the date of this Agreement.
12.7 Limitations. Buyer acknowledges and agrees that, absent fraud
on the part of Seller: (i) the indemnification obligations of
Seller pursuant to this Section 12 shall in no event exceed the
aggregate Purchase Price; (ii) should the First Closing occur but
the Second Closing fail to occur, for whatever reason, neither
party shall be required to indemnify the other pursuant to this
Section 12 except in the event that the aggregate amount of Damages
suffered or incurred by the Indemnified Party exceeds Five Thousand
Dollars ($5,000), whereupon the Indemnifying Party shall be liable
to the Indemnified Party for the full extent of such Damages
(including the first Five Thousand Dollars ($5,000)); and (iii)
should the Second Closing occur, neither party shall be required to
indemnify the other pursuant to this Section 12 except in the event
that the aggregate amount of Damages suffered or incurred by the
Indemnified Party exceeds Fifteen Thousand Dollars ($15,000),
whereupon the Indemnifying Party shall be liable to the Indemnified
Party for the full extent of such Damages (including the first
Fifteen Thousand Dollars ($15,000)).
SECTION 13
RIGHT TO PROCEED
13.1 Waiver of Conditions. Anything in this Agreement to the
contrary notwithstanding, if any of the conditions specified in
Section 7 hereof have not been satisfied, Buyer shall have the
right to waive one or more conditions precedent and proceed with
the transactions contemplated hereby without waiving any of its
other rights hereunder, and if any of the conditions specified in
Section 8 hereof have not been satisfied, Seller shall have the
right to waive one or more conditions precedent and proceed with
the transactions contemplated hereby without waiving any of its
other rights hereunder; provided, however, that if a party shall so
elect to proceed, such party shall not thereafter attempt to hold
the other party responsible for Damages resulting from the
condition or conditions waived and such other party shall not be
responsible for such Damages.
SECTION 14
MISCELLANEOUS PROVISIONS
14.1 Costs and Expenses.
(a) Each party covenants and agrees that it shall be
responsible for and bear its respective costs and expenses in
connection with, or arising out of, the negotiation and execution
of this Agreement and consummation of the transactions provided for
herein; provided, however, that Seller shall bear and be
responsible for any and all sales or transfer taxes applicable to
the transfer of Assets provided for herein.
(b) In the event any or all of the transactions described in
this Agreement fail to close in accordance with the terms hereof
because Seller is in default hereunder or has failed to obtain
director or shareholder approval or any other required consent and
provided Buyer is not in default hereunder, Seller shall pay to
Buyer, as liquidated damages, within three (3) days following
demand by Buyer, the amount of $150,000, the parties having
attempted in good faith to ascertain the damages which will result
should the transactions fail to close other than due to the fault
or breach of Buyer, and said sum represents the parties' best
efforts to estimate such damage. In the event any or all of the
transactions described in this Agreement fail to close in
accordance with the terms hereof, and such failure is due solely to
the breach by Buyer of its obligations hereunder or because any of
the conditions described in Sections 8.1 through 8.7 have not been
satisfied or waived in writing by Seller, Buyer shall pay to
Seller, as liquidated damages, immediately upon demand by Seller
the amount of $100,000, the parties having attempted in good faith
to ascertain the damages which will result should the transactions
fail to close due solely to the fault or breach of Buyer, and said
sum represents the parties' best efforts to estimate such damage.
(c) Seller agrees that should Seller fail to pay in full to
Buyer as liquidated damages the sum of $150,000 within three (3)
days following demand by Buyer as required pursuant to the first
sentence of Section 14.1(b), Buyer may, at its sole election and
upon notice to Seller, satisfy such payment obligations of Seller
by selecting, removing and retaining for Buyer's own account for
no additional consideration, such Promotional Inventory of Seller
as remains on hand and which Buyer desires to acquire, having a
purchase price (calculated in accordance with Section 2.5(b)) equal
to (x) $150,000 less (y) the amount of liquidated damages actually
paid by Seller to Buyer pursuant to Section 14.1(b). Buyer agrees
that, should it elect to satisfy Seller's payment obligations under
Section 14.1(b) by selecting and retaining for its account
Promotional Inventory (subject to the terms and conditions
contained in this Paragraph 14.1(c)), Buyer shall, prior to
selecting such Inventory, satisfy Seller's liquidated damages
payment obligation by setting off such amount, to the fullest
extent possible, against its royalty payment obligations (described
in Section 2.5(a)(iii)) then due and owing to Seller. Seller
agrees to cooperate with Buyer and shall use its best efforts to
cause Bank and others to cooperate with Buyer, in all reasonable
respects in connection with Buyer's selection, removal and
transport of Promotional Inventory pursuant to this Section
14.1(c).
14.2 Amendment and Modification. This Agreement may be amended,
modified or supplemented only in writing executed by each of the
parties hereto.
14.3 No Assignment. No party hereto shall assign, in whole or in
part, this Agreement or its respective rights and obligations
hereunder without the prior written consent of the other party
hereto, and, absent such consent, any assignment (including,
without limitation, any assignment by merger, death, dissolution or
operation of law) shall be null and void. Notwithstanding the
foregoing, Buyer may assign its rights and delegate its obligations
hereunder to Mazel Stores, Inc., an Ohio corporation, without the
consent of Seller; provided, that no such assignment shall relieve
Buyer of any of its obligations hereunder.
14.4 Notices. All notices, requests, demands or other
communications hereunder must be in writing executed by an
authorized representative of the party responsible therefor, and
must be given either by hand or telex, telecopy, telefax or other
telecommunications device capable of creating a written record
(confirmed by registered or certified mail or by overnight courier)
(i) if to Buyer, to: Mazel Company L.P., 31200 Aurora Road, Solon,
Ohio 44139 (telecopier number (216) 349-1543, Attention: Reuven
Dessler, Chairman) or to such other person or place as Buyer shall
furnish to Seller in writing, with a copy to Bennett Yanowitz,
Esq., Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., 2600 Tower at
Erieview, Cleveland, Ohio 44114 or (ii) if to Seller to: Action
Industries, Inc., 460 Nixon Road, Cheswick, Pennsylvania 15024
(telecopier number (412) 782-8606, Attention: T. Ronald Casper,
President) or to such other person or place as Seller shall furnish
to Buyer in writing, with a copy to Daniel Wessels, Esq., Cohen &
Grigsby, P.C., 2900 CNG Tower, 625 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3115 (telecopier number (412) 391-3382).
14.5 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute but one and
the same instrument.
14.6 Headings. Section and paragraph headings in this Agreement
are provided for convenience of reference only and shall not be
deemed to constitute a part hereof.
14.7 Recitals, Exhibits and Schedules. The recitals contained at
the beginning of this Agreement and all Schedules and Exhibits
attached hereto shall be deemed an integral part of this Agreement
and shall be incorporated herein by reference.
14.8 Schedules and Exhibits. Any Schedules and Exhibits which are
to be attached hereto at Closing, updated as of the Closing Date or
delivered separately upon execution hereof or on the Closing Date
shall be initialed by the parties hereto and shall be deemed
delivered under this Agreement.
14.9 Waiver; Remedies. No waiver of any breach of any provision of
this Agreement shall be held to be a waiver of any other subsequent
breach, and the failure of a party to enforce at any time any
provision hereof shall not be deemed a waiver of any right of such
party to subsequently enforce such provision or any other provision
hereof. All remedies afforded in this Agreement shall be taken and
construed as cumulative, that is, in addition to every other remedy
provided herein or by law.
14.10 Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State
of Ohio and applicable federal law.
14.11 Jurisdiction and Venue. Both parties agree that in the
event that any lawsuit is filed by one of them against the other in
connection with any matter arising from or connected with this
Agreement, any related agreement, and/or the transactions
contemplated hereby, such lawsuit shall be filed exclusively in the
United States District Court for the Northern District of Ohio,
Eastern Division, or the United States District Court for the
Western District of Pennsylvania or the Court of Common Pleas for
Cuyahoga County, Ohio or for Allegheny County, Pennsylvania (at the
election of the party filing suit) and each party covenants and
agrees that it shall voluntarily consent and irrevocably submit to
the personal and subject matter jurisdiction of said courts.
14.12 Severability. In the event that any provision or any
portion of any provision of this Agreement shall be held invalid,
illegal or unenforceable under applicable law, the remainder of
this Agreement shall remain valid and enforceable to the maximum
extent permitted by law.
14.13 Entire Agreement. This Agreement, the Schedules and
Exhibits hereto and the ancillary documents executed hereunder set
forth the entire agreement and understanding between the parties
hereto with respect to the transactions provided for herein and
supersede and cancel any and all prior discussions, correspondence,
agreements or understandings (whether oral or written) between the
parties hereto with respect to such matters (including, but not
limited to, the Summary of Preliminary Terms and Conditions dated
August 30, 1996).
14.13 Time is of the Essence. Time is of the essence in the
performance of the terms and conditions of this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Agreement to be executed by their
authorized representatives on and as of the date first above set
forth.
ACTION INDUSTRIES, INC. MAZEL COMPANY L.P.
By: ZS Mazel L.P., Managing
General Partner
By: T. RONALD CASPER
----------------------
T. Ronald Casper,
President By: ZS Mazel, Inc., General
Partner of ZS Mazel L.P.
By: REUVEN DESSLER
------------------------
Reuven Dressler,
Authorized Agent
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-48361 and 33-48362) pertaining to the
Stock Option Plan and Nonemployee Director Stock Option Plan of
Action Industries, Inc. and in the related Prospectuses of our
report dated October 14, 1996, with respect to the consolidated
financial statements and financial statement schedule of Action
Industries, Inc. included in the Annual Report (Form 10-K) for the
year ended June 30, 1996.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 18, 1996
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<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUN-25-1995
<PERIOD-END> JUN-30-1996
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<SECURITIES> 0
<RECEIVABLES> 2,769
<ALLOWANCES> 0
<INVENTORY> 3,928
<CURRENT-ASSETS> 7,446
<PP&E> 5,981
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<BONDS> 115
0
0
<COMMON> 719
<OTHER-SE> (490)
<TOTAL-LIABILITY-AND-EQUITY> 8,908
<SALES> 30,212
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<INCOME-PRETAX> (12,899)
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