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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 (Fee required)
For the Fiscal year ended December 31, 1997 or
[ ]Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 (No fee required)
For the transition period from ______________ to _________________
Commission file number 0-28640
BRAKE HEADQUARTERS U.S.A., INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3048534
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
33-16 Woodside Avenue, Long Island City, NY 11101
(Address of Principal Executive Offices)(Zip Code)
(718) 779-4800
(Registrant's Telephone Number, Including Area Code)
Securities registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Each Class is Registered
- -------------------- ------------------------
None
Securities registered Pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
Class A Common Stock Purchase Warrants
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. X Yes No
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the 2,437,689 shares of voting stock held
by non-affiliates computed by reference to the closing price of $3.63 per share,
at which the stock was sold on April 6, 1998, was $8,848,811.
As of April 6, 1998, the Issuer had 4,563,321 shares of Common Stock,
$.001 par value, outstanding.
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PART I
Item 1. Description of Business.
Business Development
Unified Capital, Inc. ("Unified") was incorporated in the State of
Delaware on July 13, 1988 as a blind pool which did not conduct business
operations until July 1992 when it acquired, in a reverse acquisition (the
"Reverse Merger"), all of the outstanding capital stock of Sanyo Automotive
Parts, Ltd. ("Sanyo Automotive"). In connection with the Reverse Merger, Unified
changed its name to Sanyo Industries, Inc. On August 8, 1995, Sanyo Industries,
Inc. changed its name to Brake Headquarters U.S.A., Inc. (the "Company"). The
Company is a publicly-owned holding company, substantially all of its current
business operations are conducted through two of its wholly-owned subsidiaries,
Sanyo Automotive and WAWD, Inc. ("WAWD"). Sanyo Automotive is a New York
corporation formed in 1976, which is currently doing business under the name
Brake Headquarters. WAWD, a California corporation acquired by way of a merger
on November 17, 1997, is an importer and distributor of high-line European and
Asian automotive aftermarket parts. Other operating subsidiaries include Quality
First Brakes, Inc., a wholly-owned Delaware subsidiary of the Company ("Quality
First"), formed in August 1995, which owns Fifteen Inc., Thirty Three Inc. and
Thirty Nine Inc., and are wholesale warehouses for "undercar" parts and ABS
Brakes, Inc. ("ABS"), an assember of domestic brake pads which is a wholly-owned
New York subsidiary acquired in August 1996. All references to business history
herein relate to Sanyo Automotive whose operations pre-date the Company's
formation in 1988.
Business of Issuer
Sanyo Automotive is a specialized distributor in the automotive
aftermarket of a complete line of brake system products including brake drums
and rotors, brake master cylinders, wheel cylinders, brake pads, brake shoes and
brake hoses for virtually all makes and models of domestic and foreign passenger
cars and light trucks from model year 1976 to the present. The Company also
sells a variety of other "undercar" parts including ride control products,
steering/suspension parts, drive shafts, shock absorbers and clutches. The brake
line products are sold primarily under the registered trademark "Brake
Headquarters, U.S.A.," "Brake Headquarters", as well as under the name "Sanyo
Automotive" and other private labels.
WAWD is a direct importer of automotive parts. WAWD's primary customers
and channel of distributions of the products sold are to jobbers and the high
line European and Asian installer markets. Products are normally sold in the
manufacturers' packaging and very few parts are sold under the WAWD name. WAWD
maintains coverage for over 30,000 stock keeping units ("SKU's") . The products
carried cover such product lines as filters, clutches, brakes, water pumps,
ignition, wire sets, hoses, belts, exhaust, air conditioning, radiators,
pistons, gaskets, shock absorbers, cables, headlights, brakes, hydraulics,
electrical and rotating electrical parts, and steering and suspension parts. The
product lines covered by WAWD are primarily replacement parts for the import car
market.
ABS operates a plant for the assembly of domestic brake pads. Quality
First operates three wholesale warehouses. The stores operate in three locations
around New York City and Long Island, New York. Sales are primarily made to
installers within the area, and sell a similar product line to those of Sanyo
Automotive.
Industry Overview
The replacement parts market depends, in part, upon the age and number
of cars and light trucks on the road and the number of miles driven per year.
The Company expects that this market will continue to grow because of, among
other things, projected increases in the size of the United States' automotive
population, the higher cost of new cars which has resulted in an aging of the
automobile population, and the higher cost of replacement parts as a result of
technological changes in more recent vehicle models. Many of these technological
changes have increased the
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demand on brake systems by causing more wear and tear. In addition, changing
government standards for automobiles, including pollution level standards and
increased performance demanded by consumers, caused original equipment
manufacturers ("OEMs") to make cars lighter, which, in turn caused OEMs to shift
from two-wheel disc brakes and drum brakes to four-wheel disc brakes which weigh
less than drum brakes. The Company believes that each of such factors has
contributed to a significant increase in the market for brake repairs during the
past decade. The standard to bring a vehicle to a complete stop from 60 MPH has
been reduced in the last few years from 150 feet to 75 feet. In order to meet
this standard a change in the friction material of brakes was necessary and a
shift was made from inexpensive long lasting asbestos brake pads (which raised
environmental concerns) to more expensive, shorter life metallic brake pads
which are more punishing to the brake system. Proper replacement of ignition
parts, shocks, filters, and electrical parts result in better performance, as
well as extending the life of the automobile.
Management believes based on its experience that the aftermarket
industry performs well under most economic conditions. In an economic recession,
for example, vehicle owners tend to retain and repair their cars rather than
purchase costly new vehicles. Since brakes are a safety-related item, drivers
will not normally neglect brake repairs as they might do with other repairs and
maintenance less directly related to safety.
Business Strategy
The Company's objective is to become one of the leading parts
distributors for both imported and domestic replacement parts in the United
States. The Company's business strategy is to continue the growth by acquiring
additional complementary businesses. The acquisition of WAWD in November 1997,
expanded the Company's warehouse locations throughout the United States, and
added new product lines for the Company to market to its existing customer base.
The Company is actively seeking strategic relationships with other companies and
merger/acquisition candidates that will enhance the ability of the Company to
bring its product to the market. This may be accomplished through acquisitions
of manufacturing, retail and other wholesale operations. In its base
distribution business, the Company will seek to continue to grow by, among other
things, adding new brake and other undercar part product lines. Management
believes that the Company's continued growth will depend upon, among other
things, its ability to respond to market and other changes in the distribution
process for automotive parts and to maintain state-of-the-art integrated
computerized systems to meet its customers demands.
While many of the Company's competitors offer undercar parts for most
popular cars, Management believes that no such competitor maintains an inventory
of all brake parts for substantially all cars, as does the Company. Management
also believes that the Company has positioned itself, through investment in
advanced integrated systems, to capitalize on general trends occurring in
distribution.
Marketing and Sales
Sanyo Automotive sells products primarily under the name "Brake
Headquarters" and certain private manufacturers' labels. Sanyo Automotive
distributes its products through salaried and independent sales agents or
manufacturers' representatives. Products are sold primarily to warehouse
distributors, retail discount chains, foreign and domestic automotive parts
wholesalers, mass merchandisers and undercar installation chains. A network of
approximately 200 sales representatives covers substantially all of the United
States and Canada as well as Mexico, Puerto Rico and Venezuela.
Marketing efforts are facilitated by the publication of several
catalogs, each of which contains a description of the parts distributed by the
Company. These catalogs are provided to the Company's sales representatives who
use them to fill customers' orders. See "Research and Marketing" below. The
Company also participates in trade shows throughout the United States in order
to gain exposure for its products.
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The Company has increased net sales by approximately 70% since 1993,
although growth has slowed in later years. With the acquisition of WAWD, pro
forma combined annualized sales for 1997 would be approximately $68 million.
WAWD sells products primarily through the use of telemarketers with the
assistance of outside sales personnel. Approximately 40 telemarketers and six
outside salespersons are used to sell its products. WAWD is currently exploring
the use of outside independent sales agents in certain geographical areas where
the company does not have a strong presence with the jobber market. WAWD will
also market its products through the publication of catalogs for the Asian Car
Lines, Brake Catalog, and VW Car Line. Vendors' catalogs are utilized to promote
their product lines which WAWD carries in stock.
WAWD sells name brand products which are kept in a manufacturer's
original packaging. The products are primarily distributed through two channels
of distribution. The first being the jobber market and the second being the high
line European installer. Approximately 97% of WAWD's sales are generated within
the United States.
For the year ended December 31, 1996, Autozone, Inc. accounted for
approximately 28% of the Company's revenues before terminating its relationship
with the Company in late 1996. There were no other 10% or greater customers in
1996 or in 1997 and WAWD did not have any 10% or greater customers in 1996 or in
1997.
Management Information Systems
In July 1996, the Company purchased a new IBM AS/400 computer system
and updated all of its software systems. The Company is currently reviewing
options to integrate WAWD into its current mainframe system, however no
definitive decision has been made at this time. WAWD is currently using an IBM
AS400 computer system. The Company's computer system implements the fulfillment
of customers' purchase orders. Three of the Company's distribution centers are
equipped with an EDI computer link which enables customers to place orders
directly through the Company's computer system. The Company provides EDI
services to its customers through the Advantis system. The Company has a bar
coded inventory system and advanced shipping notice ("ASN") which, upon receipt
of an EDI generated purchase order, generates a computer notice of the items
being shipped, the shipment date and a tracking number. The systems give the
Company the ability to efficiently service customer needs and, the Company
believes, represent some of the most advanced integrated distribution
capabilities in the automotive parts industry. The Company also maintains a web
site on the Internet, which provides Company information and the ability to
communicate domestically and internationally via E-Mail. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" for information concerning the Year 2000 Issue.
Operations / Facilities
Distribution Operations
The Company maintains its headquarters office and principal
distribution center at a 94,000 square foot warehouse facility in Long Island
City, New York. This facility consists of two adjoining buildings at which
activities are maintained during two eight-hour shifts per day, usually five
days per week. In June 1995, the Company expanded its Midwest distribution
center in Fairfield, Illinois to approximately 40,000 square feet. The Company
currently operates one shift per day, five days per week, at this facility. The
Company also maintains an approximately 10,000 square foot distribution center
in Portland, Oregon to serve the Company's West Coast customers. At the Oregon
facility, the Company conducts distribution activities generally operating one
shift per day, five days per week.
An additional six locations were added when the Company acquired by
merger WAWD. These locations include a west coast office located in Fremont, CA
of 10,400 square feet, and warehouse locations include Sunnyvale, CA (19,400
square feet), Los Angeles, CA (51,900 square feet), Houston, TX (10,500 square
feet), Atlanta, GA (58,200 square feet) and Piscataway, NJ (65,800 square feet).
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The Company maintains inventories at its distribution centers to
maintain maximum service levels. Orders from the Company's customers are
selected, assembled and packaged from these facilities and shipped. Sanyo
Automotive maintains various levels of inventories with approximately 8,000
SKU's at its New York, Illinois and Oregon warehouses. WAWD maintains various
levels of inventories with approximately 30,000 SKU's at its five warehouse
locations. The Company maintains leased trucks which it uses to make direct
local deliveries to its customers. The Company estimates that about 5% of its
sales are delivered by the Company's trucks and the balance by common carriers,
including Federal Express and UPS. The Company has a dedicated office at each
distribution center to facilitate shipping by Federal Express and UPS.
Assembly Operations
The Company, through its subsidiary ABS, occupies 10,000 square feet in
Lindenhurst, NY, where it assembles brake pads for domestic automobiles.
Undercar Warehouses
The Company, through its subsidiary Quality First, maintains three
undercar warehouses which are located in the Bronx, Jamaica, and Uniondale, New
York. The stores occupy from 1,200 - 2,000 square feet and are open six days a
week to service jobbers.
Suppliers
The Company has relationships with many suppliers of parts and
alternate sources of parts are readily available. Therefore, the Company does
not maintain supply contracts with any of its suppliers, because it believes
alternative sources exist for most of the products it distributes. The loss of
any one supplier is not expected to have a material adverse effect on the
Company. The Company generally obtains prices and terms comparable to similarly
situated companies because of its large volume of purchases.
Competition
Competition within the automotive parts industry is affected
principally by product quality, availability, customer service and price. By
expanding its distribution facilities, the Company anticipates that it will be
able to continue to control costs, while maintaining high standards of quality
for its products. The direct competitors to the Company's distribution
activities include manufacturers, consisting of Brake Parts, Inc., Wagner
Brakes, a subsidiary of Cooper Industries, Inc., EIS Brake Parts Division of
Standard Motor Products, Inc. and the ITT Automotive Aftermarket Division of
ITT/AIMCO. Such manufacturers, who also act as distributors, are not dependent
on relationships with suppliers as is the Company. The Company's direct
competitors who are distributors include Universal Brake Parts, and California
Drum and Rotor.
800 Technical Service Hotline
The Company has instituted an 800 toll free technical hotline
(800-221-1393 X 106) serviced by professional advisors to respond to inquiries
and problems which may be experienced by the Company's customers.
Research and Marketing
The Company has established a special in-house Research and Marketing
("R&M") department. The R&M Department was formed to provide up-to-date
information for the Company's catalogs which the Company believes is useful to
its customers. The Company has been advised by certain of its retail chain store
customers that they rely on the Company's catalogs and the R&M Department to
obtain current information in order to update and maintain their own inventory.
The Company's customers are also able to provide the Company with input on their
undercar
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product needs, enabling the Company to increase sales to such customers. The R&M
Department has also been able to supply management with recommendations for new
additions to its product lines and new products.
Government Regulation
The Company is subject to various laws and governmental regulations
relating to the operation of its business. However, the Company does not believe
that the cost of compliance with such laws and regulations has a material impact
on its operations.
Trademarks
The Company offers many of its products under the names "BRAKE
HEADQUARTERS, U.S.A (R)", "EAP(R)", "EURASIAN AUTOMOTIVE PRODUCTS (R) ", and
"WORLDMARK (R)" , for which it has obtained registered trademarks from the
United States Patent and Trademark Office and "WAWD(TM)" for which it has a
pending trademark.
Employees
As of March 18, 1998, the Company had 268 employees, including five
executives; 16 employees in purchasing; 36 administrative personnel; 48 in sales
and customer service; 152 employees in warehousing, shipping and receiving; and
11 in the undercar warehouses. The Company also retains the services, as
independent contractors, of approximately 200 independent sales representatives
who are paid solely on a commission basis.
The Company is a party to a collective bargaining agreement relating to
46 of its warehouse employees in New York and Fairfield, Illinois. The Company
believes that its employee relations are currently satisfactory.
Item 2. Description of Properties.
Sanyo Automotive leases approximately 94,000 square feet of office, and
warehouse facilities at 33-16 Woodside Avenue, Long Island City, New York.
Approximately 34,000 square feet of this facility are leased from the Company's
President, Joseph Ende, pursuant to a lease dated July 1, 1992. As of August,
1997, Mr. Ende agreed to reduce the annual lease payment to $258,000, for the
remainder of the lease which expires on July 1, 1999. Mr. Ende was paid
$280,500, $312,000, and $312,000 per year pursuant to the lease in 1997, 1996
and 1995, respectively. Based on the Company's review of nearby real estate and
an independent appraisal, the Company believes that the terms of the lease with
Mr. Ende are no less favorable than would otherwise be obtained from
unaffiliated third parties. The remaining 60,000 square feet is leased on a
month-to-month basis at $24,000 per year.
Sanyo Automotive owns a facility, purchased in April 1995, comprised of
approximately 40,000 square feet on nine acres at Lot #22, Fairfield Industrial
Park, Fairfield, Illinois, which serves as the Company's Midwest Distribution
Center.
Sanyo Automotive occupies approximately 10,000 square feet of public
warehouse space at 230 East Burnside, Portland, Oregon on a yearly basis.
ABS leases approximately 10,000 square feet at 6 Bahama Street in
Lindenhurst, New York. The lease expires on October 31, 2001. An annual rental
of $40,000 is paid.
Quality First maintains three stores in the Bronx, Jamaica, and
Uniondale, New York. Each store is between 1,200 - 2,000 square feet. Rent is
$1,700, $2,000, and $900 per month, respectively.
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WAWD subleases 10,400 square feet at 47421 Bayside Parkway, Fremont,
California. The sublease expired on February 28, 1998, and was renewed for an
additional four-month term at $13,416 per month. WAWD leases 19,400 square feet
of warehouse space at 370 Caribbean Drive, Sunnyvale, California. The lease was
renewed for a one-year term, expiring on August 31, 1998. Monthly rent is $6,693
($80,316 annually.) WAWD is currently looking for a facility to service the
Northern California market and would combine the Fremont and Sunnyvale,
California locations. It is anticipated that the combined locations would have a
monthly rent of approximately $21,000.
WAWD leases 58,200 square feet of warehouse space at 611 Thornton Road,
Lithia Springs, Georgia 30057. Rent is $10,704 per month and expires August 31,
2000 and may be renewed for additional five-year terms.
WAWD leases 51,900 square feet of warehouse space at 3270 East 26th
Street, Vernon, California 90023. The lease expires December 31, 2002 and has a
base rent of $15,578 per month.
WAWD leases 10,500 square feet of warehouse space located at 1450 and
1490 North Post Oak Road, Houston, Texas. The lease expires on October 31, 1998
and has a monthly rent of $2,617.
WAWD leases 65,800 square feet of space at Colonial Drive, Piscataway,
New Jersey. The lease expires on May 31, 1999 and monthly rent is $21,626.
Item 3. Legal Proceedings.
The Company is not currently subject to any material legal proceedings
other than claims in the ordinary course of business.
Item 4. Submission of Matters to a Vote of SecurityHolders.
NONE
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information
The Common Stock has traded on the NASDAQ SmallCap Market under the
symbol BHQU since June 6, 1996. Until then, the Common Stock traded on the
Over-The-Counter Electronic Bulletin Board (the "OTCBB"). The Company's Class A
Warrants have traded on the NASDAQ SmallCap Market under the symbol BHQUW since
December 23, 1996.
The following table sets forth the high and low closing prices for the
Common Stock for each quarter, as reported by NASDAQ since June 6, 1996; and the
high and low bid quotes on the OTCBB from January 1, 1996 through June 5, 1996,
as reported by the National Quotation Bureau, Inc. Such quotations represent
prices in dollars between dealers, do not include retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions.
Common Stock Warrants
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High Low High Low
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1996
----
First Quarter $ 3.50 $ 2.75 -- --
Second Quarter $ 5.75 $ 3.00 -- --
Third Quarter $ 7.00 $ 5.37 -- --
Fourth Quarter $ 8.12 $ 5.25 $ 4.50 $ 4.25
1997
----
First Quarter $10.25 $7.13 $6.12 $3.50
Second Quarter $10.50 $6.38 $7.12 $3.12
Third Quarter $ 8.00 $6.63 $4.56 $3.75
Fourth Quarter $ 7.38 $5.37 $4.50 $2.37
1998
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First Quarter $ 5.31 $3.75 $3.13 $ 1.25
(through March 31, 1998)
As of April 6, 1998, the closing prices of the Common Stock and
Warrants were $3.63 and $1.00, respectively.
(b) Stockholders of Record
As of April 6, 1998, there were 517 holders of record of the Common
Stock and 3 holders of the Warrants. The Company reasonably believes that there
are approximately 3,080 beneficial owners, including the beneficial owners of
Common Stock currently held in the name of depository institutions.
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(c) Dividend Policy
To date, no cash dividends have been paid on the Common Stock. On April
30, 1995, a dividend in the amount of $112,730 was declared, but not paid, to
the Company's President on the Preferred Stock issued in connection with the
Reverse Merger. On April 30, 1995, all of the then outstanding shares of
Preferred Stock were converted into Common Stock in accordance with their terms
as a result of the attainment by the Company of certain performance levels.
Fifty thousand dollars ($50,000) of the $112,730 in accrued dividends were
exchanged for the 1,000 shares of Series B Preferred Stock of the Company which
were issued to the Company's President and the balance was credited to the
payment of certain advances made to Mr. Ende by the Company. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
No cash dividends on the Common Stock are contemplated in the
foreseeable future, and the Company presently intends to retain all of its
earnings for the future operations and growth of the business. Pursuant to the
Company's Credit Agreement with its senior lender, the Company may not declare
or pay any dividends (excluding dividends payable solely in the Company's
capital stock) or any other distribution on the shares of capital stock of the
Company.
Item 6. Selected Financial Data.
The selected consolidated financial data as of and for the five-year
period ended December 31, 1997 have been derived from the Company's Consolidated
Financial Statements and should be read in conjunction with these statements.
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<CAPTION>
Year Ended December 31,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales...................... $30,181,965 $32,599,096 $30,463,730 $25,094,473 $17,717,023
Income (loss) from operations.. (682,554) 240,85l 569,690 (1,041,037)(1) 370,009
Interest expense............... (991,962) (875,305) (774,762) (520,602) (314,796)
Net income (loss).............. (949,330) (466,454) (179,072) (1,968,909)(1) 41,187
Net income (loss) per basic and
diluted common share (2).... $ (.22) $ (.13) $ (.10) $ (.92) $ .00
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital................ $23,737,661 $ 9,518,810 $ 3,237,259 $ 3,706,239 $1,823,459
Total assets................... 38,180,367 21,023,644 15,496,294 11,937,143 10,189,885
Long-term debt................. 16,239,285 5,665,870 630,494 216,469 133,927
Total stockholders' equity..... 6,449,166 5,506,395 3,855,804 4,124,961 2,176,102
</TABLE>
(1) After a non-cash compensatory charge of $2,314,000 resulting from the
release of escrow shares, the exercisability of warrants and the conversion of
preferred stock, upon the Company's attainment of the specified 1994 pre-tax
income level under the Company's July 1992 Reverse Merger and certain
cumulative levels for the three-year period ended December 31, 1994.
(2) Net income (loss) per share is computed on the basis described in Note 1 of
Notes to the Consolidated Financial Statements, including, but not limited to,
the adjustment for the $112,730 dividend on preferred stock in 1995.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following should be read in conjunction with the Consolidated Financial
Statements included elsewhere herein.
Results of Operations
1997 Compared to 1996
Gross sales for the year ended December 31, 1997 ("1997") decreased by
$2,792,979, or 7.8%, to $33,155,500, as compared to $35,948,479 for the year
ended December 31, 1996 ("1996"). The Company's loss of a major customer,
Autozone, Inc., as described below under 1996 Compared to 1995, resulted in a
decrease in sales of approximately $9.1 million for 1997. The addition of new
customers and expanded sales to current customers, offset, in part, the
reduction in sales. The Company's 1997 gross sales included $4,444,970 of sales
for WAWD from November 17, 1997, the date of acquisition, to December 31, 1997.
WAWD had sales of $44,515,000 and $45,097,000 for the years ended December 31,
1997 and 1996, respectively.
The Company has agreed to accept the return of merchandise under
certain circumstances. In order to obtain new customers, merchandise is
exchanged, and replaced with current Company merchandise. The merchandise is
brought back to the Company where it is reboxed, relabeled and placed back in
inventory. This is a common occurrence within the industry. As the marketplace
has grown more competitive, the amount of sales returns to the Company has
significantly increased. The merchandise does not deteriorate, and obsolescence
is therefore not a problem. All merchandise which is defective and returned by
customers is returned to or credited by vendors.
Gross profit for 1997 was $8,944,944 as compared to $8,324,076 for
1996. This represents an increase of $620,868, or 7.5%. Gross profit increased
notwithstanding lower sales as a result of continued cost efficiencies in 1997
and the charge incurred in 1996 of $534,000 relating to returned merchandise
from Autozone, Inc. Gross profit, as a percentage of net sales, for 1997
increased to 29.6%, as compared to 25.5% for 1996 due to the continued emphasis
by the Company purchasing more efficiently in 1997 and the Autozone charge in
1996 (1.6%). Additionally, in 1997, there was an increase in the market share of
more profitable new lines of business, thus adding to the increase in the gross
margin percentage.
Operating expenses for 1997 were $9,627,498, an increase of $1,544,273,
or 19.1%, from $8,083,225 for 1996. The acquisition of WAWD added additional
operating expenses which accounted for 17.4% of the 19.1% increase, or
$1,406,095. The provision for bad debts was $892,000 in 1997, compared with
$481,000 in 1996. The difference of $411,000 accounted for a 5.8% increase in
operating expenses.
Most of the Company's payments to vendors are made in United States
dollars and, therefore, the amount of foreign currency is immaterial.
In 1997, the loss from operations was $682,554 as compared to income of
$240,851 for 1996. This was a decrease of $923,405, or 383%. Income from
operations for 1997 decreased primarily due to the increase in operating
expenses noted above.
Interest expense for 1997, increased by $116,657 to $991,962 compared
to $875,305 for 1996. The increase was a result of additional borrowing in the
fourth quarter to fund the acquisition of WAWD.
Other income for 1997 consisted of $100,000 from the sale of certain
intangible assets previously amortized through 1995 and a gain on the sale of
marketable equity securities of $48,000.
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For 1997, the Company's net loss was $949,330, or $.22 per share, as
compared to $466,454 or $.13 per share for 1996.
Excluding the results of WAWD, during the fourth quarter of 1997 the
Company experienced a dramatic decrease in sales levels. In the fourth quarter
of 1997, the Company had net sales of $4,009,821 as compared with $7,404,405
during the fourth quarter of 1996. This decrease was caused by the loss of
Autozone, Inc. The Company had sales to this customer of approximately $3.4
million during the fourth quarter of 1996, as compared with no sales to this
customer in the fourth quarter of 1997. Included within operating expenses for
1997 was an increase in the provision for doubtful accounts of $867,000 during
the fourth quarter. The increase in the provision for doubtful accounts was
primarily a result of the adjustment in the carrying value in two large accounts
receivable balances. The Company incurred additional borrowings during the
fourth quarter of 1997 to support the increase in inventory levels. As a result,
interest expense increased to $290,246 during the fourth quarter of 1997 from
$200,210 during the third quarter of 1997. These combined factors contributed to
the pre tax loss of $1,526,330.
1996 Compared to 1995
Gross sales for 1996 increased by $3,565,177, or 11.0%, to $35,948,479
compared to $32,383,302 for the year ended December 31, 1995 ("1995"). This
increase was due primarily to increased sales to existing customers, the
Company's introduction of new undercar parts product lines and the continued
expansion of its customer base. Autozone, Inc. a large retail chain, which
became a customer in late 1993, accounted for approximately 28% of the Company's
net sales for 1996. However, in the fourth quarter of 1996 this customer
informed the Company that it was consolidating vendors, and they would no longer
use the Company as a prime supplier. The Company added several new retail chains
late in 1996, which were anticipated to make up a portion of the loss by this
single customer.
Gross profit for 1996 increased by $267,462, or 3.3%, to $8,324,076
compared to $8,056,614 for 1995. Gross profit, as a percentage of net sales, for
1996 and 1995 remained constant at 26%. The Company accepted the return of
merchandise from Autozone, Inc. and incurred $534,000 of costs for relabeling,
and freight. This charge reduced the gross profit percentage by 2% in 1996 which
was offset by other cost efficiencies.
Operating expenses for 1996 increased by $596,301, or 8.0%, to
$8,083,225, compared to $7,486,924 for 1995. Operating costs increased in
proportion to the increased sales volume.
Income from operations for 1996, decreased by $328,839 to $240,851
compared to $569,690 for 1995, primarily as a result of the increase in
operating expenses noted above.
Interest expense for 1996, increased by $100,543, or 13.0% to $875,305
compared to $774,762 for 1995. The increase was a result of additional
borrowings in support of the growth in sales and assets.
As a result of the foregoing, the Company's net loss for 1996 increased
by $287,382 to $466,454, or $.13 per share, as compared to $179,072, or $.10
per share for 1995.
Liquidity and Capital Resources
The Company has continued to use funds generated from proceeds from the
sale of stock, exercise of warrants, and borrowings to finance working capital
requirements.
In November 1997, the Company entered into two credit agreements with
institutional lenders which provide for revolving credit and letter of credit
facilities, in an aggregate amount of up to $24 million based on certain
percentages of accounts receivable and inventory. Borrowings under these
facilities currently bear interest at rates ranging from LIBOR plus 2.25% to
prime plus 1% and both facilities expire in November 2000. The Company incurred
approximately $7.9 million of bank indebtedness (total purchase price paid in
cash was $8.4 million) in connection with its acquisition of WAWD which bears
interest at prime plus 1%.
Cash provided by operations during 1997 was $389,926 as compared to
$2,658,581 used in operations for 1996. This change was due mainly to the
decrease in accounts receivable of $2,285,846, partially offset by an increase
in inventory of $839,388, for 1997. During 1996, inventory and accounts
receivable grew by $4,638,213 and accounts payable and accrued expenses grew by
$1,858,547.
Cash used in investing activities was $8,912,260 during 1997 compared
with $185,774 in 1996. The change was primarily due to increased capital
expenditures of $279,410, and the acquisition of WAWD for $8,431,400 in 1997.
-11-
<PAGE>
Cash provided by financing activities was $8,050,816 during 1997
compared with $3,337,607 in 1996. The Company established a line of credit with
a new bank which provided funds of $9,508,322 to replace two existing credit
facilities totaling $9,396,877 which were repaid in November 1997. Additional
borrowings were obtained for the acquisition of WAWD in the amount of
$7,632,000, of this amount, $1,000,000 is in the form of one year 5% debentures
which are convertible into common stock and one year 8% $600,000 promissory
notes.
Pursuant to the Company's Credit Agreement with National Bank of
Canada, under certain circumstances, certain of the Company's subsidiaries may
not transfer monies to certain other subsidiaries or the Company in the form of
dividends or other distributions.
At December 31, 1997 the Company had a total of $18,359,000 available
under its combined lines of credit of which $15,540,000 was outstanding. These
funds are available for working capital purposes. The Company does not
anticipate any material capital expenditures within the next year.
The Company believes that many of its suppliers and customers have year
2000 Issues ("Year 2000 Issue") which could affect the Company. Many older
computer software programs recognize only the last two digits of the year in any
date (e.g., "98" for "1998"). These programs were designed and developed without
considering the impact of the upcoming change in the century. If the software is
not reprogrammed or replaced, many computer applications could fail or create
erroneous results by or at the Year 2000. The Company will commence a program to
pursue compliance by those with whom it electronically interconnects. It is not
possible, however, at present, to quantify the overall cost of resolving this
issue for the Company's suppliers and customers. Sanyo Automotive has been
advised that its own software has been designed and developed with a resolution
to the Year 2000 Issue and as such Sanyo Automotive presently believes that the
cost of fixing the Year 2000 Issue will not have a material effect on the
Company's current financial position, liquidity or results of operations. WAWD
is not currently on the Sanyo Automotive computer system. WAWD will utilize both
internal and external resources to reprogram or replace, and test the software
for Year 2000 modifications. WAWD anticipates completing the Year 2000 project
in mid 1999. It is anticipated the cost to implement a new computer system which
will be Year 2000 compliant will be approximately $600,000. WAWD expects to
finance this program through a three to five year capital lease.
Impact of Recent Accounting Standards Adopted by the Company
The impact of recent accounting standards is discussed in Notes 1 and 9
of Notes to Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
The financial statements appear following Item 14 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
-12-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Set forth below are names, ages and positions of the Company's Executive
Officers and Directors, along with certain information relating to the business
experience of each.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph Ende 50 Chairman of the Board, President and Chief Executive Officer
Scott Osias 43 Vice President of Sales and Marketing
Marc J. Ruskin 45 Chief Financial Officer and Director
Sandra Ende 45 Secretary and Director
Elliot H. Lutzker 45 Director (1)
Adam E. Budish 38 Director (1)
- -------------------------
</TABLE>
(1) Member of Audit and Compensation Committees.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successors. Directors currently
receive no cash compensation for serving on the Board of Directors. Officers are
elected annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board. The Company's Placement Agent,
G-V Capital Corp., has the right at its discretion for a three-year period
ending August 13, 1999 to designate either a member of the Board of Directors or
an advisor to the Board.
Joseph Ende has been President, Chief Executive Officer and Chairman of
the Board of Directors of the Company since July 9, 1992. He has been the
President and a Director of Sanyo Automotive since its inception in June 1976.
Mr. Ende is the husband of the Company's Secretary, Sandra Ende.
Scott Osias has been the Vice President of Sales and Marketing of the
Company since October 1992. Mr. Osias has been employed in the retail automotive
industry for 25 years and was the principal owner and operator of Automotive
Discount Centers, a 14 store retail automotive parts store chain in New York
from 1973 to 1988. Prior to joining the Company, from 1988, Mr. Osias was
General Manager of Prime Automotive Warehouse, a warehouse distribution
automotive parts chain.
Marc J. Ruskin, CPA, has been the Chief Financial Officer of the
Company since August 1995 and a director of the Company since February 1998. He
has 20 years of financial experience, including a combined five years at Ernst &
Young LLP and Deloitte & Touche LLP. From 1993 until he joined the Company, Mr.
Ruskin was Vice President of Finance and Administration for the Nason Group LLC,
a Connecticut company formed to purchase and develop real estate. From 1991 to
1993, Mr. Ruskin was the Chief Financial Officer of REBO Group Incorporated, a
New York based international corporation specializing in the research,
development and production of high definition television. Mr. Ruskin was Vice
President of Finance and Administration of Kaufman Astoria Studios, Inc., a
company specializing in film/television and real estate management, from 1982 to
1991. Mr. Ruskin holds an MBA from the University of Bridgeport.
-13-
<PAGE>
Sandra Ende has been a Director of the Company since July 1992. She was
employed by Sanyo Automotive from its inception in June 1976 through March 1997,
in various capacities including bookkeeper, Personnel Manager, Director of
Marketing and Office Manager. Ms. Ende is the wife of the Company's President,
Mr. Joseph Ende.
Elliot H. Lutzker has been a director of the Company since February
1998. Since 1985, Mr. Lutzker has been a partner in the law firm of Snow Becker
Krauss P.C., counsel to the Company. He was formerly an attorney with the
Division of Enforcement of the NorthEast Regional Office of the U.S. Securities
and Exchange Commission.
Adam E. Budish has been a director of the Company since February 1998.
Mr. Budish has been Vice President- Business Affairs at Reuters Health
Information Inc. (a wholly-owned subsidiary of Reuters PLC) since June 1994.
From January 1994 to June 1994 Mr. Budish was General Counsel to GeoMedica
Networks, which was acquired by Reuters PLC in June 1994. From 1992 to 1994 Mr.
Budish was Legal Counsel, Business Affairs at Rebo Studio, Inc. Mr. Budish has
an M.B.A. from The Wharton School of the University of Pennsylvania, and a J.D.
from George Washington University School of Law.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers, Directors and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and ten percent shareholders are required by regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on the Company's copies of such forms received or written representations
from certain reporting persons that no form 5's were required for those persons
other than Scott Osias, Vice President of Sales and Marketing, who filed a
timely Form 5. The Company believes that, during the time period of January 1997
through December 31, 1997, all filing requirements applicable to its Officers,
Directors and greater than ten percent beneficial owners were complied with
except as set forth below.
Joseph Ende, Chairman of the Board, President and Chief Executive
Officer of the Company, filed two late Form 4's in which two transactions were
reported.
Scott Osias, Vice President of Sales and Marketing of the Company,
filed three late Form 4's in which four transactions were reported.
Item 11. Executive Compensation.
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company, for the year ended December
31, 1997, by Joseph Ende, the Company's Chief Executive Officer, and Marc
Ruskin, Chief Financial Officer, and during the years ended December 31, 1996
and 1995, by Joseph Ende, who was the Company's only executive officer ("Named
Executive Officers") whose total compensation exceeded $100,000 in those years.
-14-
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------------------- -------------
Securities
Other Underlying
Name and Annual Options/
Principal Compen- SARs
Position Year Salary Bonus sation (#)
- -------- ---- ------ ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph Ende, 1997 $156,000 $ -0-(2) $ -0- -0-
Chief Executive 1996 $156,000 -0-(2) -0- 30,000(1)
Officer and Director 1995 $127,500 -0-(2) -0- 300,000(1)
Marc Ruskin 1997 $ 75,000 $ -0- $52,000(3) -0-
Chief Financial Officer
and Director
- -------------
</TABLE>
(1) On July 31, 1995, Mr. Ende was granted, non-qualified stock options under
the Company's 1995 Stock Option Plan, to purchase 180,000 shares of Common Stock
at $3.00 per share expiring on July 30, 2000. On December 15, 1995, Mr. Ende was
granted non-qualified stock options under the 1994 Stock Option Plan, to
purchase 120,000 shares of Common Stock at $2.50 per share expiring on December
15, 2000. On November 19, 1996, Mr. Ende was granted a non-qualified stock
option under the Company's 1994 Stock Option Plan to purchase 30,000 shares of
Common Stock at $5.25 per share expiring on November 18, 2001. See "Stock Option
Plans" below.
(2) The Board of Directors has the discretion to grant Mr. Ende a bonus of
$50,000 for each of the six-month periods ending June 30 and December 31 during
the three-year term of his employment agreement entered into on July 31, 1995,
as amended, provided the Company reports operating income, but after payment of
such bonus for the applicable six-month period. No bonus was issued for the
periods ended December 31,1997,1996, and 1995.
(3) Represents the difference between the exercise price and the fair market
value of options (the "spread") on the date of exercise.
Individualized Option/Grants in Last Fiscal Year
The following table sets forth the number of stock options granted to
the Named Executive Officers in the Summary Compensation Table during the year
ended December 31, 1997, exercise information and potential realizable value.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Individual Grants
----------------- Potential Realizable
Number of Percent of Value at Assumed
Shares Total Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees in Exercise Expiration for Option Term
Name Granted (#) Fiscal Year Price ($/sh) Date 5% ($) 10% ($)
- ---- ----------- ----------- ------------ ---- ------ -------
None
</TABLE>
-15-
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options/SARs at Options/SARs
Acquired FY-End (#) at FY-End ($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized Unexercisable Unexercisable
- ---- -------- -------- --------------- -------------
<S> <C> <C> <C> <C>
Joseph Ende -0- -0- 210,000/120,000 $492,300/$285,600(1)
Marc Ruskin 8,000 $52,000 9,500/20,000 $ 7,235/$50,600(1)
Scott Osias -0- -0- 13,500/33,000 $ 18,255/$ 8,640(1)(2)
</TABLE>
- -------------------------
(1) The closing price of the Company's Common Stock on December 31, 1997 was
$5.38 per share.
(2) Does not include 30,000 options exercisable at $6.75 per share which were
not in-the-money at December 31, 1997.
Executive Officers' Employment Agreements
On July 31, 1995, the Company entered into a three-year employment
agreement with Joseph Ende, the President and Chief Executive Officer of the
Company. The agreement automatically renews for consecutive one-year periods
unless terminated on thirty days' prior written notice by either party. In 1997,
Mr. Ende received a base annual salary of $156,000. The Board of Directors has
the discretion to grant Mr. Ende a performance bonus of $50,000 for each of the
six-month periods ending June 30 and December 31 during the term of the
agreement, provided the Company reports operating income, but after payment of
such bonus for the applicable six-month period. Such bonus will not accrue in
the event the income level is not met. No bonus was paid or accrued in 1996 or
1997. Under the agreement, Mr. Ende is also entitled to an automobile or a
monthly allowance equal to the cost of leasing such automobile, and health
insurance and other benefits. Mr. Ende has agreed not to compete with the
Company during the term of, and for a one-year period from the date of
termination of, his employment with the Company.
On April 10, 1997, the Company entered into a three-year employment
agreement with Scott Osias, Vice President of Sales and Marketing. The agreement
automatically renews for one additional three-year term unless terminated on
thirty days' prior written notice by either party. In 1997, Mr. Osias received a
base annual salary of $91,000, with a bonus to be determined by the Board of
Directors. No bonus was paid for 1997. Under the Agreement, Mr. Osias is also
entitled to the use of an automobile, health insurance and other benefits and
five-year options to purchase 30,000 shares of the Company's Common Stock at
$6.75 per share. Mr. Osias has agreed not to compete with the Company during the
term of, and for a six month period from the date of termination of, his
employment with the Company.
-16-
<PAGE>
Officers' Employment Agreements
On November 17, 1997, the Company entered into three-year employment
agreements with Michael DiAngelo and Jeffrey Chasse, the President and Executive
Vice President, respectively of WAWD, Inc. The agreements automatically renew
for one additional three-year term unless terminated on thirty days' prior
written notice by any party. Messrs. DiAngelo and Chasse each received annual
base salaries of $110,000 for the first year of the agreement and $120,000 for
the second and third years of the agreements plus incentive compensation based
on the performance of WAWD for the years ending December 31, 1999 and 2000.
Messrs. DiAngelo and Chasse were each granted options to purchase 130,000 shares
of the Company's common stock at $6.68 per share and are entitled to the use of
an automobile, health insurance and other benefits. Messrs. DiAngelo and Chasses
have agreed not to compete with the Company during the term of, and for a
one-year period from the date of termination of, their employment with the
Company.
Employee Stock Bonus Plan
In April 1995, the Company adopted an Employee Stock Bonus Plan which
enables all full-time permanent employees to purchase shares of Common Stock at
85% of its then fair market value through payroll deductions. There are 100,000
shares available for sale under such plan without limitation as to the number of
shares which may be purchased by any employee. These shares may be newly-issued
shares or which may be purchased by the Company in the open market. An aggregate
of 10,638 shares have been purchased under such plan as of December 31, 1997.
100,000 shares of Common Stock reserved and/or issued to date under this plan
are registered for sale on the Company's registration statement on Form S-8,
which became effective when filed with the Commission on September 27, 1996 (the
"S-8").
Stock Option Plans
1994 Employee Stock Option Plan
The Company has established the 1994 Employee Stock Option Plan (the
"1994 Plan"). The 1994 Plan is intended to provide the employees, directors,
independent contractors and consultants of the Company with an added incentive
to continue their services to the Company and to induce them to exert their
maximum efforts toward the Company's success. The 1994 Plan provides for the
grant of options to qualified directors, employees (including officers),
independent contractors and consultants of the Company to purchase an aggregate
of 300,000 shares of Common Stock. Options to purchase no more than 120,000
shares of Common Stock may be granted to any one person in any two-year period.
The 1994 Plan is currently administered by the Board of Directors. The Board
determines, among other things, the persons to be granted options under the 1994
Plan, the number of shares subject to each option and the option price. The
shares of Common Stock authorized under the 1994 plan are registered for sale on
the Company's S-8 Registration Statement.
The 1994 Plan allows the Company to grant incentive stock options
("ISOs"), as defined in Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), Non-Qualified Stock Options ("NQSOs") not intended to
qualify under Section 422(b) of the Code and Stock Appreciation Rights ("SARs";
collectively, with ISOs and NQSOs referred to as "Options") at any time within
10 years from the date the 1994 Plan was adopted. The exercise price of ISOs may
not be less than the fair market value of the Common Stock on the date of grant,
provided that the exercise price of ISOs granted to an optionee owning more than
10% of the outstanding Common Stock may not be less than 110% of the fair market
value of the Common Stock on the date of grant. In addition, the aggregate fair
market value of stock with respect to which ISOs are exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000. Options
may not have a term exceeding ten years, except that ISOs granted to an optionee
owning more than 10% of the outstanding Common Stock may not have a term of more
than five years and ISOs must be granted to, and exercised by, employees of the
Company (including officers). Options are not transferable, except upon the
death of the optionee.
-17-
<PAGE>
Since the 1994 Plan's adoption, options to purchase 371,000 shares of
Common Stock have been granted (of which options to purchase 123,000 shares have
been canceled and are available for reissuance under the 1994 Plan), and no SARs
have been granted under the 1994 Plan. Options to purchase 52,000 shares of
Common Stock remain reserved for grant under the 1994 Plan.
Scott Osias, Vice President of Sales and Marketing, was granted a stock
option under the 1994 Plan to purchase 30,000 shares of Common Stock at $6.75
per share, which option becomes exercisable on a cumulative basis on April 9,
1998 to the extent of 10,000 shares; on April 9, 1999 for an additional 10,000
shares, and on April 9, 2000 an additional 10,000 shares. An additional 9,000
options exercisable at $2.50 per share were granted on November 1, 1994 and
7,500 options were granted on November 19, 1996 and are exercisable at $5.25 per
share.
In December 1994, the Company canceled options to purchase 120,000
shares of Common Stock exercisable at $20 per share, previously granted to
Joseph Ende under the 1994 Plan, and re-granted such options to Mr. Ende at an
exercise price of $2.50 per share. Such options were re-granted because the
Company's Board of Directors determined that such re-grant would provide a
greater incentive to Mr. Ende. All 120,000 of such options are currently
exercisable. An additional 30,000 options were granted on November 19, 1996 and
are exercisable at $5.25.
Marc J. Ruskin, Chief Financial Officer, was granted a stock option
under the 1994 Plan to purchase 6,000 shares of Common Stock at $2.25 per share,
which option became exercisable on a cumulative basis on September 5, 1997 to
the extent of 2,000 shares; on September 5, 1998 to the extent of an additional
2,000 shares, and the balance on September 5, 1999 . An additional 24,000
options were granted at $3.00 on May 29, 1996 of which 8,000 options were
exercised in 1997. The options are exercisable at various dates beginning in
November 1996. An additional 7,500 options were granted on November 19,1996 and
are exercisable at $5.25 per share.
1995 Employee Stock Option Plan
In July 1995, the Company's Board of Directors adopted the 1995
Employee Stock Option Plan (the "1995 Plan"). The 1995 Plan, as amended,
provides for the grant of ISOs, NQSOs and SARs to purchase an aggregate of
1,500,000 shares of Common Stock. The provisions of the 1995 Plan are otherwise
identical to the above-stated terms of the 1994 Plan.
Since the adoption of the 1995 Plan, ISOs and NQSOs to purchase 980,000
shares of Common Stock have been granted and options to purchase 520,000 shares
of Common Stock remained available for grant under the 1995 Plan as of April 1,
1998. No SARs have been granted.
On July 31, 1995, Mr. Ende was granted NQSO's under the 1995 Plan to
purchase 180,000 shares of Common Stock at $3.00 per share terminating on July
30, 2000. The option becomes exercisable on a cumulative basis in one-third
increments on July 31, 1997, 1998 and 1999. The option will become immediately
exercisable, in full, upon a change in control (as defined in the 1995 Plan) of
the Company. On January 13, 1998, Mr. Ende was granted 381,450 NQSO's under the
1995 Plan to purchase Common Stock at an exercise price of $4.38 and 68,550
ISO's at an exercise price of $4.81. The options became exercisable on a
cumulative basis on January 13, 1999, to the extent of one-third of the options;
on January 13, 2000 to the extent of an additional one-third; and the balance on
January 13, 2001.
On January 13, 1998, Mr. Osias was granted 30,000 ISO's under the 1995
Plan to purchase common stock at an exercise price of $4.38 per share, which
options becomes exercisable on a cumulative basis on January 13, 1999 to the
extent of 10,000 shares, on January 13, 2000 to the extent of an additional
10,000 shares, and the balance on January 13, 2001.
-18-
<PAGE>
On January 13, 1998, Mr. Ruskin was granted 60,000 ISO's under the 1995
Plan to purchase Common Stock at an exercise price of $4.38, which options
becomes exercisable on a cumulative basis on January 13, 1999 to the extent of
20,000 shares, on January 13, 2000 to the extent of 20,000 shares and the
balance on January 13, 2001.
On November 17, 1997, Michael DiAngelo and Jeffrey Chasse, President
and Executive Vice President, respectively, of WAWD were each granted NQSO's
under the 1995 Plan to purchase 90,000 shares of Common Stock at $6.68 per share
terminating on November 17, 2004. The options become exercisable on May 17,
2004. However, if certain performance criteria are met 30,000 options will be
exercisable on December 31, 1998, 30,000 on December 31, 1999 and the balance on
December 31, 2000. On November 17, 1997, Messrs. DiAngelo and Chasse were each
also granted NQSO's under the 1995 Plan to purchase 40,000 shares of Common
Stock at $6.68 per share and terminate on November 17, 2002. The options become
exercisable on a cumulative basis on November 17, 1999 to the extent of 20,000
shares and the balance on November 17, 2000.
Compensation Committee Interlocks and Insider Participation
In February 1998, the Company formed an audit committee and a
compensation committee consisting of Elliot H. Lutzker and Alan E. Budish, the
Company's two non-officer members of the Board of Directors. There are no Board
of Directors interlock relationships with respect to the Company.
Compensation of Directors
Directors currently receive no cash compensation for serving on Board
of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of the date of this
filing, the number of shares of the Company's outstanding Common Stock, $.001
par value, beneficially owned (as such term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934) by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares, by each director, by
each named executive officer, and by all directors and officers as a group:
Name and Address Amount and Nature Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
- ------------------- ------------------------ ------------
Joseph Ende (3) 2,276,032(4) 47.7%
Marc J. Ruskin (3) 9,500(6) (9)
Scott Osias (3) 29,500(7) (9)
Sandra Ende (3) 53,600(5) 1.1%
Elliot H. Lutzker 0 -0-
Adam E. Budish 0 -0-
Officers and Directors
as a Group 2,368,632(8) 49.2%
(6 Persons)
- ---------------
-19-
<PAGE>
(1) Unless otherwise noted, the Company believes that all persons named in this
table have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them. A person is deemed to be the beneficial owner
of securities that can be acquired by such person within 60 days from the date
of this filing upon the exercise of warrants or options. Unless otherwise noted,
each beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date hereof have
been exercised.
(2) Based on 4,563,321 shares of Common Stock outstanding as of April 6, 1998.
(3) The address of this person is c/o the Company, 33-16 Woodside Avenue, Long
Island City, New York 11101.
(4) Does not include 53,600 shares owned of record by the Joseph and Sandra Ende
Charitable Trust, of which Joseph and Sandra Ende are Trustees, includes 210,000
shares issuable upon the exercise of currently exercisable options, but excludes
an aggregate of 570,000 shares underlying options which are not currently
exercisable or exercisable within the next 60 days.
In March 1996, the Company amended its Certificate of Incorporation to authorize
the issuance of 1,000 shares of Series B Preferred Stock to be held by Joseph
Ende. As sole stockholder of the Series B Preferred Stock, which votes as a
separate class, Mr. Ende will have the exclusive right to elect a majority of
the Company's Board of Directors until the earlier of the redemption date of
March 31, 2001 or the reporting by the Company of at least $75 million in net
sales for any fiscal through December 31, 2000.
(5) Includes 53,600 shares owned of record by the Joseph and Sandra Ende
Charitable Trust, of which Joseph and Sandra Ende are Trustees.
(6) Includes 9,500 shares of common stock issuable upon the exercise of
currently exercisable options but does not include 80,000 shares of common stock
issuable upon the exercise of options which are not currently exercisable or
exercisable within the next 60 days.
(7) Includes 23,500 shares of common stock issuable upon the exercise of
currently exercisable options but does not include 53,000 shares of common stock
issuable upon the exercise of options which are not currently exercisable or
exercisable within the next 60 days.
(8) Includes 243,000 shares issuable upon exercise of currently exercisable
stock options, but does not include 703,000 shares of Common Stock which may be
purchased pursuant to stock options which are not currently exercisable.
(9) Less than one percent of the issued and outstanding shares.
Item 13. Certain Relationships and Related Transactions.
See "Item 2. Description of Property" for a description of a lease
between Mr. Ende and the Company and "Item 11. Executive Compensation" for a
description of stock options granted to members of Management and employment
agreements entered into by certain members of Management.
-20-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Exhibit No. Exhibit
- ----------- -------
3.1 Certificate of Incorporation of the Company, as amended and restated.
3.2 By-laws of the Company.(1)
4.1 Form of Common Stock Certificate.(1)
4.2 1994 Employee Stock Option Plan.(2)
4.3 1995 Employee Stock Option Plan.(5)
4.4 Form of Stock Option Agreement.(5)
4.5 Employee Stock Bonus Plan.(5)
4.6 Form of Class A Stock Purchase Warrant.(7)
4.7 Placement Agent Agreement dated July 10, 1996, between the Company
and G-V Capital Corp.(7)
10.1 Unlimited Guaranty made by Joseph Ende on behalf of Sanyo Automotive
Parts, Ltd. in favor of Bank Leumi dated April 25, 1990.(2)
10.2 Lease Agreement between the Company and Joseph Ende dated July 1,
1992.(2)
10.3 Loan Agreement between Sanyo Automotive Parts, Ltd. and the City of
Fairfield dated November9, 1993.(2)
10.4 Grid Promissory Note in the amount of $2,600,000 made by Sanyo
Automotive Parts, Ltd. to Bank Leumi Trust Company of New York dated
April 6, 1994.(2)
10.5 Employment Agreement between the Company and Scott Osias dated
November 24, 1994.(4)
10.6 Grid Promissory Note in the amount of $4,300,000 made by Sanyo
Automotive Parts, Ltd. to Bank Leumi Trust Company of New York dated
May 1, 1996.(7)
10.7 Loan Agreement between Sanyo Automotive Parts, Ltd., The Fairfield
National Bank and Illinois Development Authority dated January 13,
1995.(4)
10.8 Employment Agreement between the Company and Joseph Ende dated July
31, 1995.(5)
10.9 Mortgage between Sanyo Automotive Parts, Ltd. and Fairfield National
Bank dated December 8, 1995.(5)
10.10 Promissory Note in the principal amount of $390,000 made by Sanyo
Automotive Parts, Ltd. to Fairfield National Bank dated December 8,
1995.(5)
-21-
<PAGE>
10.11 Second Mortgage between Sanyo Automotive Parts, Ltd. and the Illinois
Development Finance Authority ("IDFA") dated December 7, 1995.(5)
10.12 Loan Agreement between Sanyo Automotive Parts, Ltd. and IDFA dated
December 11, 1995.(5)
10.13 Promissory Note in the principal amount of $240,000 made by Sanyo
Automotive Parts, Ltd. to IDFA dated December 11, 1995.(5)
10.14 Absolute, Unconditional and Continuing Guaranty of Payment made by
Brake Headquarters U.S.A., favor of IDFA dated December 11, 1995.(5)
10.15 Agreement between Sanyo Automotive Parts, Ltd., ABS Brakes, Inc.,
Quality First Brakes, Inc., Brake Headquarters U.S.A., Inc. (the
"Borrowers') and National Bank of Canada, dated November 13, 1997.
(8)
*10.16 Employment Agreement between the Company and Michael DiAngelo dated
November 17, 1997.
*10.17 Employment Agreement between the company and Jeffrey Chasse dated
November 17, 1997.
*10.18 Lease Agreement between WAWD, Inc. and the Prudential Insurance
Company of America dated as of August 31, 1995.
*10.19 Lease Agreement between WAWD, Inc. and Yvonne Dubbers-Albrecht et al,
dated September 1, 1995.
*10.20 Lease Agreement, as amended, between WAWD, Inc. and H. Harding Brown,
Stephen H. Anthony, David J. Fischman and Daniel J. Coughlin, dated
September 8, 1993.
*10.21 Loan and Security Agreement, dated November 24, 1997, between WAWD,
Inc. and CIT Group/Credit Finance, Inc.
10.22 Agreement and Plan of Merger, dated November 17, 1997 among the
Company, WAWD, Inc. and JMCD, Inc. (9)
21.1 Subsidiaries of the Company.
*23.1 Consent of Deloitte & Touche LLP.
*27.1 Financial Data schedule.
-------------------
* Filed with this report
(1) Incorporated by reference from the Company's Registration Statement
on Form S-18, No. 33-30933-NY.
(2) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1993.
(3) Incorporated by reference from the Company's Current Report on Form
8-K dated July 21, 1992 and as amended by Form 8 dated August 19,
1992 and September 21, 1992.
-22-
<PAGE>
(4) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994.
(5) Incorporated by reference from the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
(6) Incorporated by reference from the Company's Form 8-K/A No.1 for
December 28, 1995.
(7) Incorporated by reference from the Company's Registration Statement
on Form S-1 (No. 333-13533).
(8) Incorporated by reference from the Company's Form 8-K for November
13, 1997.
(9) Incorporated by reference from the Company's Form 8-K for November
17, 1997.
Reports on Form 8-K
A Current Report on Form 8-K was filed on November 26, 1997, pursuant
to Item 5, to present information concerning certain credit agreements.
A Current Report on Form 8-K was filed on December 2, 1997, pursuant to
Item 5, to present information on the Company's acquisition of WAWD, Inc.
Amendment No. 1 to the Current Report on Form 8-K which was filed on
December 2, 1997 was filed on February 2, 1998 to present the financial
statements of WAWD-EAP Automotive Products, Inc. for the three-year period ended
August 31, 1997, and the required pro forma financial information.
-23-
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Independent Auditors' Report ............................... F-1
Consolidated Financial Statements:
Balance Sheets ............................................ F-2
Statements of Operations .................................. F-3
Statements of Shareholders' Equity ........................ F-4
Statements of Cash Flows .................................. F-5
Notes to Financial Statements ............................. F-6-F-14
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Balance Sheets ............................................ F-15
Statements of Operations .................................. F-16
Statements of Cash Flows .................................. F-17
Notes to Financial Statements ............................ F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Brake Headquarters U.S.A., Inc.
We have audited the accompanying consolidated balance sheets of Brake
Headquarters U.S.A., Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the index to the
consolidated financial statements. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Brake Headquarters U.S.A., Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
March 20, 1998
F-1
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash ...................................................................... $ 65,410 $ 536,928
Accounts receivable, less allowance for doubtful accounts of $1,179,000
and $372,000 ............................................................ 8,910,085 7,252,018
Inventory ................................................................. 25,814,917 10,636,820
Prepaid expenses and other current assets ................................. 754,761 384,648
Deferred tax asset ........................................................ -- 375,000
------------- ------------
Total current assets ................................................... 35,545,173 19,185,414
Property and Equipment -- net .............................................. 1,638,749 1,453,179
Other Assets ............................................................... 674,571 227,189
Due from President ......................................................... 60,874 55,874
Deferred Tax Asset ......................................................... 261,000 101,988
------------- ------------
Total Assets ........................................................... $ 38,180,367 $ 21,023,644
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................................... $ 6,546,436 $ 4,639,419
Accrued expenses and other current liabilities ............................ 2,061,752 503,386
Current portion of long-term debt ......................................... 1,673,324 4,708,574
Deferred tax liability .................................................... 1,526,000 --
------------- ------------
Total current liabilities .............................................. 11,807,512 9,851,379
------------- ------------
Long-term Debt ............................................................. 16,239,285 5,665,870
Deferred Credit ............................................................ 3,684,404 --
------------- ------------
Total liabilities ...................................................... 31,731,201 15,517,249
------------- ------------
Shareholders' Equity:
Series B preferred stock -- $.001 par value; authorized, issued and
outstanding 1,000 shares ................................................ 1 1
Common stock -- $.001 par value; authorized 6,000,000 and 20,000,000
shares, issued and outstanding 4,563,321 and 4,209,384 shares ........... 4,563 4,209
Additional paid-in capital ................................................ 17,022,258 15,130,511
Accumulated deficit ....................................................... (10,577,656) (9,628,326)
------------- ------------
Total shareholders' equity ............................................. 6,449,166 5,506,395
------------- ------------
Total Liabilities and Shareholders' Equity ............................. $ 38,180,367 $ 21,023,644
============= ============
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Sales ................................................... $ 33,155,500 $ 35,948,479 $ 32,383,302
Less returns and allowances ............................ 2,973,535 3,349,383 1,919,572
------------ ------------ ------------
Net sales ............................................... 30,181,965 32,599,096 30,463,730
Cost of goods sold ...................................... 21,237,021 24,275,020 22,407,116
------------ ------------ ------------
Gross profit ............................................ 8,944,944 8,324,076 8,056,614
Selling, general and administrative expenses ............ (9,627,498) (8,083,225) (7,486,924)
------------ ------------ ------------
(Loss) income from operations ........................... (682,554) 240,851 569,690
------------ ------------ ------------
Other income (expense):
Interest expense ....................................... (991,962) (875,305) (774,762)
Other income ........................................... 148,186 -- --
------------ ------------ ------------
Total other income (expense) ........................ (843,776) (875,305) (774,762)
------------ ------------ ------------
Loss before benefit for income taxes .................... (1,526,330) (634,454) (205,072)
Benefit for income taxes ................................ 577,000 168,000 26,000
------------ ------------ ------------
Net loss ................................................ $ (949,330) $ (466,454) $ (179,072)
------------ ------------ ------------
Net loss per basic and diluted common share ............. $ (.22) $ (.13) $ (.10)
============ ============ ============
Weighted average number of common shares outstanding..... 4,379,941 3,616,311 3,058,968
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares Amount
--------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 .............. 2,000,000 $ 500,000 2,621,467 $2,621
Conversion of Series A preferred
stock .................................. (2,000,000) (500,000) 1,000,000 1,000
Foreign currency translation
adjustment ............................. -- -- -- --
Dividends declared ...................... -- -- -- --
Issuance of common stock in
connection with exercise of
Class F warrants ....................... -- -- 41,666 42
Employee Stock Bonus Plan ............... -- -- 3,064 3
Return of 1993 Escrow shares to
treasury and retirement of such
shares ................................. -- -- (250,000) (250)
Net loss ................................ -- -- -- --
---------- ----------- --------- ------
Balance at December 31, 1995 ............ -- -- 3,416,197 3,416
========== =========== ========= ======
Proceeds from private placement ......... -- -- 490,000 490
Exercise warrants ....................... -- -- 200,000 200
Issuance of Series B preferred stock 1,000 1 -- --
Conversion of note payable .............. -- -- 91,300 91
Employee Stock Bonus Plan ............... -- -- 5,637 6
Acquisition of ABS ...................... -- -- 6,250 6
Net loss ................................ -- -- -- --
---------- ----------- --------- ------
Balance at December 31, 1996 ............ 1,000 1 4,209,384 4,209
========== =========== ========= ======
Exercise of warrants .................... -- -- 214,000 214
Exercise of stock options ............... -- -- 8,000 8
Employee Stock Bonus Plan ............... -- -- 1,937 2
Acquisition of WAWD ..................... -- -- 130,000 130
Fair value of warrants issued in
connention with debt ................... -- -- -- --
Net loss ................................ -- -- -- --
---------- ----------- --------- ------
Balance at December 31, 1997 ............ 1,000 $ 1 4,563,321 $4,563
========== =========== ========= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency Total
Paid-in Accumulated Translation Shareholders'
Capital Deficit Adjustment Equity
-------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 .............. $12,490,456 $ (8,870,070) $ 1,954 $4,124,961
Conversion of Series A preferred
stock .................................. 499,000 -- -- --
Foreign currency translation
adjustment ............................. -- -- (1,954) (1,954)
Dividends declared ...................... -- (112,730) -- (112,730)
Issuance of common stock in
connection with exercise of
Class F warrants ....................... 16,625 -- -- 16,667
Employee Stock Bonus Plan ............... 7,929 -- -- 7,932
Return of 1993 Escrow shares to
treasury and retirement of such
shares ................................. 250 -- -- --
Net loss ................................ -- (179,072) -- (179,072)
----------- ------------- --------- ----------
Balance at December 31, 1995 ............ 13,014,260 (9,161,872) -- 3,855,804
=========== ============= ========= ==========
Proceeds from private placement ......... 1,011,904 -- -- 1,012,394
Exercise warrants ....................... 759,800 -- -- 760,000
Issuance of Series B preferred stock 49,999 -- -- 50,000
Conversion of note payable .............. 257,909 -- -- 258,000
Employee Stock Bonus Plan ............... 8,520 -- -- 8,526
Acquisition of ABS ...................... 28,119 -- -- 28,125
Net loss ................................ -- (466,454) -- (466,454)
----------- ------------- --------- ----------
Balance at December 31, 1996 ............ 15,130,511 (9,628,326) -- 5,506,395
=========== ============= ========= ==========
Exercise of warrants .................... 812,986 -- -- 813,200
Exercise of stock options ............... 23,992 -- -- 24,000
Employee Stock Bonus Plan ............... 13,649 -- -- 13,651
Acquisition of WAWD ..................... 961,120 -- -- 961,250
Fair value of warrants issued in
connention with debt ................... 80,000 -- -- 80,000
Net loss ................................ -- (949,330) -- (949,330)
----------- ------------- --------- ----------
Balance at December 31, 1997 ............ $17,022,258 $ (10,577,656) $ -- $6,449,166
=========== ============= ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers .................................. $ 28,759,780 $ 31,267,820 $ 28,526,134
Cash paid to suppliers and employees .......................... (27,274,386) (33,040,889) (29,740,631)
Interest paid ................................................. (967,109) (854,759) (757,394)
Taxes paid .................................................... (128,359) (30,753) (733,096)
------------- ------------- -------------
Net cash provided by (used in) operating
activities ............................................ 389,926 (2,658,581) (2,704,987)
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures .......................................... (279,410) (109,399) (852,431)
Purchases of marketable securities ............................ (413,768) -- --
Proceeds from sales of marketable securities .................. 217,318 -- --
Acquisition of ABS ............................................ -- (9,375) --
Acquisition of WAWD ........................................... (8,431,400) -- --
Loans to President ............................................ (5,000) (67,000) (72,000)
------------- ------------- -------------
Net cash used in investing activities ................... (8,912,260) (185,774) (924,431)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from sale of stock and warrants ...................... 930,851 1,780,920 7,932
Borrowings .................................................... 17,071,054 4,919,974 3,650,376
Principal payments on long-term debt .......................... (9,532,889) (3,363,287) (21,032)
Financing costs ............................................... (418,200) -- --
------------- ------------- -------------
Net cash provided by financing activities ............... 8,050,816 3,337,607 3,637,276
------------- ------------- -------------
Effect of exchange rate changes on cash ........................ -- -- (1,954)
Cash acquired from ABS aquisition .............................. -- 25,781 --
------------- ------------- -------------
Net (decrease) increase in cash ................................ (471,518) 519,033 5,904
Cash at beginning of year ...................................... 536,928 17,895 11,991
------------- ------------- -------------
Cash at end of year ............................................ $ 65,410 $ 536,928 $ 17,895
============= ============= =============
Reconciliation of net loss to net cash used in operating
activities:
Net loss ...................................................... $ (949,330) $ (466,454) $ (179,072)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization .............................. 93,840 73,584 186,675
Amortization of deferred credit ............................ (47,700) -- --
Amortization of financing costs ............................ 37,390 -- --
Provision for doubtful accounts ............................ 892,069 480,623 617,891
Gain on sale of marketable securities ....................... (49,426) -- --
Deferred income tax benefit ................................ (1,086,000) (37,000) (154,000)
Changes in assets and liabilities (net of business
acquisitions):
Accounts receivable ...................................... 2,285,846 (1,989,524) (1,937,596)
Inventory ................................................ (839,388) (2,648,689) (1,593,795)
Prepaid expenses and other current assets ................ 149,887 21,206 (354,728)
Other assets ............................................. (66,572) 49,126 (51,766)
Accounts payable and accrued expenses .................... (30,690) 1,858,547 761,404
------------- ------------- -------------
Net cash provided by (used in) operating
activities ............................................ $ 389,926 $ (2,658,581) $ (2,704,987)
============= ============= =============
Supplemental cash flow information:
Businesses acquired:
Fair value of assets acquired ............................... $ 19,448,815 $ 37,500
------------- -------------
Cash paid ................................................... 8,431,400 9,375
Common stock issued ......................................... 961,250 28,125
------------- -------------
Total purchase price .................................... $ 9,392,650 $ 37,500
------------- -------------
Liabilities assumed ......................................... $ 6,324,065 $ --
Negative goodwill (classified as a deferred credit) ......... $ 3,732,100 $ --
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Business activity -- Brake Headquarters U.S.A., Inc. and subsidiaries (the
"Company"). The Company is a publicly-owned holding company, substantially all
of its current business operations are conducted through two of its
wholly-owned subsidiaries, Sanyo Automotive Parts, Ltd. ("Sanyo") and WAWD,
Inc. ("WAWD"). Sanyo is a New York corporation formed in 1976, which is
currently doing business under the name Brake Headquarters. WAWD, a California
corporation acquired by way of a merger on November 17, 1997, is an importer
and distributor of high-line European and Asian automotive aftermarket parts.
Other operating subsidiaries include Quality First Brakes, Inc., a wholly-owned
Delaware subsidiary of the Company ("Quality First"), formed in August 1995,
which owns Fifteen Inc., Thirty Three Inc. and Thirty Nine Inc., and are
wholesale warehouses for "undercar" parts; ABS Brakes, Inc. ("ABS"), an
assembler of domestic brake pads is a wholly-owned New York subsidiary acquired
in August 1996.
Principles of consolidation -- The consolidated financial statements
include the accounts of Brake Headquarters U.S.A., Inc. and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated
in consolidation.
Inventory -- Finished goods inventory, consisting of brake systems, engine
parts, and accessories, is stated at the lower of cost (first-in, first-out
method) or market.
Depreciation -- Depreciation of property and equipment is provided for by
the straight-line method over the estimated useful lives of the related assets
(5 to 40 years). Leasehold improvements are amortized over the lesser of the
term of the respective lease or the estimated useful lives of the improvements
(10 to 40 years).
Income taxes -- The Company recognizes deferred income tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities.
Concentration of credit risk -- The Company's customer base consists
primarily of retailers, wholesalers and installers of automotive replacement
parts throughout North America. On a geographic basis, no area has a
disproportionate concentration of credit risk. During the years ended December
31, 1997, 1996 and 1995, less than 10% of the Company's sales were derived from
foreign customers. Although the Company is directly affected by the well-being
of the replacement parts industry, management does not believe significant
credit risk exists at December 31, 1997. The Company performs ongoing credit
evaluations of its customers' financial condition. When amounts on specific
accounts receivable are judged to be uncollectable by management, those amounts
are charged to the allowance for doubtful accounts. During the year ended
December 31, 1997, no single customer accounted for more than 10% of net sales.
During the years ended December 31, 1996 and 1995, the Company had sales to one
customer that accounted for approximately 28% and 17%, respectively, of the
Company's net sales. In the fourth quarter of 1996, this customer informed the
Company it was consolidating vendors and therefore would no longer use the
Company as a prime supplier. In the fourth quarter of 1996, the Company
incurred costs of approximately $284,000 relating to the relabeling and freight
costs associated with the loss of this customer.
Financing Costs -- During the year ended December 31, 1997, the Company
incurred $418,000 of costs in connection with debt financings (see Note 3).
These costs are being amortized over the terms of the respective financings.
Adoption of Statement of Financial Accounting Standards No. 128 -- During
1997, the Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share". SFAS 128 replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per share on the
face of the income statement. Diluted earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
(including shares held in escrow, see Note 2 ) and dilutive common equivalent
shares (common stock options) outstanding. The net loss used in the
determination of the loss per share in 1995 has been adjusted for the $112,730
preferred stock dividend.
F-6
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
-- (Continued)
Management estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
Disclosure about Fair Value of Financial Instruments -- The fair value of
the Company's credit facilities approximate fair value and is estimated based
on the quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of the same remaining maturities.
Supplemental cash flow information of non-cash activities --
1997
Common stock was issued in connection with the acquisition of WAWD in the
amount of $961,250.
1996
The President purchased 1,000 shares of Series B Preferred Stock for
$50,000 in exchange for a reduction in the prior dividend payable to him from
the Series A Preferred Stock. A note payable for $258,000 was converted into
91,300 common shares. Common stock was issued for the acquisition of ABS in the
amount of $28,125. The Company entered into capital leases for the purchase of
computer equipment totaling $282,700.
1995
Common stock was issued in connection with the exercise of Class F and D
warrants, respectively, by an increase in the amount due from President of
$16,667.
Reclassifications -- Certain reclassifications were made to the prior
years' financial statements to conform with the current year presentation.
Note 2. ACQUISITIONS
In November 1997, in a series of transactions, the Company acquired by
way of merger substantially all of the assets and certain liabilities of WAWD,
a wholly-owned subsidiary of Echlin, Inc., for a total purchase price
(including acquisition costs) of $8,431,400 in cash and 130,000 shares of the
Company's common stock valued at $961,250. Fifty thousand of the shares issued
are being held in escrow for up to 15 months as security for certain
indemnification obligations. The shares held in escrow retain all voting and
dividend rights and are included in common shares outstanding at December 31,
1997. The Company has accounted for the acquisition of WAWD under the purchase
method of accounting and the results of operations of WAWD have been included
in the 1997 statement of operations since its date of acquisition. The excess
of the estimated fair market value of the net assets acquired over the
purchase price was first utilized to reduce long-term assets acquired with the
remaining excess of $3,732,100 recorded as a deferred credit (negative
goodwill), which is being amortized over a 10 year period. Amortization of the
deferred credit was $47,700 during the year ended December 31, 1997, which is
included in selling, general and administrative expenses.
The Company signed an agreement with a consultant providing for common
stock to be issued as a retainer, and a fee to be paid based upon the
completion of a merger, acquisition or joint venture. A total of 30,000 shares
of common stock were issued in March 1997. The Company has recorded the fair
value of the common stock issued ($292,500) and the fee (which is in dispute)
as costs of the WAWD acquisition.
Effective August 30, 1996, the Company acquired the net assets of ABS for
$37,500 consisting of 6,250 shares of common stock and $9,375 in cash. The fair
value of the net assets acquired approximated the purchase price.
F-7
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2. ACQUISITIONS -- (Continued)
The following summarized, unaudited pro forma results of operations assume
the WAWD acquisition occurred at the beginning of the respective year.
1997 1996
-------------- --------------
Net sales ...................... $67,921,337 $74,957,575
Net loss ....................... $ (919,491) $ (336,725)
Net loss per basic and
diluted common share .......... $ (.21) $ (.09)
Note 3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Line of credit (a) ................................ $ 9,508,322 $4,546,556
Note payable -- credit facility (b) ............... -- 4,850,321
Line of credit -- WAWD (c) ........................ 6,032,732 --
Convertible subordinated debentures (d) ........... 930,000 --
Promissory notes (e) .............................. 600,000 --
Mortgages -- Fairfield, IL. facility (f) .......... 611,060 694,867
Capital lease (g) ................................. 230,495 282,700
----------- ----------
17,912,609 10,374,444
Less current portion ........................... 1,673,324 4,708,574
----------- ----------
$16,239,285 $5,665,870
=========== ==========
</TABLE>
(a) In November 1997, the Company entered into an agreement with a bank to
provide a three year line of credit of $12 million. The maximum
availability under this agreement at December 31, 1997 was $10,329,000.
At the Company's option, the line of credit bears interest at prime or 2
1/4% over LIBOR. The line of credit availability is based upon specified
levels of accounts receivable and inventory. The line of credit is
collateralized by substantially all of the assets of the Company (except
for the assets of WAWD). Proceeds from the line of credit were used to
repay the previous line of credit and the note payable -- credit
facility.
The agreement contains certain restrictive covenants with respect to,
among others, (i) mergers and acquisitions, (ii) capital expenditures,
(iii) dividends, and (iv) additional indebtedness. In addition, the line
of credit agreement requires that the Company satisfy certain financial
covenants. As a result of the Company's results of operations for 1997,
the Company failed to satisfy certain financial covenants set forth in
the credit agreement as of December 31, 1997. However, the bank provided
the Company a waiver of these defaults and has amended the terms of the
agreement through the remaining term of the agreement. Based upon
projected operating results for the year ended December 31, 1998,
management believes that the Company will be in compliance with all
amended covenants. Therefore, the line of credit agreement has been
classified as long-term at December 31, 1997.
(b) The credit facility had interest, payable monthly, at the prime rate or
the bank's money market rate plus 2 1/4%. The credit facility was
secured by substantially all the assets of the Company and was repaid in
1997.
At December 31, 1996, the Company was in default of several of the
covenants of the note-payable -- credit facility, however, the bank
provided the Company with a waiver through June 30,
F-8
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3. LONG-TERM DEBT -- (Continued)
1997 of these defaults and amended the terms of the agreement. Based upon
projected operating results for the year ended December 31, 1997,
management believed that the Company would be in compliance with all
amended covenants. Therefore, the note-payable-credit facility was
classified as long-term at December 31, 1996.
(c) In November 1997, WAWD entered into an agreement with a financial
institution to provide a three year line of credit of $12 million. The
maximum availability under this agreement at December 31, 1997 was
$8,030,000. The line of credit bears interest at prime plus 1%. The line
of credit is based upon specific levels of accounts receivable and
inventory and is collateralized by substantially all the assets of WAWD.
(d) In November 1997, the Company issued $1 million, 5% convertible
subordinated debentures (the "Debentures"). The Debentures are due
November 7, 1998. Interest is payable in either cash or common stock, at
the Company's option. The Debentures are convertible into common stock
equal to the lesser of $8.56 per share or a price determined based upon
a market value formula. The Debentures are redeemable by the Company at
120% of the principal amount, provided that a notice of conversion has
not occurred. The Debentureholders also received warrants to purchase
10,000 shares of common stock exercisable for five years at $9.88 per
share. The fair value of the warrants ($80,000) at the date of issuance
was recorded as paid-in capital with a corresponding reduction in the
carrying value of the Debentures. The discount on the Debentures is
being amortized as additional interest expense over the term of the
Debentures. Such amortization was $10,000 in 1997.
(e) In November 1997, the Company issued one year, $600,000, 8%,
subordinated promissory notes.
(f) In a series of mortgages due through 2005, the Company financed its
Fairfield, Illinois facility. Interest rates range from 5% to prime.
(g) The capital lease is for the purchase of the Company's computer system.
Payments are approximately $7,000 per month through May 2001. The prime
rate and LIBOR were 8.5% and 6.0%, respectively, at December 31, 1997.
Annual maturities of long-term debt are as follows:
Year ending December 31,
1998 ................. $ 1,673,324
1999 ................. 132,138
2000 ................. 15,684,605
2001 ................. 110,827
2002 ................. 69,040
Thereafter ........... 242,675
-----------
$17,912,609
===========
Note 4. SHAREHOLDERS' EQUITY
Escrow Agreement -- Pursuant to a July 1992 agreement between the Company
and the Company's President, in 1995, 250,000 shares held by the Company's
President were returned to the treasury of the Company. Since the Company
attained the 1994 pre-tax income levels, as defined, 125,000 shares were
released from an escrow account to the President and 41,666 Class F warrants
were exercised during 1995. The President disputed a prior forfeiture of
shares, but waived any claims he had against the Company in exchange for the
July 1995 grant of a non-qualified stock option to purchase 180,000 shares of
Common Stock at $3.00 per share expiring on July 20, 2000 under the 1995 Plan.
F-9
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4. SHAREHOLDERS' EQUITY -- (Continued)
Preferred Stock -- In March 1996, the Company amended its Certificate of
Incorporation to authorize the issuance of 1,000 shares of Series B preferred
stock to be held by the President. The amendment also eliminated all remaining
authorized shares of Series A preferred stock. Dividends payable to the
President from the Series A preferred stock were offset in part, by the
purchase of the Series B preferred stock for $50,000. As the sole shareholder
of the Series B preferred stock, which will vote as a separate class, the
President has the exclusive right to elect a majority of the Company's Board of
Directors until the earlier of the redemption date of March 31, 2001 or the
reporting by the Company of at least $75,000,000 in revenue for any year
through December 31, 2000. In the event of any liquidation, dissolution or
winding-up, the holder of Series B preferred stock will be entitled to an
aggregate preference of $50,000, his basis in the stock; any remaining proceeds
of liquidation will be distributed pro rata to holders of the common stock.
In March 1998, the Board of Directors and the Shareholders of the Company,
authorized 1,000,000 shares of preferred stock, in one or more series as the
Board of Directors determines without further shareholder approval.
Common Stock -- In February 1998, the Company increased its authorized
shares of common stock to 12,000,000 from 6,000,000 which was previously
changed from 20,000,000 in March 1996.
Private Placement -- In July 1996, the Company signed an agreement with a
consultant to raise an estimated $5 million through the issuance of common
stock and warrants. In August 1996, the Company completed raising additional
capital through a private placement by selling 490,000 units at a purchase
price of $2.50 per unit. Each unit consists of one share of common stock and
two Redeemable Common Stock Purchase Warrants each to purchase one share of
common stock of the Company at $3.80 per share until the third anniversary of
the initial closing. The Company has received net proceeds of approximately
$2,586,000 as of December 31, 1997 from the sale of units and exercise of
414,000 warrants.
Stock Options
In connection with the WAWD line of credit, (see Note 3), the Company
granted the bank a warrant to acquire 45,000 shares of the Company's common
stock at an exercise price of $8.03 per share, which expires in November 2002.
The bank has an option to require the Company to repurchase the warrant for up
to $75,000, based upon a formula, if not previously exercised before the
termination of the loan agreement. The $75,000 cost to repurchase the warrant
has been capitalized as a deferred financing cost included in other assets and
is being amortized as additional interest expense over the term of the line of
credit.
1994 Employee Stock Option Plan
During 1994, the Company established the 1994 Employee Stock Option Plan
(the "1994 Plan"). The 1994 Plan provides for the grant of options to employees
and other parties to purchase an aggregate of 300,000 shares of common stock.
Options to purchase no more than 120,000 shares of common stock may be granted
to any one person in any two-year period. The 1994 Plan is administered by the
Board of Directors.
The 1994 Plan allows the Company to grant incentive stock options
("ISOs"), non-qualified stock options ("NQSOs") and stock appreciation rights
("SARs") at any time within 10 years from the date the 1994 Plan was adopted.
The exercise price of ISOs may not be less than the fair market value of the
common stock on the date of the grant, provided that the exercise price of ISOs
granted to an optionee owning more than 10% of the outstanding common stock may
not be less than 110% of the fair market value of the common stock on the date
of grant. In addition, the aggregate fair market value of common stock with
respect to which ISOs are exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000.
Options may not have a term exceeding ten years, except that ISOs granted
to an optionee owning more than 10% of the outstanding common stock may not
have a term of more than five years and ISOs must be granted to and exercised
by employees of the Company. Since the adoption of the 1994 Plan, an aggregate
of 371,000 options to purchase shares have been granted (123,000 have expired
or been canceled); no SARs have been granted.
F-10
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4. SHAREHOLDERS' EQUITY -- (Continued)
1995 Employee Stock Option Plan
In July 1995, the Company established the 1995 Employee Stock Option Plan
(the "1995 Plan"). The 1995 Plan provides for the grant of options to employees
and other parties of ISOs, NQSOs and SARs to purchase an aggregate of 1,500,000
(increased in March 1998) shares of common stock. The provisions of the 1995
Plan are identical to the above-stated terms of the 1994 Plan.
During 1997 under the 1995 Plan, the Company granted to certain officers
of WAWD five-year options to purchase 80,000 shares of common stock at $6.6875
per share and also granted seven-year options to purchase 180,000 shares of
common stock at $6.6875 per share, which options vest after six and one-half
years, subject to accelerated vesting upon the achievement of certain
performance goals.
Since the adoption of the 1995 Plan, through December 31, 1997 no ISOs or
SARs have been granted. In 1995, NQSOs to purchase 180,000 shares of common
stock at $3.00 per share, the fair market value on the date of grant, were
granted to the President. The options terminate in July 2000 and are
exercisable on a cumulative basis in one-third increments on July 31, 1997,
1998 and 1999. The option becomes immediately exercisable upon a change in
control of the Company.
A summary of stock option transactions under employee stock option plans
for each of the three years in the period ended December 31, 1997 are as
follows:
Weighted Average
Options Exercise Price
----------- -----------------
Outstanding January 1, 1995 ........... 132,000 $ 2.50
Granted .............................. 186,000 2.98
Canceled ............................. (3,000) 2.50
-------
Outstanding December 31, 1995 ......... 315,000 2.78
Granted .............................. 91,000 4.71
-------
Outstanding December 31, 1996 ......... 406,000 3.21
Granted .............................. 302,000 6.69
Exercised ............................ (8,000) 3.00
-------
Outstanding December 31, 1997 ......... 700,000 4.72
=======
Exercisable:
December 31, 1996 .................... 175,000 3.24
=======
December 31, 1997 .................... 253,000 3.36
=======
Employee Stock Bonus Plan
In April 1995, the Company adopted the Employee Stock Bonus Plan which
enables all full-time employees to purchase shares of common stock at 85% of
the then fair market value through payroll deductions. During 1997, 1996 and
1995, 1,937, 5,637 and 3,064 shares, respectively, were issued from the 100,000
shares available for sale under the plan.
F-11
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4. SHAREHOLDERS' EQUITY -- (Continued)
The following tables summarize information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Granted Options Exercisable
---------------------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------------- ------------- ----------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$2.25 - $3.00 331,000 2.4 years $ 2.79 186,000 $ 2.66
3.75 - 5.63 67,000 3.9 years 5.32 67,000 5.32
6.69 - 6.75 302,000 6.0 years 6.69 -- --
------- ----------- ------ ------- ------
700,000 4.1 years $ 4.72 253,000 $ 3.36
======= =========== ====== ======= ======
</TABLE>
The estimated fair value of options granted during 1997 and 1996 was $5.42
and $4.13 per share, respectively. The Company applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option and purchase plans. No compensation cost has been recognized for the
Company's stock option and stock purchase plan. Had compensation cost for the
Company's stock option and stock purchase plans been determined based on the
fair value at the option grant dates for awards in accordance with the
accounting provisions of SFAS 123, the Company's net loss and loss per share
for the years ended December 31, 1997 and 1996 would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net loss applicable to common shareholders
As reported .............................. $ (949,330) $ (466,454) $ (291,802)
Pro forma ................................ (1,215,430) (563,298) (317,905)
Net loss per basic and diluted common share
As reported .............................. $ (.22) $ (.13) $ (.10)
Pro forma ................................ (.28) (.16) (.10)
</TABLE>
The fair value of options granted under the Company's fixed stock option
plans during 1997 and 1996 was estimated on the dates of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used: expected volatility of approximately 92% for 1997 and 125%
for 1996, risk free interest rate of approximately 6%, and expected lives of
option grants of approximately five years. Pro forma compensation cost related
to shares purchased under the Employee Stock Purchase Plan is measured based on
the discount from market value. The effects of applying SFAS 123 in this pro
forma disclosure are not indicative of future pro forma effects. SFAS 123 does
not apply to awards prior to 1995, and additional awards in future years are
anticipated.
Note 5. INCOME TAXES
Provision (benefit) for income taxes consists of the following:
1997 1996 1995
------------- -------------- -------------
Federal:
Current .......... $ 353,000 $ (176,000) $ 81,000
Deferred ......... (849,000) (34,000) (123,000)
---------- ---------- ----------
(496,000) (210,000) (42,000)
---------- ---------- ----------
State and Local:
Current .......... 156,000 45,000 47,000
Deferred ......... (237,000) (3,000) (31,000)
---------- ---------- ----------
(81,000) 42,000 16,000
---------- ---------- ----------
$ (577,000) $ (168,000) $ (26,000)
========== ========== ==========
F-12
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5. INCOME TAXES -- (Continued)
The total provision (benefit) for income taxes differs from that amount
which would be computed by applying the U.S. federal tax rate to the loss
before income taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Statutory federal income tax rate ............................. (34.0)% (34.0)% (34.0)%
State and local income taxes, net of federal benefit .......... ( 4.2) 4.8 7.7
Permanent and other differences ............................... .4 2.8 13.6
----- ----- -----
(37.8)% (26.4)% (12.7)%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax (liability) asset consist of the following:
1997 1996
------------ --------
Inventory .................................. $ (1,463,000) $272,000
Accounts receivable ........................ (67,000) 103,000
Depreciation ............................... (13,000) 15,000
Accruals not currently deductible .......... 203,000 58,000
Other ...................................... 75,000 29,000
------------ --------
$ (1,265,000) $477,000
============ ========
The Company has generated taxable income for each of the three years prior
to the year ended December 31, 1996. The loss for income tax purposes generated
in 1996 was carried back in full to prior years resulting in a refund of taxes
paid to such extent. As such, the Company believed that positive evidence
existed and that it was more likely than not that the deferred tax asset at
December 31, 1996 would be realized and therefore no valuation allowance was
deemed necessary.
Note 6. OTHER INCOME
During 1997, the Company received $100,000 from the sale of certain fully
amortized intangible assets. Additionally, the Company recorded a gain on the
sale of marketable equity securities in the amount of $48,000. Such amounts are
reported as other income in the year ended December 31, 1997. As of December
31, 1997, the Company had marketable equity securities of $246,000 (cost
approximates market value) which are included in other current assets.
Note 7. COMMITMENTS AND CONTINGENCIES
The Company leases warehouse and office space under noncancelable
operating leases. Aggregate future minimum lease payments are as follows:
Year ending December 31,
1998 .............................................. $1,275,033
1999 .............................................. 715,746
2000 .............................................. 390,390
2001 .............................................. 245,536
2002 .............................................. 201,229
Thereafter .......................................... 1,200
----------
$2,829,134
==========
Rent expense for the years ended December 31, 1997, 1996 and 1995 amounted
to $495,000, $440,000 and $354,000, respectively, which includes $280,500,
$312,000 and $312,000, respectively, which was paid to the Company's President.
F-13
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 7. COMMITMENTS AND CONTINGENCIES -- (Continued)
In November 1997, in connection with the WAWD acquisition (see Note 3),
the Company entered into three-year employment agreements with two officers of
WAWD providing for annual compensation of $110,000 for the first year and
increasing to $120,000 for the second and third years plus incentive
compensation based on the performance of WAWD for the years ending December 31,
1999 and 2000.
In June 1996, the Company settled an action against a former customer to
collect $971,000 of accounts receivable. Inventory totaling approximately
$459,000, was returned to the Company. As a result of the above settlement and
available reserves, the Company recorded an expense of a $212,000 in 1996.
Mutual releases were exchanged for all claims and counter claims.
In July 1995, the Company entered into a three-year employment agreement
with the President providing for a minimum annual salary of $156,000, with a
bonus at the discretion of the Board of Directors, determined based upon the
profitability of the Company. No bonus was paid for the years ended December
31, 1997, 1996 and 1995.
Note 8. SAVINGS PLAN
The Company established in November 1996 a tax deferred saving plan
("401(k) Plan") for all employees who meet certain eligibility requirements.
The Company did not make any contributions to this plan in 1997 and 1996.
Note 9. ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 130, "Reporting
Comprehensive Income", which requires a statement of comprehensive income to be
included in the financial statements for fiscal years beginning after December
15, 1997. The Company is presently designing such statement and accordingly,
will include such statement beginning with the first quarter of 1998.
In addition, in June 1997, the FASB issued SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information". SFAS 131 requires
disclosures of certain information about operating segments and about products
and services, the geographic areas in which a company operates and their major
customers. The Company is presently in the process of evaluating the effect
this new standard will have on disclosures in the Company's financial
statements and the required information will be reflected in the year ended
December 31, 1998 financial statements.
Note 10. FOURTH QUARTER ADJUSTMENTS
Excluding the results of WAWD, during the fourth quarter of 1997 the
Company experienced a dramatic decrease in sales levels. In the fourth quarter
of 1997, the Company had net sales of $4,009,821 as compared with $7,404,405
during the fourth quarter of 1996. This decrease was caused by the loss of
Autozone, Inc. The Company had sales to this customer of approximately $3.4
million during the fourth quarter of 1996, as compared with no sales to this
customer in the fourth quarter of 1997. Included within operating expenses for
1997 was an increase in the provision for doubtful accounts of $867,000 during
the fourth quarter. The increase in the provision for doubtful accounts was
primarily a result of the adjustment in the carrying value in two large
accounts receivable balances. The Company incurred additional borrowings during
the fourth quarter of 1997 to support the increase in inventory levels. As a
result, interest expense increased to $290,246 during the fourth quarter of
1997 from $200,210 during the third quarter of 1997. These combined factors
contributed to the pre tax loss of $1,526,330.
F-14
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1998
(Unaudited) December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 258,353 $ 65,410
Accounts receivable, less allowance for doubtful
accounts of $1,188,000 and $1,179,000 10,609,533 8,910,085
Inventory 23,230,866 25,814,917
Prepaid expenses and other current assets 371,345 754,761
------------ ------------
Total current assets 34,470,097 35,545,173
Property and Equipment - net 1,633,046 1,638,749
Other Assets 656,650 674,571
Due from President 60,874 60,874
Deferred Tax Asset 261,000 261,000
------------ ------------
Total Assets $ 37,081,667 $ 38,180,367
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,509,370 $ 6,546,436
Accrued expenses and other current liabilities 2,305,995 2,061,752
Current portion of long-term debt 1,673,324 1,673,324
Deferred tax liability 1,145,000 1,526,000
------------ ------------
Total current liabilities 11,633,689 11,807,512
------------ ------------
Long-term Debt 15,590,397 16,239,285
Deferred Credit 3,591,404 3,684,404
------------ ------------
Total liabilities 30,815,490 31,731,201
------------ ------------
Shareholders' Equity:
Series B preferred stock - $.001 par value; authorized,
issued and outstanding 1,000 shares 1 1
Common stock - $.001 par value; authorized 6,000,000
shares, issued and outstanding 4,563,321 shares 4,563 4,563
Additional paid-in capital 17,022,258 17,022,258
Accumulated deficit (10,760,645) (10,577,656)
------------ ------------
Total shareholders' equity 6,266,177 6,449,166
------------ ------------
Total Liabilities and Shareholders' Equity $ 37,081,667 $ 38,180,367
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-15
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Sales $ 17,179,005 $ 8,144,874
Less returns and allowances (790,496) (613,454)
------------ ------------
Net sales 16,388,509 7,531,420
Cost of goods sold 11,679,601 5,620,325
------------ ------------
Gross profit 4,708,908 1,911,095
Selling, general and administrative expenses 4,566,872 1,769,619
------------ ------------
Income from operations 142,036 141,476
------------ ------------
Other income (expense):
Other income 12,620 114,846
Interest expense (448,645) (202,083)
------------ ------------
(436,025) (87,237)
------------ ------------
(Loss) income before benefit (provision) for income taxes (293,989) 54,239
Benefit (provision) for income taxes 111,000 (21,000)
------------ ------------
Net (loss) income $ (182,989) $ 33,239
============ ============
Net (loss) income per basic and diluted share $ (.04) $ .01
============ ============
Weighted average number of common shares outstanding 4,563,321 4,219,284
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-16
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $15,036,151 $ 7,822,715
Cash paid to suppliers and employees 13,306,664) (6,932,216)
Interest paid (462,310) (202,083)
Taxes paid (396,172) (28,322)
----------- ------------
Net cash provided by operating activities 871,005 660,094
----------- ------------
Cash flows from investing activities:
Capital expenditures (29,174) (33,818)
Loans to President - (5,000)
----------- ------------
Net cash used in investing activities (29,174) (38,818)
----------- ------------
Cash flows from financing activities:
Proceeds from sale of stock and warrants -- 77,200
Repayments of notes payable and long term debt (606,286) (855,442)
Principal payments on long-term debt (42,602) (34,499)
----------- ------------
Net cash used in financing activities (648,888) (812,741)
----------- ------------
Net increase (decrease) in cash 192,943 (191,465)
Cash at beginning of period 65,410 536,928
----------- ------------
Cash at end of period $ 258,353 $ 345,463
=========== ============
Reconciliation of net income to net cash used in operating activities:
Net (loss) income $ (182,989) $ 33,239
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization 34,877 24,844
Amortization of deferred credit (93,000) --
Amortization of financing costs 25,242 --
Provision for doubtful accounts 56,085 --
Gain on sale of marketable securities (12,620) --
Changes in assets and liabilities:
Accounts receivable (1,755,533) 309,208
Inventory 2,584,051 1,748,893
Prepaid expenses and other current assets 370,794 21,908
Other assets 17,921 (19,819)
Accounts payable and accrued expenses 207,177 (1,458,179)
Deferred tax Liability (381,000) --
----------- ------------
Net cash provided by operating activities $ 871,005 $ 660,094
=========== ============
Supplemental information of non-cash financing activities:
During the quarter ended March 31, 1997, thirty thousand shares of common stock were issued to a merger
and acquisition firm. The fair value of the common stock issued was $296,250.
</TABLE>
See Notes to Consolidated Financial Statements
F-17
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Basis of Presentation
The accompanying unaudited consolidated financial statements of Brake
Headquarters U.S.A., Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. There
has been no significant changes of accounting policies since December 31, 1997.
Note 2
Long-term Debt
The Company was in technical default under its credit facilities at
December 31, 1997 and March 31, 1998. The bank has issued a waiver of the
default and amended the terms of the agreements through the remaining term of
the agreement.
Note 3
Stockholders' Equity
In April 1998, the Company increased the authorized shares from
6,000,000 to 12,000,000 shares. Additionally, the Board of Directors and the
shareholders of the Company authorized 1,000,000 shares of preferred stock in
one or more series at the discretion of the Board of Directors.
On April 29, 1998, the Company completed a private financing of
$1,500,000 principal amount of 8% subordinated convertible debentures due April
30, 2000 (the "Debentures"). The two foreign investors (the "Purchasers") also
received five-year warrants to purchase an aggregate of 15,000 shares of Common
Stock at $3.93 per share. The Debentures are convertible, commencing the earlier
of 60 days from the date of closing or the effective date of a Registration
Statement covering the shares of Common Stock underlying the Debentures and
Warrants, at a conversion rate equal to the greater of (a) the lower of (i) 80%
of the Market Price on the Conversion Date, or (ii) $3.77; or (b) the Floor
Price of $2.00 per share. The Debentures are redeemable, with the consent of the
Company's lender, at any time at 120% of their principal amount plus all accrued
Price falls below the Floor Price.
The Company and the Purchasers have agreed to sell and purchase,
respectively, up to an additional $4 million principal amount of Debentures
during the next 12 months provided certain market conditions are met. The
Company also granted the Purchasers a Right of First Refusal for a 120 day
period ending after the later of the effective date of the Registration
Statement or the latest closing date of the sale of additional Debentures.
The Company agreed to repay $500,000 of the 5% Convertible
Subordinated Debentures issued in November 1997, and the Company is waiting for
approval from its senior lender.
Note 4
Commitments
In May 1998, the Company entered into a 5 year agreement to lease new
facilities in its San Francisco warehouse and offices. The monthly lease payment
is $22,204 plus annual increases.
F-18
<PAGE>
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deduction Period
- ---------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 31, 1997 $ 372,000 $ 893,000 $ 86,000 (A) $1,179,000
Year ended December 31, 1996 $ 288,000 $ 480,000 $ 396,000 (A) $ 372,000
Year ended December 31, 1995 $ 75,000 $ 618,000 $ 405,000 (A) $ 288,000
</TABLE>
(A) Represents amounts written off. Normal recurring credits and returns are
charged against sales.
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 159d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated:
April , 1998 BRAKE HEADQUARTERS U.S.A., INC.
By: /s/ Joseph Ende
---------------------------
Joseph Ende, President
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph Ende Chairman of the Board of Directors, April __, 1998
- ----------------------------------- President, Chief Executive Officer
Joseph Ende (Principal Executive Officer)
/s/ Marc J. Ruskin Chief Financial Officer April __, 1998
- ----------------------------------- (Principal Financial Officer)
Marc J. Ruskin and Director
/s/ Sandra Ende Director April __, 1998
- -----------------------------------
Sandra Ende
/s/ Elliot H. Lutzker Director April __, 1998
- -----------------------------------
Elliot H. Lutzker
/s/ Adam E. Budish Director April __, 1998
- -----------------------------------
Adam E. Budish
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
10.16 Employment Agreement between the Company and Michael DiAngelo dated November 17, 1997.
10.17 Employment Agreement between the Company and Jeffrey Chasse dated November 17, 1997.
10.18 Lease Agreement between WAWD - EAP Automotive Products, Inc. and The Prudential Insurance Company of America dated
as of August 31, 1995.
10.19 Lease Agreement between WAWD - EAP Automotive Products, Inc. and Yvonne Dubbers-Albrecht et al, dated September 1,
1995.
10.20 Lease Agreement, as amended, between Import Parts America, Inc. and H. Harding Brown, Stephen H. Anthony,
David J. Fischman and Daniel J. Coughlin, dated September 8, 1993.
10.21 Loan and Security Agreement, dated November 14, 1997, between JMCD, Incorporated and The CIT
Group/Credit Finance, Inc.
23.1 Consent of Deloitte & Touche, LLP.
27.1 Financial Data schedule.
</TABLE>
-25-
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT entered into this 17th day of November 1997, by and
between Brake Headquarters U.S.A., Inc., a Delaware corporation, with its
principal place of business at 33-16 Woodside Avenue, Long Island City, N.Y.
11101 (the "Company") and Michael DiAngelo, residing at 47421 Bayside Parkway,
Suite B, Fremont, CA 94538 (the "Employee").
W I T N E S S E T H :
WHEREAS, the Company wishes to employ the Employee in the principal
capacity of President of the Company's wholly-owned subsidiary, WAWD-EAP, upon
the terms and conditions contained herein;
WHEREAS the Employee is desirous of continuing employment with the
Company and is willing to accept such employment for the inducements and upon
the terms and conditions contained herein; and
WHEREAS the Company has bargained for a covenant by the Employee not to
compete with the Company's business.
NOW, THEREFORE, in consideration of the mutual premises and agreements
contained herein and for other good and valuable consideration by each of the
parties, the parties hereby agree as follows:
1. Employment. Subject to and concurrent with the completion of the
Company's acquisition of WAWD-EAP (the "Closing") the Company shall employ the
Employee and the Employee will accept employment upon the terms and conditions
set forth herein.
2. Term. The term of this Agreement shall commence on the date of the
Closing (the "Effective Date")and shall continue for a term of three (3) years;
provided, however, the term of this Agreement shall be automatically continued
and extended for an additional three-year period commencing upon the original
termination date, unless, at least thirty (30) days before the original date of
termination the Company shall give the Employee,
1
<PAGE>
or the Employee, shall give the Company, a notice in writing electing to
terminate this Agreement as of such original termination date.
3. Duties.
(a) During the term of this Agreement, the Employee shall perform
such duties as are determined from time to time by the Company's Board of
Directors. Unless prevented by death or disability, the Employee shall devote
his full business time, allowing for vacations and national holidays, as set
forth in Sections 5(a) and (e) hereof, and illnesses, exclusively to the
business and affairs of the Company, and shall use his best efforts, skill and
abilities to promote its interests. Nothing herein contained shall be construed
as preventing the Employee from purchasing securities in any publicly held
entity, if such purchases shall not result in his owning beneficially 2% or more
of the equity securities of such company, provided such investment is not made
in a company in competition with the Company.
(b) It is hereby acknowledged that the Board of Directors of the
Company has elected the Employee to serve as President and Chief Executive
Officer, of WAWD-EAP and the Company hereby agrees to use its best efforts to
have the Employee continue to serve as President and Chief Executive Officer
during the term of this Agreement. The Employee is in charge of all of
WAWD-EAP's business activities and will conduct and manage its business in
accordance with the policies established by its Board of Directors. The precise
services of the Employee may be extended or curtailed from time to time at the
direction of WAWD-EAP's Board of Directors.
4. Compensation. For the services rendered by the Employee
hereunder, the Company shall pay and the Employee shall accept the
following compensation:
(a) During the first year of the term of this Agreement, the
Employee shall receive a base salary of $110,000. During the second year of the
term of this Agreement, the Employee shall receive a base salary of $120,000 and
during the third year the Employee shall receive a base salary of $120,000. Such
Base Salary
2
<PAGE>
shall be payable at such intervals as is consistent with the Company's normal
practice for remuneration of executives;
(b) The Employee's salary shall be payable subject to such
deductions as are then required by law and such further deductions as may be
agreed to by the Employee, in accordance with the Company's prevailing salary
payroll practices.
(c) The Employee shall be eligible to participate in the Company's
Employee Stock Bonus Plan which permits him to purchase the Company's Common
Stock at a 15% discount to the then current fair market value in an amount equal
to up to 15% of the Employee's salary.
(d) The Employee shall be granted at the Closing of the WAWD-EAP
transaction five-year options to purchase 130,000 shares of Common Stock of the
Company, each exercisable at the closing price of the Company's Common Stock on
the day prior to the Closing and each subject to adjustment for stock splits,
dividends, distributions, combinations or other similar events, as follows:
(A) Performance based options to purchase 90,000 shares of Common
Stock vesting:
(i) one-third (30,000 shares) if WAWD-EAP's (i) net sales
have increased by at least 8% during the year ended December 31, 1998 ("Fiscal
1998") as compared with the fiscal year prior to the Company's acquisition of
WAWD-EAP ("Fiscal 1997"), and (ii) EBITDA (earnings before interest, taxes,
depreciation and amortization including, but not limited to, the amortization of
the negative goodwill resulting from the Company's acquisition of WAWD-EAP) for
Fiscal 1998 does not decrease from Fiscal 1997.
(ii) one-third (30,000 shares) if WAWD-EAP's (i) net sales
and EBITDA for the year ending December 31, 1999 ("Fiscal 1999") each increases
by at least 8% from Fiscal 1998.
(iii) one-third (30,000 shares) if WAWD-EAP's (i) net sales
and EBITDA for the year ending December 31, 2000 ("Fiscal 2000") each increases
by at least 8% from Fiscal 1999.
(B) Options to purchase 40,000 shares of Common Stock vesting:
3
<PAGE>
(i) one-half (20,000 shares) upon the second anniversary date
of the Closing, and
(ii) one-half (20,000 shares) upon the third anniversary date
of the Closing.
(C) If Employee dies or employment is terminated without cause
(as defined) during the term hereof, such options to be issued pursuant to
paragraph (g)(A) and (B), may be exercised by Employee or a legatee or legatees
of such option under Employee's last will or by his personal representatives or
distributees at any time within one (1) year after employment is terminated
without cause or his death.
(e) The Employee shall also be entitled to receive management
incentive compensation based upon the performance of WAWD-EAP in Fiscal 1999 and
Fiscal 2000, as follows:
(i) In the event that WAWD-EAP's net income (as determined by
the Company's independent certified public accountants in accordance with
Generally Accepted Accounting Principles applied on a historically consistent
basis from year to year ("Net Income")) for Fiscal 1999 exceeds its Net Income
for Fiscal 1998 by at least 10%, the Employee shall be entitled to receive in
cash 10% of the amount in excess of such 10% increase. For example, if Net
Income for Fiscal 1999 is $500,000 as compared with Net Income of $200,000 for
Fiscal 1998, the Employee shall receive 10% of $280,000 or $28,000.
(ii) In the event that WAWD-EAP's Net Income for Fiscal 2000
exceeds its Net Income for Fiscal 1999 by at least 10%, the Employee shall be
entitled to receive, in cash, 10% of the amount in excess of such 10% increase,
independent of whether the Employee received incentive compensation in Fiscal
1999, as set forth in subparagraph (i) above.
5. Benefits and Expenses. During the term of this Agreement, the
Employee shall be entitled to the following benefits and expense reimbursement:
(a) During the term hereof, the Employee shall be entitled to four
(4) weeks of paid vacation. Such vacation time
4
<PAGE>
shall be utilized in accordance with the Company's policy from time to time in
effect as determined by the Board.
(b) Nothing in this Agreement shall prevent the Employee from
receiving or participating in, subject to the discretion of the Board of
Directors of the Company and the Company's employee handbook, all fringe
benefits such as medical, disability, hospital and health insurance plans, and
profit sharing, pension plans, life insurance and other plans, if any, which the
Company may generally make available to its executive employees. Employee will
be covered for up to $1 Million per occurrence under the Company's officers and
directors liability insurance policy. In furtherance of the above and not by way
of limitation, the Employee shall be permitted to participate in the Company's
401(K) Retirement Plan and Health Insurance Plan; the Company shall purchase and
maintain a term life insurance policy of $100,000 on the life of the Employee
during the term of this Agreement with the Employee's estate (or his designated
beneficiary) as the beneficiary of such policy; and the Employee shall be
included in any Directors and Officers' indemnification insurance policy, if
obtained.
(c) During the term of this Agreement, the Company shall provide the
Employee with the use of an automobile or cash equivalent at equal value to an
automobile currently used by other comparable executive members of Management of
the Company.
(d) During the term of this Agreement, the Company shall, upon
presentation of proper vouchers, also reimburse the Employee for all reasonable
expenses incurred by him directly in connection with his performance of services
as an officer and employee of the Company.
(e) The Employee shall receive as paid days off all national
holidays that the Company, pursuant to established policy, recognizes and
observes.
6. Disability and Death.
(a) Disability - If, during the term of this Agreement, the Employee
becomes so disabled or incapacitated by reason of any physical or mental illness
so as to be unable to perform the services required of him pursuant to this
Agreement for a continuous period of four (4) months, or for an aggregate of six
5
<PAGE>
(6) months during any consecutive twelve (12) month period, then the Company
may, upon 30 days' written notice to the Employee, terminate this Agreement.
Notwithstanding the termination of the Agreement hereunder by reason of
disability, the Company shall pay to the Employee his Base Salary for a period
and in an amount to be determined by reference to WAWD-EAP employee manual as
then in effect, or on terms no less favorable than those contained in such
manual.
(b) Death - This Agreement shall automatically terminate upon and as
of the date of death of the Employee at any time during the term of this
Agreement. Notwithstanding the termination of this Agreement by reason of the
Employee's death, the Company shall pay to the Employee's estate his Base Salary
for a period and in an amount to be determined by reference to the Company's
employee manual as then in effect.
7. Covenants and Restrictions.
(a) During the term of this Agreement and for a period of one (1)
year thereafter (the "Non-Compete Period"), the Employee shall not, directly or
indirectly (i) engage in, own, manage, operate, assist, join or control, or
participate in the ownership, management, operation or control of any Restricted
Enterprise (other than the Company or its affiliates), which engages or plans to
engage in a Restricted Enterprise anywhere in the United States, whether as a
director, officer, employee, agent, consultant, shareholder, partner, owner,
independent contractor or otherwise, or (ii) solicit, hire or seek to solicit or
hire any of the Company's or WAWD-EAP's personnel in any capacity whatsoever nor
shall Employee induce or attempt to induce any of the Company's personnel to
leave the employ of the Company to work for Employee or otherwise. As used
herein, a "Restricted Enterprise" shall be any activity that competes with the
business of the Company as constituted or as realistically contemplated during
the term of this Agreement in the United States.
(b) The Employee agrees that he shall not divulge to others, nor
shall he use to the detriment of the Company or in any business competitive with
or similar to any business engaged in by the Company or any of its subsidiary or
affiliated companies, at any time during his employment with the Company or
thereafter, any Confidential Information obtained by him during the course of
his
6
<PAGE>
employment with the Company. Confidential Information as used herein shall mean
all information, whether tangible or intangible, which (i) was not in the public
domain prior to receipt thereof by the Employee in the same context as the
contemplated disclosure to be made hereunder; or (ii) that which the Employee
cannot show was in his possession and in the same context prior to receipt or
(iii) that which subsequently does not become known to the Employee by third
parties not in the course of his employment and as a matter of right and without
restriction on disclosure; or (iv) that which subsequently does not come into
the public domain in the same context as the contemplated disclosure by the
Employee through no fault of the Employee.
8. Remedies.
The Employee acknowledges that his breach of any of the restrictive
covenants contained in Section 8 may cause irreparable damage to the Company for
which remedies at law would be inadequate. Accordingly, if Employee breaches or
threatens to breach any of the provisions of Section 8, the Company shall be
entitled to appropriate injunctive relief, including, without limitation,
preliminary and permanent injunctions, in any court of competent jurisdiction,
restraining Employee from taking any action prohibited hereby. This remedy shall
be in addition to all other remedies available to the Company at law or equity.
If any portion of Section 8 is adjudicated to be invalid or unenforceable,
Section 8 shall be deemed amended to delete therefrom the portion so
adjudicated, such deletion to apply only with respect to the operation of
Section 8 in the jurisdiction in which such adjudication is made.
9. Indemnification. The Company hereby indemnifies and holds the
Employee harmless from any and all expenses or losses incurred by him in
connection with the performance of his duties under this Agreement.
10. Prior Agreements. The Employee represents that he is not now under
any written agreement, nor has he previously, at any time, entered into any
written agreement with any person, firm or corporation, which would or could in
any manner preclude or prevent him from giving freely and the Company receiving
the exclusive benefit of his services.
7
<PAGE>
11. Termination Provisions.
(a) In addition to, and not in lieu of, the termination provisions
set forth in Section 6 hereof, the employment of the Employee hereunder may be
terminated by the Company prior to the termination date of the initial term or
any renewal term thereafter (as set forth in Section 2 hereof) in the event that
the Employee is guilty of (i) reckless disregard to perform his duties as set
forth in Section 3 herein, or (ii) willful misfeasance, or (iii) any act of
dishonesty by the Employee with respect to the Company. Termination of the
Employee's employment by the Company for either willful misfeasance or reckless
disregard of his duties to the Company hereunder shall constitute, and is
referred to elsewhere herein, as termination for "Cause". Such termination of
the Employee's employment hereunder for Cause shall be effective immediately
upon delivery of written notice to the Employee setting forth the reason or
reasons for such termination. Upon the termination of this Agreement in
accordance with this Section 11(a), the Company shall not be obligated to make
any further payments hereunder to the Employee.
(b) Notwithstanding any provisions in this Agreement to the
contrary, the Company may terminate the employment of the Employee without
Cause, but in such event the Company shall be obligated to pay the Employee any
and all amounts payable to the Employee pursuant to Sections 4(a) and (e) and
5(c) above for the remainder of the initial term or the extended term, as the
case may be, of the Agreement in effect immediately prior to such termination
(the "Remainder Term"), but in no event shall the Employee receive less than
twelve months Base Salary. The Company shall also continue for the Remainder
Term to permit the Employee to participate in the Company's medical, disability,
hospital and health insurance plans and life insurance and other plans, if any,
which the Company may generally make available to its executive employees for
such period of time as Employee, or receive equivalent cash consideration;
provided, however, that the Company shall not be required to provide such fringe
benefits to the extent Employee receives such benefits from any other source of
employment. Except to the extent provided by a new employer, notwithstanding
anything which may be to the contrary above, the Company shall purchase and
maintain a term life insurance policy of $100,000 on the life of the Employee
during the Remainder Term with
8
<PAGE>
the Employee's estate (or his designated beneficiary) as the beneficiary of such
policy.
12. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and upon the Employee, his heirs,
executors, administrators, legatees and legal representatives.
13. Notice. Any notice, statement, report, request or demand required
or permitted to be given by this Agreement shall be in writing, and shall be
sufficient if delivered in person or if addressed and sent by certified mail,
return receipt requested, to the parties at the addresses set forth above, or at
such other place that either party may designate by notice in the foregoing
manner to the other.
14. Waiver. The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full force
and effect. No waiver of any term or any condition of this Agreement on the part
of either party shall be effective for any purpose whatsoever unless such waiver
is in writing and signed by such party.
15. Section Headings. The heading of the paragraphs herein are inserted
for convenience and shall not affect any interpretation of this Agreement.
16. Miscellaneous.
(a) Should any part of this Agreement, for any reason whatsoever, be
declared invalid, illegal, or incapable of being enforced in whole or in part,
such decision shall not affect the validity of any remaining portion, which
remaining portion shall remain in full force and effect as if this Agreement had
been executed with the invalid portion thereof eliminated, and it is
9
<PAGE>
hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
portion which may for any reason be declared invalid.
(b) This Agreement shall be construed and enforced in accordance
with the laws of the State of New York applicable to agreements made and
performed in such State without application to the principles of conflicts of
laws. Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, will be finally settled by arbitration in San Francisco,
California in accordance with the then current Commercial Arbitration Rules of
the American Arbitration Association ("AAA") with the San Francisco office of
the AAA as the tribunal administrator. Any award shall be final, binding and
conclusive upon the parties and a judgment upon the award rendered thereon may
be entered in any court of competent jurisdiction. Except as provided herein,
each party to such arbitration shall bear its own costs and expenses of such
arbitration, including its experts, evidence and legal fees and expenses.
(c) This Agreement and all rights hereunder are personal to the
Employee and shall not be assignable, and any purported assignment in violation
thereof shall be null and void. Any person, firm or corporation succeeding to
the business of the Company by merger, consolidation, purchase of assets or
otherwise, shall assume by contract or operation of law the obligations of the
Company hereunder; provided, however, that the Company shall, notwithstanding
such assumption and/or assignment, remain liable and responsible for the
fulfillment of the terms and conditions of the Agreement on the part of the
Company.
(d) This Agreement constitutes the entire agreement between the
parties hereto with respect to the terms and conditions of the Employee's
employment by the Company, as distinguished from any other contractual
arrangements between the parties pertaining to or arising out of their
relationship, and this Agreement supersedes and renders null and void any and
all other prior oral or written agreements, understandings, or commitments
pertaining to the Employee's employment by the Company. No variation hereof
shall be deemed valid unless in writing and signed by the parties hereto, and no
discharge of the terms hereof shall be deemed valid unless by full performance
by the parties hereto or by a writing
10
<PAGE>
signed by the parties hereto. No waiver by either party of any provision or
condition of this Agreement by him or it to be performed shall be deemed a
waiver of similar or dissimilar provisions and conditions at the same time or
any prior or subsequent time.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
"EMPLOYEE" "COMPANY"
Brake Headquarters U.S.A., Inc.
/s/ Michael DiAngelo /s/ Marc J. Ruskin
- ---------------------- ----------------------
Michael DiAngelo Marc J. Ruskin, CFO
11
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT entered into this 17th day of November 1997, by and between Brake
Headquarters U.S.A., Inc., a Delaware corporation, with its principal place of
business at 33-16 Woodside Avenue, Long Island City, N.Y. 11101 (the "Company")
and Jeffrey Chasse, residing at 1703 Egret Drive, Tracy CA. 95376 (the
"Employee").
W I T N E S S E T H :
WHEREAS, the Company wishes to employ the Employee in the principal
capacity of Executive Vice-President of the Company's wholly-owned subsidiary,
WAWD-EAP, upon the terms and conditions contained herein;
WHEREAS the Employee is desirous of continuing employment with the Company
and is willing to accept such employment for the inducements and upon the terms
and conditions contained herein; and
WHEREAS the Company has bargained for a covenant by the Employee not to
compete with the Company's business.
NOW, THEREFORE, in consideration of the mutual premises and agreements
contained herein and for other good and valuable consideration by each of the
parties, the parties hereby agree as follows:
1. Employment. Subject to and concurrent with the completion of the
Company's acquisition of WAWD-EAP (the "Closing") the Company shall employ the
Employee and the Employee will accept employment upon the terms and conditions
set forth herein.
2. Term. The term of this Agreement shall commence on the date of the
Closing (the "Effective Date")and shall continue for a term of three (3) years;
provided, however, the term of this Agreement shall be automatically continued
and extended for an additional three-year period commencing upon the original
termination date, unless, at least thirty (30) days before the original date of
termination the Company shall give the Employee,
1
<PAGE>
or the Employee, shall give the Company, a notice in writing electing to
terminate this Agreement as of such original termination date.
3. Duties.
(a) During the term of this Agreement, the Employee shall perform such
duties as are determined from time to time by the Company's Board of Directors.
Unless prevented by death or disability, the Employee shall devote his full
business time, allowing for vacations and national holidays, as set forth in
Sections 5(a) and (e) hereof, and illnesses, exclusively to the business and
affairs of the Company, and shall use his best efforts, skill and abilities to
promote its interests. Nothing herein contained shall be construed as preventing
the Employee from purchasing securities in any publicly held entity, if such
purchases shall not result in his owning beneficially 2% or more of the equity
securities of such company, provided such investment is not made in a company in
competition with the Company.
(b) It is hereby acknowledged that the Board of Directors of the Company
has elected the Employee to serve as President and Chief Executive Officer, of
WAWD-EAP and the Company hereby agrees to use its best efforts to have the
Employee continue to serve as President and Chief Executive Officer during the
term of this Agreement. The Employee is in charge of all of WAWD-EAP's business
activities and will conduct and manage its business in accordance with the
policies established by its Board of Directors. The precise services of the
Employee may be extended or curtailed from time to time at the direction of
WAWD-EAP's Board of Directors.
4. Compensation. For the services rendered by the Employee hereunder, the
Company shall pay and the Employee shall accept the following compensation:
(a) During the first year of the term of this Agreement, the Employee shall
receive a base salary of $110,000. During the second year of the term of this
Agreement, the Employee shall receive a base salary of $120,000 and during the
third year the Employee shall receive a base salary of $120,000. Such Base
Salary
2
<PAGE>
shall be payable at such intervals as is consistent with the Company's normal
practice for remuneration of executives;
(b) The Employee's salary shall be payable subject to such deductions as
are then required by law and such further deductions as may be agreed to by the
Employee, in accordance with the Company's prevailing salary payroll practices.
(c) The Employee shall be eligible to participate in the
Company's Employee Stock Bonus Plan which permits him to purchase the Company's
Common Stock at a 15% discount to the then current fair market value in an
amount equal to up to 15% of the Employee's salary.
(d) The Employee shall be granted at the Closing of the WAWD-EAP
transaction five-year options to purchase 130,000 shares of Common Stock of the
Company, each exercisable at the closing price of the Company's Common Stock on
the day prior to the Closing and each subject to adjustment for stock splits,
dividends, distributions, combinations or other similar events, as follows:
(A) Performance based options to purchase 90,000 shares of Common
Stock vesting:
(i) one-third (30,000 shares) if WAWD-EAP's (i) net sales have increased by
at least 8% during the year ended December 31, 1998 ("Fiscal 1998") as compared
with the fiscal year prior to the Company's acquisition of WAWD-EAP ("Fiscal
1997"), and (ii) EBITDA (earnings before interest, taxes, depreciation and
amortization including, but not limited to, the amortization of the negative
goodwill resulting from the Company's acquisition of WAWD-EAP) for Fiscal 1998
does not decrease from Fiscal 1997.
(ii) one-third (30,000 shares) if WAWD-EAP's (i) net sales and EBITDA for
the year ending December 31, 1999 ("Fiscal 1999") each increases by at least 8%
from Fiscal 1998.
(iii) one-third (30,000 shares) if WAWD-EAP's (i) net sales and EBITDA for
the year ending December 31, 2000 ("Fiscal 2000") each increases by at least 8%
from Fiscal 1999.
(B) Options to purchase 40,000 shares of Common Stock vesting:
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(i) one-half (20,000 shares) upon the second anniversary date of the
Closing, and
(ii) one-half (20,000 shares) upon the third anniversary date of the
Closing.
(C) If Employee dies or employment is terminated without cause (as defined)
during the term hereof, such options to be issued pursuant to paragraph (g)(A)
and (B), may be exercised by Employee or a legatee or legatees of such option
under Employee's last will or by his personal representatives or distributees at
any time within one (1) year after employment is terminated without cause or his
death.
(e) The Employee shall also be entitled to receive management incentive
compensation based upon the performance of WAWD-EAP in Fiscal 1999 and Fiscal
2000, as follows:
(i) In the event that WAWD-EAP's net income (as determined by the Company's
independent certified public accountants in accordance with Generally Accepted
Accounting Principles applied on a historically consistent basis from year to
year ("Net Income")) for Fiscal 1999 exceeds its Net Income for Fiscal 1998 by
at least 10%, the Employee shall be entitled to receive in cash 10% of the
amount in excess of such 10% increase. For example, if Net Income for Fiscal
1999 is $500,000 as compared with Net Income of $200,000 for Fiscal 1998, the
Employee shall receive 10% of $280,000 or $28,000.
(ii) In the event that WAWD-EAP's Net Income for Fiscal 2000 exceeds its
Net Income for Fiscal 1999 by at least 10%, the Employee shall be entitled to
receive, in cash, 10% of the amount in excess of such 10% increase, independent
of whether the Employee received incentive compensation in Fiscal 1999, as set
forth in subparagraph (i) above.
5. Benefits and Expenses. During the term of this Agreement, the Employee
shall be entitled to the following benefits and expense reimbursement:
(a) During the term hereof, the Employee shall be entitled to four(4) weeks
of paid vacation. Such vacation time
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shall be utilized in accordance with the Company's policy from time to time in
effect as determined by the Board.
(b) Nothing in this Agreement shall prevent the Employee from receiving or
participating in, subject to the discretion of the Board of Directors of the
Company and the Company's employee handbook, all fringe benefits such as
medical, disability, hospital and health insurance plans, and profit sharing,
pension plans, life insurance and other plans, if any, which the Company may
generally make available to its executive employees. Employee will be covered
for up to $1 Million per occurrence under the Company's officers and directors
liability insurance policy. In furtherance of the above and not by way of
limitation, the Employee shall be permitted to participate in the Company's
401(K) Retirement Plan and Health Insurance Plan; the Company shall purchase and
maintain a term life insurance policy of $100,000 on the life of the Employee
during the term of this Agreement with the Employee's estate (or his designated
beneficiary) as the beneficiary of such policy; and the Employee shall be
included in any Directors and Officers' indemnification insurance policy, if
obtained.
(c) During the term of this Agreement, the Company shall provide the
Employee with the use of an automobile or cash equivalent at equal value to an
automobile currently used by other comparable executive members of Management of
the Company.
(d) During the term of this Agreement, the Company shall, upon presentation
of proper vouchers, also reimburse the Employee for all reasonable expenses
incurred by him directly in connection with his performance of services as an
officer and employee of the Company.
(e) The Employee shall receive as paid days off all national
holidays that the Company, pursuant to established policy, recognizes and
observes.
6. Disability and Death.
(a) Disability - If, during the term of this Agreement, the Employee
becomes so disabled or incapacitated by reason of any physical or mental illness
so as to be unable to perform the services required of him pursuant to this
Agreement for a continuous period of four (4) months, or for an aggregate of six
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(6) months during any consecutive twelve (12) month period, then the Company
may, upon 30 days' written notice to the Employee, terminate this Agreement.
Notwithstanding the termination of the Agreement hereunder by reason of
disability, the Company shall pay to the Employee his Base Salary for a period
and in an amount to be determined by reference to WAWD-EAP employee manual as
then in effect, or on terms no less favorable than those contained in such
manual.
(b) Death - This Agreement shall automatically terminate upon and as of the
date of death of the Employee at any time during the term of this Agreement.
Notwithstanding the termination of this Agreement by reason of the Employee's
death, the Company shall pay to the Employee's estate his Base Salary for a
period and in an amount to be determined by reference to the Company's employee
manual as then in effect.
7. Covenants and Restrictions.
(a) During the term of this Agreement and for a period of one (1) year
thereafter (the "Non-Compete Period"), the Employee shall not, directly or
indirectly (i) engage in, own, manage, operate, assist, join or control, or
participate in the ownership, management, operation or control of any Restricted
Enterprise (other than the Company or its affiliates), which engages or plans to
engage in a Restricted Enterprise anywhere in the United States, whether as a
director, officer, employee, agent, consultant, shareholder, partner, owner,
independent contractor or otherwise, or (ii) solicit, hire or seek to solicit or
hire any of the Company's or WAWD-EAP's personnel in any capacity whatsoever nor
shall Employee induce or attempt to induce any of the Company's personnel to
leave the employ of the Company to work for Employee or otherwise. As used
herein, a "Restricted Enterprise" shall be any activity that competes with the
business of the Company as constituted or as realistically contemplated during
the term of this Agreement in the United States.
(b) The Employee agrees that he shall not divulge to others, nor shall he
use to the detriment of the Company or in any business competitive with or
similar to any business engaged in by the Company or any of its subsidiary or
affiliated companies, at any time during his employment with the Company or
thereafter, any Confidential Information obtained by him during the course of
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his employment with the Company. Confidential Information as used herein
shall mean all information, whether tangible or intangible, which (i) was not in
the public domain prior to receipt thereof by the Employee in the same context
as the contemplated disclosure to be made hereunder; or (ii) that which the
Employee cannot show was in his possession and in the same context prior to
receipt or (iii) that which subsequently does not become known to the Employee
by third parties not in the course of his employment and as a matter of right
and without restriction on disclosure; or (iv) that which subsequently does not
come into the public domain in the same context as the contemplated disclosure
by the Employee through no fault of the Employee.
8. Remedies.
The Employee acknowledges that his breach of any of the restrictive
covenants contained in Section 8 may cause irreparable damage to the Company for
which remedies at law would be inadequate. Accordingly, if Employee breaches or
threatens to breach any of the provisions of Section 8, the Company shall be
entitled to appropriate injunctive relief, including, without limitation,
preliminary and permanent injunctions, in any court of competent jurisdiction,
restraining Employee from taking any action prohibited hereby. This remedy shall
be in addition to all other remedies available to the Company at law or equity.
If any portion of Section 8 is adjudicated to be invalid or unenforceable,
Section 8 shall be deemed amended to delete therefrom the portion so
adjudicated, such deletion to apply only with respect to the operation of
Section 8 in the jurisdiction in which such adjudication is made.
9. Indemnification. The Company hereby indemnifies and holds the
Employee harmless from any and all expenses or losses incurred by him in
connection with the performance of his duties under this Agreement.
10. Prior Agreements. The Employee represents that he is not now under
any written agreement, nor has he previously, at any time, entered into any
written agreement with any person, firm or corporation, which would or could in
any manner preclude or prevent him from giving freely and the Company receiving
the exclusive benefit of his services.
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11. Termination Provisions.
(a) In addition to, and not in lieu of, the termination provisions set
forth in Section 6 hereof, the employment of the Employee hereunder may be
terminated by the Company prior to the termination date of the initial term or
any renewal term thereafter (as set forth in Section 2 hereof) in the event that
the Employee is guilty of (i) reckless disregard to perform his duties as set
forth in Section 3 herein, or (ii) willful misfeasance, or (iii) any act of
dishonesty by the Employee with respect to the Company. Termination of the
Employee's employment by the Company for either willful misfeasance or reckless
disregard of his duties to the Company hereunder shall constitute, and is
referred to elsewhere herein, as termination for "Cause". Such termination of
the Employee's employment hereunder for Cause shall be effective immediately
upon delivery of written notice to the Employee setting forth the reason or
reasons for such termination. Upon the termination of this Agreement in
accordance with this Section 11(a), the Company shall not be obligated to make
any further payments hereunder to the Employee.
(b) Notwithstanding any provisions in this Agreement to the contrary, the
Company may terminate the employment of the Employee without Cause, but in such
event the Company shall be obligated to pay the Employee any and all amounts
payable to the Employee pursuant to Sections 4(a) and (e) and 5(c) above for the
remainder of the initial term or the extended term, as the case may be, of the
Agreement in effect immediately prior to such termination (the "Remainder
Term"), but in no event shall the Employee receive less than twelve months Base
Salary. The Company shall also continue for the Remainder Term to permit the
Employee to participate in the Company's medical, disability, hospital and
health insurance plans and life insurance and other plans, if any, which the
Company may generally make available to its executive employees for such period
of time as Employee, or receive equivalent cash consideration; provided,
however, that the Company shall not be required to provide such fringe benefits
to the extent Employee receives such benefits from any other source of
employment. Except to the extent provided by a new employer, notwithstanding
anything which may be to the contrary above, the Company shall purchase and
maintain a term life insurance policy of $100,000 on the life of the Employee
during the Remainder Term with
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the Employee's estate (or his designated beneficiary) as the
beneficiary of such policy.
12. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, and upon the Employee, his heirs,
executors, administrators, legatees and legal representatives.
13. Notice. Any notice, statement, report, request or demand required or
permitted to be given by this Agreement shall be in writing, and shall be
sufficient if delivered in person or if addressed and sent by certified mail,
return receipt requested, to the parties at the addresses set forth above, or at
such other place that either party may designate by notice in the foregoing
manner to the other.
14. Waiver. The failure of either party to insist upon the strict
performance of any of the terms, conditions and provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full force
and effect. No waiver of any term or any condition of this Agreement on the part
of either party shall be effective for any purpose whatsoever unless such waiver
is in writing and signed by such party.
15. Section Headings. The heading of the paragraphs herein
are inserted for convenience and shall not affect any
interpretation of this Agreement.
16. Miscellaneous.
(a) Should any part of this Agreement, for any reason whatsoever, be
declared invalid, illegal, or incapable of being enforced in whole or in part,
such decision shall not affect the validity of any remaining portion, which
remaining portion shall remain in full force and effect as if this Agreement had
been executed with the invalid portion thereof eliminated, and it is
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hereby declared the intention of the parties hereto that they would have
executed the remaining portion of this Agreement without including therein any
portion which may for any reason be declared invalid.
(b) This Agreement shall be construed and enforced in accordance with the
laws of the State of New York applicable to agreements made and performed in
such State without application to the principles of conflicts of laws. Any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, will be finally settled by arbitration in San Francisco, California in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA") with the San Francisco office of the AAA as the
tribunal administrator. Any award shall be final, binding and conclusive upon
the parties and a judgment upon the award rendered thereon may be entered in any
court of competent jurisdiction. Except as provided herein, each party to such
arbitration shall bear its own costs and expenses of such arbitration, including
its experts, evidence and legal fees and expenses.
(c) This Agreement and all rights hereunder are personal to the Employee
and shall not be assignable, and any purported assignment in violation thereof
shall be null and void. Any person, firm or corporation succeeding to the
business of the Company by merger, consolidation, purchase of assets or
otherwise, shall assume by contract or operation of law the obligations of the
Company hereunder; provided, however, that the Company shall, notwithstanding
such assumption and/or assignment, remain liable and responsible for the
fulfillment of the terms and conditions of the Agreement on the part of the
Company.
(d) This Agreement constitutes the entire agreement between the parties
hereto with respect to the terms and conditions of the Employee's employment by
the Company, as distinguished from any other contractual arrangements between
the parties pertaining to or arising out of their relationship, and this
Agreement supersedes and renders null and void any and all other prior oral or
written agreements, understandings, or commitments pertaining to the Employee's
employment by the Company. No variation hereof shall be deemed valid unless in
writing and signed by the parties hereto, and no discharge of the terms hereof
shall be deemed valid unless by full performance by the parties hereto or by a
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writing signed by the parties hereto. No waiver by either party of any
provision or condition of this Agreement by him or it to be performed shall be
deemed a waiver of similar or dissimilar provisions and conditions at the same
time or any prior or subsequent time.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
"EMPLOYEE" "COMPANY"
Brake Headquarters U.S.A., Inc.
/s/ Jeffrey Chasse /s/ Joseph Ende
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Jeffrey Chasse Joseph Ende, President
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STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease. dated, for reference purposes only, August 31, 1995, is
made by and between The Prudential Insurance Company of America, a New Jersey
Corporation (herein called "Lessor") and WAWD-EAP AUTOMOTIVE PRODUCTS, INC., a
Delaware corporation (herein called "Lessee").
2. Premises, Parking and Common Areas.
2.1 Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
real property situated in the County of Los Angeles, State of California
commonly known as 3270 E. 26th Street, Vernon California 90023 and described as
the portion containing 51,928 square feet of the building located on the
property shown on Exhibit "A" hereto, said 51,928 square feet herein referred to
as the "Premises" and cross-hatched on Exhibit "A" attached hereto including
rights to the Common Areas as hereinafter specified but not including any rights
to the roof of the Premises or to any Building in the Industrial Center. The
Premises are a portion of a building, herein referred to as the "Building". The
Premises, the Building, the Common Areas, the land upon which the same are
located, along with all other buildings and improvements thereon, are herein
referred to as the AIndustrial Center.
2.2 Vehicle Parking. Lessee shall be entitled the number of vehicle parking
spaces as set forth in Paragraph 66 unreserved and unassigned, on those portions
of the Common Areas designated by Lessor for parking. Lessee shall not use more
parking spaces than said number. Said Parking spaces shall be used only for
parking by vehicles no larger than full size passenger automobiles or pick-up
trucks, herein called "Permitted Size Vehicles". Vehicles other than Permitted
Size Vehicles are herein referred to as "Oversized Vehicles".
2.2.1 Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for Such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas-Definition. The term "Common Areas" is defined as all areas
and facilities outside the Premises and within the exterior boundary line of the
industrial Center that are provided and designated by the Lessor from time to
time for the general non-exclusive use of Lessor, Lessee and of other lessees of
the Industrial Center and their respective employees, suppliers, shippers,
customers and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped
areas.
2.4 Common Areas - Losses's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such Storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 Common Areas - Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable rules and regulations with respect thereto. Lessee agrees
to abide by and conform to all such rules and regulations, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and conform.
Lessor shall not be responsible to Lessee for the non-compliance with said rules
and regulations by other lessees of the Industrial Center.
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2.6 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and walkways; (b) To close temporarily any of the
Common Areas for maintenance purposes so long as reasonable access to the
Premises remains available; (c) To designate other land outside the boundaries
of the Industrial Center to be a part of the Common Areas; (d) To add additional
buildings and improvements to the Common Areas; (e) To use the Common Areas
while engaged in making additional improvements, repairs or alterations to the
industrial Center, or any portion thereof; (f) To do and perform such other act
and make such other changes in, to or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business judgment,
deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities required
by applicable law and in no event shall the number of parking spaces that Lessee
is entitled to under paragraph 2.2 be reduced.
3. Term.
3.1 Term. The term of this Lease shall be for seven (7) years and no months
commencing on January 1, 1996 and ending on December 31, 2002 unless sooner
terminated pursuant to any provision hereof.
3.2 Delay In Possession. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease,
except as may be otherwise provided in this Lease, until possession of the
Premises is tendered to Lessee; provided, however, that if Lessor shall not have
delivered possession of the Premises within Sixty (60) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder, provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. Rent.
4.1 Base Rent. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in this Lease, on the 1st day of each month of the term hereof, monthly payments
in advance of $15,578.40, the Base Rent is subject to adjustment as provided
herein. Lessee shall pay Lessor upon execution hereof $15,578.40 as Base Rent
for January, 1996. Rent for any period during the term hereof which is for less
than one month shall be a pro rata portion of the Base Rent. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may designate
in writing.
4.2 Operating Expenses. Lessee shall pay to Lessor during the term hereof, in
addition to the Base Rent, Lessee's Share, as hereinafter defined, of all
Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as 38.9612
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as all
costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good order
and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities and fences and gates:
(bb) Trash disposal services:
(cc) Tenant directories:
(dd) Fire detection systems including sprinkler system
maintenance and repair:
(ee) Security services:
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(ff) Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense."
(ii) Any deductible portion of an insured loss concerning any of the
items or matters described in this paragraph 4.2.
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof.
(iv) The amount of the real property tax to be paid by Lessor under
paragraph 10.1 hereof:
(v) The cost of water, gas and electricity to service the Common
Areas.
(c) The inclusion of the improvements, facilities and services set forth
in Paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be
deemed to impose an obligation upon Lessor to either have said improvements or
facilities or to provide those services unless the industrial Center already has
the same. Lessor already provides the services, or Lessor has agreed elsewhere
in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated
on said statement, Lessee shall be entitled to credit the amount of such
overpayment against Lessee's Share of Operating Expenses next falling due. If
Lessee's payments under this paragraph during said preceding year were less than
Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the
amount of the deficiency within ten (10) days after delivery by Lessor to Lessee
of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$15,578.40 as security for lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. If the monthly
rent shall, from time to time, increase during the term of this Lease, Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by Lessor
shall at all times bear the same proportions to the then current Base Rent as
the initial security deposit bears to the initial Base Rent set forth in
paragraph 4. Lessor shall not be required to keep said security deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not theretofore been applied
by Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for warehousing and
distribution of new automotive parts and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee to Lessor's actual knowledge that the
Premises, in the state existing on the date that the Lease term commences, but
without regard to alterations made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term commencement date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation. In the event Lessee does not give to Lessor written notice of
the violation of this warranty within six months from the date that the Lease
term commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of
no force or effect if, prior to the date of this Lease, Lessee was an owner or
occupant of the Premises and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.
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(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record. and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises
and of the Common Areas. Lessee shall not use nor permit the use of the Premises
or the Common Areas in any manner that will tend to create waste or a nuisance
or shall tend to disturb other occupants of the Industrial Center.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris
on the Lease commencement date (unless Lessee is already in possession) and
Lessor warrants to Lessee to Lessor's actual knowledge that the plumbing,
lighting, air conditioning, heating, and loading doors in the Premises other
than those portions constructed by Lessee shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly at Lessor's sole cost, rectify such violation,
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts the
Premises in their condition existing as of the Lease commencement date or the
date that Lessee takes possession of the Premises, whichever is earlier, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Premises, and any covenants,
easements or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present of future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations), 48 (easements), and 9
(Damage or Destruction) and except for damage caused by any negligent or
intentional act or omission of Lessee, Lessee's employees, suppliers, shoppers,
customers, or invitees, in which event Lessee shall repair the damage. Lessor,
at Lessor's expense, subject to reimbursement pursuant to paragraph 4.2, shall
keep in good condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, and root of the Premises, as well as the
parking lots, walkways, driveways, landscaping, fences, signs and utility
installations of the Common Areas and all parts thereof. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or Plate glass of the Premises or to maintain or repair anything required
to be maintained by Lessee under Paragraph 7.2. Lessor shall have no obligation
to make repairs under this paragraph 7.1 until a reasonable time after receipt
of written notice from Lessee for the need for such repairs. Lessee expressly
waives the benefits of any statute now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair. Lessor shall not be liable for damages or loss of
any kind or nature by reason of Lessor's failure to furnish any Common Area
Services when such failure is caused by accident, breakage, repairs, strikes,
lockout, or other labor disturbances or disputes of any character, or by any
other cause beyond the reasonable control of Lessor.
7.2 Lessee's Obligations.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the Premiss, or that
serves only the Premises wherever situated, fixtures, interior walls and
interior surfaces of exterior walls, ceilings, windows, doors, plate glass, and
skylights located within the Premises. Lessor reserves the right to procure and
maintain the ventilating and air conditioning system maintenance contract and if
Lessor so elects. Lessee shall reimburse Lessor, upon demand, for the cost
thereof.
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(b) If Lessee fails to perform Lessee's obligations under this paragraph of
this Lease, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of emergency, in which no notice
shall be required), perform such obligations on Lessee's behalf and put the
Premises in good order, condition and repair, and the cost thereof together with
interest thereon at the maximum rate then allowable by law shall be due and
payable as additional rent to Lessor together with Lessee's next Base Rent
installment.
(c) On the last day of the term hereof, or on any sooner termination, Lessee
shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.
7.3 Alterations and Additions. See Paragraph 49.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $2,500 in cumulative costs, during the term of this
Lease. In any event, whether or not in excess of $2,500 in cumulative cost,
Lessee shall make no change or alteration to the exterior of the Premises nor
the exterior of the Building nor the Industrial Center without Lessor's prior
written consent. As used in this paragraph 7.2 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution system, lighting fixtures. space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any or all of said
alterations, improvement, additions or Utility Installations at the expiration
or earlier termination of the term, and restore the Premises and the Industrial
Center to their prior condition. Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvement,
additions or Utility Installations without the prior approval of Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in
or about the Premises or the Industrial Center that Lessee shall desire to make
and which requires the consent of the Lessor shall be presented to lessor in
written form, with proposed detailed plan. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than thirty (30) days'
notice prior to the commencement of any work in the Premises, and Lessor shall
have the right to post notices of non-responsibility in or on the Premises or
the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial Center, upon the
condition that if Lessor shall require, Lessee shall furnish to lessor a surety
bond satisfactory to lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to lessor's best
interest to do so.
(d) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of lessee),
which may be on the Premises, shall be the property of Lessor and shall remain
upon and be surrendered with the Premises at the expiration or earlier
termination of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
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7.4 Utility Additions. Lessor reserves the right to install new or additional
utility facilities throughout the Building and the Common Areas for the benefit
of Lessor or Lessee, or any other lessee of the Industrial Center, including,
but not by way of limitation, such utilities as plumbing, electrical systems,
security systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. Indemnity. See Paragraph 50.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Industrial Center, nor from
the failure of Lessor to enforce the provisions of any other lease of the
Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are damaged or
destroyed to the extent that the cost of repair is fifty percent or more of the
then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent of the then replacement cost of the Building.
(d) "Premises Building Total Destruction" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is fifty percent or more of the then replacement cost of the Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on the
Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was caused by an
event required to be covered by the insurance described in paragraph 8. The fact
that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be spent
in order to repair or rebuild the damaged area to the condition that existed
immediately prior to the damage occurring excluding all improvements made by
lessees.
<PAGE>
9.2 Premises Partial Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if
at any time during the term of this Lease there is damage which [is] an Insured
Loss and which falls into the classification of either Premises Partial Damage
or Premises Building Partial Damage, then Lessor shall, at Lessor's expense,
repair such damage to the Premises, but not Lessee's fixtures, equipment, tenant
improvements or utility installations, as soon as reasonably possible and this
Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
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9.3 Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5. if at anytime
during the term of this Lease there is damage, whether or not it is an Insured
Loss, and which falls into the classifications of either (i) Premises Total
Destruction, or (ii) Premises Building Total Destruction, or (iii) Industrial
Center Buildings Total Destruction, then Lessor may at Lessor's option either
(i) repair such damage or destruction, but not Lessee's fixtures, equipment or
tenant improvements or Utility installations, as soon as reasonably possible at
Lessor's expense, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall be canceled and terminated as of the date
of the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at anytime during the last six months
of the term of this Lease there is substantial damage, whether or not an Insured
Loss, which falls within the classification of Premises Partial Damage. Lessor
may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired. Lessee shall exercise such option, if it is to
be exercised at all no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage during
the last six months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and, this Lease shall continue in full force and
effect provided Lessee first deposits with Lessor any shortfall in necessary
funds. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Premises pursuant to the
provisions of this paragraph 9, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Lessee's use of the Premises is impaired. Except for
abatement of rent, if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this paragraph 9 and shall not commence such repair or
restoration within ninety (90) days after such obligation shall accrue. Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 Termination -- Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Industrial Center subject to reimbursement by
Lessee of Lessee's Share of such taxes in accordance with the provisions of
paragraph 4.2, except as otherwise provided in paragraph 10.2.
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l0.2 Additional improvements. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially of totally, any tax, fee, levy, assessment or charge
herein above included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Industrial Center is not separately assessed,
Lessee's Share of the real property tax liability shall be an equitable
proportion of the real property taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets of
such other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Lessee contained in the Premises or
elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. (b) If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay to Lessor the
taxes attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee Shall pay at Lessor's option, either Lessee's share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
12. Assignment and Subletting. See Paragraph 52.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in the Lease or in the Premises, without
Lessor's prior written Consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a noncurable
breach of this Lease without the need for notice to Lessee under Paragraph 13.1.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before-such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
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12.3 Terms and Conditions of Assignment. Regardless of Lessor's consent, no
assignment shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating
Expenses, and to perform all other obligations to be performed by Lessee
hereunder. Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this Paragraph 12 or this Lease. Consent to
one assignment shall not be deemed consent to any subsequent assignment. In the
event of default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 Terms and Conditions Applicable to Subletting. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease, provided, to however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may subject to Paragraph 52.1(e) receive collect and enjoy
the rents accruing under such sublease. Lessor shall not, by reason of this or
any other assignment of such sublessee to Lessor nor by reason of the collection
of the rents from a sublessee, be deemed liable to the sublessee for any failure
of Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such sublease. Lessee hereby irrevocably authorizes and directs
any such sublessee, upon receipt of a written notice from Lessor stating that a
default exists in the performance of Lessee's obligations under this Lease, to
pay to Lessor the rents due and to become due under the sublease. Lessee agrees
that such sublessee shall have the right to rely upon any such statement and
request from Lessor, and that such sublessee shall pay such rents to Lessor
without any obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or anyone else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
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(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or sublet the Premises
or request the consent of Lessor to any assignment or subletting or if Lessee
shall request the consent of Lessor for any act Lessee proposes to do then
Lessee shall pay Lessor's reasonable attorney's and/or consultant's fees
incurred in connection therewith, such attorneys fees not to exceed $350.00 for
each such request.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of five (5) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee
to observe or perform any of the covenants, conditions or provisions of this
Lease to be observed or performed by Lessee, other than described in paragraph
(b) above, where such failure shall continue for a period of thirty (30) days
after written notice thereof from Lessor to Lessee; provided, however, that if
the nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors: (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1 (d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
<PAGE>
l3.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to
perform obligations required of Lessor within a reasonable time, but in no event
later than thirty (30) days after written notice by Lessee to Lessor and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee=s Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses or any other sum due from Lessee shall not be received by
Lessor or Lessors designee within requirement for notice to Lessee. Lessee shall
pay to Lessor a late charge equal to 3% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incr by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
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<PAGE>
14. Condemnation. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the on ly area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not terminated
by reason of such condemnation. Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises or of the business of the requesting party.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Property, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
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<PAGE>
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, in the event of any
transfer of such title or interest. Lessor herein named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the date
of such transfer of all liability as respects Lessor's obligations thereafter to
be performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Post-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at then maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease: provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 54 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or Lessor or any employee or agents of any of said
persons has made any oral or written warranties or representations to Lessee
relative to the condition or use by Lessee of Premises or the Property and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all applicable laws and regulations in effect
during the term of this Lease except as otherwise specifically stated in this
Lease.
23. Notices. Any notice required or permitted to be given here under shall be in
writing and maybe given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be, Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessors consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessors consent to or
approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessors knowledge of such preceding breach at the time of
acceptance of such rent.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the monthly rent
shall be 150% of the rent payable in the last month of the lease term, but all
Options, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
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<PAGE>
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. Subordination.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgages, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option. Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. See Paragraph 56.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to this paragraph shall be without abatement
of rent, nor shall Lessor have any liability to Lessee for the same.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease. Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. Signs. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33, 34, 59 and 60 hereof, wherever in this
Lease the consent of one party is required to an act of the other party such
consent shall not be unreasonably withheld or delayed.
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<PAGE>
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease and all covenants, conditions and restrictions of record. The individuals
executing this Lease on behalf of Lessor represent and warrant to Lessee that
they are fully authorized and legally capable of executing this Lease on behalf
of Lessor and that such execution is binding upon all parties holding ownership
interest in the Property.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor, (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may this Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(b) or 13.1(c) and continuing until the noncompliance alleged in said notice
of default is cured, or (ii) during the period of time commencing on the date
after a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(a) (without any necessity of Lessor to give notice of
such default to Lessee), nor (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period of time within which an Option may be exercised shall not be
extended, or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, nothwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. Security Measurres. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
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<PAGE>
41. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need
for further notice to Lessee.
42. Performance Under Protest. If at anytime a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of some to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessor only when fully executedj by Lessor and Lessee.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs 47
through 66 which constitute a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR APPROVAL. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR
TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
LEGAL COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE.
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<PAGE>
"LESSOR":
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
- ------------------------------------------------
By: Cushman & Wakefield of California, Inc.
Its managing agent,
By:/s/ Cushman & Wakefield of California, Inc.
---------------------------------------------
By: ____________________________________________
Executed on ____________________________________
ADRESS FOR NOTICES AND RENT
(See Addendum)
- -------------------------------------------------
"LESSEE":
WAWD-EAP AUTOMOTIVE PRODUCTS, INC.,
a Delaware corporation
- -------------------------------------------------
By: /s/ WAWD-EAP Automotive Products, Inc.
---------------------------------------------
By: ---------------------------------------------
Executed on October 2, 1995
-------------------------------------
ADDRESS
(See Addendum)
- -------------------------------------------------
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<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
DATED AS OF AUGUST 31, 1995 BY AND BETWEEN
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
AS LESSOR AND
WAWD-EAP AUTOMOTIVE PRODUCTS INC.,
A DELAWARE CORPORATION,
AS LESSEE
47. Operating Expenses
47.1 The following are Operating Expenses within the meaning of paragraph
4.2: (a) the cost of Lessor's performing the maintenance obligations described
in paragraph 7.1, including replacements, (b) the cost of operating, repairing,
replacing and maintaining the Building, the roof, and any other utilities or
equipment, wherever situated, that are for the common use of the tenants of the
Building or Industrial Center, and (c) the cost of a Commercial General
Liability policy of insurance, insuring Lessor, but not Lessee, against
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center, in amounts determined by Lessor, if Lessor determines to
obtain such insurance.
47.2 "Lessee's share" as set forth in paragraph 4.2(a) is Lessee's share of
Operating Expenses applicable only to the Building in which the Premises are
located. The percentage set forth in paragraph 4.2(a) has been determined by
dividing the approximate square footage of the Premises by the total approximate
square footage of rentable space contained in the Building. It is understood and
agreed that the square footage figure set forth in 4.2(a) is an approximation
which Lessor and Lessee agree is reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Building.
47.3 Lessee's Share of Operating Expenses applicable to the Industrial
Center shall be reasonably determined by Lessor as the percentage created by
dividing the square footage of the Premises by the total square footage of the
Buildings in the Industrial Center that are involved in the item covered by the
particular expense.
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<PAGE>
47.4 Lessor and Lessee shall promptly adjust between them by appropriate
cash payment any balance determined to exist with respect to Lessee's Share of
Operating Expenses after the end of the calendar year in which this Lease
terminates, prorating for any partial year involved.
48. Condition of Premises Upon Termination; Additional Use Provisions.
48.1 Lessee shall maintain the Premises as provided in Paragraph 7.2 and in
accordance with the requirements of any covenants or restrictions as may from
time to time be applicable to the Premises. Lessee, in keeping the Premises in
good order, condition and repair, shall exercise and perform good maintenance
practices and any damage or deterioration shall not be deemed "ordinary wear and
tear" if the same could have been prevented by good maintenance practice.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. Notwithstanding anything contained in
the Lease to the contrary, Lessee shall make all repairs whatsoever on the
Premises necessitated by the negligence, misconduct or fault of Lessee, or its
agents, licensees or agents.
48.2 If the term of this Lease, as the same may be extended or renewed,
exceeds five (5) years, Lessor shall have the right to require Lessee to repaint
the interior of the improvements every four (4) to six (6) years, but not more
often that once every five (5) years, as reasonably necessary.
48.3 Notwithstanding anything to the contrary in paragraph 7.2 of this
Lease, upon termination of this Lease, Lessee shall leave all plumbing, heating
(including space heaters), air conditioning, electrical and mechanical systems,
on the Premises and in good condition and operating order, and Lessee shall upon
demand pay to Lessor that portion of the cost to restore such items to good
condition and operating order as may be reasonably allocable to Lessee' tenancy.
48.4 Notwithstanding anything to the contrary contained in the Lease, the
Premises shall not be used for the warehousing or distribution of hazardous or
explosive products, substances or materials, or of products, substances or
materials that are detrimental to the Premises, the Industrial Center or other
tenants thereof.
49. Alterations and Improvements.
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49.1 Any alterations, improvements, additions, or Utility Installations made
by Lessee during the term of this Lease shall be done in a good and workmanlike
manner and of good and sufficient materials, and Lessee shall, within thirty
(30) days after completion of such alteration, improvements, addition or Utility
Installation, provide Lessor with as-built plans and specifications for same.
Notwithstanding anything contained in this Lease to the contrary, Paragraphs
49.2(a)(ii) and (iii) shall apply to non-structural alterations, improvements,
additions or Utility Installations not exceeding $2,500 in cost.
49.2 For any additions, alterations, improvements, or Utility Installations
requiring Lessor's prior written consent:
(a) Lessee shall:
(i) Request Lessor's approval in writing at least thirty (30) days
prior to proposed construction.
(ii) Employ a California licensed architect, contractor and
structural engineer in connection with the proposed construction
(iii) Be fully responsible for the acts of Lessee's consultants,
employees, contractors, subcontractors, invitees and agents, and cause them to
fully comply with any applicable terms of this Lease and documents referred to
by this Lease and all applicable laws, rules and regulations.
(iv) Enter into written agreements with an architect and general
contractor on standard American Institute of Architects (AIA) form or reasonable
equivalent for the contract itself as well as payment schedules, change orders,
etc. Copies of executed agreements will be forwarded to Lessor within five (5)
days of execution.
(v) Cause to be obtained an applicable building permit for any and
all construction and modifications, and construct the additions and alterations
and perform the construction work in accordance with all applicable laws,
including without limitation the Americans With Disabilities Act.
(b) Lessee's Architect Shall:
(i) Be licensed by the State of California.
(ii) Design and specify within the parameters of the building work
letter (if any) and approved building specifications (if any) or have received
specific written exceptions from Lessor.
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(iii) Secure Lessor's written approval before submitting plans to
the general contractor for bidding or to governmental agencies for approval.
(iv) Secure Lessor's written approval of any changes or alternates
to the plans recommended by the general contractor or required by governmental
agencies.
(v) Submit a copy of the final application for permit and issued
permit to Lessor.
(vi) Incorporate the building standard details (if any) supplied by
Lessor onto the drawings.
(vii) Submit final plans for Lessor's written approval prior to
construction.
(viii) Be available for final inspection with Lessor at job
completion
(ix) Secure Lessor's written approval of details of any changes in
specifications or finishes during construction.
(x) Provide samples and specifications as required by Lessor
(xi) Sign off on the as-built drawings as the Architect's
certification that the improvements have, in fact, been built as per the
Architect's design.
(c) Lessee's General Contractor and/or Subcontractors Shall:
(i) Be licensed by the State of California.
(ii) Have substantial experience providing similar quality and
quantity of improvements. Work history shall be provided to Lessor prior to
being awarded contract.
(iii) Have a bonding capacity equal to or exceeding the valuation
of the job. Lessor may, at its sole option, require the job to be bonded.
Notwithstanding the foregoing, so long as the party named as Lessee on the
signature page of this Lease is the Lessee, Lessor agrees to
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waive the requirement of a bond with respect to jobs having a cost of under
$50,000.
(iv) Maintain in full force and effect, through out the duration of
its performance under the contract with the Lessee, a Worker's Compensation
insurance policy and a Commercial General Liability insurance policy issued by
an insurer satisfactory to Lessor with liability coverage of not less than
$1,000,000.00 for personal injury and $500,000.00 to cover property damage. The
Commercial General Liability insurance policy shall include assumption of
contractual liability. Certificates of insurance containing a thirty (30) day
cancellation clause shall be furnished to Lessor prior to commencement of
performance under the construction contract naming Lessor (The Prudential
Insurance Company of America) and its managing agent (currently Cushman &
Wakefield of California, Inc.) as additional insureds.
(v) Provide a construction schedule to Lessor prior to commencement
of work and weekly written progress reports.
(vi) Warrant the General Contractor's work and that of the General
Contractor's subcontractors, for a minimum of one (1) year.
(vii) Provide Lessor with as-built drawings of all improvements.
(d) All approvals by Lessor, as herein provided for, shall not be
unreasonably withheld. All requests to be submitted to Lessor shall be submitted
through Lessor's managing agent.
50. Insurance; Indemnity.
50.1 Lessee hereby agrees to indemnify, defend and hold harmless Lessor, its
successors, assigns, subsidiaries, directors, officers, agents and employees
from and against any and all damage, loss, liability or expense including, but
not limited to, attorney's fees and legal costs suffered by same directly or by
reason of any claim, suit or judgement brought by or in favor of any person or
persons for damage, loss or expense due to, but not limited to, bodily injury,
including death resulting anytime therefrom, and property damage sustained by
such person or persons which arises out of, is occasioned by or in any way
attributable to the use or occupancy of the Premises
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by the Lessee, the acts or omission of the Lessee, its agents, employees or any
other contractors brought onto said Premises by the Lessee, or any breach or
default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, except to the extent caused by the gross
negligence or wilful misconduct of Lessor, its employees, and agents. If any
action or proceeding is brought against Lessor by reason of any such claim,
Lessee, upon notice from Lessor (which as to any action or proceeding of which
Lessee does not have notice, shall be given within a reasonable time after
Lessor has actual knowledge of the action or proceeding), shall defend same at
Lessee's expense by counsel satisfactory to Lessor. Lessor's notice under the
preceding sentence shall in any event be deemed reasonable if Lessee's defense
of Lessor is not materially affected by any delay in Lessor's giving that
notice. Such loss or damage shall include, but not be limited to, any injury or
damage to Lessor's personnel (including death resulting anytime there from) on
the Premises. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building or industrial park in which
the Premises are located. Lessee agrees that the obligations assumed herein
shall survive the termination of this Lease.
50.2 Lessee hereby agrees to maintain in full force and effect at all times
during the term of this Lease, at Lessee's own expense, for the protection of
Lessee, Lessor and Lessor's property manager, as their interest may appear,
policies of insurance issued by a responsible carrier or carriers to Lessor
which afford the following coverages:
(a) Worker's Compensation Statutory
Employer's Liability Not less than $100,000.00
Commercial General
Liability Not less than
$2,000,000.00 per
occurrence, $4,000,000
product and completed
operations aggregate, and
$4,000,000 general aggregate
(b) All risk coverage against loss, theft or damage with vandalism and
malicious mischief endorsements to cover Lessee's personal property, fixtures,
equipment, tenant improvements, alterations and Utility Installations in, on or
about the Premises in an amount of at least one hundred (100%) of their full
replacement value, with a deductible
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not to exceed $10,000 per occurrence. The proceeds from any such policy shall be
used by Lessee for the replacement of personal property or the restoration of
Lessee's improvements, alterations, or Utility Installations unless the tenant
improvements or alterations have become part of the Premises under the terms of
this Lease.
The limits of said insurance in this Paragraph 50.2(a) shall not
however, limit the liability of Lessee hereunder.
50.3 Lessor shall obtain and keep in force the following insurance coverage:
(a) All risk property insurance, insuring the building of
which the Premises are a part, with earth quake, flood and agreed
amount endorsement. Lessor shall not be obligated to insure, and shall
not assume any liability or risk of loss for, any of Lessee's
furniture, equipment, machinery, goods, supplies, Utility
Installations, improvements, or alterations upon the Premises.
(b) Rent insurance covering those risks referred to in
Paragraph 50.2(b) in an amount equal to all that is called for under
Paragraph 4 of this Lease (Rent and any additional rents payable under
this Lease including tax and insurance costs), as the same may be
increased pursuant to the terms of this Lease, for a period of at least
twelve (12) months commencing with the date of loss.
(c) Boiler and machinery insurance in an amount satisfactory
to Lessor.
50.4 The Lessee shall deliver to Lessor prior to taking possession of the
Premises, and thereafter at least thirty (30) days prior to expiration of such
policy, certificates of insurance evidencing the above coverage with limits not
less than those specified above. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least A-XII as set
forth in the most current issue of "Best's Insurance Guide". Such Certificates
with the exception of Worker's Compensation, shall name Lessor, its
subsidiaries, directors, agents and employees, and its property manager as
additional insureds and shall expressly provide that the interest of same herein
shall not be affected by a breach by Lessee of any insurance policy provision
for which such Certificates evidence coverage. Further, all Certificates shall
expressly provide that no less than thirty (30) days prior written notice shall
be given to Lessor in the event of material alteration to or cancellation of the
coverage evidenced by such Certificates.
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50.5 Lessor may secure and maintain, at Lessee's expense, increased amounts
of insurance and other insurance coverage in such limits, as Lessor may require
in its reasonable judgment to afford Lessor adequate protection consistent: with
the practices of other institutional owners of comparable properties.
50.6 Lessor makes no representation that the limits of liability specified
to be carried by Lessee under the term of this Lease are adequate to protect
Lessee against Lessee's undertaking under this Paragraph 50 and in the event
Lessee believes that any such insurance coverage called for under this Lease is
insufficient, Lessee shall provide, at its own expense, such additional
insurance as Lessee deems adequate
50.7 Anything in this Lease to the contrary notwithstanding, Lessor and
Lessee hereby waive and release each other of and from any and all rights of
recovery, claims, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the Premises,
improvements to the building of which the Premises are a part, personal property
(building contents) within the building on the Premises, any furniture,
equipment, machinery, goods or supplies not covered by this Lease which Lessee
may bring or obtain upon the Premises or any additional improvements which
Lessee may construct on the Premises, by reason of fire, the elements or any
other cause which could be insured against under the terms of all risk property
insurance policies, regardless of cause or origin, including negligence of
Lessor or Lessee and their agents, officers and employees. Because this
Paragraph will preclude the assignment of any claim mentioned in it by way of
subrogation (or otherwise) to an insurance company (or any other person) each
party to this Lease agrees immediately to give to each insurance company,
written notice of the terms of the mutual waivers contained in this Paragraph,
and to have the insurance policies properly endorsed if necessary to prevent the
invalidation of the insurance coverages by reason of the mutual waivers
contained in this Paragraph. Lessee also waives and releases Lessor, its agents,
officers and employees of and from any and all rights of recovery, claim, action
or cause of action for any loss or damage insured against under any other
policies of insurance carried by Lessee.
50.8 Payment of Premium Increase
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Industrial
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Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.
(b) Lessee, however, shall pay the entity of any increase in the
property insurance premium for the Industrial Center over what is was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
50.9 In the event that Lessor shall be obligated to repair or restore the
Premises pursuant to Paragraph 9 of this Lease and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue, the right of Lessee to terminate this Lease pursuant to Paragraph 9.2(b)
of this Lease shall be the sole right and remedy of Lessee against Lessor, and
Lessor shall have no other liability to Lessee, for damages, specific
performance or otherwise, in connection with any such failure.
50.10 Self Insurance. Lessee may self-insure the requirement for the
insurance set forth in Paragraph 50.2(b); provided that such self-insurance
shall be treated as if Lessee actually carried a policy of such required
insurance. For example, the waiver of subrogation provisions set forth in
Paragraph 50.7 shall apply to such self-insurance.
51. Easements and Restrictions of Record.
51.1 Lessee accepts the Premises and Industrial Center subject to the
easements and covenants or restrictions of record.
51.2 Lessor and Lessee agree to cooperate and use their best efforts to
participate in traffic management programs generally applicable to businesses
located in the area which includes the Industrial Center and, initially, shall
encourage and support van and car pooling by Lessee's employees to the fullest
extent permitted by the requirements of lessee's business. Neither this
Paragraph nor any other provision in this Lease, however, is intended to or
shall create any rights or benefits in any other person, firm, company,
governmental entity or the public.
52. Additional Provisions Regarding Assignment and Subletting.
52.1 If at any time or from time to time during the term of this Lease,
Lessee desires to assign or sublet all or any part of Lessee's interest in this
Lease or in the Premises, Lessee shall give prior written notice to Lessor
setting forth the terms of
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the proposed assignment or subletting and the space so proposed to be assigned
or sublet. Lessor shall have the option, exercisable by notice given to Lessee
within twenty (20) days after Lessee's notice is given, either to sublet from
Lessee such space at the rental and other terms set: forth in Lessee's notice,
or if the proposed subletting is for the entire Premises for the balance of the
term of the Lease, to terminate this Lease. If Lessor does not exercise such
option, Lessee shall be free to assign or sublet such space to any third party.
Such assignment or sublease shall be subject to, without limitation, all the
conditions in Paragraph 12 and the following conditions:
(a) The assignment or sublease shall be on the terms set forth
in the notice given to Lessor. Any subsequent changes or modifications
will require Lessor's prior written consent.
(b) Lessee acknowledges that Lessor's agreement to lease these
Premises to Lessee at the rent and terms stated herein is made in
material reliance upon Lessor's evaluation of this particular Lessee's
background, experience and ability, as well as the nature of the use of
the Premises by this Lessee as set forth in Paragraph 6. In the event
that Lessee shall request Lessor's written consent to assign or
sublease the Premises as required in Paragraphs 52.1 and 12.1 hereof,
then each such request for consent shall be accompanied by the
following:
(i) Financial statements of the proposed assignee or
sublessee,
(ii) A statement of the specific uses for which the
Premises will be utilized by the proposed assignee or sublessee; and
(iii) Preliminary plans prepared by an architect or civil
engineer for all alterations to the Premises that are contemplated to be made by
Lessee, the proposed assignee or sublessee.
(c) No assignment or sublease shall be valid and no assignee
or sublessee shall take possession of the Premises assigned or
subleased until an executed counter part of such assignment or sublease
has been delivered to Lessor.
(d) No sublessee or assignee shall have a right further to
sublet or assign.
(e) 100% (after deduction of reasonable real estate brokerage
commission paid by Lessee) of any sums or other
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economic consideration received by Lessee as a result of such assignment or
subletting (except rental or other payments received which are attributable to
amortization of the cost of leasehold improvements other than building standard
tenant improvements made to the assigned or sublet portion of the Premises by
Lessor) whether denominated rentals under the assignment or sublease or
otherwise which exceed, in the aggregate, the total sums which Lessee is
obligated to pay Lessor under this Lease (prorated to reflect obligations
allocable to that portion of the Premises subject to such assignment or
sublease) shall be payable to Lessor as additional rental under this Lease
without affecting or reducing any other obligation of Lessee hereunder. In the
event of subletting of only a portion of the Premises, in calculating whether
the rent received by Lessee exceeds the rent payable under this Lease, the rent
payable under the Lease shall be prorated according to the square footage
involved in order to reflect the rent applicable to the space sublet.
52.2 Lessees Other Than Individuals.
(a) If Lessee is a partnership, a transfer of any interest of a general
partner, a withdrawal of any general partner from the partnership, or the
dissolution of the partnership, shall be deemed to be an assignment of this
Lease.
(b) If Lessee is a corporation, unless Lessee is a public corporation whose
stock is regularly traded on a national stock exchange, or is regularly traded
in the over-the-counter market and quoted on NASDAQ, any sale or other transfer
of a percentage of capital stock of Lessee which results in a change of
controlling persons, or the sale or other transfer of substantially all of the
assets of Lessee, shall be deemed to be an assignment of this Lease
52.3 Attorney's Fees. Notwithstanding anything to the contrary in Paragraph
12.5, the parties agree that a payment of $750.00 is a reasonable fee for
Lessor's review of Lessee's request to assign or sublet.
53. Remedies.
The following is inserted as Paragraph 13.2 of the Lease in lieu of the
provision contained in the Printed form:
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13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf including but not limited to the obtaining of reasonably required bonds,
insurance policies, or govern mental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. In the event of a breach of this Lease
by Lessee, as defined in Paragraph 13.1, with or without further notice or
demand, and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the
Premises to Lessor. In such event Lessor shall be entitled to recover
from Lessee: (i) the worth at the time of the award of the unpaid rent
which had been earned at the time of termination; (ii) the worth at the
time of award of the amount by which the unpaid rent which would have
been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been
reasonably avoided, (iii) the worth at the time of award of the amount
by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves
could be reasonably avoided,; and (iv) any other amount necessary to
compensate Lessor for all the detriment proximately caused by the
Lessee's failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom,
including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the
unexpired term of this Lease. The worth of the time of award of the
amount referred to in provisions (i) and (ii) of the prior sentence
shall be calculated based on an interest rate equal to the highest rate
permitted by applicable law. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent.
Efforts by Lessor to mitigate damages caused by Lessee's breach of this
Lease shall not waive Lessor's right to recover damages
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under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover
all or any part thereof in a separate suit for such rent and/or
damages. If a notice and grace period required under subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or
quit, or to perform or quit, as the case may be, given to Lessee under
any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the
one such statutory notice, and the failure of Lessee to cure the
default within the greater of the two such grace periods shall
constitute both an unlawful detainer and breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's breach and abandonment and recover the rent as it becomes due,
provided Lessee has the right to sublet or assign, subject only to
reasonable limitations. See Paragraphs 12, 36 and 52 for the
limitations on assignment and subletting which limitations Lessee and
Lessor agree are reasonable. Acts of maintenance or preservation,
efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the State of California.
Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date
due at the maximum rate allowed by law.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee
from liability under any indemnity provisions of this Lease as to
matters occurring or accruing during the term hereof or by reason of
Lessee's occupancy of the Premises.
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54. Broker's Commissions.
Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than those
persons, if any, whose names are set forth at the end of this paragraph 54) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation, commission or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying party. Named brokers:
Lessor's Broker: None
Lessee's Broker: None
55. Notices.
Any notice given pursuant to this Lease shall be personally delivered,
delivered by Federal Express or comparable overnight courier, providing written
evidence of delivery, or delivered by U.S. registered or certified mail, return
receipt requested, postage prepaid and sent to Lessor and Lessee at the
following addresses:
LESSOR:
The Prudential Realty Group
2029 Century Park East
Suite 3700
Los Angeles, California 90067
Attn: Regional Counsel
With a copy by the same method to:
Cushman & Wakefield of California, Inc.
555 South Flower Street, Suite 4200
Los Angeles, California 90017-2413
Attn: Mark Harryman
LESSEE:
WAWD-EAP Automotive Products, Inc.
3270 East 26th Street
Vernon, California 90023
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With a copy by the same method to:
Echlin Inc.
100 Double Beach Road
Branford, CT 06405
Attn: Corporate Secretary
or such other address as either party may from time to time designate as its
notice address by notifying the other party thereof. Notice so sent shall be
deemed given (a) when personally delivered, or (b) on the first business day
following deposit with Federal Express or a comparable overnight courier service
providing written evidence of delivery, or (c) five business days following
deposit in the United States mail, if notice is sent by registered or certified
mail, return receipt requested, postage prepaid.
56. Attorneys Fees.
56.1 If either party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the prevailing party in any such
proceeding, action, or appeal thereon, shall be entitled to his reasonable
attorney's fees and such fees as may be awarded in the same suit or recovered in
a separate suit, whether or not such action or proceeding is pursued to decision
or judgement. The term, "prevailing party" shall include, without limitation, a
party who obtains legal counsel or brings an action against the other by reason
of the other's breach or default, or who defends such action, and substantially
obtains or defeats the relief sought, whether by compromise, settlement,
judgment, or abandonment of the claim or defense by the other party.
56.2 The attorney's fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all attorney's
fees reasonably incurred in good faith.
56.3 Lessor shall be entitled to attorney's fees, costs and expenses
incurred in the preparation and service of notices of default and consultations
in connection therewith, whether or not a legal action is subsequently commenced
in connection with such default. Lessor and Lessee agree that $350.00 is a
reasonable sum per occurrence for legal services and costs per preparation and
service of a notice of default and that Lessor may include $350.O0 as additional
rent due in each such notice of default as an amount that must be paid to cure
said default.
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57. Cashiers Checks.
57.1 In the event that any check given to Lessor by Lessee shall not be
honored by the bank upon which it is drawn on two or more occasions, then
Lessor, at its option may require all future payments to be made by Lessee under
this Lease to be made by Cashier's Checks.
57.2 Any payment made by Lessee pursuant to a written notice to pay or
be deemed in default under this Lease shall be made by Cashier's Check.
58. Amendments to Lease.
58.1 At such times as a rental adjustment is made to this Lease by
virtue of any provision of this Lease, the parties shall execute a written
amendment to this Lease to reflect said change.
58.2 Lessee agrees to make any non-monetary modifications to this Lease
that may be required by an institutional mortgagee of Lessor.
59. Storage Tanks.
59.1 Notwithstanding anything to the contrary in Paragraph 7.3 hereof,
Lessee shall not install storage tanks of any size or shape in the Premises,
above or below ground, with out the consent of the Lessor which can be withheld
in Lessor's sole discretion. If Lessor elects to grant its consent, Lessor shall
have the right to condition its consent upon Lessee agreeing to give to Lessor
such assurances that Lessor, in its sole discretion, deems necessary to protect
itself against potential problems concerning the installation, use, removal and
contamination of the Premises as a result of, the installation and/or use of
such tank, including but not limited to the installation of a concrete
encasement for said tank. Lessee shall comply at its expense with all applicable
permit and/or registration requirements and repair any damage caused by the
installation, maintenance or removal of such tank. Upon termination of the
Lease, Lessee shall, at its sole cost and expense, remove any tank from the
Premises, remove and replace any contaminated soil or materials (and compact or
treat the same as then required by law) and repair any damage or change to the
Premises caused by said installation and/or removal. Nothing contained herein
shall be construed to diminish or reduce Lessee's obligations under Paragraph
60.
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59.2 Lessor shall have the right to employ experts and/or consultants, at
Lessee's expense, to advise Lessor with respect to the installation, operation,
monitoring, maintenance and removal and restoration of any such tank.
60. Hazardous Materials.
60.1 Lessee's Covenants Regarding Hazardous Materials.
(a) Lessor's Prior Consent. Notwithstanding anything contained in this
Lease to the contrary, Lessee has not caused or permitted, and shall not cause
or permit any "Hazardous Materials" (as defined in subparagraph (b) below) to be
brought upon, kept, stored, discharged, released or used in, under or about the
Premises by Lessee, its agents, employees, contractors, subcontractors,
licensees or invitees, unless (1) such Hazardous Materials are reasonably
necessary to Lessee's business and will be handled, used, kept, stored and
disposed of in a manner which complies with all "Hazardous Materials Laws" (as
defined in subparagraph (b) below); (2) Lessee will comply with such other rules
or requirements as Lessor may from time to time impose, including without
limitation that (i) such materials are in small quantities, properly labeled and
contained, (ii) such materials are handled and disposed of in accordance with
the highest accepted industry standards for safety, storage, use and disposal,
(iii) such materials are for use in the ordinary course of business (i.e., as
with office or cleaning supplies), (3) notice of and a copy of the current
material safety data sheet is provided to Lessor for each such Hazardous
Material, and (4) Lessor shall have granted its prior written consent to the use
of such Hazardous Materials. Lessee hereby consents to the handling and storage
by Lessee of asbestos containing brake friction parts and of the Hazardous
Materials described in Schedule 1 hereto, subject to Lessee's compliance with
the terms and conditions of this Lease.
(b) Compliance with Hazardous Materials Laws. As used herein, the term
"Hazardous Materials" means any (1) oil, petroleum, petroleum products,
flammable substances, explosives, radioactive materials, hazardous wastes or
substances, toxic wastes or substances or any other wastes, materials or
pollutants which (i) pose a hazard to the Premises or to persons on or about the
Premises or (ii) cause the Premises to be in violation of any Hazardous
Materials Laws (as hereinafter defined): (2) asbestos in any form, urea
formaldehyde foam insulation, transformers or
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other equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls, or radon gas; (3) chemical, material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," or "toxic substances" or words of similar import under any
applicable local, state or federal law or under the regulations adopted or
publications promulgated pursuant thereto, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq.; the Resources Conservation Recovery
Act, 42 U.S.C. Section 6901, et seq.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Section 1801, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251, et seq.; Sections 25115,
25117, 25122.7, 25140, 25249.8 25281, 25316 and 25501 of the California Health
and Safety Code; and Article 9 or Article 11 of Title 22 of the California Code
of Regulations, Division 4, Chapter 20; (4) other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
governmental authority or may or could pose a hazard to the health and safety of
the occupants of the Premises or the owners and/or occupants of property
adjacent to or surrounding the Premises, or any other Person coming upon the
Premises or adjacent property; and (5) other chemical, materials or substance
which may or could pose a hazard to the environment. As used here the term
"Hazardous Materials Laws" means any federal, state or local laws, ordinances,
regulations or policies relating to the environment, health and safety, and
Hazardous Materials (including, without limitation, the use, handling,
transportation, production, disposal, discharge or storage thereof) or to
industrial hygiene or the environmental conditions on, under or about the
Premises, including, without limitation, soil, groundwater and indoor and
ambient air conditions. Lessee shall at all times and in all respects comply
with all Hazardous Materials Laws.
(c) Hazardous Materials Removal. Upon expiration or earlier
termination of this Lease, Lessee shall, at Lessee's sole cost and expense,
cause all Hazardous Materials brought on the Premises with Lessor's consent to
be removed from the Premises in compliance with all applicable Hazardous
Materials Laws. If Lessee or its employees, agents, or contractors violates the
provisions of the foregoing two paragraphs, or if Lessee's acts, negligence, or
business operations contaminate, or expand the scope of contamination of, the
Leased Premises from such Hazardous Materials, then
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Lessee shall promptly, at Lessee's expense, take all investigatory and/or
remedial action (collectively, the "Remediation") that is necessary in order to
clean up, remove and dispose of such Hazardous Materials causing the violation
on the Leased Premises or the underlying groundwater or the properties adjacent
to the Leased Premises to the extent such contamination was caused by Lessee, in
compliance with all applicable Hazardous Materials Laws. Lessee shall further
repair any damage to the Leased Premises caused by the Hazardous Materials
contamination. Lessee shall provide prior written notice to Lessor of such
Remediation, and Lessee shall commence such Remediation no later than thirty
(30) days after such notice to Lessor and diligently and continuously complete
such Remediation. Such written notice shall also include Lessee's method, time
and procedure for such Remediation and Lessor shall have the right to require
reasonable changes in such method, time or procedure of the Remediation. Lessee
shall not take any Remediation in response to the presence of any Hazardous
Materials in or about the Premises or enter into any settlement agreement,
consent decree or other compromise in respect to any claims relating to any
Hazardous Materials in any way connected with the Premises, without first
notifying Lessor of Lessee's intention to do so and affording Lessor ample
opportunity to appear, intervene or otherwise appropriately assert and protect
Lessor's interests with respect thereto.
(d) Notices. Lessee shall immediately notify Lessor in writing of: (i)
any enforcement, cleanup, removal or other governmental or regulatory action
threatened, instituted, or completed pursuant to any Hazardous Materials Laws
with respect to the Premises; (ii) any claim, demand, or complaint made or
threatened by any person against Lessee or the Premises relating to damage,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Materials; and (iii) any reports made to any governmental authority
arising out of any Hazardous Materials on or removed from the Premises. Lessor
shall have the right (but not the obligation) to join and participate, as a
party, in any legal proceedings or actions affecting the Premises initiated in
connection with any Hazardous Materials Laws
60.2 Indemnification of Lessor. Lessee shall indemnify, protect, defend
and forever hold Lessor harmless from any and all damages, losses, expenses,
liabilities, obligations and costs arising out of any failure of Lessee to
observe the foregoing covenants.
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61. Lessor's Default.
Any damages or judgments arising out of Lessor's default of its
obligations under this Lease shall be satisfied only out of Lessor's interest
and estate in the Premises, and Lessor shall have no personal liability beyond
such interest and estate with respect to such damages or judgments.
62. Rent Escalations - Initial Term.
(a) On the first day of each of the 31st and 61st months of the term
of this Lease, the monthly Base Rent payable under Paragraph 4 of the attached
Lease shall be adjusted by the increase, if any, from the date this Lease
commenced, in the Consumer Price Index of the Bureau of Labor Statistics of the
U.S. Department of Labor for Urban Wage Earners and Clerical Workers, Los
Angeles Anaheim-Riverside, California (1982-84=100), "All Items", herein
referred to as "C.P.I.".
(b) The monthly Base Rent payable in accordance with Paragraph (a)
above shall be calculated as follows: the Base Rent payable as set forth in
Paragraph 4 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the C.P.I. of the calendar month during which the
adjustment is to take effect, and the denominator of which shall be the C.P.I.
for the calendar month in which the original Lease term commences. The sum so
calculated shall constitute the new monthly Base Rent hereunder, subject to
Subparagraph (e), below.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information. Upon
notification of the actual adjustment after publication of the required C.P.I.,
any overpayment shall be credited against the next installment of rent due, and
any underpayment shall be immediately due and payable by Lessee. Lessor's
failure to request payment of an estimated or actual rent adjustment shall not
constitute a waiver of the right to any adjustment provided for in the Lease or
this Paragraph 62.
(d) In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be
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used to make such calculation. In the event that Lessor and Lessee cannot agree
on such alternative index, then the matter shall be submitted for decision to
the American Arbitration Association in accordance with the then rules of said
association and the decision of the Arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
(e) The adjustment(s) required by this Rent Escalation Paragraph shall
be subject to the following additional agreements:
(i) The increase under Subparagraph (b), above, shall be subject
to the following minimum and maximum percentage increases per year
involved in the adjustment period, on a cumulative and compounded
basis:
Minimum yearly percentage increase: 3%
Maximum yearly percentage increase: 6%
The "adjustment period" is defined as the period commencing with the
month designated in SubParagraph (b) as the reference for determining
the "denominator", and ending with the month preceding the month
designated therein as the reference for determining the "numerator".
Should the adjustment period include a partial year, the minimum and
maximum percentages shall be prorated for that partial year by
multiplying them by a fraction, the numerator of which shall be the
number of full calendar months or major portion thereof contained in
said partial year, and the denominator of which is twelve (12).
(ii) The new monthly Base Rent shall in no event be less than the
rent in effect immediately preceding the rent adjustment.
63. Modification Improvements. Lessor shall construct and perform on the
Premises the following improvements and work (the "Modification Improvements")
in accordance with plans acceptable to Lessor:
63.1 Additional general office space as shown on Exhibit B hereto to
cause the total office space to be approximately 2,400 square feet.
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63.2 An ADA approved lift.
63.3 New demising wall as necessary to demise the Premises.
63.4 Demolish existing demising wall within Premises.
A portion of the Premises is currently occupied by an existing tenant (the
"Existing Tenant"). If Lessor has not substantially completed the Modification
Improvements by a date (the "Outside Date") that is the later of (a) February 1,
1996, or (b) 60 days after the date upon which the Existing Tenant vacates its
portion of the Premises, then rent under Lessee's existing lease (the "Old
Lease") in the Building shall be reduced to equal the rent that would be payable
under this Lease as if this Lease had commenced on the Outside Date. The Outside
Date shall be extended by one day for each day that Lessor's completion of the
Modification Improvements is delayed by the acts or omissions of Lessee.
64. Recovery of Concessions upon early Termination. In the event that Lessee's
right of possession of the Premises is terminated prior to the end of the
initial term by reason of default, legal process, abandonment, or any other
reason other than mutual agreement of the parties, then immediately upon such
termination, an amount shall be due and payable by Lessee to Lessor equal to the
unamortized portion as of that date (which amortization shall exclude any Option
Terms and shall be based on an interest rate of twelve percent (12%) per annum)
of the sum of (i) the cost of the Modification Improvements incurred by Lessor
as of that date by Lessor, and (ii) the amount of all commissions paid by Lessor
in order to procure this Lease.
65. Rail Spur. Lessor makes no representation or warranty to Lessee with respect
to the condition, fitness or suitability for Lessee's use of the rail spur
adjacent to the Premises. Lessee shall be solely responsible for all costs and
expenses incurred in connection with the use, maintenance, repair and operation
of the rail spur.
66. Number of Parking Spaces. Lessees shall have a pro rata share, based upon
building area, of the parking spaces in the Industrial Center.
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"LESSOR":
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: Cushman & Wakefield of California, Inc.
its managing agent,
By: /s/Cushman & Wakefield of California, Inc.
------------------------------------------
------------------------------------------
[Printed Name and Title]
"LESSEE":
WAWD-EAP AUTOMOTIVE PRODUCTS, INC.,
a Delaware corporation
By:/s/ Fred M. Shaw
---------------------------------------------
Fred M. Shaw, Vice President/GM
---------------------------------------------
[Printed Name and Title]
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LEASE AGREEMENT
This Lease is executed in duplicate at Lithia Springs, Georgia, as of the
1st day of September, 1995, by and between YVONNE DUBBERS-ALBRECHT, VERENA
DUBBERS- ALBRECHT- AL WEISSI, REGINA WALDTHAUSEN and EDUARD DUBBERS-ALBRECHT
(also sometimes referred to as Dubbers-Albrecht Venture No. 1) and WAWD-EAP
AUTOMOTIVE PRODUCTS, INC., a corporation incorporated in Delaware and a
subsidiary of ECHLIN INC., hereinafter called respectively Lessor and Lessee,
without regard to number or gender,
WITNESSETH: That Lessor hereby leases to Lessee, and Lessee hires from
Lessor, for the purpose of conducting therein an automotive parts and
accessories warehouse distributorship, and for no other purpose, those certain
premises with the appurtenances, situated in the City of Lithia Springs, County
of Douglas, State of Georgia, the address of which is 611 Thornton Road, Lithia
Springs, Georgia 30057 and which are more particularly described as follows, to
wit:
A legal description is attached hereto, marked Exhibit "A" and
incorporated herein by this reference.
The word "Premises" as used throughout this Lease is hereby defined to
include the non-exclusive use of sidewalks and driveways in front of or adjacent
to the Premises, and the non-exclusive use of the area directly underneath or
over such sidewalks and driveways.
The term of this Lease shall be for a period of five (5) years commencing
on September 1, 1995 (the "Commencement Date") and expiring on August 31, 2000
(the "Expiration Date"). The term is subject to renewal as set forth below.
Lessee shall pay rent to Lessor during the initial term of this Lease in
the following amounts: (i) $9,600.00 due on September 1, 1995; (ii) $9,600.00
due on October 1, 1995; (iii) $9,600.00 due on November 1, 1995; (iv) $14,019.40
due on December 1, 1995; and (v) thereafter, due on the first day of each month,
the monthly amount of Ten Thousand Seven Hundred Four and 85/100 Dollars
($10,704.85) sometimes referred to herein as (the "Monthly Rental Payment").
Lessee shall pay the Monthly Rental Payment to Lessor in lawful money of the
United States of America, without deduction or offset, by checks for the amount
of the Monthly Rental Payment on the first day of each calendar month during the
term of this Lease, with the checks made payable to "Dubbers- Albrecht Venture
No. 1" and sent to Commerzbank A.G., Two World Financial Center, 33rd Floor, New
York, New York 10281-1050, or at such other place or places as may be designated
from time to time by Lessor.
If Lessee does not renew this Lease for the First Renewal Term (defined in
Section 33), then the rent payment due on the first day of the sixtieth (60th)
month of the initial term will be $76,996.08 (the sum of the regular Monthly
Rental Payment plus $66,291.23, which would be the amount of the then
unarnortized balance of the amount being amortized pursuant to the agreement
between Lessor and Lessee dated June 9, 1995).
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Notwithstanding any other provision of this Lease, if Lessee is in default
in the payment of rental when due, or any part thereof, Lessee agrees to pay to
Lessor, in addition to the delinquent rental due, a late charge for each rental
payment in default ten (10) days, in an amount equal to ten (10) percent of each
rental payment so in default.
It is further mutually agreed between the parties as follows:
1. By entry hereunder, Lessee accepts the Premises as being in good and
sanitary order, condition and repair and accepts the building and improvements
on the Premises in their present condition and without any representation of
warranty by Lessor as to condition of said building or as to the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be by
written agreement executed by Lessor and Lessee. The Lessee agrees on the last
day of the term hereof, or on the sooner termination of this Lease, to surrender
the Premises unto Lessor in as good condition and repair as at the time Lessee
or any other subsidiary of Echlin Inc. took possession of the Premises under any
prior lease (damage by acts of God, fire, and normal wear and tear excepted),
but with all interior walls painted or cleaned so they appear painted, any
carpets cleaned, the air conditioning and heating equipment serviced by a
reputable service man, and with all floors cleaned and waxed, together with all
alterations, additions and improvements which may have been made in, to or on
the Premises (except movable trade fixtures put in at the expense of Lessee)
except that Lessee shall ascertain from Lessor within thirty (30) days before
the end of the term of this Lease whether Lessor desires to have the Premises or
any part or parts thereof restored to their condition when the Premises were
delivered to Lessee (or any other subsidiary of Echlin Inc.), ordinary wear and
tear excepted; and if Lessor shall so desire, then Lessee shall restore the
Premises or such part or parts thereof before the end of this Lease at Lessee's
sole cost and expense. Lessee, on or before the end of the term or sooner
termination of this Lease, shall remove all of Lessee's personal property and
trade fixtures from the Premises, and all property not so removed shall be
deemed abandoned by Lessee. If the Premises are not surrendered at the end of
the term or sooner termination of this Lease, Lessee shall indemnify Lessor
against loss or liability resulting from delay by Lessee in so surrendering the
Premises including, without limitation, any claims made by any succeeding tenant
founded on such delay.
2. Lessee shall not commit, or suffer to be committed, any waste upon the
Premises, or any nuisance, or other act or thing which may disturb the quiet
enjoyment of any other tenant in or around the buildings in which the Premises
may be located, or allow any sale by auction upon the Premises, or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose, or place any loads upon the fioor, walls, or ceiling which endanger the
structure, or place any harmful liquids in the drainage system of the building.
No waste materials or refuse shall be dumped upon or permitted to remain upon
any part of the Premises outside of the building proper. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain on any
portion of the Premises outside of the buildings proper.
3. Lessee shall not make, or suffer to be made, any alteration or addition
to the Premises, or any part thereof, without the prior written consent of
Lessor, which consent will not be unreasonably withheld. If Lessor consents to
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any alteration or addition, Lessee shall make the alteration or addition at
Lessee's expense. Any alteration or addition shall become the property of Lessor
at the expiration or sooner termination of the Lease, except: (i) trade
fixtures; and (ii) movable furniture. Lessee shall retain title to all trade
fixtures and movable furniture placed in property of Lessor, except for those
left in the Premises after the expiration or termination of this Lease. Lessee
shall, at Lessee's expense, repair any damage to the Premises caused by the
removal of the trade fixtures and movable furniture (and this obligation to
repair will survive the expiration or termination of this Lease). All heating,
lighting, electrical, air-conditioning, partitioning, drapery, and carpeting
installations made by Lessee, together with all property that has become an
integral part of said building, shall be and become the property of Lessor upon
the expiration, or sooner termination of this Lease, and shall not be deemed
trade fixtures. Lessee agrees that he or it will not proceed to make such
alterations or additions, having obtained consent from Lessor to do so, until
two (2) days from the receipt of such consent, in order that Lessor may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Lessee's improvements. Lessee will at all times permit such
notices to be posted and to remain posted until the completion of work.
4. Lessee shall, at his sole cost, keep and maintain the Premises and
appurtenances and every non-structural part thereof, including glazing
(destroyed by accident or act of third parties), sidewalks, parking areas,
plumbing, electrical, heating and air conditioning installations, any store
front, and the interior of the Premises in good and sanitary order, condition,
and repair and agrees to water, maintain and replace when necessary, any
shrubbery and landscaping provided by Lessor on the Premises hereby expressly
waiving all rights to make repairs at the expense of Lessor as provided for in
any statute or law in effect at the time of execution of this Lease or any
amendment thereof or any statute or law hereafter passed during the term of this
Lease. The Lessor agrees to repair all structural parts and the exterior walls
and to repair the roof providing that Lessee installs no additional air
conditioning or other equipment on the roof that damages roof or roof structure.
Should Lessor fail to make any of the repairs assumed by it hereunder, Lessor
shall not be liable to Lessee, its employees, invitees, or licensees for any
damage to person or property, and the only remedy of Lessee shall be the
performance of said repairs by Lessee with right to reimbursement from Lessor of
the reasonable value of said repairs, not exceeding the sum actually expended by
Lessee.
5. Lessee shall not use, or permit the Premises, or any part thereof, to be
used, for any purpose other than that for which the Premises are hereby leased;
and no use shall be made or permitted to be made of the Premises, nor acts done,
which will cause a cancellation of any insurance policy covering said building,
or any part thereof, nor shall Lessee sell or permit to be kept, used or sold,
in or about the Premises, any article which may be prohibited by the standard
form of fire insurance policies. Lessee shall, at his sole cost and expense,
comply with any and all requirements, pertaining to the Premises, of any
insurance organization or company necessary for the maintenance of reasonable
fire and public liability insurance, covering said building and appurtenances.
At Lessee's cost and expense, Lessee shall purchase and keep in force fire,
extended coverage, and "all risk" insurance, covering the Premises in amounts
not to exceed the actual insurable value of the Premises as determined by
insurance company appraisers. If Lessee does not purchase and keep the insurance
in force, Lessor may purchase the insurance at Lessee's expense. If Lessor
purchases said insurance, Lessee agrees to pay to Lessor as additional rent, on
demand, the full cost of said insurance as
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evidenced by insurance billings to Lessor. If said insurance billings cover the
entire building, and this Lease does not cover the entire building, the
insurance premiums allocated to the Premises shall be pro-rated on a square
footage or other equitable basis, as calculated by Lessor. It is understood and
agreed that Lessee's obligation under this paragraph will be pro-rated to
reflect the commencement and termination dates of this Lease.
6. Lessee shall not vacate or abandon the Premises at any time during the
term; and if Lessee shall abandon, vacate or surrender the Premises, or be
dispossessed by process of law, or otherwise, any personal property belonging to
Lessee and left on the Premises shall be deemed to be abandoned, at the option
of Lessor, except such property as may be mortgaged to Lessor.
7. Lessee shall keep the Premises and the property in which the Premises
are situated, free from any liens arising out of any work performed, materials
furnished, or obligations incurred by or for Lessee.
8. Except for failures to comply with requirements existing on the
commencement date, which shall be the sole responsibility of Lessor, Lessee
shall, at his sole cost and expense, comply with all of the requirements of all
Municipal, State and Federal authorities now in force, or which may hereafter be
in force, pertaining to the Premises, and shall faithfully observe in the use of
the Premises all Municipal ordinances and State and Federal statutes now in
force or which may here after be in force. The judgment of any court or
competent jurisdiction, or the admission of Lessee in any action or proceeding
against Lessee, whether Lessor be a party thereto or not, that Lessee has
violated any such ordinance or statute in the use of the Premises, shall be
conclusive of that fact as between Lessor and Lessee.
9. Lessee, as a material part of the consideration to be rendered to
Lessor, hereby waives all claims against Lessor for damages to goods, wares and
merchandise, and all other personal property in, upon or about the Premises and
for injuries to persons in or about the Premises, from any cause except Lessor's
negligence, arising at any time, and Lessee will hold Lessor exempt and harmless
from any damage or injury to any person, or to the goods, wares and merchandise
and all other personal property of any person, arising from the use of the
Premises by Lessee, or from the failure of Lessee to keep the Premises in good
condition and repair, as herein provided. Lessee shall secure and keep in force
a public liability insurance and property damage policy covering the Premises,
including parking areas, insuring Lessee and naming Lessor as an additional
insured. A certificate of insurance shall be delivered to Lessor and the minimum
limits of coverage thereof shall be $500,000 for any single injury, $ 1,000,000
for multiple injuries, and $50,000 property damage, and Lessee shall obtain a
written obligation on the part of the insurer to notify Lessor in writing before
any cancellation thereof. In fulfillment of its obligations herein Lessee may,
at its election, maintain a program of self-insurance.
10. Lessee will not place or permit to be placed in, upon, or about the
Premises any unusual or extraordinary signs, and will not conduct, or permit to
be conducted, any sale by auction on the Premises. And it is hereby mutually
covenanted and agreed that Lessor has reserved the exclusive right to the
exterior sidewalls and roof of the Premises, and that Lessee will not place, or
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permit to be placed, upon the said exterior sidewalls, or roof, any signs,
advertisements or notices, without the written consent of Lessor first had and
obtained, which consent will not be unreasonably withheld. Any signs,
advertisements or notices placed on the Premises must comply with local
ordinances, protective covenants, and any other requirements applicable to the
Premises. Any sign so placed on the Premises shall be so placed upon tie
understanding and agreement that Lessee will remove same at the termination of
the tenancy herein created and repair any damage or injury to the Premises
caused hereby, and if not so removed by Lessee then Lessor may have same so
removed at Lessee's expense.
11. Lessee shall pay for all water, gas, heat, light, power, telephone
service and all other materials and services supplied to the Premises.
12. Lessee shall permit Lessor and his agents to enter into and upon the
Premises at all reasonable times for the purpose of inspecting the same or
showing the Premises to a prospective purchaser, or for the purpose of
maintaining the building in which the Premises are situated, or for the purpose
of making repairs, alterations or additions to any other portion of said
building, including the erection and maintenance of such scaffolding, canopies,
fences and props as may be required, or for the purpose of placing upon the
property in which the Premises are located any usual or ordinary "for sale"
signs, without any rebate or rent and without any liability to Lessee for any
loss or occupation or quiet enjoyment of the Premises thereby occasioned; and
shall permit Lessor and his agents, at any time within ninety (90) days prior to
the expiration of this Lease, to place upon the Premises any usual or ordinary
"to let" or "to lease" signs and exhibit the Premises to prospective tenants at
reasonable hours.
13. In the event of a partial destruction of the Premises during the term
from any cause, except for incidental damage and destruction caused from
vandalism and accidents which Lessee is responsible for under Paragraph 4,
Lessor shall forthwith repair the same, provided such repairs can be made within
sixty (60) days under the laws and regulations of State, Federal, County or
Municipal authorities, but such partial destruction shall in no way annul or
void this Lease, except that Lessee shall be entitled to a proportionate
deduction of rent while such repairs are being made, (provided the fire or other
destructions to the Premises shall not have been caused by the fault or neglect
of Lessee, its agents, servants, employees or invitees) such proportionate
deduction to be based upon the extent to which the making of such repairs shall
interfere with the business carried on by Lessee in the Premises. If such
repairs cannot be made in sixty (60) days, Lessor may at his option, make same
within a reasonable time, this Lease continuing in full force and effect and the
rent to be proportionately reduced as aforesaid in this paragraph provided. In
the event that Lessor does not so elect to make such repairs which cannot be
made in sixty (60) days, or such repairs cannot be made under such laws and
regulations, this Lease may be terminated at the option of either party.
Notwithstanding the foregoing, in the event that the building in which the
Premises may be situated is destroyed to the extent of not less than 33-1/3% of
the replacement cost thereof, Lessor may elect to terminate this Lease, whether
the Premises is insured or not. A total destruction of the building in which the
Premises may be situated shall terminate this Lease. In the event of any dispute
between Lessor and Lessee relative to the provisions of this paragraph, they
shall each select an arbitrator, the two arbitrators so selected shall select a
third arbitrator and the three arbitrators so selected shall hear
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and determine the controversy and their decision thereon shall be final and
binding upon both Lessor and Lessee, who shall bear the cost of such arbitration
equally between them. The parties shall select their respective arbitrators
within ten (10) days after such written request by either party and the third
arbitrator shall be selected within five (5) days thereafter. Failure to select
an arbitrator as herein provided shall entitle either party to petition a court
of competent jurisdiction to make the appointment of an arbitrator whose
decision shall be binding upon the parties hereto. The provisions of any statute
or other law which may be in effect at the time of the occurrence of any such
damage or destruction, under which a lease is automatically terminated or a
lessee is given the right to terminate a lease upon the occurrence of any such
damage or destruction, are hereby expressly waived by Lessee.
14. Lessee shall not assign, mortgage, or hypothecate this Lease, or any
interest therein (and if there shall be more than one Lessee, it is agreed that
no Lessee shall assign its interest to the other) and shall not sublet the
Premises or any part thereof, or any right or privilege appurtenant thereto, or
suffer any other person (the agents and servants of Lessee excepted) to occupy
or use the Premises, or any portion thereof, without the written consent of
Lessor first had and obtained. Said consent shall not be unreasonably withheld,
and a consent to one assignment, subletting, occupation or use by any other
person, shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another person. Any such assignment or
subletting without such consent shall be void, and shall at the option of
Lessor, terminate this Lease. This Lease shall not, nor shall any interest
therein, be assignable, as to the interest of Lessee, by operation of law,
without the written consent of Lessor.
15. Either (a) the appointment of a receiver to take possession of all
or substantially all of the assets of Lessee, or (b) a general assignment by
Lessee for the benefit of creditors, or (c) any action taken or suffered by
Lessee under any insolvency or bankruptcy act shall constitute a breach of this
Lease by Lessee. Upon the happening of any such event this Lease shall terminate
at the option of Lessor, ten (10) days after written notice of termination from
Lessor to Lessee; it being understood that should there be more than one (1)
lessee, then the foregoing shall be applicable to any Lessee.
16. (a) Should Lessee breach this Lease or abandon the Premises before
the end of the lease term or if Lessee's right to possession of the Premises is
terminated by Lessor because of a breach by Lessee of this Lease, this Lease
shall at the option of Lessor, terminate except as provided herein and upon such
termination Lessor may recover from Lessee all damages suffered by Lessor or as
a result of Lessee's failure to perform Lessee's obligations hereunder,
including but not restricted to: (i) The worth at the time of the award of the
unpaid rent earned at the time of termination of this Lease including interest
at 7%; (ii) The worth at the time of the award by which the unpaid rent would
have been earned after termination until the award exceeds the amount of such
rental loss that Lessee proves could have been reasonably avoided including
interest at 7%; (iii) The worth at the time of the award by which the unpaid
rent for the balance of the term after the time of the award exceeds such rental
loss that Lessee proves could be reasonably avoided; (iv) Any other amount
necessary to compensate Lessor for all the detriment proximately caused by
Lessee's failure to perform Lessee's obligations under this Lease or which in
the ordinary course of things would be
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<PAGE>
likely to result therefrom. Efforts by Lessor to mitigate the damages caused by
Lessee's breach of this Lease shall not waive Lessor's right to recover damages
under this subparagraph (a).
(b) In the event Lessee breaches this Lease or abandons the Premises, this
Lease shall continue in effect so long as Lessor does not terminate Lessee's
right to possession of the Premises and Lessor may enforce all of Lessor's
rights and remedies otherwise given by law and this Lease and, without limiting
the generality of the foregoing, collect the rent as it falls due. For the
purposes of this subparagraph (b), the following shall not constitute
termination of Lessee's right to possession: (i) acts of maintenance or
preservation or efforts to relet the Premises; or (ii) the appointment of a
receiver upon initiative of Lessor to protect Lessor's interest under this
Lease.
(c) If Lessor re-enters after abandonment of the Premises by Lessee, then
all personal property of Lessee in or on the Premises shall be deemed abandoned
and Lessor may dispose of the same as Lessor may elect without any liability. If
re-entry is prior to abandonment of the Premises by Lessee, Lessor may store
Lessee's personal property in or on the Premises, in a public warehouse or
elsewhere at the expense of and for the account of Lessee.
(d) After re-entry of the Premises by Lessor because of Lessee's breach of
this Lease, Lessor may relet the Premises or any part thereof without
terminating this Lease for such term (which may extend beyond the term hereof)
and rental and upon such terms as Lessor deems advisable, and may make such
alterations and repairs of the Premises necessary in order to relet the same,
and the cost thereof and other costs of reletting including real estate
commissions and reasonable attorney's fees shall be paid by Lessee to Lessor
upon demand.
(e) The remedies herein provided are not exclusive and Lessor shall have
any and all other remedies provided herein or by law.
17. No act or conduct of Lessor, whether consisting of the acceptance
of the keys to the Premises, or otherwise shall be deemed to be or constitute an
acceptance of the surrender of the Premises by Lessee prior to the expiration of
the term hereof, and such acceptance by Lessor of surrender by Lessee shall only
flow from and must be evidenced by a written acknowledgment of acceptance of
surrender signed by Lessor. The surrender of this Lease by Lessee, voluntarily
or otherwise, shall not work a merger but shall operate as an assignment to
Lessor of any and all existing subleases, or Lessor may, at its option,
terminate any or all of such subleases by notifying the subleasees of its
election to do so within five (5) days after such surrender.
18. Should Lessor bring suit for the possession of the Premises, for
the recovery of any sum due hereunder, or because of the breach of any other
covenant herein, or should Lessee or Lessor bring any action for any relief
declaratory or otherwise arising out of this Lease the non-prevailing party in
any such suit shall pay court costs and a reasonable attorney's fee, which shall
be deemed to have accrued on the commencement of such action and shall be
enforceable whether or not such action is prosecuted to judgment.
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<PAGE>
19. Lessee shall be liable for all taxes levied against personal property
and trade or business fixtures, and agrees as additional rental for the use of
the Premises to pay all real estate taxes and special assessments as they appear
on the City and County tax bills during the lease term, and as they become due.
The term "all real estate taxes" shall include without limitation or the
generality of said term, all gross rental taxes, which may now or hereinafter be
imposed as a charge upon Lessor or the Premises by any governmental agency or
authority having jurisdiction over the Premises, but shall not include Lessor's
State or Federal income taxes. If the taxes and assessments are assessed against
the entire building and building site, and this Lease does not cover entire
building or building site, the taxes and assessments allocated to the Premises
shall be pro-rated on a square footage or other equitable basis, as calculated
by Lessor. It is understood and agreed that Lessee's obligation under this
paragraph will be prorated to reflect the commencement and termination dates of
this Lease and that any amount payable by Lessee to Lessor under this paragraph
shall be paid by Lessee to Lessor, or directly to the tax collector if Lessor so
directs, within ten (10) days after receipt by Lessee from Lessor of a bill
setting forth such amount.
20. The term "Lessor" as used in this Lease, means only the owner for the
time being of the land and building containing the Premises, so that, in the
event of any sale of said land or building, or in the event of a lease of said
building, Lessor shall be and hereby is entirely freed and relieved of all
covenants and obligations of Lessor hereunder, and it shall be deemed and
construed, without further agreement between the parties and the purchaser at
any such sale, or Lessee of the building, that the purchaser or Lessee of the
building has assumed and agreed to carry out any and all covenants and
obligations of Lessor hereunder. If any security is given by Lessee to secure
the faithful performance of all or any of the covenants of this Lease on the
part of Lessee, then Lessor may transfer and deliver the security, as such, to
the purchaser at any such sale or the lessee of the building, and thereupon
Lessor shall be discharged from any further liability in reference thereto.
21. Lessee agrees to forthwith execute and deliver to Lessor upon receipt
by it of written request therefor from Lessor, without any consideration
whatsoever, such instrument or instruments including a current statement of
Lessee's financial condition, as may be reasonably required by any mortgagee or
holder of a deed of trust or other encumbrance on the real property on which the
building containing the Premises is located.
22. Lessee shall, without charge, at any time and from time to time,
within ten (10) days after receipt by Lessee from Lessor of written request
therefor, deliver a duly executed and acknowledged certificate to Lessor or any
other person, firm or corporation designated by Lessor, certifying: (i) that
this Lease is unmodified and in full force and effect, or if there has been any
modifications, that the same is in full force and effect as modified, and
stating any such modification; (ii) whether or not there is then existing any
claim of Lessor's default hereunder and, if so, specifying the nature thereof;
and (iii) the dates to which the rent and other charges payable hereunder by
Lessee have been paid.
23. Lessee agrees that this Lease may, at the option of Lessor, be subject
and subordinate to any mortgage, deed of trust or other instrument of security
which has been or shall be placed on the land and building or land or building
of which the Premises form a part, and this subordination is hereby made
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<PAGE>
effective without any further act of Lessee. The Lessee shall, at any time
hereinafter, on demand, execute any instruments, releases, or other
documents that may be required by any mortgagee, mortgagor, or trustor or
beneficiary under any deed of trust for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage, deed of trust or
other instrument of security, and the failure of Lessee to execute any such
instruments, releases or documents, shall constitute a default hereunder. This
Lease shall not be terminated because of a default by Lessor under any mortgage,
deed of trust, etc., so long as Lessee performs its obligations hereunder.
24. If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and a part thereof remains which is susceptible of
occupation hereunder, this Lease shall, as to the part so taken, terminate as of
the date title shall vest in the condemnor or purchaser, and the rent payable
hereunder shall be adjusted so that Lessee shall be required to pay for the
remainder of the term only such portion of such rent as the value of the part
remaining after such taking bears to the value of the entire Premises prior to
such taking; but in such event Lessor shall have the option to terminate this
Lease as of the date when title to the part so taken vests in the condemnor or
purchaser. If all of the Premises, or such part thereof is taken so that there
does not remain a portion susceptible for occupation hereunder, this Lease shall
thereupon terminate. If a part or all of the Premises is taken, all compensation
awarded upon such taking shall go to Lessor, and Lessee shall have no claim
thereto, and Lessee hereby irrevocably assigns and transfers to Lessor any right
to compensation or damages to which Lessee may become entitled during the term
hereof by reason of the purchase or condemnation of all or part of the Premises.
25. All notices to be given to Lessee may be given in writing personally or
by depositing the same in the United States mail, postage prepaid, and addressed
to Lessee at the Premises, whether or not Lessee has departed from, abandoned or
vacated the Premises, with a copy to Lessee addressed to 40539 Encyclopedia
Circle, Fremont California 94538.
26. The waiver by Lessor of any breach of any term, covenant or condition,
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same or any other term, covenant or
condition therein contained. The subsequent acceptance of rent hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of
any term, covenant or condition of this Lease, other than the failure of Lessee
to pay the particular rental so accepted, regardless of Lessor's knowledge of
such preceding breach at the time of acceptance of such rent.
27. The invalidity or unenforceability of any provision of this Lease shall
not affect the validity or enforceability of the remainder of this Lease.
28. Any holding over after the expiration of the term of this Lease
(including any applicable renewal term), shall be construed to be a tenancy from
month to month on the same terms and conditions specified in this Lease, except
that the monthly rental will be increased as provided in this Section. If the
holding over occurs after any early termination of this Lease, the monthly rent
for the holdover period will be increased to 125% of the Monthly Rental Payment
in effect at the termination of this Lease.
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<PAGE>
If the holding over occurs after the expiration the initial term of this Lease,
the monthly rent for the holdover period will be increased to 125% of the
Monthly Rental Payment which would have been in effect if this Lease had been
renewed for the First Renewal Term (defined below). If the holding over occurs
after the expiration the First Renewal Term, the monthly rent for the holdover
period will be increased to 125% of the Monthly Rental Payment which would have
been in effect if this Lease had been renewed for the Second Renewal Term
(defined below). If the holding over occurs after the expiration the Second
Renewal Term, the monthly rent for the holdover period will be increased to 125%
of the Monthly Rental Payment which would have been in effect if this Lease had
been renewed for the Third Renewal Term (defined below). If the holding over
occurs after the expiration the Third Renewal Term, the monthly rent for the
holdover period will be increased to 125% of the Monthly Rental Payment in
effect at the expiration of the Third Renewal Term.
29. The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators and assigns of all of the parties hereto; and all of the parties
hereto shall be jointly and severally liable hereunder.
30. Time is of the essence of this Lease and each and all of its
provisions.
31. The marginal headings or titles to the paragraphs of this Lease are
not a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof. This instrument contains all of the
agreements and conditions made between the parties hereto and may not be
modified orally or in any other manner than by an agreement in writing signed by
all of the parties hereto or their respective successors in interest.
32. The undersigned parties hereby warrant that they have the proper
authority and are empowered to execute this Lease.
33. Lessee will have the right to renew this Lease for an additional term
of five (5) years (the "First Renewal Term"), on the same terms set forth in
this Lease, except the rent may increase as provided below. The option to renew
for the First Renewal Term shall be exercised by written notice delivered to
Lessor no later than six (6) months before the expiration of the initial term of
this Lease.
The Monthly Rental Payment during the First Renewal Term will be determined
by multiplying the Monthly Rental Payment during the initial term of this Lease
by a fraction, the numerator of which will be the Index (defined below)
published for the nearest calendar month preceding the first day of the First
Renewal Term, and the denominator of which will be the Index published for the
nearest calendar month preceding the Commencement Date of the initial term of
this Lease.
34. If this Lease is renewed for the First Renewal Term, Lessee will have
the further right to renew this Lease for an additional term of five (5) years
(the "Second Renewal Term"), on the same terms set forth in this Lease, except
the rent may increase as provided below. The option to
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<PAGE>
renew for the Second Renewal Term shall be exercised by written notice delivered
to Lessor no later than six (6) months before the expiration of the First
Renewal Term.
The Monthly Rental Payment during the Second Renewal Term will be
determined by multiplying the Monthly Rental Payment during the First Renewal
Term by a fraction, the numerator of which will be the Index published for the
nearest calendar month preceding the first day of the Second Renewal Term, and
the denominator of which will be the Index published for the nearest calendar
month preceding the first day of the First Renewal Term.
35. If this Lease is renewed for the Second Renewal Term, Lessee will have
the further right to renew this Lease for an additional term of five (5) years
(the "Third Renewal Term"), on the same terms set forth in this Lease, except
the rent may increase as provided below. The option to renew for the Third
Renewal Term shall be exercised by written notice delivered to Lessor no later
than six (6) months before the expiration of the Second Renewal Term.
The Monthly Rental Payment during the Third Renewal Term will be determined
by multiplying the Monthly Rental Payment during the Second Renewal Term by a
fraction, the numerator of which will be the Index published for the nearest
calendar month preceding the first day of the Third Renewal Term, and the
denominator of which will be the Index published for the nearest calendar month
preceding the first day of the Second Renewal Term.
36. The term "Index" means the Consumer Price Index for All Urban Consumers
(CPI-U), U.S. City Average, All Items, published by the U.S. Department of
Labor, Bureau of Labor Statistics (Standard Reference Base Period of
1982-84=100). If the Index is discontinued or revised, the new index or
computation which replaces the Index shall be used in order to obtain
substantially the same result as would have been obtained if it had not been
discontinued or revised.
The Monthly Rental Payment for each renewal term will not be less than
the Monthly Rental Payment for the prior term, and will not increase by more
than twenty-five percent (25%) of the Monthly Rental Payment for the prior term.
Each option to renew may be exercised by Lessee only if Lessee is not in default
under any of the provisions of this Lease. Each option to renew this Lease is
personal to Lessee and may not be exercised by any assignee or subtenant without
Lessor's written consent.
IN WITNESS WHEREOF, Lessor and Lessee have hereunto set their hands and
seals, the day and year first above written.
LESSOR LESSEE
Yvonne Dubbers-Albrecht,
Verena Dubbers-Albrecht-Al Weissi,
Regina Waldthausen and
Eduard Dubbers-Albrecht
(also sometimes referred to as
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<PAGE>
Dubbers-Albrecht Venture No. 1) WAWD-EAP Automotive Products, Inc.
By:/s/ Frank M. Wheeler
-------------------- By: /s/WAWD-EAP Automotive Products, Inc.
Frank M. Wheeler, -------------------------------------
Attorney-In-Fact
8333 Douglas Avenue Vice President/ General Manager
Suite 1200 -------------------------------
Dallas, Texas 75225 Title
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<PAGE>
EXHIBIT "A"
DESCRIPTION OF THE PROPERTY
All that tract or parcel of land lying and being in Land Lot 424 Of the 18th
District of Douglas County, Georgia, and being more particularly described as
follows:
BEGINNING at a concrete monument located at the corner formed by the
intersection of the southeasterly right-of-way line of Maxium Road (having a
100-foot right-of-way) with the southwesterly right-of-way line of Thornton Road
(having a 200-foot right-of-way and also being known as State Route No. 6);
running thence south 63 degrees 59 minutes 36 seconds east along the
southwesterly right-of-way line of Thornton Road, a distance of 558.71 feet to
an iron pin; running thence south 26 degrees 00 minutes 24 seconds west a
distance of 383.33 feet to an iron pin; running thence north 63 degrees 59
minutes 36 seconds west a distance of 558.67 feet to an iron pin located on the
southeasterly right-of-way line of Maxium Road; running thence north 25 degrees
43 minutes 05 seconds east along the southeasterly right-of-way line of Maxium
Road a distance of 7.74 feet to a point; running thence north 26 degrees 00
minutes 24 seconds east along said southeasterly right-of-way line of Maxium
Road a distance of 375.59 feet to the concrete monument which marks the point of
beginning; and being a tract of land containing 4.92 acres according to a plat
of survey thereof prepared for John Mozart by Watts & Browning, Eng'rs, dated
May 18, 1979.
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<PAGE>
THIRD AMENDMENT TO LEASE
BY AND BETWEEN:
H. HARDING BROWN, STEPHEN H. ANTHONY, DAVID J. FRISCHMAN and
DANIEL J. COUGHLIN, SUBSTITUTED CO-TRUSTEES UNDER TRUST INDENTURE
DATED THE 25TH DAY OF JUNE, 1968
"Landlord"
-and-
IMPORT PARTS AMERICA, INC.,
a Delaware Corporation,
"Tenant"
DATED:
LAW OFFICES
EPSTEIN, EPSTEIN, BROWN & BOSEK 505 Morris Avenue P. 0. Box 705
Springfield, New Jersey 07081
#30005-320
#376
June 30, 1993
<PAGE>
THIRD AMENDMENT TO LEASE dated this 8th day of September 1993, by and
between H. HARDING BROWN, STEPHEN H. ANTHONY, DAVID J. FRISCHMAN and DANIEL J.
COUGHLIN, SUBSTITUTED CO-TRUSTEES UNDER TRUST INDENTURE DATED THE 25TH DAY OF
JUNE, 1968, having an office at 51 Commerce Street, Springfield, New Jersey
07081, hereinafter called the "Landlord"; and IMPORT PARTS AMERICA, INC., a
Delaware Corporation, having an address at 40539 Encyclopedia Circle, Fremont,
California 94536-538, hereinafter called the "Tenant".
W I T N E S S E T H:
WHEREAS, the Landlord owns certain lands and premises in the Township
of Piscataway, County of Middlesex and State of New Jersey, which lands and
premises are commonly known as Lots 2 and 3, Block 460-C, Colonial Drive, upon
which there has been erected an industrial-type building containing
approximately 143,467 square feet, hereinafter called the "Building"; and
WHEREAS, H. Harding Brown and Charles T. Shea, Trustees Under Trust
Indenture Dated the 25th Day of June, 1968, (Landlord's predecessor-in-
interest) and Western Automotive Warehouse Distributors, Inc. have heretofore
entered into a certain Lease Agreement dated September 19, 1978, as amended by
Agreement dated September 4, 1979, and by second Amendment to Lease dated May 1,
1989, hereinafter collectively called the "Lease", in connection with the
leasinq of 65,701 square feet of space in the Building, hereinafter called the
"Leased Premises"; and
WHEREAS, the interest of Western Automotive Warehouse Distributors,
Inc. under the Lease was assigned to WAWD Inc., a Delaware Corporation, pursuant
to an Assignment and Assumption of Lease Agreement dated November 27, 1985; and
WHEREAS, WAWD Inc. was merged into Tenant effective as of June 15,
1988, and Tenant thereby became the successor to the interest of WAWD Inc. under
the Lease; and
WHEREAS, the Landlord and Tenant have agreed to extend the Lease for a
further period of five (5) years as hereinafter provided.
2
<PAGE>
NOW, THEREFORE, in consideration of the sum of one ($1.00) DOLLAR and
other good and valuable consideration, the parties hereto covenant and agree as
follows:
1. The Lease is hereby extended for a further period of five (5) years,
which Lease extension shall commence as of June 1, 1994 and shall expire as of
May 31, 1999, hereinafter called the "Extended Term".
2. Tenant shall pay rent during the Extended Term in the amount of TWO
HUNDRED FIFTY NINE THOUSAND FIVE HUNDRED EIGHTEEN AND 95/100 ($259,518.95)
DOLLARS per annum, payable in equal installments of TWENTY ONE THOUSAND SIX
HUNDRED TWENTY SIX AND 58/100 ($21,626.58) DOLLARS per month in the same manner
as provided in Article 3 of the Lease, together with such additional rent and
other charges as are provided in the Lease.
3. It is expressly understood and agreed that the Tenant shall continue
to occupy the Leased Premises as of the commencement of the Extended Term in an
"as is" condition.
4. Article 46 of the Lease entitled "Option to Renew" is hereby deleted
in its entirety.
5. Provided the Tenant is not in default pursuant to the terms and
conditions of the Lease, the Tenant is hereby given the right and privilege to
renew the Lease, for one (1) five (5) year renewal period, to commence at the
end of the Extended Term of the Lease, which renewal shall be upon the same
terms and conditions as in the Lease contained, except as follows:
(1) Tenant shall pay during the five (5) year renewal term
annual Base Rent based upon the fair market value per square foot applicable to
the Leased Premises. The fair market value shall be determined as follows: After
Tenant has given written notice to the Landlord, as hereinafter provided, of its
intention to exercise the within option, the Landlord shall deliver to Tenant a
written notice stating the fair market value to be paid for the Leased Premises
during the five (5) year renewal term. In the event
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<PAGE>
that the Tenant objects to the fair market value quoted by Landlord, the issue
of fair market value shall be open to negotiation between Landlord and Tenant.
In the event the parties cannot agree within thirty (30) days after Landlord's
notice of the then fair market rental value, the parties shall agree on the
appointment of a real estate appraiser (the "Appraiser") having the M.A.I.
designation, the cost of which shall be shared equally by Landlord and Tenant,
which Appraiser shall be knowledgeable in the Union County, New Jersey market
rental area, who shall make a fair market rental determination. If the parties
cannot agree within thirty (30) days subsequent to the appointment of the
Appraiser, then the matter shall be submitted to binding arbitration pursuant to
the rules for commercial arbitration of the American Arbitration Association, at
the equal administrative cost of Landlord and Tenant. It is expressly understood
and agreed that in any event the renewal Base Rent for the five (5) year term
shall not be less than the annual Base Rent of TWO HUNDRED FIFTY NINE THOUSAND
FIVE HUNDRED EIGHTEEN AND 95/100 ($259,518.95) DOLLARS per annum, in the event
fair market rent shall be determined to be less than said sum as such
determination shall be made in the manner hereinabove provided.
(2) The right, option, and privilege of the Tenant to renew
this lease as hereinabove set forth is expressly conditioned upon the Tenant
delivering to the Landlord, in writing, by certified mail, return receipt
requested, twelve (12) months' prior notice of its intention to renew, which
notice shall be given to the Landlord by the Tenant no later than twelve (12)
months' prior to the date fixed for termination of the original term of this
lease.
(3) The obligation to pay the rent as adjusted pursuant to the
Fair Market Value formula hereinabove provided shall be in addition to the
obligation to pay all additional rent and other charges required by the terms
and conditions of the Lease.
4
<PAGE>
6. Paragraph 6 of the aforementioned Second Amendment to Lease dated
May 1, 1989 is hereby amended to provide that, in the event the Tenant retains
possession of the Leased Premises following expiration of the term of the Lease
in order to comply with the Cleanup Laws, notwithstanding anything to the
contrary contained in the Lease, (1) if Tenant has not exercised its renewal
option under paragraph 5 of this Third Amendment to Lease, the monthly rent due
during the holdover period from June 1, 1999 through May 31, 2004 shall be that
which would have been due had the renewal option been exercised and (2) if
Tenant has exercised its renewal option under paragraph 5 hereof, or if Tenant
has not exercised its renewal option but is still in possession as of June 1,
2004, (i) the monthly rent due during the holdover period from June 1, 2004
through May 31, 2009 shall be the greater of THIRTY FIVE THOUSAND TWO HUNDRED
TWENTY SEVEN AND 42/100 ($35,227.42) DOLLARS per month or the rent due for May,
2004, increased effective June 1, 2004 in direct proportion to any increase in
the Cost of Living Index as defined in paragraph 5 hereof, from April, 1999
through April, 2004 and (ii) the monthly rent during the holdover period from
and after June 1, 2004 shall be the rent due for May, 2004, increased effective
June 1, 2004 and June 1 of each year thereafter in direct proportion to any
increase in the Cost of Living Index from April, 2004 through the April
immediately preceding the adjustment date, but not less than a five (5%) percent
increase per year over the preceding year.
7. Except as hereinabove referred to, all other terms and conditions of
the Lease shall remain in full force and effect, unimpaired and unmodified.
8. This agreement shall be binding upon the parties hereto, their
heirs, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed by their proper corporate officers and caused their proper corporate
seals to be hereto affixed the day and year first above written.
5
<PAGE>
WITNESS: H. HARDING BROWN, STEPHEN H. ANTHONY,
DAVID J. FRISCHMAN and DANIEL J. COUGHLIN,
SUBSTITUTED CO-TRUSTEES UNDER TRUST
INDENTURE DATED THE 25TH DAY OF JUNE, 1968
/s/Evelyn S. Lepore By: /s/W. Harding Brown(L.S.)
- ------------------ -----------------------------------------
ATTEST: IMPORT PARTS AMERICA, INC.
/s/Glenn J. Holler By: /s/Larry W. McCurdy
- ------------------ -----------------------------------------
Glenn J. Holler, Larry W. McCurdy,
Vice President President
WITNESS: B. HARDING BROWN, STEPHEN H. ANTHONY,
DAVID J. FRISCHMAN and DANIEL J. COUGHLIN,
SUBSTITUTED CO-TRUSTEES UNDER TRUST
INDENTURE DATED THE 25TH DAY OF JUNE, 1968
/s/Mary E. Thomas By: /s/Daniel J. Couglin
- ------------------ -----------------------------------------
DANIEL J. COUGHLIN
MANAGING DIRECTOR
6
<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF )
BE IT REMEMBERED, that on this 8th day of September, 1993, before me.
the subscriber, a notary public of New Jersey personally appeared H. Harding
Brown, Co-Trustee on behalf of H. HARDING BROWN, STEPHEN H. ANTHONY, DAVID J.
FRISCHKAN and DANIEL J. COUGHLIN, SUBSTITUTED CO-TRUSTEES UNDER TRUST INDENTURE
DATED THE 25TH DAY OF JUNE, 1968, who, I am satisfied, is th Landlord mentioned
in the within Instrument, and thereupon he acknowledged that he signed, sealed
and delivered the same as his act and deed, for the uses and purposes therein
expressed.
/s/ Evelyn S. Lepore
-----------------------------
EVELYN S. LEPORE
A NOTARY PUBLIC OF NEW JERSEY
STATE OF Missouri )
) SS.:
COUNTY OF St.Louis )
BE IT REMEMBERED that on this 30th day of August 1993, before me, the
subscriber, personally appeared Larry W. McCurdy, who, I am satisfied, is the
person who signed the within Instrument as President of IMPORT PARTS AMERICA,
INC., a Delaware corporation, the Tenant named therein, and he thereupon
acknowledged that the said instrument made by the corporation and sealed with
its corporate seal, was signed and sealed with the corporate seal and delivered
by him as such officer, and is the voluntary act and deed of the corporation,
made by virtue of authority from its Board of Directors.
/s/B.L. Burd
-----------------------------
B. L. Burd, Notary Public
PREPARED BY: ROBERT K. BROWN, ESQ.
STATE OF MASSACHUSETTS )
) SS.:
COUNTY OF SUFFOLK )
BE IT REMEMBERED, that on this 6th day October, 1993, before me, the
subscriber, a notary public of Massachusetts, personally appeared Daniel J.
Coughlin, Co-Trustee on behalf of H. HARDING BROWN, STEPHEN H. ANTHONY, DAVID J.
FRISCHMAN AND DANIEL J. COUGHLIN, SUBSTITUTED CO-TRUSTEES UNDER TRUST INDENTURE
DATED THE 25TH DAY OF JUNE, 1968, who, I am satisfied, is the Landlord mentioned
in the within Instrument, and thereupon he acknowledged that he signed, sealed
and delivered the same as his act and deed, for the uses and purposes therein.
/s/Margaret A. Bakin
-----------------------------
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L E A S E A G R E E M E N T
BY AND BETWEEN:
H. HARDING BROWN and CHARLES T. SHEA, TRUSTEES UNDER TRUST INDENTURE DATED. THE
25TH DAY OF JUNE, 1968,.
"Landlord"
-and-
WESTERN AUTOMOTIVE WAREHOUSE
DISTRIBUTORS, INC.,
a California corporation,
"Tenant"
PREMISES:
Lots #2 And #3, Block 460-C Colonial Drive
Piscataway, New Jersey
DATED:
#30005-320
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TABLE OF CONTENTS
ARTICLE PAGE
NO. NO.
- ------- ------
1. LEASED PREMISES...................................................13
2. TERM OF LEASE.....................................................13
3. RENT..............................................................14
4. CONTINGENCIES.....................................................15
5. USE...............................................................15
6. CONSTRUCTION......................................................16
7. REPAIRS AND MAINTENANCE...........................................16
8. UTILITIES.........................................................18
9. TAXES.............................................................18
10. INSURANCE.........................................................21
11. SIGNS.............................................................23
12. FIXTURES..........................................................23
13. GLASS.............................................................24
14. ASSIGNMENT AND SUBLETTING.........................................24
15. FIRE AND CASUALTY.................................................25
16. COMPLIANCE WITH LAWS RULES AND REGULATIONS........................26
17. INSPECTION BY LANDLORD............................................28
18. DEFAULT BY TENANT.................................................28
19. LIABILITY OF TENANT FOR DEFICIENCY................................31
20. NOTICES...........................................................31
21. NON-WAIVER BY LANDLORD............................................32
22. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS..............32
23. NON-LIABILITY OF LANDLORD.........................................33
24. WARRANT OF TITLE..................................................33
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TABLE OF CONTENTS
ARTICLE PAGE
NO. NO.
- ------- ------
25. RESERVATION OF EASEMENT...........................................33
26. AIR AND WATER POLLUTION...........................................34
27. STATEMENT OF ACCEPTANCE...........................................34
28. FORCE MAJEURE.....................................................34
29. STATEMENTS BY LANDLORD AND TENANT.................................35
30. CONDEMNATION......................................................35
31. INSTALLATION PRIOR TO COMPLETION..................................36
32. QUIET ENJOYMENT...................................................37
33. SURRENDER OF PREMISES.............................................37
34. INDEMNITY.........................................................38
35. SHORT FORM LEASE..................................................39
36. LEASE CONSTRUCTION................................................39
37. BIND AND INURE CLAUSE.............................................39
38. DEFINITIONS.......................................................39
39. NET RENT..........................................................40
40. DEFINITION OF TERM OF LANDLORD....................................40
41. COVENANTS OF FURTHER ASSURANCES...................................40
42. LANDLORD REMEDIES.................................................41
43. COVENANT AGAINST LIENS............................................41
44. SUBORDINATION.....................................................42
45. MUTUAL PARKING....................................................43
46. CANCELLATION PRIVILEGE............................................44
47. CONFIRMATION OF RENT AND PERCENTAGE P0AYMENTS.....................44
SCHEDULE "A"...............................................................46
SCHEDULE "C"...............................................................47
10
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THIS AGREEMENT, made the 19TH day of September 1978, by and between H.
HARDING BROWN and CHARLES T. SHEA, TRUSTEES UNDER TRUST INDENTURE DATED THE 25TH
DAY OF JUNE, 1968, having an office at #33 West Grand Street, Elizabeth, New
Jersey, hereinafter called the "Landlord"; and WESTERN AUTOMOTIVE WAREHOUSE
DISTRIBUTORS, INC., a California Corporation, having an office at 3260 West 26th
Street, Los Angeles, California 90023, hereinafter called the "Tenant".
W I T N E S S E T H :
WHEREAS, the Landlord owns certain lands and premises in the Township
of Piscataway; County of Middlesex, and State of New Jersey, which said lands
and premises are located on Colonial Drive, Piscataway, New Jersey, all as more
particularly described on Schedule "A" annexed hereto and made a part hereof;
and
WHEREAS, the Landlord is erecting an industrial type building
containing approximately 143,382 square feet, outside outside dimensions,
located on the premises referred to in Schedule "A" annexed hereto (hereinafter
referred to as the "Building"); and
WHEREAS, Landlord intends to lease to Tenant a portion of the Building
containing approximately 65,672 square feet, outside outside dimensions to
center line of common wall (hereinafter referred to as the "leased premises");
and
WHEREAS, the Building, improvements and Tenant's leased space shall be
erected in accordance with plans and specifications to be prepared by Rotwein &
Blake, Associated P.A. as shall be mutually approved, in writing, by the
Landlord and Tenant, and which final plans and specifications shall be
incorporated by reference herein and made a part hereof and referred to as
Schedule "B".
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for the rents
reserved, the mutual considerations herein and the parties mutually intending
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to be legally bound hereby, the Landlord does demise, lease and let unto the
Tenant and the Tenant does rent and take from the Landlord the leased premises
as described in Paragraph #1, and the Landlord and Tenant do hereby mutually
covenant and agree as follows:
1. LEASED PREMISES
1.1 The leased premises shall consist of the 6,500 square
feet, outside outside dimensions to center line of common wall, of the Building
as located on the lands described on Schedule "A", together with all
improvements to be constructed thereon by the Landlord for the use of the
Tenant, and all easements, improvements, tenements, appurtenances,
hereditaments, fixtures and rights and privileges appurtenant thereto, and any
and all fixtures and equipment which are to be installed in said building by the
Landlord for the use of the Tenant in its occupancy of the leased premises, in
accordance with, and as more fully set forth in Schedule "B".
1.2 The Landlord agrees, subject to the terms and conditions
of this lease, to erect the leased premises, all in accordance with the plans
and specifications referred to as Schedule "B".
2. TERM OF LEASE
The Landlord leases unto the said Tenant and the Tenant hires
the aforementioned premises for the term of ten (10) years, to commence on or
about March 1, 1979, and to end on the 28th day of February, 1989, the
obligation of the Tenant hereunder being subject to the following proviso:
2.1 That on or about March 1, 1979, the Landlord shall have
substantially completed the building according to the plans and specifications
and shall deliver to the Tenant a Certificate of occupancy issued by the
authorized issuing officer of the governmental instrumentality having
jurisdiction thereof, and an Architect's Certificate by the Architect preparing
the plans and specifications, that based on visual inspection, the Building is
substantially completed. Upon the delivery by the Landlord to the
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Tenant of the leased premises, and the certification and Certificate of
Occupancy hereinabove mentioned, the lease term shall commence and the Tenant's
obligation to pay rent shall begin (subject to the provisions of subparagraph
2.2 hereof).
2.2 Subject to the terms and conditions of this lease, in the
event the premises are delivered to the Tenant in the manner provided in
subsection 2.1 above, prior to or after March 1, 1979, the lease term of ten
(10) years shall commence on the first day of the next succeeding month
following delivery of possession to the Tenant (hereinafter called the
"Commencement Date") and shall continue for a term of ten (10) years thereafter.
The Tenant shall, however, pay to the Landlord a sum equal to the pro rata share
of one (1) month's rent for that portion of the month prior to the Commencement
Date. During said period of partial monthly occupancy, if any, all other terms
and conditions of this lease shall be applicable to the occupancy of the leased
premises by the Tenant.
2.3 It is expressly understood and agreed that for the purpose
of this lease, wherever and whenever the term "substantial completion" is used,
the term "substantial completion" shall not include items of maintenance,
service or guarantee, which may be required pursuant to the terms and conditions
of this agreement. The Building and improvements shall be considered
substantially completed upon the issuance of a Certificate of Occupancy, and
Certification of the Architect that the Building has been completed according to
the plans and specifications as aforementioned.
3. RENT
The Tenant covenants and agrees to pay to Landlord, during the
term of the lease, the annual rent as follows:
A. During the first five (5) years of the lease term, annual
rent in the amount of ONE HUNDRED FORTY SIX THOUSAND TW0 HUNDRED FIFTY AND
00/100 ($146,250.00) DOLLARS, payable in equal monthly installments in the sum
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of TWELVE THOUSAND ONE HUNDRED EIGHTY SEVEN AND 50/100 ($12,187.50) DOLLARS
per month.
B. During the second five (5) years of the modify lease term,
annual rent in the amount of _____________________________________
_____________________________ payable in equal monthly installments in the sum
of ______________________________________________ DOLLARS per month
The monthly rent payments above required shall be made promptly in
advance on the first day of each and every month during the term of the lease
without demand and without off-set or deduction, together with such additional
rent and other charges required to be paid by Tenant as are hereinafter set
forth.
4. CONTINGENCIES
4.1 This lease is expressly subject to the issuance of all
necessary Building Permits and consents as may be required by governmental
instrumentalities, boards or bodies having jurisdiction thereof, applicable to
and based on the plans and specifications set forth in Schedule 'B"; and more
specifically to the issuance of a Building Permit by the governmental
instrumentality having jurisdiction thereof.
4.2 Anything herein contained to the contrary notwithstanding,
it is expressly understood and agreed that this lease is expressly conditioned
upon and is subject to the written approval by the Landlord and Tenant of the
final plans and specifications hereinbefore referred to as Schedule "B"; Such
written approval shall not be unreasonably withheld or delayed.
5. USE
The Tenant covenants and agrees to use and occupy the leased
premises for any legal use and for offices, warehouse and distribution facility,
and for general purposes of Tenant's business, which use by Tenant, however, is
and shall be expressly subject to all applicable zoning ordinances, rules and
regulations of any governmental boards or bureaus having
14
<PAGE>
jurisdiction thereof. It is expressly understood and agreed, however, that if
the Tenant shall use and occupy the premises for lawful manufacturing purposes,
the Tenant shall, at its own cost and expense, comply with all applicable
requirements of governmental boards or bureaus having jurisdiction thereof, and
to such reasonable regulations of the Board of Fire Underwriters or its
equivalent.
6. CONSTRUCTION
6.1 Subject to the prior written approval of the Architect and
Tenant, the Landlord shall have the right to substitute for the materials and
equipment required by the plans and specifications, materials and equipment of
equal quality and standard, provided said substitutions conform with applicable
Building Codes.
6.2 The Landlord guarantees against defects in the general
workmanship, labor, materials and construction of the Building for a period of
one (1) year from the Commencement Date.
6.3 Without limiting Landlord's one (1) year guarantee
provided in subparagraph 6.2 above, the Landlord covenants and agrees to assign
to the Tenant, (as such assignment may be permitted by the terms of such
warranty) without recourse, all written warranties, which it receives in
connection with the installation of fixtures or equipment in the Building.
7. REPAIRS AND MAINTENANCE
7.1 The Landlord, shall, with due diligence, at its own cost
and expense, make all repairs to the interior load bearing walls or members,
exterior bearing walls, foundation and roof, provided that any damage to the
foregoing is not caused by the negligence of the Tenant, its servants,
employees, invitees or agents. The Tenant shall, at its own cost and expense,
however, repair and maintain the roof leaders, flashings, metal gravel stops,
gutters and drains and shall keep the same free and clear of any debris
applicable to Tenant's leased premises (____________ feet). The obligation of
15
<PAGE>
the Landlord to make the foregoing repairs is expressly subject to the Tenant
giving to the Landlord written notice of defects or need for repairs to the
exterior bearing walls, foundation, or to the roof of the Building. The Building
shall be initially painted by the Landlord according to the plans and
specifications herein referred to prior to delivery of the leased premises to
the Tenant, and thereafter the Tenant shall maintain, paint and repair the
exterior of the leased premises (except for the Landlord's obligations to make
repairs to the extent hereinabove set forth in paragraph 7.1 and in paragraph
6).
7.2 The Tenant shall, except as provided in Paragraphs 6 and
7.1 above, take good care of the leased premises and, at its cost and expense,
keep and maintain in good repair the interior and exterior of the leased
premises, including, but not limited to the floor, the air-conditioning and
heating plant, the plumbing, pipes and fixtures belonging thereto; and shall
replace all mechanical and working parts used in connection with the
air-conditioning, electrical, heating and plumbing plants, fixtures and systems,
including ballasts and fluorescent fixtures; and shall keep the water and sewer
pipes and connections free from ice and other obstructions and shall generally
maintain, repair and replace the gutters, leaders, flashings, metal gravel stops
and roof drains; and shall generally maintain and repair the interior and
exterior of the leased premises and shall, at the end of the expiration of the
term, deliver up the leased premises in good order and condition, damages by the
elements, ordinary wear and tear excepted. The Tenant covenants and agrees that
it shall not cause or permit any waste (other than reasonable wear and tear),
damage or disfigurement to the leased premises, or any overloading of the floors
of the buildings, constituting part of the demised premises.
7.3 The Landlord shall (i) maintain and repair the lawns,
shrubbery, driveways and parking areas; and (ii) keep the parking area and
16
<PAGE>
driveways, sidewalks and steps of the demised premises free and clear of ice and
snow; and the Tenant shall annually pay to the Landlord 45.45% of the cost of
such maintenance and repair. The Landlord shall furnish Tenant with a certified
breakdown of the costs applicable to the above. The Tenant shall make such
payment within twenty (20) days after written demand.
8. UTILITIES
8.1 The Landlord shall, at its cost and expense, pay for the
installation of all utilities and utility services to the Building, and connect
the same to the interior lines installed in the leased premises in accordance
with the plans and specifications.
8.2 The Tenant shall, at its own cost and expense, pay all
utility meter and service charges, including gas, sewer, electric, water and
standby sprinkler charges, if any.
8.3 The Tenant shall be responsible and at its own cost and
expense pay all meter charges and costs to be made by utility companies,
including gas, sewer, electric and standby sprinkler charges to the leased
premises, if any. It is understood and agreed that separate meters will be
provided for each tenant of the building or part thereof.
9. TAXES
9.1 The Tenant, in addition to the rent reserved, shall pay to
the Landlord that percentage of all real estate property taxes assessed against
the entire property, including the land, Building and improvements (including
any added or omitted assessment for the first calendar year in which the term of
this lease shall commence), which percentage shall be based on the square
footage of Building occupied by the Tenant as the same relates to the total
square footage of Building of which the leased premises are a part, and which
pro rata percentage is hereby determined to be ___.
9.2 The taxes for the first calendar year in which the term of
this lease shall commence pursuant to Paragraph 2 above shall be prorated
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between the Landlord and the Tenant as of the date the Tenant takes possession
of the leased premises, so that the Landlord shall be liable for the payment of
such proportion of the taxes for the current year as the time between the
previous January 1st and the date the Tenant takes possession thereof bears to a
full calendar year. If any part of any tax payable hereunder by the Tenant is
included within the term of this lease, and any part thereof is included in a
period of time after the termination of this lease, the amount of any such tax
shall be adjusted between the Landlord and Tenant as of the date of such
termination so that the Tenant shall bear only its proportionate share thereof.
9.3 It is expressly understood and agreed that such added and
omitted assessments and other tax assessments as set forth above refer
specifically to assessments for real property taxes only. It is also understood
that it is the obligation of the Tenant to pay any and all personal property
taxes assessed against it.
9.4 In the event the Tenant wishes to contest or litigate the
amount or validity of any assessment or levy of taxes on the property or the
validity of any legislative, administrative or judicial action requiring payment
thereof, the Landlord covenants and agrees that he will lend his name and
execute all papers necessary or appropriate which will be of aid to the Tenant
in connection with such contest or litigation, provided, however, such
litigation or contest shall be at the cost and expense of the Tenant.
9.5 The Tenant shall pay, within fifteen (15) days after
written demand, its proportionate share of real estate taxes as above provided,
which payment shall be made quarterly in the months of January, April, July and
October of each year so that the real estate taxes can be paid at or before
their due date. The Landlord shall, however, annually on the anniversary date of
this lease, commencing one year after the Commencement Date hereof, submit to
the Tenant a statement detailing the aggregate tax costs, including copies
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of paid tax bills, together with the computation and breakdown of that portion
paid by the Tenant hereunder.
9.6 The Landlord represents that the leased premises shall
contain any and all improvements, including streets, utilities, curbing and all
other improvements as shall be required by the Township of Piscataway in
connection with the development of Centennial Industrial Park. In the event,
however, there shall be installation of other local improvements that benefit
the Tenant by any governmental board or bureau having jurisdiction thereof for
which an assessment shall be made against the property, then in that event, the
Tenant shall pay to the Landlord its pro rata portion of such assessment within
thirty (30) days after demand. The Landlord shall furnish to the Tenant a copy
of any such assessment bill as levied by governmental authority having
jurisdiction thereof.
9.7 Anything hereinabove contained to the contrary
notwithstanding, the Landlord reserves the right to require the Tenant to pay
its pro rata tax obligation as hereinabove referred to in twelve (12) equal
monthly installments, which payment shall be made together with the monthly rent
to be paid hereunder. Landlord shall certify to Tenant the annual taxes, and
shall furnish to Tenant a copy of the annual tax bills upon which the monthly
tax payment has been computed.
9.8 If, at any time during the term of this lease, the method
or scope of taxation prevailing at the commencement of the lease term shall be
altered, modified or enlarged so as to cause the method of taxation to be
changed, in whole or in part, so that in substitution for the real estate taxes
now assessed there may be, in whole or in part, a capital levy or other
imposition based on the value of the premises, or the rents received therefrom,
or some other form of assessment based in whole or in part on some other
valuation of the Landlord's real property comprising the demised premises, then
and in such event, such substituted tax or imposition shall be
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payable and discharged by the Tenant in the manner required pursuant to such law
promulgated which shall authorize such change in the scope of taxation, and as
required by the terms and conditions of the within lease.
9.9 Nothing in this lease contained shall require the Tenant
to pay any franchise, estate, inheritance, succession, capital levy or transfer
tax of the Landlord, or Federal Income Tax, State Income Tax, or excess profits
or revenue tax, unless such taxes are in substitution for real property taxes as
a result of such change in the manner and scope of taxation.
10. INSURANCE
10.1 The Landlord shall carry fire insurance with full
extended coverage in an amount equivalent to the full replacement value of the
insurable improvements to the leased premises, inclusive of broad form boiler
and machinery coverage (inclusive of air-conditioning system, if any) including
insurance coverage against sprinkler damage to the Building and/or its contents.
The Tenant shall pay to the Landlord ___% of such premium cost for fire
insurance as above provided, together with the full premium cost for the rent
insurance applicable to the Tenant's leased premises.
10.2 The Landlord shall maintain public liability insurance,
insuring the interests of both the Landlord and Tenant as the same may appear,
by reason of claims for personal injury, death or property damage, occurring in
or about the property, in amounts of not less than $1,000,000.00 with respect to
the bodily injury or death of any one person, o(pound) not less than
$3,000,000.00 with respect to bodily injury or death of more than one person in
one accident, and of not less than $100,000.00 with respect to property damage.
In addition to the rent reserved, the Tenant shall pay to the Landlord or his
nominee an amount equal to 45.45% of the costs of premiums for such liability
insurance. If the public liability insurance carrier shall for any reason cancel
any contract of insurance covering the property, the Landlord will immediately
notify the Tenant to such effect.
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10.3 Anything contained in this lease to the contrary
notwithstanding, it is expressly understood and agreed that if the rate of fire
insurance shall be increased because of any change in occupancy or use of the
premises by the Tenant, which use and occupancy has been rated by the Schedule
Rating Bureau of the State of New Jersey for office, warehouse and distribution
facility, or because of the Tenant's non-compliance with reasonable rules,
regulations or requests of the fire insurance carrier issuing fire insurance
coverage in connection with the Tenant's use of the leased premises, then and in
that event, such increase in cost of fire insurance as hereinabove defined shall
be paid by the Tenant after notice and demand within fifteen (15) days.
10.4 Anything contained in this lease to the contrary
notwithstanding; it is expressly understood and agreed that the Tenant, at its
own cost and expense, shall be obligated to insure its own fixtures, equipment
and contents of the Building, it being expressly understood and agreed that
excepting cases of Landlord negligence, the same is not the responsibility of
the Landlord nor shall it be liable therefor.
10.5 The Tenant shall pay to the Landlord within fifteen (15)
days after written demand its pro rata share of insurance costs as hereinabove
provided. The Landlord shall furnish the Tenant with its demand a copy of all
paid premium bills and shall also furnish to the Tenant a breakdown of the
computation attributable to Tenant's proportionate share of costs.
10.6 The parties hereto mutually covenant and agree that each
party, in connection with insurance policies required to be furnished in
accordance with the terms and conditions of this lease, or in connection with
insurance policies which they obtain insuring such insurable interest as
Landlord or Tenant may have in its own properties, whether personal or real,
shall expressly waive any right of subrogation on the part of the insurer
against the Landlord or Tenant as the same may be applicable, which right to
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the extent not prohibited or violative of any such policy is hereby expressly
waived, and Landlord and Tenant each mutually waive all right of recovery
against each other, their agents, or employees for any loss, damage or injury of
any nature whatsoever to property or person for which either party is required
by this lease to carry insurance.
11. SIGNS
The Tenant shall have the right and privilege of erecting, on
and at the leased premises only such signs as are required by Tenant for the
purpose of identifying the Tenant. The said signs shall comply with the
applicable rules and regulations of the applicable governmental boards a bureaus
having jurisdiction thereof. The erection of such signs shall not cause any
structural damage to he Building. It is expressly understood and agreed that the
Tenant shall not erect roof signs. It is further expressly understood and agreed
that such signs shall not obstruct the visibility of any signs to be erected for
occupants of the balance of the Building. The Landlord agrees that it will not
erect or permit anyone else, including another tenant or occupant of the
premises, to erect any which will obstruct the visibility of the Tenant's sign.
12. FIXTURES
12.1 The Tenant is given the right and privilege of installing
and removing property, equipment and fixtures in the leased premises during the
term of the lease. However, if the Tenant is in default and moves out, or is
dispossessed, and fails to remove any property, equipment and fixtures or other
property within thirty (30) days after such default, dispossess or removal, then
and in that event, the said property, equipment and fixtures or other property
shall be deemed at the option of the Landlord to be abandoned; or in lieu
thereof, at the Landlord's option, the Landlord may remove such property and
charge the reasonable cost and expense of removal and storage to the Tenant.
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12.2 Anything to the contrary contained herein
notwithstanding, it is expressly understood and agreed that the Tenant may
install, connect and operate equipment as may be deemed necessary by the Tenant
for its business, subject to compliance with applicable rules and regulations of
governmental boards and bureaus having jurisdiction thereof. Subject to the
terms and conditions of this lease, the machinery, fixtures and equipment
belonging to the Tenant shall at all times be considered and intended to, be
personal property of the Tenant, and not part of the realty, and subject to
removal by the Tenant, provided at the time of such removal, that the Tenant is
not in default pursuant to the terms and conditions of this lease, and that the
Tenant, at its own cost and expense, pays for or repairs any damage to the
leased premises caused by such removal.
13. GLASS
The Tenant expressly covenants and agrees to replace any
broken glass in the windows or other apertures of the leased premises which may
become damaged or destroyed at its cost and expense.
14. ASSIGNMENT AND SUBLETTING
Providing that the Tenant is not then in default, the Tenant
may assign this lease, or sublease all or any portion or part of the leased
premises, provided the Tenant gives the Landlord notice of any such assignment
or sublease and any assignees (but not sublessees) undertake in writing to
assume the terms and conditions of this lease, providing in any event, that the
Tenant shall remain directly and primarily liable for the performance of the
terms and conditions of this lease. The Landlord reserves the right, at all
times, to require and demand that the primary Tenant hereunder pay and perform
the terms and conditions of this lease. No such assignment or subletting shall
be made to any tenant who shall occupy the premises for any use which violates
the applicable ordinances, rules and regulations of applicable governmental
boards and bureaus having jurisdiction thereof, or of
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the carrier of the fire insurance or other insurance to be provided under this
lease.
15. FIRE
15.1 In case of any damage to the building on the property by
fire or other casualty occurring during the term of this lease or previous
thereto, which renders the leased premises wholly untenantable so that the same
cannot be repaired and restored to the condition existing immediately prior to
the casualty within one hundred twenty (120) days from the happening of such
damage, then the terms hereby created, shall, a the option of the Tenant,
terminate from the date of such damage. In the event the Tenant elects to
terminate the lease for any reason which is due to the inability of the Landlord
to restore the same within the one hundred twenty (120) day period, Tenant shall
notify the Landlord, in writing, certified mail, return receipt requested, of
such a fact within thirty (30) days of the happening of the fire or casualty,
and in such event the Tenant shall immediately surrender the leased premises and
shall pay rent only to the time of such damage and the Landlord may re-enter and
re-possess the premises, discharged from this lease. In the event the Landlord
can restore the premises within one hundred twenty (120) days, it shall advise
the Tenant of such fact, in writing, certified mail, return receipt requested
and the lease shall remain in full force and effect during the period of
Landlord's restoration, except that rent shall abate while the repairs and
restorations are being made, but the rent shall recommence upon restoration of
the premises and delivery of the same by the Landlord to the Tenant. Landlord
agrees that it will undertake reconstruction and restoration of the damaged
premises with due diligence and reasonable speed and dispatch.
15.2 If the Building shall be damaged, but the damage is
repairable within one hundred twenty (120) days, the Landlord agrees to repair
the same with reasonable promptness. In such event, the rent accrued and
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accruing shall not abate, except for that portion of the leased premises that
has been rendered untenantable and as to that portion the rent shall abate,
based on equitable adjustments.
15.3 In connection with Landlord's restoration as hereinabove
referred to, in determining what constitutes reasonable promptness,
consideration shall be given to delays caused by acts of God, strikes, and other
causes of Force Majeure beyond the Landlord's control.
15.4 The Tenant shall immediately notify the Landlord in case
of fire or other damage to the premises.
15.5 Notwithstanding anything contained in 15.1 or 15.2 above,
if such repairs are for any reason not completed within one hundred twenty (120)
days, then the Tenant shall have the right to terminate this lease, and in such
event of termination Landlord and Tenant shall thereupon be released of
liability one to the other, and the within lease shall be deemed null and void.
16. COMPLIANCE WITH LAWS RULES AND REGULATIONS
16.1 The Landlord represents that at the time of the
commencement of the basic term of this lease, there will be full compliance with
all statutes, rules, ordinances, orders, regulations and requirements of the
Federal, State and City Government, and any and all of their departments and
bureaus applicable to the construction of said premises and Building, and also
to all rules, orders and regulations of the Board of Fire Underwriters, or its
local equivalent.
16.2 (i) The Tenant covenants and agrees that upon acceptance
and occupancy of the leased premises, it will, during the lease term, promptly,
at Tenant's cost and expense, execute and comply with all statutes, ordinances,
rules, orders, regulations and requirements of the Federal, State and City
Government and of any and all their departments and bureaus, applicable to the
leased premises, as the same may require correction, prevention and abatement
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of nuisances, violations or other grievances, in, upon or connected with the
leased premises, arising from the operations of the Tenant therein.
(ii) The Tenant covenants and agrees, at its own cost
and expense, to comply with such regulations or requests as may be required by
the fire or liability insurance carriers providing insurance for the leased
premises, and will further comply with such other requirements that may be
promulgated by the Board of Fire Underwriters, in connection with the use and
occupancy by the Tenant of the leased premises in the conduct of its business.
(iii) The Tenant covenants and agrees that it will
not commit any nuisance, nor permit the emission of any objectionable sound,
noise or odors which would be violative of any applicable governmental rule or
regulation or would per se create a nuisance. The Tenant further covenants and
agrees that it will handle and dispose of all rubbish, garbage and waste in
connection with the Tenant's operations in the leased premises in accordance
with reasonable regulations established by the Landlord from time to time in
order to keep the premises in an orderly condition and in order to avoid
unreasonable emission of dirt, fumes, odors or debris which may constitute a
nuisance or induce pests or vermin.
16.3 That in case the Tenant shall fail or neglect to comply
with the aforesaid statutes, ordinances, rules, orders, regulations and
requirements or any of them, or in case the Tenant shall neglect or fail to make
any necessary repairs, then the Landlord or the Landlord's agents may after ten
(10) days' notice (except for emergency repairs, which may be made immediately)
enter said premises and make said repairs and comply with any and all of the
said statutes, ordinances rules, orders, regulations or requirements, at the
cost and expense of the Tenant and in case of the Tenant's failure to pay
therefor, the said cost and expense shall be added to the next month's rent and
be due and payable as such, or the Landlord may deduct the same from the balance
of any sum remaining in the Landlord's hands.
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This provision is in addition to the right of the Landlord to terminate this
lease by reason of any default on the part of the Tenant, subject to the rights
of the Tenant as hereinabove mentioned in the manner as in this lease otherwise
provided.
17. INSPECTION BY LANDLORD
The Tenant agrees that the said Landlord's agents, and other
representatives, shall have the right to enter into and upon the said premises,
or any part thereof, at all reasonable hours for the purpose of examining the
same upon reasonable advance notice of not less than 24 hours (except in the
event of emergency), or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof, without unduly or
unreasonably disturbing the operations of the Tenant (except in the event of
emergency).
18. DEFAULT BY TENANT
18.1 Each of the following shall be deemed a default by Tenant
and a breach of this lease:
(1) (i) filing of a petition by Tenant for
adjudication as a bankrupt, or for reorganization, or for an arrangement under
any federal or state statute.
(ii) dissolution or liquidation of the Tenant.
(iii) appointment of a permanent receiver or a
permanent trustee of all or substantial all the property of the Tenant. (iv)
taking possession of the property of the Tenant by a governmental officer or
agency pursuant to statutory authority for dissolution, rehabilitation,
reorganization or liquidation of the then Tenant in possession.
(v) making by the Tenant of an assignment for the
benefit of creditors.
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If any event mentioned in this subdivision (1) shall occur, Landlord
may thereupon or at any time thereafter elect to cancel this lease by ten (10)
days' notice to the Tenant and this lease shall terminate on the day in such
notice specified with the sane force and effect as if that date were the date
herein fixed for the expiration of the term of the lease.
(2) (i) Default in the payment of the rent or
additional rent herein reserved or any part thereof for a period of ten (10)
days after the same is due and payable and written notice has been given as in
this lease required.
(ii) A default in the performance of any other
covenant or condition of this lease on the part of the Tenant to be performed
for a period of thirty (30) days after written notice. For purposes of this
subdivision (2) (ii) hereof, no default on the part of Tenant in performance of
work required to be performed or acts to be done or conditions to be modified
shall be deemed to exist if steps shall have been commenced by Tenant diligently
after notice to rectify the same and shall be prosecuted to completion with
reasonable diligence, subject, however, to unavoidable delays.
18.2 In case of any such default under subparagraph 18.1 (2)
and at any time thereafter following the expiration of the respective grace
periods above mentioned, Landlord may serve a notice upon the Tenant electing to
terminate this Lease upon a specified date not less than ten (10) days after the
date of serving such notice and this Lease shall then expire on the date so
specified as if that date has been originally fixed as the expiration date of
the term herein granted; however, a default under Section 18.1 (2) hereof shall
be deemed waived if such default is made good before the date specified for
termination in the notice of termination served on Tenant.
18.3 In case this Lease shall be terminated as hereinbefore
provided, or by summary proceedings or otherwise, Landlord or its agents may,
immediately or any time thereafter, re-enter and resume possession of the
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demised premises or such part thereof, and remove all persons and property
therefrom, either by summary proceedings or by a suitable action or proceeding
at law, or by force or otherwise, without being liable for any damages therefor.
No re-entry by Landlord shall be deemed an acceptance of a surrender of this
lease.
18.4 In case this lease shall be terminated as hereinafter
Provided, or by summary proceedings or otherwise, Landlord may, in its own name
and in its own behalf, relet the whole or any portion of the demised premises,
for any period equal to or greater or less than the remainder of the then
current term, for any sum which it may deem reasonable, to any tenant which it
may deem suitable and satisfactory, and for any use and purpose which it may
deem appropriate, and in connection with any such lease Landlord may make such
changes in the character of the improvements on the demised premises as Landlord
may determine to be appropriate or helpful in effecting such lease and may grant
concessions or free rent. However, in no event shall Landlord be under any
obligation to relet the demised premises. Landlord shall not in any event be
required to pay Tenant any surplus of any sums received by Landlord on a
reletting of the demised premises in excess of the rent reserved in this lease.
18.5 (1) In case this lease be terminated by summary
proceedings, or otherwise, as provided in this Article 18, and whether or not
the premises be relet, Landlord shall be entitled to recover from the Tenant,
the following:
(i) a sum equal to all expenses, if any, including
reasonable counsel fees, incurred by Landlord in recovering possession of the
demised premises, and all reasonable costs and charges for the care of said
premises while vacant, which damages shall be due and payable by Tenant to
Landlord at such time or times as such expenses shall have been incurred by
Landlord; and
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(ii) A sum equal to all damages set forth in this
paragraph 18 and in paragraph 19 hereinafter referred to.
(2) Without any previous notice or demand, separate actions
may be maintained by Landlord against Tenant from time to time to recover any
damages which, at the commencement of any such action, have then or theretofore
become due and payable to the Landlord under this paragraph 18 and subsections
hereof without waiting until the end of the then current term.
(3) All sums which Tenant has agreed to pay by way of taxes,
sewer charges, water rents or water meter charges, insurance premiums and other
similar items becoming due from time to time under the terms of this lease,
shall be deemed additional rent reserved in this lease within the meaning of
this paragraph 18 and subsections hereof.
19. LIABILITY OF TENANT FOR DEFICIENCY
In the event that the relation of the Landlord and Tenant may
cease or terminate by reason of the default by the Tenant and the re-entry of
the Landlord as permitted by the terms and conditions contained in this lease or
by the ejectment of the Tenant by summary proceedings or other judicial
proceedings, or after the abandonment of the premises by the Tenant, it is
hereby agreed that the Tenant shall remain liable to pay in monthly payments the
rent which shall accrue subsequent to the re-entry by the Landlord, and the
Tenant expressly agrees to pay as damages for the breach of the covenants herein
contained the difference between the rent reserved and the rent collected and
received, if any, by the Landlord, during the remainder of the unexpired term,
as the amount of such difference or deficiency shall from time to time be
ascertained. Anything herein contained to the contrary notwithstanding, the rent
referred to shall include the stated reserved rent together with all additional
rent and charges required to be paid by the Tenant under the lease including but
not limited to taxes and insurance costs, and the costs of re-renting.
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20. NOTICES
All notices required or permitted to be given to the Landlord
shall be given by certified mail, return receipt requested, at the address
hereinbefore set forth on the first page of this lease, and/or such other place
as the Landlord may designate in writing.
All notices required or permitted to be given to the Tenant
shall be given by certified mail, return receipt requested, at the address
hereinbefore set forth on the first page of this lease and/or such other place
as the Tenant shall designate in writing.
21. NON-WAIVER BY LANDLORD
The failure of the Landlord to insist upon strict performance
of any of the covenants or conditions of this lease, or to exercise any option
of the Landlord herein conferred in any one or more instances, shall not be
construed as a waiver by the Landlord of any of its rights or remedies in this
lease, and shall not be construed as a waiver, relinquishment or failure of any
such covenants, conditions, or options, but the same shall be and remain in full
force and effect.
22. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS
22.1 The Tenant may make alterations, additions or
improvements to the leased premises without the consent of the Landlord only if
such alterations, additions or improvements do not require structural changes in
the leased premises, or do not lessen the value of the demised premises. In the
event any alterations, additions or improvements to be made require structural
changes, the same shall only be made upon the Tenant obtaining the prior written
consent of the Landlord, which consent the Landlord shall not unreasonably
withhold or delay, provided the same do not lessen the value of the demised
premises or does not change the basic design and/or utility of the Building. All
such alterations, additions or improvements shall be only in conformity with
applicable governmental and insurance company requirements and
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regulations applicable to the leased premises. Tenant shall hold and save
Landlord harmless and indemnify Landlord against any claim for damage or injury
in connection with any of the foregoing work which Tenant may make as
hereinabove provided.
22.2 Nothing herein contained shall be construed as a consent
on the part of the Landlord to subject the estate of the Landlord to liability
under the Mechanic's Lien Law of the State of New Jersey, it being expressly
understood that the Landlord's estate shall not be subject to such liability.
23. NON-LIABILITY OF LANDLORD
23.1 It is expressly understood and agreed by and between the
parties to this agreement that excepting cases of Landlord negligence, the
Tenant shall assume all risk of damage to its property, equipment and fixtures
occurring in or about the demised premises, whatever the cause of such damage or
casualty.
23.2 It is expressly understood and agreed that in any event,
the Landlord shall not be liable for any damage or injury to property or person
caused by or resulting from steam, electricity, gas, water, rain, ice or snow,
or any leak or flow from or into any part of said Building, or from any damage
or injury resulting or arising from any other cause or happening whatsoever.
24. WARRANT OF TITLE
Landlord represents that it has title to the lands and
premises which are the subject of this lease and that it has the full right,
capacity and authority to enter into the within lease agreement.
25. RESERVATION OF EASEMENT
The Landlord reserves the right, easement and privilege after
providing suitable notice to enter on the premises in order to install, at its
own cost and expense, any storm, drains and sewers and/or utility lines in
connection therewith as may be required by the Landlord. It is understood and
agreed that if such work as may be required by Landlord requires an
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installation which may displace any paving, lawn, seeded area or shrubs, the
Landlord, after providing suitable notice shall, at its own cost and expense,
restore said paving, lawn, seeded area or shrubs. The Landlord covenants that
the foregoing work shall not unreasonably interfere with the normal operation of
Tenant's business, and the Landlord shall indemnify and save the Tenant harmless
in connection with such installations.
26. AIR AND WATER POLLUTION
The tenant expressly covenants and agrees to indemnify,
defend, and save the Landlord harmless against any claim, damage, liability,
costs, penalties, or fines which the Landlord may suffer as a result of Air or
Water Pollution caused by the Tenant in its use of the demised premises. The
Tenant covenants and agrees to notify the Landlord immediately of any claim or
notice served upon it with respect to any such claim the Tenant is causing water
or Air Pollution; and the Tenant, in any event, will take immediate steps to
halt, remedy or cure any pollution of Air or Water caused by the Tenant by its
use of the demised premises.
27. STATEMENT OF ACCEPTANCE
Upon the delivery of the leased premises to the Tenant,
pursuant to the terms and conditions of this lease, the Tenant covenants and
agrees that it will furnish to the Landlord a statement that it accepts the
leased premises and agrees to pay rent from the date of acceptance, subject to
the terms and conditions of the lease as herein contained, which statement may
be in recordable form if required by the Landlord, and which statement shall set
forth the Commencement Date and Date of Expiration of the lease term. In
addition, Tenant agrees to furnish to Landlord, subject to Landlord's compliance
with the terms and conditions of the within lease, an estoppel letter for
mortgage purposes in form annexed hereto and made a part hereof as Schedule "C".
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28. FORCE MAJEURE
Except for the obligation of the Tenant to pay rent and other
charges as in this lease provided, the period of time during which the Landlord
or Tenant is prevented from performing any act required to be performed under
this lease by reason of fire, catastrophe, strikes, lockouts, civil commotion,
acts of God or the public enemy, government prohibitions or preemptions,
embargoes, inability to obtain material or labor by reason of governmental
regulations or prohibitions, the act or default of the other party, or other
events beyond the reasonable control of Landlord or Tenant, as the case may be,
shall be added to the time for performance of such act.
29. STATEMENTS ITS BY LANDLORD AND TENANT
Landlord and Tenant agree at any time and from time to time
upon not less than ten (10) days' prior notice from the other to execute,
acknowledge and deliver to the party requesting same, a statement in writing,
certifying that this lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), that it is not in default (or if
claimed to be in default, stating the amount and nature of the default) and
specifying the dates to which the basic rent and other charges have been paid in
advance, if any; it being intended that any such statement delivered pursuant to
this paragraph may be relied upon as to the facts contained therein.
30. CONDEMNATION
30.1 In the event that more than fifteen (15%) per cent of the
Building containing the leased premises (herein intended to mean the ________
square feet hereinbefore referred to in Paragraph 1) is taken; or if such ground
area is taken (exclusive of that area upon which the Building is located) which
taking of ground shall deny access to the premises and parking areas or shall
eliminate parking for forty (40) vehicles, or deny truck access
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for loading and unloading due to such condemnation, then in that event, if the
Landlord cannot substantially replace such access, parking and loading areas
within reasonable contiguity of the leased premises, then in that event, the
term created shall, at the option of the Tenant, cease and become null and void
from the date when the authority exercising the power of eminent domain takes or
interferes with the use of the Building on the leased premises, its use of the
ground area, parking area, or area of access to the leased premises. The Tenant
shall only be responsible for the payment of rent until the time of surrender.
In any event, no part of the Landlord's condemnation award shall belong to or be
claimed by the Tenant. Without diminishing Landlord's award, the Tenant shall
have the right to make a claim against the condemning authority for such
independent claim which it may have and as may be allowed by law, for costs and
damages due to relocating, moving and other similar costs and charges directly
incurred by the Tenant and resulting from such condemnation.
30.2 In the event of any partial taking which would not be
cause for termination of the within lease or in the event of any partial taking
in excess of the percentages provided in subparagraph 30.1, and in which event
the Tenant shall elect to retain the balance of the leased premises remaining
after such taking, then and in either event, the rent shall abate in an amount
mutually to be agreed upon between the Landlord and Tenant based on the
relationship that the character of the property taken bears to the property
which shall remain after such condemnation. In any event, no part of the
Landlord's condemnation award shall belong to or be claimed by the Tenant.
However, the Landlord shall, to the extent permitted by applicable law and as
the same may be practicable on the site of the leased premises, at the
Landlord's sole cost and expense, promptly make such repairs and alterations in
order to restore the Building and/or improvements to the extent of the
condemnation award.
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31. INSTALLATION PRIOR TO COMPLETION
It is expressly understood and agreed that the Tenant shall
have the right, before commencement of the leased term, to enter into the
Building prior to its substantial completion at such time as the concrete floors
are completed, for the purpose of doing such fixturing and other work as the
Tenant may require for its purposes, provided that the workmen independently
employed on the leased premises by the Tenant do not cause any jurisdictional
labor disputes and that such workmen are members of recognized construction
labor unions in the applicable labor union jurisdictional area covering the
leased premises. In the event the employment of such workmen does cause a
jurisdictional labor dispute, the Landlord shall have the sole and absolute
right to summarily order the Tenant's independent workmen and contractors from
the premises. It is further expressly understood and agreed that if the Tenant
does any such fixturing and work as above set forth, it shall be responsible at
its own cost and expense to pay in connection with such fixturing and work for
any and all insurance, including workmen's compensation and other protections
required by the Laws of the State of New Jersey, and in any event, the Tenant
shall indemnify the Landlord against any claims for damages, injury or other
liability as may be asserted by any of such independent workmen to contractors
employed by the Tenant. Tenant shall assume the sole risk, at its cost and
expense, for the security of and damage to all of its fixtures and equipment as
may be installed pursuant to this Paragraph 31.
32. QUIET ENJOYMENT
The Landlord further covenants that the Tenant, on paying the
rental and performing the covenants and conditions contained in this lease,
shall and may peaceably and quietly have, hold and enjoy the leased premises for
the term aforesaid.
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33. SURRENDER OF PREMISES
On the last day, or earlier permitted termination of the lease
term, Tenant shall quit and surrender the premises in good and orderly condition
and repair (reasonable wear and tear, and damage by fire or other casualty
excepted) and shall deliver and surrender the leased premises to the Landlord
peaceably, together with all alterations, additions and improvements in, to or
on the premises made by Tenant as permitted under the lease. The Landlord
reserves the right, however, to require the Tenant at its cost and expense to
remove any alterations or improvements installed by the Tenant and not permitted
or consented to by the Landlord pursuant to the terms and conditions of the
lease, which covenant shall survive the surrender and the delivery of the
premises as provided hereunder. Prior to the expiration of the lease term the
Tenant shall remove all of its property, fixtures, equipment and trade fixtures
from the premises. All property not removed by Tenant shall be deemed abandoned
by Tenant, and Landlord reserves the right to charge the reasonable cost of such
removal to the Tenant, which obligation shall survive the lease termination and
surrender hereinabove provided. If the premises be not surrendered to the end of
the lease term, Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in surrendering the premises, including, without
limitation any claims made by any succeeding tenant founded on the delay.
34. INDEMNITY
Anything in this lease to the contrary, notwithstanding, and
without limiting the Tenant's obligation to provide insurance pursuant to
paragraph 10 hereunder, the Tenant covenants and agrees that it will except in
cases of Landlord negligence indemnify, defend and save harmless the Landlord
against and from all liabilities, obligations, damages, penalties, claims,
costs, charges and expenses, including without limitation reasonable attorneys
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fees, which may be imposed upon or incurred by Landlord by reason of any of the
following occurring during the term of this lease:
(i) Any matter, cause or thing arising out of use, occupancy,
control or management of the leased premises and any part thereof.
(ii) Any negligence on the part of the Tenant or any of its
agents, contractors, servants, employees, licensees or invitees;
(iii) Any accident, injury, damage to any person or property
occurring in or about the leased premises;
(iv) Any failure on the part of Tenant to perform or comply
with any of the covenants, agreements, terms or conditions contained in this
lease on its part to be performed or complied with.
Landlord shall promptly notify Tenant of any such claim
asserted against it and shall promptly send to Tenant copies of all papers or
legal process served upon it in connection with any action or proceeding brought
against Landlord by reason of any such claim.
35. SHORT FORM LEASE
It is understood between the parties hereto that this lease
will not be recorded, but that a short form lease, describing the property
leased hereby, giving the term of this lease, and making particular mention of
any special clauses as herein contained, will be recorded in accordance with the
laws governing and regulating the recording of such documents in the State of
New Jersey.
36. LEASE CONSTRUCTION
This lease shall be construed pursuant to laws of the State of
New Jersey.
37. BIND AND INURE CLAUSE
The terms covenants and conditions of the within lease shall
be binding upon and inure to the benefit of each of the parties hereto, their
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respective executors, administrators, heirs, successors and assigns, as the
case may be.
38. DEFINITIONS
The neuter gender, when used herein and in the acknowledgment
hereafter set forth, shall include all persons and corporations, and words used
in the singular shall include words in the plural where the text of the
instrument so requires.
39. NET RENT
It is the purpose and intent of the Landlord and Tenant that
the rent shall be absolutely net to Landlord, so that this lease shall yield,
net, to Landlord, the rent specified in paragraph 3 hereof in each month during
the term of the lease, and that all costs, expenses and obligations of every
kind and nature whatsoever relating to the leased premises which may arise or
become due during or out of the term of this lease, shall be paid by the Tenant,
except for such obligations and charges as have otherwise expressly been assumed
by the Landlord in accordance with the terms and conditions of the lease.
Nothing herein shall require the Tenant to undertake obligations in connection
with the sale or mortgaging of the leased premises, unless otherwise expressly
provided in accordance with the terms and conditions of this lease.
40. DEFINITION OF TERM OF "LANDLORD"
When the term "Landlord" is used in this lease it shall be
construed to mean and include only the owner of the fee title of the leased
premises. Upon the transfer by the Landlord of the fee title hereunder, the
Landlord shall advise the Tenant in writing by certified mail, return receipt
requested, of the name of the Landlord's transferee. In such event, the then
Landlord shall be automatically freed and relieved from and after the date of
such transfer of title of all personal liability with respect to the performance
of any of the covenants and obligations on the part of the
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Landlord herein contained to be performed, provided any such transfer and
conveyance by the Landlord is expressly subject to the assumption by the grantee
or transferee of the obligations of the Landlord to be performed pursuant to the
terms and conditions of the within lease.
41. COVENANTS OF FURTHER ASSURANCES
If, in connection with obtaining financing for the
improvements on the leased premises, the Mortgage Lender shall request
reasonable modifications in this be a condition to such financing, Tenant will
not unreasonably withhold, delay or refuse its consent thereto, provided that
such modifications do not in Tenant's reasonable judgment increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's use and enjoyment of the demised premises.
42. LANDLORD REMEDIES
42.1 The rights and remedies given to the Landlord in this
lease are distinct, separate and cumulative remedies, and no one of them,
whether or not exercised by the Landlord, shall be deemed to be in exclusion of
any of the others.
42.2 In addition to any other legal remedies for violation or
breach by or on the part of the Tenant or by any undertenant or by anyone
holding or claiming under the Tenant or any one of them, of the restrictions,
agreements or covenants of this lease on the part of the Tenant to be performed
or fulfilled, such violation or breach shall be restrainable by injunction at
the suit of the Landlord.
42.3 No receipt of money by the Landlord from any receiver,
trustee or custodian or debtors in possession shall reinstate, continue or
extend the term of this lease or affect any notice theretofore given to the
Tenant, or to any such receiver, trustee, custodian or debtor in possession, or
operate as a waiver or estoppel of the right of the Landlord to recover
possession of the demised premises for any of the causes therein enumerated by
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any lawful remedy; and the failure of the Landlord to enforce any covenant or
condition by reason of its breach by the Tenant shall not be deemed to void or
affect the right of the Landlord to enforce the same covenant or condition on
the occasion of any subsequent default or breach.
43. COVENANT AGAINST LIENS
Tenant agrees that it shall not encumber, or suffer or permit
to be encumbered, the leased premises or the fee thereof by any lien, charge or
encumbrance, and Tenant shall have no authority to mortgage or hypothecate this
lease in any way whatsoever. The violations of this Article shall be considered
a breach of this lease.
44. SUBORDINATION
44.1 This lease shall be subject and subordinate at all times
to the lien of any mortgages or ground rents or other encumbrances now or
hereafter placed on the land and building and leased premises without the
necessity of any further instrument or act on the part of Tenant to effectuate
such subordination, but Tenant covenants and agrees to execute and deliver upon
demand such further instrument or instruments evidencing such subordination of
the lease to the lien of any such mortgage or ground rent or other encumbrances
as shall be desired by a mortgagee or proposed mortgagee or by any person.
Tenant appoints Landlord the attorney in fact of the Tenant irrevocably, to
execute and deliver any such instrument or instruments for and in the name of
Tenant.
44.2 The foregoing provisions of this Article shall be
effective only in the event that any such mortgagee or holder of other
encumbrance provides, or the holder thereof agrees with Tenant, as follows:
(a) That this lease is and shall be subject and
subordinate to the Mortgage insofar as it
affects the real property of which the
demised premises form a part, and to all
renewals, modifications, consolidations,
replacements and extensions thereof, to the
full extent of the principal sum secured
thereby and interest thereon.
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(b) That in the event it should become necessary
to foreclose the Mortgage the Mortgagee
thereunder will not join the Tenant under
any lease in summary or foreclosure
proceedings so long as the Tenant is not in
default under any of the terms, covenants,
or conditions of this lease.
(c) That in the event the Mortgagee shall, in
accordance with the foregoing, succeed to
the interest of the Landlord under this
lease, the Mortgagee agrees to be bound to
the Tenant under all of the terms, covenants
and conditions of this lease, and the Tenant
agrees, from and after such event, to attorn
to the Mortgagee and/or purchaser at any
foreclosure sale of the premises, all rights
and obligations under this lease to continue
as though the interest of Landlord had not
terminated or such foreclosure proceedings
had not been brought, and the Tenant shall
have the same remedies against the Mortgagee
for the breach of an agreement contained in
this lease that the Tenant might have had
under this lease against the Landlord if the
Mortgagee had not succeeded to the interest
of the Landlord; provided, however, that the
Mortgagee shall not be
(i) liable for any act or omission of
the Landlord, except as otherwise
provided by law; or
(ii) subject to any offsets or defenses
which the Tenant might have against
the Landlord, except as otherwise
provided by law; or
(iii) bound by any rent or additional
rent which the Tenant might have
paid to the Landlord for more than
the current month and one
additional month; or
(iv) bound by any amendment or
modification of the Lease made
without its consent, which consent
shall not be unreasonably withheld
or delayed.
45. MUTUAL PARKING
It is expressly understood and agreed between the Landlord and
Tenant that parking spaces will be reserved and marked and striped for the
exclusive use of the Tenant hereunder, its employees and customers, and such
parking spaces shall be located in the parking area as shall be designated by
the Landlord, in accordance with the plan as shown on Schedule "B" hereinbefore
referred to. The parties hereto mutually agree that they will
42
<PAGE>
not permit the access driveways to be blocked so as to unreasonably interfere
with the use of said access driveways and parking area. The Landlord reserves
the right at all times to re-locate the parking areas at the leased premises
provided such re-location provides substantially equivalent parking facilities.
The Landlord reserves the right for itself, its tenants and assigns to have
mutual use of the access driveways contiguous to Tenant's leased premises. The
Landlord shall reserve forty (40) parking spaces for the use of the Tenant.
46. CANCELLATION PRIVILEGE
In consideration of the terns and conditions of this lease,
the Tenant is hereby given the right and privilege to cancel the within lease,
effective as of and at the expiration of the fifth (5th) year of the ten (10)
year lease term. The right and privilege to cancel the within lease by Tenant
shall only be effective if the Tenant gives to the Landlord nine (9) months'
prior written notice of Tenant's exercise of its right of cancellation, which
notice of cancellation shall be in writing by certified mail, return receipt
requested. In the event of such cancellation as hereinabove referred to, all
rent and other charges shall be paid and adjusted by the Landlord and Tenant, if
applicable in accordance with the terms and conditions of the within lease.
47. CONFIRMATION OF RENT AND PERCENTAGE PAYMENTS
Upon completion of the Building and Tenant's leased space,
Landlord shall certify to Tenant the actual square footage of the Building and
the square footage of Tenant's leased space. In the event there is any variance
between the size of the Building, intended to be ___________, and the size of
Tenant's leased space, intended to be ________________ (outside outside
dimensions to center line of common wall), then in that event, the Landlord and
Tenant shall enter into a lease amendment to properly reflect the required
adjustment of pro rata percentage payments required to be paid by Tenant
hereunder, and to further reflect a proper adjustment of net annual
43
<PAGE>
rent per square foot, based at the rate of $2.25 per square foot per annum for
the first five (5) years of the lease term and $2.81 per square foot per annum
for the second five (5) years of the lease term.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
or caused these presents to be signed by its proper corporate officers and
caused its proper corporate seal to be hereunto affixed, the day and year first
above written.
WITNESS: H. HARDING BROWN AND CHARLES T. SHEA,
TRUSTEES UNDER TRUST INDENTURE DATED THE
25TH DAY OF JUNE, 1968
/s/Susan Matlosz BY: /s/H. Harding Brown
- ---------------- --------------------------------------
SUSAN MATLOSZ H. HARDING BROWN, Trustee
ATTEST: WESTERN AUTOMOTIVE WAREHOUSE
DISTRIBUTORS, INC.
/s/J.E. Smith BY:/s/Robert Tauber
- ---------------- --------------------------------------
J.E. Smith President
Assistant Secretary
44
<PAGE>
SCHEDULE "A"
BEGINNING at a point in the southerly side of Colonial Drive therein distant
westerly 628.69 feet from the intersection of the same with the westerly side of
South Randolphville Road, if the same were produced to meet at an intersection;
thence (1) Along said side of Colonial Drive westerly on the arc of a
curve, curving to the left with a radius of 970.00 feet for a
distance of 612.43 feet;
thence (2) South 3 degrees 54 minutes 12 seconds East 469.12 feet;
thence (3) South 53 degrees 48 minutes 52 seconds East 683.65 feet;
thence (4) North 18 degrees 35 minutes 08 seconds East 352.21 feet;
thence (5) North 18 degrees 03 minutes'08 seconds East 61.57 feet;
thence (6) North 11 degrees 46 minutes 37 seconds West 602.43 feet to the
southerly side of Colonial Drive and the point or place of
BEGINNING.
Being subject to a 20-foot Storm Drainage Easement.
Being Lots #2 and #3, Block 460-C, Map of Centennial Industrial Park, Section
#3, Piscataway, New Jersey, filed in the Register's office of Middlesex County
on December 31, 1970, as Map #3423, File #958.
Containing 495,270.54 square feet or 11.37 acres.
45
<PAGE>
SCHEDULE "C"
ESTOPPEL CERTIFICATE
Re: Lease dated
Lessor -
Lessee -
Mortgagee -
Premises -
Gentlemen:
The undersigned, as Lessee under the above described Lease, hereby certifies, as
of the date hereof, for the benefit of and with the intent and understanding
that such will be relied upon by the Mortgagee, which has or is about to make a
loan to said Lessor, part of the security for which will be a mortgage covering
the premises leased to the Lessee, and an assignment of Lessor's interest in the
Lease, the following:
1. That it has accepted full and complete possession of the demised premises
pursuant to the terms of the Lease, and that the Lease term commenced.
2. That the improvements and space required to be furnished in accordance with
the Lease have been completed in all respects to the satisfaction of the
undersigned, and are open for the use of the undersigned, its customers,
employees and invitees.
3. That Lessor has satisfactorily complied with all of the requirements and
conditions precedent to the commencement of the term of said Lease as specified
therein.
4. That it has received no notice of a prior sale, transfer, assignment,
hypothecation or pledge of the said Lease or of the rents secured therein.
5. That the said Lease is in full force and effect and that it has not been
modified, amended, supplemented, or superseded.
6. That no rent or other sums payable under the Lease have been prepaid except
as provided by the terms thereof.
7. That in the event the Mortgagee acquires the demised premises through
foreclosure or through a transfer of title in lieu of foreclosure, Lessee will
in no event look to the Mortgagee for the return of any security deposited under
the terms of the Lease or for any sums escrowed with the Lessor for taxes.
8. That there is no existing default under any of the terms and provisions of
the Lease and that the undersigned does not have or hold any defenses, setoffs,
or counterclaims against Lessor arising out of the Lease or in any
46
<PAGE>
way relating thereto, or arising out of any other transaction between Lessee and
Lessor which might be set off or credited against the accruing rents.
9. That the rent provided in said Lease commenced to accrue on the ______ day of
_____________, 19__; that the primary Lease term of ___ years commenced on the
_______ day of ____________, 19__, and expires on the _______ day of
_______________, 19__.
DATED:
By:_________________________
47
<PAGE>
1. Article 1.1 of the Lease is hereby amended so as to provide that
Tenant's leased premises shall consist of 65,701 square feet, in lieu of the
65,672 square feet as in the Lease now provided, and wherever in the Lease
reference is made to 65,672 square feet of leased space, 65,701 square feet
shall be substituted therefor.
2. Article 3 is hereby modified so as to substitute the following
Article 3 in place and stead of Article 3 therein provided, as follows:
3. RENT
The Tenant covenants and agrees to pay to Landlord, during the
term of the lease, the annual rent as follows:
A. During the first five (5) years of the lease term, annual
rent in the amount of ONE HUNDRED FORTY SEVEN THOUSAND EIGHT HUNDRED
TWENTY SEVEN AND 25/100 ($147,827.25) DOLLARS, payable in equal monthly
installments in the sum of TWELVE THOUSAND THREE HUNDRED EIGHTEEN AND
94/100 ($12,318.94) DOLLARS per month.
B. During the second five (5) years of the lease term, annual
rent in the amount of ONE HUNDRED EIGHTY FOUR THOUSAND SIX HUNDRED
NINETEEN AND 81/100 ($184,619.81) DOLLARS, payable in equal monthly
installments in the sum of FIFTEEN THOUSAND THREE HUNDRED EIGHTY FOUR
AND 98/100 ($15,384.98) DOLLARS per month.
The monthly rent payments above required shall be made promptly in advance on
the first day of each and every month during the term of the lease without
demand and without offset or deduction, together with such additional rent and
other charges required to be paid by Tenant as are hereinafter set forth.
3. Wherever in the Lease the percentage of tenant's pro rata cost of
additional rent obligation is provided or required, the same shall now be
established for the purposes of the lease as 45.8% in lieu of any other pro rata
percentage in the lease contained.
48
<PAGE>
4. Except as hereinabove provided, all other terms and conditions shall
remain in full force and effect, otherwise unmodified and unimpaired.
5. This agreement shall be binding on the parties hereto, their heirs,
successors and assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
or caused these presents to be signed by its proper corporate officers and
caused its proper corporate seal to be hereunto affixed, the day and year first
above written.
WITNESS: H. HARDING BROWN AND CHARLES T. SHEA,
TRUSTEES UNDER TRUST INDENTURE DATED THE
25TH DAY OF JUNE, 1968
/s/William S. Halgrum BY: /s/H. Harding Brown
- --------------------- --------------------------------------
H. HARDING BROWN, Trustee
ATTEST: WESTERN AUTOMOTIVE WAREHOUSE
DISTRIBUTORS, INC.
/s/ BY: /s/R.S. Tauber
- --------------------- --------------------------------------
R.S. Tauber, President & General Manager
49
<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF UNION )
BE IT REMEMBERED, that on 6th day of October 1978, before me,
the subscriber, a Notary Public of New Jersey personally appeared H. HARDING
BROW, TRUSTEE, who, I am satisfied, is the Landlord mentioned in the within
Instrument, and thereupon he acknowledged that he signed, sealed and delivered
the same as his act and deed, for the uses and purposes therein expressed.
/s/ Susan Matlosz
-----------------------
SUSAN MATLOSZ
STATE OF COLORADO )
) SS.
COUNTY OF ADAMS )
BE IT REMEMBERED, that on this 19thd day of September 1978, before me,
the subscriber, personally appeared Robert Tauber who, I am satisfied, is the
person who signed the within Instrument as President of WESTERN AUTOMOTIVE
WAREHOUSE DISTRIBUTORS INC., a California corporation, the Tenant named therein,
and he thereupon acknowledged that the said instrument made by the corporation
and sealed with its corporate seal, was signed, sealed with the corporate seal
and delivered by him as such officer and is the voluntary act and deed of the
corporation, made by virtue of authority from its Board of Directors.
/s/ Paul K. Leyman
-------------------------------------
My commission Expires August 23, 1981
PREPARED BY: H. HARDING BROWN, ESQ.
50
<PAGE>
LEASE AGREEMENT
BY AND BETWEEN:
H. HARDING BROWN AND CHARLES T. SHEA,
TRUSTEES UNDER TRUST INDENTURE
DATED THE 25TH DAY OF JUNE, 1968
"Landlord"
-and-
WESTERN AUTOMOTIVE WAREHOUSE
DISTRIBUTORS, INC.,
a California corporation,
"Tenant"
-------------------------
DATED: September 4, 1979
-------------------------
LAW OFFICES
EPSTEIN, EPSTEIN, BROWN BOSEK
& TURNDORF, ESQS.
#33 West Grand Street
P.O. Box 634
Elizabeth, New Jersey 07207
#30005-320
51
<PAGE>
THIS AGREEMENT, made the 4th day of September, 1979, by and between H.
HARDING BROWN and CHARLES T. SHEA, TRUSTEES UNDER TRUST INDENTURE DATED THE 25TH
DAY OF JUNE, 1968, having an office at #33 West Grand Street, Elizabeth, New
Jersey, hereinafter called the "Landlord"; and WESTERN AUTOMOTIVE WAREHOUSE
DISTRIBUTORS, INC., a California corporation, having an office at 3260 West 26th
Street, Los Angeles, California 90023, hereinafter called the "Tenant"
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Landlord and Tenant have entered into a certain Lease
Agreement dated September 19, 1978, hereinafter called the "Lease", in
connection with lands and premises known as Lots 2 and 3, Block 460-C, Colonial
Drive, Piscataway, New Jersey, all as more particularly described on Schedule
'A' annexed hereto and made a part hereof; and
WHEREAS, the Landlord has erected an industrial-type building
containing 143,467 square feet, outside outside dimensions, located on the
premises referred to in Schedule "A" annexed hereto (hereinafter referred to as
the "Building"); and
WHEREAS, the Tenant occupies space which, pursuant to Article 47 of the
Lease requires certification of the actual square footage of the building and
the actual square footage of tenant's leased space; and
WHEREAS, Landlord has obtained such certification from Landlord's
engineer and accordingly, the lease terms with respect to rent, percentage of
pro rata payments and other lease obligations are to be revised in accordance
with the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the sum of One ($1.00) Dollar and
other good and valuable consideration, the parties hereto mutually covenant and
agree as follows:
52
<PAGE>
STATE OF NEW JERSEY )
) SS.:
COUNTY OF UNION )
BE IT REMEMBERED, that on this 9th day of October, 1979, before me, the
subscriber, a Notary Public of New Jersey, personally appeared H. HARDING BROWN,
TRUSTEE, who, I am satisfied, is the Landlord mentioned in the within
Instrument, and thereupon he acknowledged that he signed, sealed and delivered
the same as his act and deed, for the uses and purposes therein expressed.
/s/ William S. Halprin
----------------------
William S. Halprin
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 4th day of September, 1979, before me, the
subscriber, M.J. Swift, personally appeared R.S. Tauber who, I am satisfied, is
the person who signed the within Instrument as President of WESTERN AUTOMOTIVE
WAREHOUSE DISTRIBUTORS INC., a California corporation, the Tenant named therein,
and he thereupon acknowledged, that the said instrument made by the corporation
and sealed with its corporate seal, was signed, sealed with the corporate seal
and delivered by him as such officer and is the voluntary act and deed of the
corporation, made by virtue of authority from its Board of Directors.
[OFFICIAL SEAL]
/s/ M.M. Swift
----------------------
M.M. Swift
53
<PAGE>
LOAN AND SECURITY AGREEMENT
JMCD, INCORPORATED
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrower.
SECTION 1. PARTIES
1.1 The "Borrower" is the person, firm, corporation or other
entity, identified as the Borrower in Section 10 and its successors and assigns.
If more than one Borrower is specified in Section 10, all references to Borrower
shall mean each of them, jointly and severally, individually and collectively,
and the successors and assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc. and its
successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and
conditions contained herein, make revolving loans to Borrower ("Revolving
Loans") in amounts requested by Borrower from time to time, but not in excess of
the Net Availability existing immediately prior to the making of the requested
Revolving Loan and provided the requested Revolving Loan would not cause the
outstanding Obligations to exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section 10.1(a)
hereof.
(b) The "Gross Availability" shall be calculated at any time as
the sum of:
(i) the product obtained by multiplying the outstanding
amount of Eligible Accounts, net of all taxes, discounts,
allowances and credits given or claimed, by the Eligible
Accounts Percentage set forth in Section 10.1(b), plus:
(ii) the product obtained by multiplying the then
outstanding Eligible Inventory Percentage, if any, set forth in
Section 10.1(b) by the values (as determined by Lender based on
the lower of cost or market) of Eligible Inventory, but the
amount so added shall not exceed any sublimit set forth in
Section 10.1(c), minus:
(iii) any Reserves.
(c) The "Net Availability" shall be calculated at any time as
an amount equal to the Gross Availability minus the aggregate amount of all then
outstanding Obligations to Lender.
-1-
<PAGE>
(d) "Eligible Accounts" are accounts created by Borrower in the
ordinary course of its business which are and remain acceptable to Lender for
lending purposes. General criteria for Eligible Accounts are set forth below but
may be revised from time to time by Lender, in its sole judgment, on fifteen
(15) days' prior written notice to Borrower. Lender shall, in general, deem
accounts to be Eligible Accounts if: (1) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the number of
days after the invoice date set forth in Section 10.1(d); (2) the amounts of the
accounts reported to Lender are absolutely owing to Borrower and do not arise
from sales on consignment, guaranteed sale or other terms under which payment by
the account debtors may be conditional or contingent; (3) the account debtor's
chief executive office or principal place of business is located in the United
States; (4) such accounts do not arise from progress billings or retainages or
bill and hold sales; (5) there are no contra relationships, setoffs,
counterclaims or disputes existing with respect thereto and there are no other
facts existing or threatened which would impair or delay the collectability of
all or any portion thereof; (6) the goods giving rise thereto were not at the
time of the sale subject to any liens or taxes except those permitted in this
Agreement; (7) such accounts are not accounts with respect to which the account
debtor or any officer or employee thereof is an officer, employee or agent of or
is affiliated with Borrower, directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise; (8) such accounts are
not accounts with respect to which the account debtor is the United States or
any State or political subdivision thereof or any department, agency or
instrumentality of the United States, any State or political subdivision, unless
there has been compliance with the Assignment of Claims Act or any similar State
or local law, if applicable; (9) Borrower has delivered to Lender or Lender's
representative such documents as Lender may have requested pursuant to Section
5.8 hereof in connection with such accounts and Lender shall have received a
verification of such account, satisfactory to it, if sent to the account debtor
or any other obligor or any bailee pursuant to Section 5.4 hereof; (10) there
are no facts existing or threatened which might result in any adverse change in
the account debtor's financial condition; (11) such accounts owed by a single
account debtor or its affiliates do not represent more than twenty percent (20%)
of all otherwise Eligible Accounts (accounts excluded from Eligible Accounts
solely by reason of this subsection (11) shall nevertheless be considered
Eligible Accounts to the extent of the amount of such accounts which does not
exceed twenty percent (20%) of all otherwise Eligible Accounts); (12) such
accounts are not owed by an account debtor whose accounts or whose affiliates'
accounts greater than the number of days past invoice date set forth in Section
10.1(d) comprise more than fifty (50%) percent of the accounts of such account
debtor or its affiliates owed to Borrower; (13) such accounts are owed by
account debtors whose total indebtedness to Borrower does not exceed the amount
of any customer credit limits as established, and changed, from time to time by
Lender on notice to Borrower (accounts excluded from Eligible Accounts solely by
reason of this subsection (13) shall nevertheless be considered Eligible
Accounts to the extent the amount of such accounts does not exceed such customer
credit limit); and (14) such accounts are owed by account debtors deemed
creditworthy at all times by Lender.
-2-
<PAGE>
(e) "Eligible Inventory" is finished goods inventory owned by
Borrower which is and remains acceptable to Lender for lending purposes and is
located at one of the addresses set forth in Section 10.6(d).
(f) Lender shall have a continuing right to deduct reserves
("Reserves") in determining the Gross Availability, and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's sole
judgement, such Reserves are necessary to protect Lender against any state of
facts which does, or would, with notice or passage of time or both, constitute
an Event of Default or have an adverse effect on any Collateral. Lender may, at
its option, implement Reserves by designating as ineligible a sufficient amount
of accounts or inventory which would otherwise be Eligible Accounts or Eligible
Inventory so as to reduce Gross Availability by the amount of the intended
Reserve.
(g) Subject to the terms and conditions hereof, including but
not limited to the existence of sufficient Gross and Net Availability, Borrower
agrees to borrow amounts from time to time such that the aggregate outstanding
principal amount of all Revolving Loans shall at all times equal or exceed the
principal amount set forth in Section 10.1(e) as the Minimum Borrowing;
provided, that the only consequence of a breach of the foregoing shall be the
required payment set forth in the following sentence. If the average outstanding
principal amount of the Revolving Loans for any month is less than the Minimum
Borrowing, Borrower shall also pay Lender a fee equal to the amount of interest
that would have accrued during such month on such difference. Such fee shall be
payable at the rate and in the manner provided herein for the payment of
interest.
2.2 [Intentionally deleted.]
2.3 Accommodations.
(a) Subject to the terms and conditions contained herein,
Lender may in its sole discretion, issue or cause to be issued, from time to
time at Borrower's request and on terms and conditions and for purposes
satisfactory to Lender, credit accommodations consisting of letters of credit,
bankers' acceptances, merchandise purchase guaranties or other guaranties or
indemnities for Borrower's account ("Accommodations"). Borrower shall execute
and perform additional agreements relating to the Accommodations in form and
substance acceptable to Lender and the issuer of any Accommodations, all of
which shall supplement the rights and remedies granted herein. Any payments made
by Lender or any affiliate of Lender in connection with the Accommodations shall
constitute additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations, Borrower shall pay
monthly to Lender, on the first day of each month, a charge on the face amount
of all outstanding Accommodations computed daily from the date of issuance until
termination or payment, at the rate set forth in Section 10.3(a) (the
"Accommodation Charges").
-3-
<PAGE>
(c) No Accommodation will be issued unless the full amount of
the Accommodation requested (but only 65% of the cost of the inventory plus duty
and freight charges in the case of Accommodations for the purchase of Eligible
Inventory), plus fees and costs for issuance, is less than the Net Availability
existing immediately prior to the issuance of the requested Accommodations, or
if the requested Accommodation would cause the sum of the outstanding
Obligations to exceed the Maximum Credit, or cause the sum of the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit set forth in
Section 10.3(b).
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Accommodation shall be included in the term
"Obligations", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation, (ii) all amounts
charged or chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved with such
Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and
other charges of any issuer of any Accommodation; and (iv) all duties, freight,
taxes, costs, insurance and all such other charges and expenses which may
pertain directly or indirectly to any Obligations or Accommodations or to the
goods or documents relating thereto.
(e) Borrower unconditionally agrees to indemnify and hold
Lender harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences to any
Accommodation established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptance thereunder, including any such
loss or claim due to any action taken by an issuer of any Accommodation.
Borrower further agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the Accommodations, whether caused by Lender, by
the issuer of any Accommodation or otherwise. Borrower's unconditional
obligation to indemnify and hold Lender harmless under this provision shall not
be modified or diminished for any reason or in any manner whatsoever, except for
Lender's gross negligence or wilful misconduct. Borrower agrees that any charges
made to Lender by any issuer of any Accommodation shall be conclusive on
Borrower and may be charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity of any
goods to the documents presented; the validity or genuineness of any documents;
delay, default, or fraud by Borrower or shipper and/or anyone else in connection
with the Accommodations or any underlying transaction.
(g) Borrower agrees that any action taken by Lender, if taken
in good faith, or any action taken by an issuer of any Accommodation, under or
in connection with any Accommodation, shall be binding on Borrower and shall not
create any resulting liability to Lender. In furtherance thereof Lender shall,
upon an Event of Default or if Lender is directly collecting the accounts
pursuant to Section 5.4, have the full right and authority to clear and resolve
any questions of non-compliance of documents; to give any instructions as to
acceptance or rejection of any documents or goods; to execute for Borrower's
account any
-4-
<PAGE>
and all applications for steamship or airway guarantees, indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications or Accommodations. All of
the foregoing actions may be taken in Lender's sole name, and the issuer thereof
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from Lender, all without notice to or
any consent from Borrower. None of the foregoing actions described in this
subsection (g) may be taken by Borrower without Lender's express written
consent.
2.4 Certain Amounts Due on Demand. Lender may, in the exercise of
its reasonable credit judgment, make or permit Revolving Loans and
Accommodations or other Obligations in excess of the Maximum Credit, Gross or
Net Availability or applicable sublimits. To the extent such excess is permitted
by Lender, all or any portion of such excess(es) shall become due and payable
upon demand therefor. To the extent the aggregate amount of Revolving Loans,
Accommodations or other Obligations at any time exceeds, without the consent of
Lender, the Maximum Credit, Gross or Net Availability or applicable sublimits,
all of such excess(es) shall become immediately due and payable whether or not
Lender makes a demand therefor.
SECTION 3. INTEREST AND FEES
3.1 Interest. Interest on all Obligations shall be payable by
Borrower on the first day of each month, calculated upon the closing daily
outstanding principal balances in the loan accounts of Borrower for each day
during the immediately preceding month, at the per annum rate set forth as the
Interest Rate in Section 10.4(a). The Interest Rate shall increase or decrease
by an amount equal to each increase or decrease, respectively, in the Prime Rate
(as defined below), effective as of the date of each such change. On and after
any Event of Default or termination or non-renewal hereof, interest on all
unpaid Obligations shall, automatically and without notice by Lender, accrue at
a rate equal to two percent (2%) per annum in excess of the Interest Rate
otherwise payable until such time as all Obligations are indefeasibly paid in
full in immediately available funds (notwithstanding entry of any judgment
against Borrower or the exercise of any other right or remedy by Lender), and
all such interest shall be payable on demand. Interest, including interest
charged upon the occurrence of an Event of Default, shall be calculated on the
basis of actual days elapsed over a 360-day year. In no event shall charges
constituting interest exceed the rate permitted under any applicable law or
regulation. However, if any interest or other charges paid or payable in
connection with this Agreement are ever determined to exceed the maximum amount
or rate permitted by law, Borrower and Lender understand and agree that: (A) the
amount or rate of interest or other charges payable by Borrower pursuant to this
lending transaction shall be reduced to the maximum amount permitted by law; and
(B) any excess amount previously collected from Borrower in connection with this
lending transaction which exceeded the maximum amount permitted by law will be
credited against the outstanding principal balance. If the outstanding principal
balance has already been paid, the excess amount paid will be refunded to
Borrower.
-5-
<PAGE>
The "Prime Rate" is the rate of interest from time to time publicly
announced by The Chase Manhattan Bank (or its successor) in New York, New York
as its prime rate or similar designation (such rate is not intended to be the
lowest rate charged by such bank to its borrowers).
3.2 Facility Fee. Borrower shall pay Lender a Facility Fee (fully
earned upon closing) in installments at each anniversary of the closing as set
forth in Section 10.4(b), provided that Borrower shall not be required to pay
Lender any additional annual installments of such Facility Fee if on or after
November 15th of any year Borrower terminates this Agreement early and pays
Lender, along with the full amount of the Obligations, the early termination fee
required by Section 9.2.
3.3 [Intentionally Deleted.]
3.4 [Intentionally Deleted.]
3.5 Closing Fee. Borrower shall pay Lender on the date hereof, a
Closing Fee in the amount set forth in Section 10.4(d), which fee is fully
earned as of the date hereof.
3.6 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged, on the date when due, as principal to any
loan account of Borrower maintained by Lender and shall thereafter bear interest
at the rate and be payable in the manner provided herein for accrual and payment
of interest on outstanding Obligations. No portion of any fees or charges
payable by Borrower hereunder shall be refundable for any reason including,
without limitation, termination of this Agreement.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 To secure the payment and performance in full of all
Obligations, Borrower hereby grants to Lender a continuing security interest in
and lien upon, and a right of setoff against, and Borrower hereby assigns and
pledges to Lender, all of the Collateral, including any Collateral not deemed
eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans,
Accommodations and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or after
the commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
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outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following property of
Borrower:
(a) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of all accounts, including without
limitation all interests in goods represented by accounts, returned, reclaimed
or repossessed goods with respect thereto and rights as an unpaid vendor;
contract rights; chattel paper; general intangibles (including, but not limited
to, tax and duty claims and refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, license agreements and licenses, whether as licensor or licensee,
computer software programs and systems, choses in action and other claims, and
existing and future leasehold interests in equipment, real estate and fixtures);
documents; instruments; letters of credit, bankers' acceptances or guaranties;
cash monies, deposits, securities, investment property, bank accounts, deposit
accounts, credits and other property now or hereafter held in any capacity by
Lender, its affiliates or any entity which, at any time, participates in
Lender's financing of Borrower or at any other depository or other institution;
agreements or property securing or relating to any of the items referred to
above;
(b) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of goods, including, but not limited
to:
(i) All inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description,
including all raw materials, work-in-process, finished goods,
and materials to be used or consumed in Borrower's business;
and all names or marks affixed to or to be affixed thereto for
purposes of selling same by the seller, manufacturer, lessor or
licensor thereof;
(ii) All equipment and fixtures, wherever located, whether
now owned or hereafter acquired, including, without limitation,
all machinery, equipment, motor vehicles, furniture and
fixtures, and any and all additions, substitutions,
replacements (including spare parts), and accessions thereof
and thereto;
(iii) All consumer goods, farm products, crops, timber,
minerals or the like (including oil and gas), wherever located,
whether now owned or hereafter acquired, of whatever kind,
nature or description;
(c) All now owned and hereafter acquired right, title and
interests of Borrower in, to and in respect of any other personal property or
fixtures in or upon which Lender has or may hereafter have a security interest,
lien or right of setoff;
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(d) All present and future books and records relating to any of
the above including, without limitation, all computer programs, printed output
and computer readable data, in any media, in the possession or control of
Borrower, any computer service bureau or other third party;
(e) All notes, security interests and deeds of trust or
mortgages in favor of Borrower; and
(f) All products and proceeds of the foregoing in whatever form
and wherever located, including, without limitation, all insurance proceeds and
all claims against third parties for loss or destruction of or damage to any of
the foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower shall, at Borrower's expense and in the
manner requested by Lender from time to time, direct that remittances and all
other proceeds of accounts and other Collateral shall be sent to a lockbox
designated by and/or maintained in the name of Lender, and deposited into a bank
account maintained in the name of Lender under arrangements with the depository
bank under which all funds deposited to such bank account are required to be
transferred solely to Lender. Borrower shall bear all risk of loss of any funds
deposited into such account. In connection therewith, Borrower shall execute
such lockbox and bank account agreements as Lender shall specify. Any
collections or other proceeds received by Borrower shall be held in trust for
Lender and immediately remitted to Lender in kind.
5.2 Payments. All Obligations shall be payable at Lender's office
set forth below or at Bank of America, NT & SA in Los Angeles, California, or at
such substitute bank as Lender may determine ("Lender's Bank") or such other
place as Lender may expressly designate from time to time for purposes of this
Section. Lender shall apply all proceeds of accounts or other Collateral
received by Lender and all other payments in respect of the Obligations to the
Revolving Loans whether or not then due or to any other obligations then due, in
whatever order or manner Lender shall determine. For purposes of determining
Gross and Net Availability, remittances and other payments with respect to the
Collateral and Obligations will be treated as credited to the loan account of
Borrower maintained by Lender and Collateral balances to which they relate, upon
the date of Lender's receipt of advice from Lender's Bank that such remittances
or other payments have been credited to Lender's account (with the understanding
that Lender receives such advice regarding remittances on each day that both
Lender and Lender's Bank are open for business) or in the case of remittances or
other payments received directly in kind by Lender, upon the date of Lender's
deposit thereof at Lender's Bank (with the understanding that all such deposits
by Lender will be made in accordance with Lender's customary business
practices), subject to final payment and collection. In computing interest
charges, the loan account of Borrower maintained by Lender will be credited with
remittances and other payments the number of days set forth in Section 10.4(e)
after the day Lender has received advice of receipt of remittances in Lender's
account at Lender's Bank. For purposes of this Agreement,
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"Business Day" shall mean any day other than a Saturday, Sunday or any other day
on which Lender or banks located in Los Angeles, California are authorized to
close.
5.3 Loan Account Statements. Lender shall deliver to Borrower
monthly a loan account statement. Each statement shall be considered correct and
binding upon Borrower as an account stated, except to the extent that Lender
receives, within sixty (60) days after the mailing of such statement, written
notice from Borrower of any specific exceptions by Borrower to that statement.
5.4 Direct Collections. Lender may, at any time, whether or not an
Event of Default has occurred, without notice to or consent of Borrower, (a)
notify any account debtor that the accounts and other Collateral which includes
a monetary obligation have been assigned to Lender by Borrower and that payment
thereof is to be made to the order of and directly to Lender; (b) send, or cause
to be sent by its designee, requests (which may identify the sender by a
pseudonym) for verification of accounts and other Collateral directly to any
account debtor or any other obligor or any bailee with respect thereto; and (c)
demand, collect or enforce payment of any accounts or such other Collateral, but
without any duty to do so, and Lender shall not be liable for any failure to
collect or enforce payment thereof. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall state that
the accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.5 Attorney-in-Fact. Borrower hereby appoints Lender and any
designee of Lender as Borrower's attorney-in-fact and authorizes Lender or such
designee, at Borrower's sole expense, to exercise at any time in Lender's or
such designee's discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable until all
Obligations have been paid in full: (a) receive, take, endorse, assign, deliver,
accept and deposit, in the name of Lender or Borrower, any and all cash, checks.
commercial paper, drafts, remittances and other instruments and documents
relating to the Collateral or the proceeds thereof; (b) transmit to account
debtors, other obligors or any bailee's notice of the interest of Lender in the
Collateral or request from account debtors or such other obligors or bailees at
any time, in the name of Borrower or Lender or any designee of Lender,
information concerning the Collateral and any amounts owing with respect
thereto; (c) notify account debtors or other obligors to make payment directly
to Lender, or notify bailees as to the disposition of Collateral; (d) after an
Event of Default, take or bring, in the name of Lender or Borrower, all steps,
actions, suits or proceedings deemed by Lender necessary or desirable to effect
collection of or other realization upon the accounts and other Collateral; (e)
after an Event of Default, change the address for delivery of mail to Borrower
and to receive and open mail addressed to Borrower; (f) after an Event of
Default, extend the time of payment of, compromise or settle for cash, credit,
return of merchandise, and upon any terms or conditions, any and all accounts or
other Collateral which includes a monetary obligation and discharge or release
the account debtor or other obligor, without affecting any of the Obligations;
and (g) execute in the name of Borrower and file against Borrower in favor of
Lender financing statements or amendments with respect to the Collateral.
5.6 Liability. Borrower hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising from any acts
under this Agreement or in
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furtherance thereof, whether as attorney-in-fact or otherwise, whether of
omission or commission, and whether based upon any error of judgment or mistake
of law or fact, except for gross negligence or wilful misconduct. In no event
will Lender have any liability to Borrower for lost profits or other special or
consequential damages.
5.7 Administration of Accounts. After written notice by Lender to
Borrower prior to an Event of Default and automatically, without notice, after
an Event of Default, Borrower shall not, without the prior written consent of
Lender in each instance, (a) grant any extension of time of payment of any of
the accounts or any other Collateral which includes a monetary obligation; (b)
compromise or settle any of the accounts or any such other Collateral for less
than the full amount thereof; (c) release in whole or in part any account debtor
or other person liable for the payment of any of the accounts or any such other
Collateral; or (d) grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any of the accounts or any such other
Collateral.
5.8 Documents. At such times as Lender may request and in the
manner specified by Lender, Borrower shall deliver to Lender or Lender's
representative as Lender shall designate, copies or original invoices,
agreements, proofs of rendition of services and delivery of goods and other
documents evidencing or relating to the transactions which gave rise to accounts
or other Collateral, together with customer statements, schedules describing the
accounts or other Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral, in form and substance
satisfactory to Lender and duly executed by Borrower. Without limiting the
provisions of Section 5.7, Borrower's granting of credits, discounts,
allowances, deductions, return authorizations or the like will promptly be
reported to Lender in writing. In no event shall any such schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return, at Borrower's expense.
5.9 Access. From time to time as requested by Lender, at the sole
expense of Borrower, Lender or its designee shall have complete access, prior to
an Event of Default during reasonable business hours and on or after an Event of
Default at any time, to all of the premises where Collateral is located for the
purposes of inspecting the Collateral, including all Borrower's books and
records, and Borrower shall permit Lender or its designee to make such copies of
such books and records or extracts therefrom as Lender may request. Without
expense to Lender, Lender may use such of Borrower's personnel, equipment,
including computer equipment, programs, printed output and computer readable
media, supplies and premises for the collection of accounts and realization on
other Collateral as Lender, in its sole discretion, deems appropriate. Borrower
hereby irrevocably authorizes all accountants and third parties to disclose and
deliver to Lender at Borrower's expense all financial information, books and
records, work papers, management reports and other information in their
possession regarding Borrower.
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Lender shall use all reasonable efforts to keep confidential, in
accordance with its customary procedures for handling confidential information
and safe and sound lending practices, any non-public information supplied to it
by Borrower pursuant to this Agreement which is clearly and conspicuously marked
as confidential at the time such information is furnished by Borrower to Lender;
provided, however, nothing contained in this sentence shall limit Lender's
disclosure of any such information: (i) to the extent required by statute, rule,
regulation, subpoena or court order, (ii) to bank examiners and other
regulators, auditors and/or accountants, (iii) in connection with any litigation
to which Lender is a party, (iv) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) shall have first agreed in writing to treat such
information as confidential in accordance with this Section 5.9, or (v) to
counsel for Lender or any participant or assignee (or prospective participant or
assignee).
5.10 Environmental Audits. From time to time, as reasonably
requested by Lender, at the sole expense of Borrower, Borrower shall provide
Lender, or its designee, complete access to all of Borrower's facilities for the
purpose of conducting an environmental audit of such facilities as Lender or its
designees may deem necessary. Borrower agrees to cooperate with Lender with
respect to any environmental audit conducted by Lender or its designee pursuant
to this Section 5.10.
SECTION 6. ADDITIONAL REPRESENTATIONS. WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall keep and maintain
its books and records in accordance with generally accepted accounting
principles, consistently applied. Borrower shall, at its sole expense, deliver
to Lender the following true and complete statements and reports: (i) weekly,
summary inventory reports, (ii) on or before the 10th day of each month, a
monthly aging of its accounts receivable and accounts and notes payable, (iii)
on or before the 20th day of each month, perpetual inventory reports and monthly
internally prepared financial statements for the prior month, (iv) annually,
commencing with Borrower's fiscal year ending in 1998, audited financial
statements accompanied by the report and opinion thereon of independent
certified public accountants acceptable to Lender, as soon as available, but in
no event later than ninety (90) days after the end of Borrower's fiscal year,
and (v) with such frequency as Lender, in its reasonable credit judgment, may
request, cash flow projections. All such reports and statements shall be in such
form, and together with such other information with respect to the business of
Borrower or any guarantor, as Lender may request.
6.2 Trade Names. Borrower may from time to time render invoices to
account debtors under its trade names set forth in Section 10.6(f) after Lender
has received prior written notice from Borrower of the use of such trade names
and as to which, Borrower agrees that: (a) each trade name does not refer to
another corporation or other legal entity; (b) all accounts and proceeds thereof
(including any returned merchandise) invoiced under any such trade names are
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owned exclusively by Borrower and are subject to the security interest of Lender
and the other terms of this Agreement; and (c) all schedules of accounts and
confirmatory assignments including any sales made or services rendered using the
trade name shall show Borrower's name as assignor and Lender is authorized to
receive, endorse and deposit to any loan account of Borrower maintained by
Lender all checks or other remittances made payable to any trade name of
Borrower representing payment with respect to such sales or services.
6.3 Losses. Borrower shall promptly notify Lender in writing of any
loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in Borrower's business, assets, liabilities or condition, financial or
otherwise.
6.4 Books and Records. Borrower's books and records concerning
accounts and its chief executive office are and shall be maintained only at the
address set forth in Section 10.6(c). Borrower's only other places of business
and the only other locations of Collateral, if any, are and shall be the
addresses set forth in Section 10.6(d) hereof, provided that Borrower may change
such locations or open a new place of business upon thirty (30) days' prior
written notice to Lender. Prior to any change in location or opening of any new
place of business, Borrower shall execute and deliver or cause to be executed
and delivered to Lender such financing statements, financing documents and
security and other agreements as Lender may require, including, without
limitation, those described in Section 6.14.
6.5 Title. Borrower has and at all times will continue to have good
and marketable title, free from defects, to all of the Collateral, free and
clear of all liens, security interests, claims or encumbrances of any kind
except in favor of Lender and except, if any, those set forth on Schedule 6.5
hereto.
6.6 Disposition of Assets. Borrower shall not directly or
indirectly: (a) sell, lease, transfer, assign, abandon or otherwise dispose of
any part of the Collateral or any material portion of its other assets (other
than sales of inventory to buyers in the ordinary course of business and sales
of obsolete equipment, worn-out equipment, or other equipment no longer used in
Borrower's business, so long as the aggregate fair market value of all such
equipment disposed of by Borrower during any year does not exceed $10,000) or
(b) consolidate with or merge with or into any other entity, or permit any other
entity to consolidate with or merge with or into Borrower, provided that
Borrower may merge with or into another entity so long as Lender continues to
provide financing to the resulting entity of such merger or (c) form or acquire
any interest in any firm, corporation or other entity.
6.7 Insurance. Borrower shall at all times maintain, with
financially sound and reputable insurers, casualty insurance with respect to the
Collateral and other assets. All such insurance policies shall be in such form,
substance, amounts and coverage as may be satisfactory to Lender and shall
provide for thirty (30) days' prior written notice to Lender of cancellation or
reduction of coverage. Borrower hereby irrevocably appoints Lender and any
designee of Lender as attorney-in-fact for Borrower to obtain at Borrower's
expense, any such insurance should Borrower fail to do so, and, after an Event
of Default, to adjust or settle any claim or other matter under or arising
pursuant to such insurance or to amend or cancel such insurance.
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Borrower shall deliver to Lender evidence of such insurance and a lender's loss
payable endorsement satisfactory to Lender as to all existing and future
insurance policies with respect to the Collateral. Borrower shall deliver to
Lender, in kind, all instruments representing proceeds of insurance received by
Borrower. Lender may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Lender's option, to payment of or as security for any of the Obligations,
whether or not due, in any order or manner as Lender determines.
6.8 Compliance with Laws. Borrower is and at all times will
continue to be in material compliance with the requirements of all applicable
laws, rules, regulations and orders of any governmental authority relating to
its business (including laws, rules, regulations and orders relating to taxes,
payment and withholding of payroll taxes, employer and employee contributions
and similar items, securities, employee retirement and welfare benefits,
employee health and safety, or environmental matters) and all material
agreements or other instruments binding on Borrower or its property. All of
Borrower's inventory shall be produced in accordance with the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto. Borrower shall pay and discharge all
taxes, assessments and governmental charges against Borrower or any Collateral
prior to the date on which penalties are imposed or liens attach with respect
thereto, unless the same are being contested in good faith and, at Lender's
option, Reserves are established for the amount contested and penalties which
may accrue thereon.
6.9 Accounts. With respect to each account deemed an Eligible
Account, except as reported in writing to Lender, Borrower has no knowledge that
any of the criteria for eligibility are not or are no longer satisfied. As to
each account, except as disclosed in writing to Lender at the time such account
arises (a) each is valid and legally enforceable and represents an undisputed
bona fide indebtedness incurred by the account debtor for the sum reported to
Lender; (b) each arises from an absolute and unconditional sale of goods,
without any right of return or consignment, or from a completed rendition of
services; (c) each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim, or any given or
claimed credit, allowance or discount; and (d) all statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
6.10 Equipment. With respect to Borrower's equipment, Borrower
shall keep the equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
6.11 [Intentionally deleted]
6.12 Affiliate Transactions. Borrower will not, directly or
indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; or (b) declare, pay or make any dividend,
redemption or other distribution on account of any shares of any class of
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stock of Borrower now or hereafter outstanding; or (c) subject to Section 6.16,
make any payment of the principal amount of or interest on any indebtedness
owing to any officer, director, shareholder, or affiliate of Borrower; or (d)
make any loans or advances to any officer, director, employee, shareholder or
affiliate of Borrower; (e) enter into any sale, lease or other transaction with
any officer, director, employee, shareholder or affiliate of Borrower on terms
that are less favorable to Borrower than those which might be obtained at the
time from persons who are not an officer, director, employee, shareholder or
affiliate of Borrower.
6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all
costs, expenses, fees, reasonable attorneys' fees, filing fees and taxes payable
in connection with the preparation, execution, delivery, recording,
administration, (including Lender's standard wire transfer and return check fees
as Lender shall, from time to time advise Borrower), collection, liquidation,
enforcement and defense of the Obligations, Lender's rights in the Collateral,
this Agreement and all other existing and future agreements or documents
contemplated herein or related hereto, including any amendments, waivers,
supplements or consents which may hereafter be made or entered into in respect
hereof, or in any way involving claims or defenses asserted by Lender or claims
asserted by or against Lender asserted by Borrower, any guarantor or any third
party, directly or indirectly arising out of or related to the relationship
between Borrower and Lender or any guarantor and Lender, including, but not
limited to the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with respect to
Borrower or any guarantor under the United States Bankruptcy Code or any similar
statute: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
title insurance and other insurance premiums, appraisal fees, search fees and
fees incurred in connection with any environmental audit, report, survey or
remediation; (c) all fees then in effect relating to the wire transfer of loan
proceeds and all other funds and fees then in effect for returned checks and
credit reports; (d) all expenses and costs heretofore and from time to time
hereafter incurred by Lender during the course of periodic field examinations of
the Collateral and Borrower's operations, including travel, hotel and other
out-of-pocket expenses, plus a per diem charge at the then prevailing rate
(currently $650.00 per person per day) for Lender's examiners in the field and
office, provided that, so long as no Event of Default exists, Borrower shall not
be obligated to pay Lender for more than forty (40) man days of field
examination expenses in any year; and (e) the costs, fees and disbursements of
in-house and outside counsel to Lender, including, without limitation such fees
and disbursements incurred as a result of litigation between the parties hereto,
any guarantors, any other third party, and any appeals thereof and in any other
action or proceeding relating to the enforcement of Lender's rights, including
any insolvency, liquidation or workout proceeding.
6.14 Further Assurances. At the request of Lender, at any time and
from time to time, at Borrower's sole expense, Borrower shall execute and
deliver or cause to be executed and delivered to Lender, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from landlords, bailees, mortgagees or other holders of property of
Borrower or of loans due from Borrower or security interests or liens in the
Collateral, and do or cause to be done such further acts as Lender, in its
discretion, deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof in the
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Collateral and otherwise to effectuate the provisions and purposes of this
Agreement. Borrower hereby authorizes Lender to file financing statements or
amendments against Borrower in favor of Lender with respect to the Collateral,
without Borrower's signature and to file as financing statements any carbon,
photographic or other reproductions of this Agreement or any financing
statements signed by Borrower.
6.15 Environmental Condition. None of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower. Borrower has not received a summons, citation, notice, or directive
from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower resulting in
the releasing, or otherwise disposing of hazardous waste or hazardous substances
into the environment. Borrower is in compliance in all material respects with
all statutes, regulations, ordinances and other legal requirements pertaining to
the production, storage, handling, treatment, release, transportation or
disposal of any hazardous waste or hazardous substance.
6.16 Indebtedness and Purchase-Money Liens. Borrower may incur
indebtedness in addition to that in existence as of the date of this Agreement
and disclosed to Lender so long as the repayment of any such additional
indebtedness is subordinated to the repayment of the Obligations pursuant to a
written subordination agreement in form and substance acceptable to CIT in its
sole discretion. Borrower may grant purchase-money liens and security interests
in the Collateral provided (i) Borrower gives Lender prior written notice of any
such lien or security interest and (ii) all such liens and security interests
granted by Borrower during the trailing twelve month period do not secure
aggregate obligations of Borrower in excess of $50,000.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following (each an "Event of Default"):
(a) Borrower fails to pay when due any of the Obligations or
fails to perform any of the terms of this Agreement or any other existing or
future note, financing, security or other agreement between Borrower and Lender
or any affiliate of Lender;
(b) Any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement or any other agreement, schedule,
confirmatory assignment or other documents either referred to in this Agreement
or delivered by Borrower to Lender in
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connection with this Agreement, or to any affiliate of Lender, shall prove
materially inaccurate or misleading;
(c) Any guarantor or subordinated creditor of Borrower revokes,
terminates or fails to perform any of the terms of any guaranty, endorsement
subordination agreement or other agreement of such party with or in favor of
Lender or any affiliate of Lender;
(d) Any judgment or judgments aggregating in excess of $75,000
or any injunction or attachment is obtained against Borrower or any guarantor
(or either of them) which remains unstayed for a period of ten (10) days or is
enforced;
(e) Borrower or any guarantor or a general partner of a
guarantor or Borrower (which is a partnership), being a natural person, dies, or
Borrower or any guarantor which is a partnership or corporation, is dissolved,
or Borrower or any guarantor which is a corporation fails to maintain its
corporate existence in good standing, or the usual business of Borrower or any
guarantor ceases or is suspended;
(f) Any change in the chief executive officer, chief operating
officer or chief financial officer of Borrower without prior written notice to
Lender or any change in the controlling ownership of Borrower without the prior
written consent of Lender;
(g) Borrower or any guarantor becomes insolvent, makes an
assignment for the benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by or against Borrower or any guarantor;
(i) Any indictment or threatened indictment of Borrower or any
guarantor under any criminal statute occurs, or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any guarantor
are commenced or threatened, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of the
property of Borrower or any guarantor;
(j) Any default or event of default under any financing,
security or other agreement, document or instrument at any time executed and/or
delivered to, with or in favor of Lender or any of its affiliates by any
affiliate of Borrower;
(k) Lender in its reasonable credit judgment believes that
either (i) the prospect of payment or performance of the Obligations is
impaired; or (ii) the Collateral is not sufficient to secure fully the
Obligations;
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(l) Any material change occurs in the type of Borrower's
business; or
(m) Any default or event of default occurs on the part of
Borrower under any agreement, document or instrument to which Borrower is a
party or by which Borrower or any of its property is bound, creating or relating
to any indebtedness of Borrower to any person or entity other than Lender in a
principal amount exceeding $50,000, if the effect of such default is to allow
the acceleration of the maturity of all or any part of such indebtedness, or all
or any part of any such indebtedness shall be declared to be due and payable or
required to be prepaid for any other reason, in either event prior to the stated
maturity thereof.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all the default rights and remedies provided
in this Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code or other applicable law, all of which rights and remedies may be
exercised without notice to Borrower but in compliance with applicable law, all
such notices being hereby waived, except such notice as is expressly provided
for hereunder or is not waivable under applicable law. All rights and remedies
of Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender; (b) with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral;
(c) require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender; (d) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral; (e) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary obligation and
discharge or release the account debtor or other obligor, without affecting any
of the Obligations; (f) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for cash, upon credit or for future delivery, with
the Lender having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower. If any of the Collateral is sold or
leased by Lender upon credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment therefor is finally collected
by Lender. If notice of disposition of Collateral is required by law, five (5)
days prior notice by Lender to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
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7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of any of the Obligations, in
whole or in part (including reasonable attorneys' fees and legal expenses
incurred by Lender with respect thereto or otherwise chargeable to Borrower) and
in such order as Lender may elect, whether or not then due. Borrower shall
remain liable to Lender for the payment of any deficiency together with interest
at the highest rate provided for herein and all costs and expenses of collection
or enforcement, including reasonable attorneys' fees and legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at
its option, cure any default by Borrower under any agreement with a third party
or pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge Borrower's loan account for any amounts so expended, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment, bonding or discharge, and shall not, by doing so, be deemed
to have assumed any obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER: CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER,
OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any kind, nature or description
in any action or proceeding instituted by Lender with respect to this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
thereto, except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents
to the non-exclusive jurisdiction of the State and Federal Courts located in the
State of California and any other State where any Collateral is located, with
respect to any action or proceeding arising out of this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto.
In any such action or proceeding, Borrower waives personal service of the
summons and complaint or other process and papers therein and agrees that the
service thereof may be made by mail (to be followed by two-day Federal Express
or similar courier service) directed to Borrower at its chief executive office
set forth herein or other address thereof of which Lender has received notice as
provided herein or as otherwise provided by law, service to be deemed
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<PAGE>
complete five (5) days after mailing, or as permitted under the rules of either
of said Courts. Any such action or proceeding commenced by Borrower against
Lender will be litigated only in a Federal Court located in the Central District
of California, or a State Court in the County of Los Angeles, California, and
Borrower waives any objection based on forum non conveniens and any objection to
venue in connection therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of its
rights or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. A waiver by Lender of any right or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right or
remedy which Lender would otherwise have on any future occasion, whether similar
in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution
and delivery by Borrower and Lender and shall continue in full force and effect
for a term of three (3) years from the date hereof and shall be deemed
automatically renewed for successive terms of three (3) years thereafter unless
terminated as of the end of the initial or any renewal term (each a "Term") by
either party giving the other written notice at least sixty (60) days' prior to
the end of the then-current Term.
9.2 Early Termination. Borrower may also terminate this Agreement
by giving Lender at least thirty (30) days' prior written notice at any time
upon payment in full of all of the Obligations as provided herein, including the
early termination fee provided below; provided, however, Borrower shall not be
obligated to pay to Lender the early termination fee provided below in
consequence of any voluntary termination of this Agreement by Borrower in
connection with either (i) Borrower's merger with or into another entity so long
as Lender continues to provide financing to the resulting entity of such merger,
or (ii) Borrower's refinancing of its obligations hereunder not earlier than one
(1) year after the date of this Agreement with financing provided by Sumitomo
Bank of California. Lender shall also have the right to terminate this Agreement
at any time upon or after the occurrence of an Event of Default. If Lender
terminates this Agreement upon or after the occurrence of an Event of Default,
or if Borrower shall terminate this Agreement as permitted herein effective
prior to the end of the then-current Term, in addition to all other Obligations,
Borrower shall pay to Lender, upon the effective date of termination, in view of
the impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, an early termination fee equal to five percent (5%) of the Maximum
Credit if such termination is during the first year of the Term, three percent
(3%) of the Maximum Credit if such termination is during the second year of the
Term and thereafter at one percent (1%) of the Maximum Credit.
9.3 Additional Cash Collateral. Upon any termination of this
Agreement by Borrower as permitted herein, in addition to payment of all
Obligations which are not contingent, Borrower shall deposit such amount of cash
collateral as Lender determines is
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necessary to secure Lender from loss, cost, damage or expense, including
reasonable attorneys' fees, in connection with any open Accommodations or
remittance items or other payments provisionally credited to the Obligations or
with respect to which Lender has not yet received final and indefeasible
payment.
9.4 Notices. Except as otherwise provided, all notices, requests
and demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set forth in
Section 10.6(c), or to such other address as either party may designate by
written notice to the other in accordance with this provision; and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or facsimile (fax), immediately upon receipt; if by overnight delivery
service, one (1) day after dispatch; if by first class mail, five (5) days after
deposit in the U.S. Mail, postage prepaid and addressed as set forth herein; and
if by certified mail, on the earlier of the date of actual receipt or five (5)
days after deposit in the U.S. Mail, postage prepaid and addressed as set forth
herein.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement, Amendments, Assignments. This Agreement and
the Promissory Note referred to in Section 2.2, if any, contains the entire
agreement of the parties as to the subject matter hereof, all prior commitments,
proposals and negotiations concerning the subject matter hereof being merged
herein. Neither this Agreement nor any provision hereof shall be amended,
modified or discharged orally or by course of conduct, but only by a written
agreement signed by an authorized officer of Lender. This Agreement shall be
binding upon and inure to the benefit of each of the parties hereto and their
successors and assigned provided that Borrower may not sell, assign or transfer
this Agreement or any portion hereof, including, without limitation, Borrower's
right, title, interest, remedies, powers or duties hereunder without the express
prior written consent of Lender. Borrower hereby consents to Lender's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement or of any portion hereof including, without
limitation, Lender's right, title, interest, remedies, powers or duties
hereunder, provided that any obligation of Lender hereunder shall continue
unless otherwise agreed to by Borrowers.
9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then-existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower. Upon the indefeasible payment and satisfaction in full of the
Obligations, Lender promptly will execute financing statement terminations and
take all other action necessary to terminate its security interest in the
Collateral.
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9.8 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
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SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10.1 (a) Maximum Credit: $12,000,000.00
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 75%
provided that if dilution as determined by Lender
(non cash reduction in the value of the Accounts
caused by returns, allowances, credits or the like)
exceeds 10%, the Eligible Accounts percentage shall
be reduced by 1% for each percent of dilution in
excess of 10%.
Eligible Inventory Percentages
Finished Goods: 35%
Raw Materials: N/A
(c) Inventory Sublimit(s): $6,000,000.00
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 days
(e) Minimum Borrowing $2,500,000.00
10.2 [Intentionally deleted]
10.3 Accommodations:
(a) Lender's Charge for
Accommodations: 1.5% over a 360-day year
(b) Sublimit for
Accommodations: $1,000,000
10.4 (a) Interest Rate: Prime Rate plus 1.25% over a 360-day year
----
(b) Facility Fee: .75% of the Maximum Credit
(c) [Intentionally deleted]
(d) Closing Fee .75% of the Maximum Credit
(e) Clearance Days 3 Business Days
10.5 [Intentionally Deleted]
10.6 (a) Lender's Office: 300 South Grand Avenue
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
3rd Floor
Los Angeles, California 90071
(b) Borrower Name: JMCD, INCORPORATED
(c) Borrower's Chief Executive Office:
47421 Bayside Parkway, Suite B
Fremont, California 94538
(d) Locations of Eligible Inventory Collateral:
47421 Bayside Parkway, Suite B
Fremont, CA 94538
(Admin. Offices)
370 Carribean Drive
Sunnyvale, CA 94089
(Warehouse)
611 Thorton Road
Lithia Springs, Georgia 30122
(Warehouse/Sales Dept.)
1486 North Post Oak Road
Houston, TX 77055
(Warehouse/Sales Dept.)
31 Colonial Drive
Piscataway, N.J. 08854
(Warehouse/Sales Dept.)
(e) Borrower's other offices and Locations of Collateral:
None.
(f) Borrower's Trade Names for Invoicing:
WAWD-EAP
WAWD
EAP
</TABLE>
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<PAGE>
SECTION 11. CONDITIONS PRECEDENT TO CLOSING.
11.1 Lender will not be obligated to make any loans or advances
hereunder unless the following conditions precedent have been satisfied as
determined by Lender:
(a) Borrower's representations and warranties contained in this
Agreement and in any related documents and agreements shall be correct and
complete; Borrower shall have performed and complied with all covenants,
agreements, and conditions contained herein and in any related documents and
agreements which are required to have been performed or complied with; and there
shall exist no Default or Event of Default.
(b) Borrower shall have delivered, or cause to be delivered, to
Lender such other documents, instruments and agreements as Lender shall request
in connection herewith, duly executed by all parties thereto other than Lender,
and in form and substance satisfactory to Lender and its counsel;
(c) Michael Di Angelo and Jeffrey Chasse, as individual
guarantors, shall each have executed and delivered, or caused to be executed and
delivered, Continuing Guaranties, in form and substance acceptable to Lender,
and all other instruments, documents, agreements and waivers as in the opinion
of Lender may be necessary to give effect to such Continuing Guaranties and the
transactions contemplated thereby;
(d) Lender shall have received from counsel for Borrower and
guarantors an opinion letter in form and substance acceptable to Lender;
(e) Borrower shall have executed, and Lender shall have filed,
all financing statements deemed necessary or desirable by Lender to perfect
Lender's security interest in the Collateral, and Lender shall have received
assurances satisfactory to it that such security interests are duly perfected,
first priority security interests;
(f) Borrower shall have delivered to Lender evidence
satisfactory to Lender that the Collateral has been insured in such amounts as
may be acceptable to Lender and in compliance with the provisions of the
Agreement and Lender shall be named as lender loss payee or as additional
insured on endorsements in form and substance satisfactory to Lender;
(g) Subordination agreements, no-offset agreements and
intercreditor agreements, in form and substance satisfactory to Lender, shall
have been executed and delivered by Seller (as defined below) and such other
parties as Lender deems necessary, including without limitation the
subordination by WAWP-EAP Automotive Products, Inc. ("WAWP-EAP") and Echlin,
Inc. of the $1,500,000 note executed by Borrowers in favor of WAWP-EAP in
connection with Borrower's purchase of assets pursuant to the Purchase
Agreement, the terms of which shall be acceptable to Lender.
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(h) Orderly liquidation in-place value appraisals of Borrower's
machinery and equipment shall have been delivered to Lender by an appraiser or
appraisers satisfactory to Lender.
(i) The Purchase Agreement ("Purchase Agreement") by and among
WAWP-EAP ("Seller") and Borrower shall have been executed and delivered by all
parties thereto, in form and substance and with detailed schedules of assets and
liabilities acceptable to Lender, the purchase and sale transaction contemplated
thereby shall have been completed and the assets (the "Purchased Assets")
acquired by Borrower pursuant thereto shall have been transferred to Borrower
free and clear of all liens, claims and encumbrances and rights of others,
except those of Lender and those expressly approved by Lender. The
representations, warranties, indemnifications and undertakings in the Purchase
Agreement shall also be assigned for the benefit of Lender.
(j) All applicable bulk transfer or similar laws shall have
been complied with by Seller and Borrower prior to the transfer to Borrower of
the Purchased Assets, or Lender shall have received an indemnification
agreement, in form and substance and from a person satisfactory to Lender, in
its sole and absolute discretion, indemnifying Lender for any loss or expense
incurred as a result of any failure to comply with such laws;
(k) No materially advantageous agreement now in effect between
Borrower and/or Seller and any other person or entity shall have been
terminated, modified or declared to be in default;
(l) All consents necessary to permit the acquisition of the
Purchased Assets by Borrower in accordance with applicable law and the
provisions of any agreement binding on Borrower or Seller and to permit the
secured financing transaction contemplated by this Agreement shall have been
obtained.
(m) Lender shall have received a description of all employees
pension benefit plans (if any) of Borrower and Seller which are now in existence
and confirmation that such plans have either been assumed by Borrower or Seller,
terminated or replaced in a manner satisfactory to Lender, and to the extent
such plans are to be assumed, that such plans are funded at a level satisfactory
to Lender;
(n) Lender shall have received evidence satisfactory to it that
no broker's fee, finder's fee or similar fee shall be payable by Borrower or by
any other Person in connection with the Purchase Agreement or the Agreement or
Lender shall have consented to the terms and payment of any such fee;
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<PAGE>
(o) Lender shall have received copies of all labor contracts to
which Borrower is a party and all labor contracts necessary to the continuation
of the business operations of Borrower shall be in effect on the closing;
(p) On the closing, the present fair saleable value of the
assets of Borrower shall be greater than the fair value of the total liabilities
of Borrower, including, without limitation, contingent liabilities, and Lender
shall be satisfied that the present fair saleable value of the assets of
Borrower will continue thereafter to be greater than the total fair value of the
liabilities of Borrower, including, without limitation, contingent liabilities,
and Lender shall have received a certificate from Borrower to that effect.
(q) On the closing, all of the assets supporting the loans
shall be sufficient in value, as determined by Lender, to provide Borrower with
(i) sufficient funds to purchase the Purchased Assets and (ii) working capital
to enable Borrower to profitably operate its business, and Lender shall have
received a certificate from Borrower to that effect.
(r) Lender shall have received an opening balance sheet of
Borrower, dated the closing, in form and substance satisfactory to Lender,
prepared by an accounting firm or officer of Borrower satisfactory to Lender,
which balance sheet shall reflect the purchase of the Purchased Assets by
Borrower and the initial loan.
(s) There shall have been contributed to the equity of Borrower
a cash amount equal to at least $100,000.00;
(t) With respect to the asset sale under the Purchase
Agreement: Borrower shall submit to Lender cash flow statements and pro forma
balance sheets with adjusting entries (a) showing that the proposed financing
will provide sufficient funds for the Borrower's projected needs; (b) showing
that the Borrower: (i) will have a minimum tangible net worth in an amount that
is acceptable to Lender and will otherwise be solvent immediately after initial
funding; (ii) will have reasonably sufficient capital to engage in its business
following the initial funding; and (iii) will not incur debts beyond its ability
to pay such debts as they mature; (c) in form and substance satisfactory to
Lender; (d) certified by an officer of Borrower; and (e) based upon assumptions
acceptable to Lender.
(u) Borrower must have a minimum of $1,000,000.00 in excess
borrowing availability at the closing, and Lender shall have received a
certificate from Borrower to that effect.
(v) Borrower shall have paid all fees and expenses of Lender,
including those specified in Section 3 hereof;
(w) Lender shall have received verifications of continued trade
credit on terms acceptable to Lender; and
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<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have duly executed this
Agreement this 14th day of November, 1997.
LENDER: BORROWER:
THE CIT GROUP/CREDIT FINANCE, JMCD, INCORPORATED,
INC. a California corporation
By:/s/THE CIT GROUP/CREDIT FINANCE By: /s/ JMCD, INCORPORATED
------------------------------- ----------------------
Title:________________________ Title:_____________________
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SCHEDULE 6.5
Permitted Liens
NONE
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<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Brake Headquarters U.S.A., Inc.
We consent to the incorporation by reference in Registration Statement No.
333-12821 on Form S-8 and Registration Statement No. 333-44615 on Form S-3 of
Brake Headquarters U.S.A., Inc. of our report dated March 20, 1999, appearing in
this Annual Report on Form 10-K of Brake Headquarters U.S.A., Inc. for the year
ended December 31, 1997.
DELOITTE & TOUCHE, LLP
Stamford, Connecticut
April 14, 1998
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